The news have been reporting on the dispute between Amazon and Hachette. Neither company has disclosed the details of the dispute, but the argument is understood to be about e-book pricing.
Amazon argues that e-books should sell at a lower price because of the lower costs of the e-book value chain. Also, according to Amazon, e-books are highly price elastic. (If an e-book priced at $14.99 sells 100 copies, lowering its price to $9.99 will increase sales numbers to 174 copies.) Therefore, with some exceptions, Amazon position is that e-books should cost no more than $9.991.
Hachette’s argument is that book publishing is more than just printing books. Publishers make author discovery possible, have editorial teams that make sure that books meet quality standards, and do a significant marketing effort in promoting their authors and books.
Is this dispute important?
The outcome of this dispute will be important for the publishing ecosystem. Hachette is one of the _Big Five_2 publishing houses. This renegotiation is the first in a series, part of the settlement reached between the big five publishing houses with the US Department of Justice in 20123 under suspicion of colluding prices. Negotiations with other big publishers will follow.
Because of the volume of books affected, the result will set a precedence on how e-books are priced in the whole industry. The Big Five publish most of the books published in the world.
Another factor is that online outlets have become critical for publishers. In 2013, 41% of books purchases were made through and online retailer, while bookstore chains accounted for 22%. Amazon, the biggest online book vendor, sells 65% of all new print and digital books4.
If Amazon wins, most e-books will sell at $9.99. As the revenues from e-books become more important for publishers, they will be forced to rethink their business models.
Book quality won’t be affected
As a reader, I value a book’s quality over a cheaper price. One could think that Hachette’s position will lead to books with better content. But book pricing doesn’t work that way, and money is rarely the prime motivation for writers.
From a monetary point of view, book writing and publishing is a winner takes it all kind of market. Lots of books are written and published each year, but only a small percentage provide their authors or publishers with significant income.
During the last decade, the publishing industry went through an important consolidation process. Big publishing houses bought small imprints and publishers, or merged among themselves to form bigger companies. As of today, the industry is dominated by five companies, often referred to as the Big Five. In no particular order, they are:
— Penguin Random House, owned 51% by Bertelsmann and 49% by Pearson. Bertelsmann is a giant media company with revenues around $20 billion. Penguin itself has revenues of $3.9 billion, around 10,000 employees, 250 imprints, and publishes 25% of the world’s English-language books.
— Hachette, owned by Lagardère Publishing – the biggest publisher in France and the second biggest in the UK. It is the world’s second largest trade publisher overall. Lagardère Publishing is itself part of Lagardère Group, a giant worldwide media company – magazines, radio, television, online, digital, and books – with annual revenue of approximately $10bn dollars. (cfr David Gaughran, Amazon v Hachette: Don’t Believe The Spin.)
— HarperCollins, subsidiary of NewsCorp.
— Macmillan, corporate parent of the Georg von Holtzbrinck Publishing Group, which has 50% ownership of Die Zeit.
— Simon & Schuster, property of CBS Corp., owner of the most watched network in the US with revenues over $14bn. ↩
cfr Publisher’s Weekly, Federal Judge approves settlement in DOJ e-book case. ↩