The War of the Books - Amazon vs Hachette

Amazon is on the warpath. It sent its Kindle authors the following message:

"It’s the e-book’s turn to be opposed by the literary establishment. Amazon and Hachette – a big US publisher and part of a $10 billion media conglomerate – are in the middle of a business dispute about e-books. Amazon wants lower e-book prices. Hachette does not. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there’s no printing, no over-printing, no need to forecast, no returns, no lost sales due to out of stock, no warehousing costs, no transportation costs, and there is no secondary market – e-books cannot be resold as used books. E-books can and should be less expensive.

Perhaps channeling Orwell’s decades old suggestion, Hachette has already been caught illegally colluding with its competitors to raise e-book prices. So far those parties have paid $166 million in penalties and restitution. Colluding with its competitors to raise prices wasn’t only illegal, it was also highly disrespectful to Hachette’s readers.

The fact is many established incumbents in the industry have taken the position that lower e-book prices will “devalue books” and hurt “Arts and Letters.” They’re wrong. Just as paperbacks did not destroy book culture despite being ten times cheaper, neither will e-books. On the contrary, paperbacks ended up rejuvenating the book industry and making it stronger. The same will happen with e-books.

Many inside the echo-chamber of the industry often draw the box too small. They think books only compete against books. But in reality, books compete against mobile games, television, movies, Facebook, blogs, free news sites and more. If we want a healthy reading culture, we have to work hard to be sure books actually are competitive against these other media types, and a big part of that is working hard to make books less expensive.

Moreover, e-books are highly price elastic. This means that when the price goes down, customers buy much more. We've quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000. The important thing to note here is that the lower price is good for all parties involved: the customer is paying 33% less and the author is getting a royalty check 16% larger and being read by an audience that’s 74% larger. The pie is simply bigger.

But when a thing has been done a certain way for a long time, resisting change can be a reflexive instinct, and the powerful interests of the status quo are hard to move. It was never in George Orwell’s interest to suppress paperback books – he was wrong about that.

And despite what some would have you believe, authors are not united on this issue. When the Authors Guild recently wrote on this, they titled their post: “Amazon-Hachette Debate Yields Diverse Opinions Among Authors” (the comments to this post are worth a read).

A petition started by another group of authors and aimed at Hachette, titled “Stop Fighting Low Prices and Fair Wages,” garnered over 7,600 signatures. And there are myriad articles and posts, by authors and readers alike, supporting us in our effort to keep prices low and build a healthy reading culture. Author David Gaughran’s recent interview is another piece worth reading.

Amazon recognizes that writers reasonably want to be left out of a dispute between large companies. Some have suggested that we “just talk.” We (at Amazon) tried that. Hachette spent three months stonewalling and only grudgingly began to even acknowledge our concerns when we took action to reduce sales of their titles in our store. Since then Amazon has made three separate offers to Hachette to take authors out of the middle.

We first suggested that we (Amazon and Hachette) jointly make author royalties whole during the term of the dispute. Then we suggested that authors receive 100% of all sales of their titles until this dispute is resolved. Then we suggested that we would return to normal business operations if Amazon and Hachette’s normal share of revenue went to a literacy charity.

But Hachette, and their parent company Lagardere, have quickly and repeatedly dismissed these offers even though e-books represent 1% of their revenues and they could easily agree to do so. They believe they get leverage from keeping their authors in the middle.

We will never give up our fight for reasonable e-book prices. We know making books more affordable is good for book culture. We’d like your help. Please email Hachette and copy us.

Hachette CEO, Michael Pietsch: Michael.Pietsch@hbgusa.com

Copy us at: readers-united@amazon.com

The Amazon Books Team

P.S. You can also find this letter at www.readersunited.com"

Do you as a reader or writer agree?

(Image courtesy of Bidness Inc)

France and the rise of the e-book

France has an interesting law that bars heavy discounting on books. The law passed in 1981, and prohibits the sale of books for less than 5% below the cover price. A publisher typically offers bookstores a profit margin of between 30% and 40%. The idea behind it is that shops will be able to compete with large chains. Booksellers now hope that it will also protect them from a new threat: the electronic book.

In the US, independent bookstores and small publishers are subjected to the market forces. The UK is the only large European economy that allows retailers to discount books freely, according to the Federation of European Publishers.

"France has long believed that a book is not just business," said lawmaker Hervé Gaymard, who has published research on France's fixed book prices. "It's a cultural identity."

But small French book businesses fear a repeat of the price war that erupted when e-books arrived in the U.S. for reading on computers, e-readers like Amazon's Kindle and, eventually, tablets like Apple's iPad. Trying to compete with e-books, big retailers like Wal-Mart and Target allowed shoppers to buy printed books at steep discounts. Prices at smaller bookstores, already struggling against big chains, were massively undercut. Publishers, meanwhile, worried that the low prices undervalued their books.

French Senator Jacques Legendre has proposed a new law that would allow publishers to set the retail price of e-books. His bill will be debated in Parliament next month. It will face criticism, since it’s difficult to determine what regulations apply to e-books. France's competition authority therefore recommends waiting two years to see how the market for e-books will evolve before implementing any laws.

E-books are fastest growing, but are still only less than 1% of the $2.2 billion book market in France (according to French Booksellers Union). Electronic readers are also not heavily promoted yet.

Hachette Livre, France's biggest publishing house, supports Mr. Legendre's proposed law - quite likely in an effort to have control of the pricing of their books and keeping a vast network of bookstores in operation is in their interest. Hachette Livre, a unit of Lagardère SCA, recently signed a deal to sell about 8,000 French books through Apple's store for e-books. Amazon doesn't yet sell French e-books.

French lawmaker Mr. Gaymard is proposing another law that would reduce the value-added tax on e-books. France currently taxes e-books at 19.6%, like most other consumer products, while printed works are taxed 5.5%. This proposal would partly offset the effects of Mr. Legendre's anti-discounting law.

Booksellers are afraid that an anti-discounting law isn't going to save them. Some independent bookstores are banding together to create their own website, 1001Libraires.com, which is scheduled to start selling printed books and e-books at the end of next month.

No matter what, France will have to face the rise of the e-book.