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Amazon is taking an unprecedented step in its contract negotiations with Hachette, appealing directly to authors and readers to email the book publisher’s CEO, Michael Pietsch, to make the case for lower e-book prices.

The company made the appeal in a letter emailed overnight to Kindle authors and published online for readers — criticizing Hachette for dragging its feet and putting its own interests over those of its authors, in Amazon’s view.

kindle-matchbook1Amazon’s letter comes as more than 900 authors — including well-known novelists such as John Grisham and Stephen King — take out an ad in the New York Times pressing Amazon to resolve the dispute.

In its letter, Amazon does its best to cast Hachette in the role of anti-consumer corporate overlord, pointing to the publisher’s past involvement in a now-settled e-book price-fixing lawsuit as a sign that it really wants the ability to price e-books above $9.99. What’s more, Amazon argues that authors would actually see greater sales if their books were priced at $9.99 compared to $14.99.

But as Andreesen Horowitz Partner Benedict Evans pointed out on Twitter, Amazon’s analysis only tells part of the story. It’s possible that e-book sales could grow at the expense of print sales. If the increase in e-book revenue cannibalizes print sales, authors and publishers could end up worse off in the future than they are now.

Here’s the full text of Amazon’s letter. We’ve also contacted Hachette seeking comment.

[Follow-up: Hachette CEO replies to Amazon fans: ‘These punitive actions are not necessary’ ]

A Message from the Amazon Books Team

Dear Readers,

Just ahead of World War II, there was a radical invention that shook the foundations of book publishing. It was the paperback book. This was a time when movie tickets cost 10 or 20 cents, and books cost $2.50. The new paperback cost 25 cents — it was ten times cheaper. Readers loved the paperback and millions of copies were sold in just the first year.

With it being so inexpensive and with so many more people able to afford to buy and read books, you would think the literary establishment of the day would have celebrated the invention of the paperback, yes? Nope. Instead, they dug in and circled the wagons. They believed low cost paperbacks would destroy literary culture and harm the industry (not to mention their own bank accounts). Many bookstores refused to stock them, and the early paperback publishers had to use unconventional methods of distribution — places like newsstands and drugstores. The famous author George Orwell came out publicly and said about the new paperback format, if “publishers had any sense, they would combine against them and suppress them.” Yes, George Orwell was suggesting collusion.

Well… history doesn’t repeat itself, but it does rhyme.

Fast forward to today, and 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. We want 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.

We recognize that writers reasonably want to be left out of a dispute between large companies. Some have suggested that we “just talk.” We 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

Please consider including these points:

  • We have noted your illegal collusion. Please stop working so hard to overcharge for ebooks. They can and should be less expensive.
  • Lowering e-book prices will help — not hurt — the reading culture, just like paperbacks did.
  • Stop using your authors as leverage and accept one of Amazon’s offers to take them out of the middle.
  • Especially if you’re an author yourself: Remind them that authors are not united on this issue.

Thanks for your support.

The Amazon Books Team

Comments

  • Just Wondering
  • laura

    The seattle library lends out ebooks, torrents, and I can’t remember the app that washes the ebooks so you can send ebooks to friends.
    There is actually a healthy market for ‘reselling’ or not paying for ebooks already in existence. Some more legal than others. :)

  • This doesn’t make sense.

    I feel like this reporting misses the whole point – Hachette wants to tell Amazon what to sell ebooks for. That’s why Hachette was taken into antitrust court. Amazon isn’t willing to agree to that, and it would be bad for all of us if they did.

    • Kary

      Slightly different. Hanchette is likely just pricing their share of the ebook at a price higher than Amazon likes. Amazon could still sell it at a loss as they’ve reportedly done in the past with real books.

  • Wendy

    “Evans pointed out on Twitter, [...]If the increase in e-book revenue cannibalizes print sales, authors and publishers could end up worse off in the future than they are now.” True, but that has nothing to do with Amazon’s e-book pricing. It has everything to do with progress. I’m sure movie studios who bet on Betamax over VHS suffered as a result of VHS’s popularity. But it wasn’t the fault of VHS; it’s what happens when you bet on the wrong horse.

    • Kary

      Ignoring that no one can do an economic analysis on Twitter, unless they make the difference in price more than the cost of publishing and shipping a book, it wouldn’t matter at all if one cannibalizes the other. In fact, you would want that! eBooks cost nothing to produce each additional unit. Books cost something to produce and ship. Sell eBooks for that difference in price and you will earn more money because you will sell more books in total (real ones and eBook).

  • Greg S

    Amazon is the 800 lb gorilla that has the ability to use their tremendous leverage to increase their profits at my expense. But this is not the case with their Hachette scuffle. Big publishers were established when there was tremendous need for someone to print, market and distribute the physical books. Just like newspaper publishers, their value has declined with the advent of electronic distribution. Their role and value to authors and consumers has diminished yet Hachette is trying to lock themselves into the distribution channel with unjustifiable pricing. They don’t want e-books to be less expensive. They want people to keep cutting down trees and printing books so they can justify their role in the distribution chain.

    There is no justification for an e-book to cost the same as a printed book. Authors should make the same royalty regardless of whether I buy a printed book or e-book. I am buying a license to their creative work.

    Hachette, you are like the big newspaper publishers. The world has changed and it isn’t Amazon’s fault. Don’t fight the move to electronic books. You cannot stop it. Embrace it and find a way to survive in the new world or die.

    • fivecard

      This isn’t about lowering e-book prices on behalf of customers. It’s about increasing market dominance on behalf of Amazon. How will authors’ Kindle royalties fare when Amazon is publishing the lion’s share of books?

  • Guest

    Why isn’t the DoJ looking into this? Amazon is using their monopoly powers to price fix. Amazon may well be correct that lower prices would mean higher profits, but that does not give them the legal right or the power to force other companies to accept prices they like.

    Their so-called offers to Hachette are ridiculous. All three offers would have hurt Hachette significantly while making essentially no difference to Amazon. Of course, Hachette rejected them.

    Amazon does have the legal right to discount Hachette’s books. If Amazon really believes they are right, they should just set the retail prices to $9.99, even if they lose money … they’ll make it up in volume :) The increased sales will show the world they were right. Better, do an A/B test where half of Hachette’s books are $9.99 and half are Hachette’s price. Just pay Hachette the wholesale price they have a legal right to set on their own.

    • Guest

      Let’s say Hachette folds and agrees to price books at $9.99, are you willing to give them an extra $3? I doubt it, so why should Amazon carry the burden of maintaining Hachette’s profit margins? Also, check your math on “making it up in volume.”

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