THE HACHETTE WAR OF 2014
There's a battle going on in publishing right now that unless you're an author or an Amazon.com stock junkie you might not know anything about. Amazon.com and a publishing house with the name of Hachette are struggling for dominance and in the court room.
Basically it breaks down to this: Hatchette wants to control pricing on e-books and keep them high. Amazon wants to control pricing on e-books and keep them low. Hachette represents big publishing, its one of the big 5 publishers in the world and has the backing of the other four in this fight. Amazon represents... its self, really.
Now, at first blush this seems like an easy fight to choose between. As a consumer, cheaper e-books is good for you, so Amazon is the horse to back. But there's more to this than just the prices. Essentially, this is a battle between old publishing and new, trying to determine who controls the industry. If Amazon wins, they will control publishing for the foreseeable future. If Hachette wins, the publishing houses keep their hold for the time being
It comes down to this: Amazon wants big publishers to charge less for their e-books; they have a cap on how expensive a new ebook should cost. Big publishers want to charge more for their e-books. The general price they want is around $15.00 US, which is where most of their new e-books come out. Amazon insists it be lower, at $9.99 at most.
Now, there's a lot of stuff being written on either side of this debate, arguing one way or another. Laura Miller, for example, argues on Salon.com that if Amazon wins, then small independent publishers will suffer:
There are already more thrillers being cranked out by traditional presses than most people have time to read, and if those titles were all the same price as their self-published brethren, there would be much less incentive to try out the offerings from self-publishers. Self-published authors would feel pressure to reduce their prices even further.Except her argument is poor. She's assuming that big publishers would sell their books for anything under the maximum allowable price, while few if any independent publishers sell their stuff for more than $5.00. That's a five dollar difference between the Amazon cap and the independent book price, so there's no pressure to lower prices whatsoever for independents.
As irksome as it may be for self-published authors to acknowledge, it’s in their best interests that traditional publishers like Hachette be allowed keep the prices of their e-books high.
To understand how this plays out, its useful to consider how the system has worked up to this point. Publishing houses take someone's work and do minor editing, create a cover, do minimal publicity, and bind it to publish. For this effort, as long as the contract lasts, they get a significant chunk of the cover price, the retailers get another big chunk, and the writer whose efforts make the entire product exist gets about 20%. From that, they have to pay their agent, so in the end, they get closer to 10% of any book they sell. In other words, for each dollar a book sells for, the author gets 10 cents and the publisher about 30.
This is how its worked for about 300 years now, and publishers are understandably keen on keeping that system going. Further, as they've been suffering serious losses of sales and declining revenues, publishing houses are very eager to get more money coming in. They see a great opportunity in e-books since they're virtually free to publish.
E-book authors get royalties for each sale, just like real book sales. Through a publisher, an author gets about 35% of the cover price (with the publisher getting about 35% as well). That means for each 15 dollar e-book, the author earns about $5.25 - minus the $2.25 or so the agent gets. When you publish an actual book, there are significant costs such as printing, distribution, and the cost of unsold books which are returned to publishers by retailers (although more are going to a print-on-demand model).
So those e-books mean a lot more profit for the publishing company. If they can get over 5 bucks per book with virtually zero expenses, then that's sweet fat profit. They want that profit to be as big as possible, to make the most money they can. How else can they afford the Manhattan penthouses and six to seven figure incomes for the top bosses in the companies?
The thing is, Amazon's data shows that a book that sells for that 10 dollar max sells almost 180% better than the book at 15 bucks. So charging less for a book means it makes more overall. Its a pretty basic economic fact, the less you charge for a product - assuming any demand at all - the more money you make, to a certain point. That point is difficult to predict, but its at least as much as the item cost to produce (if it costs 3 bucks to make your widget, and you sell it for 3 it doesn't matter how many sell, you make no money.
At a certain point, reducing the price further won't make you any money because the demand won't increase. You will eventually reach a point at which the optimal number of customers decide its worth buying and lowering the price beyond that just means less profit.
For e-books nobody knows that that optimal price is, but the cost is virtually nil. There are some expenses for publicity, cover design, layouts, and editing, and you have to pay those pesky authors, but other than that, its free. And since the author's money comes from sales, and the costs are all up front - each new e-book costs no more than the first - you can get the price pretty low and still make a lot of money.
Here's the other part of the equation. You get about 1 buck a book through traditional publishing, one dollar for each printed book that sells. That's different in e-books If I sell my book for $2.99 on Kindle Direct, I get 70% royalties, or just over 2 dollars of that.
In other words, Amazon is making it really attractive to be a self publisher and making low e-book prices very attractive for the publisher. Which brings us to the point brought up by Farhad Manjoo in the New York Times book blog:
If the optimal market price for an e-book is $9.99, why does Amazon need to push for the lower price as part of a contract negotiation? Why can’t it let publishers set prices for themselves, preferably with the help of Amazon’s sales data, in the hope that they will eventually hit on the economically optimal price?Now, this is oversimplified, because royalties and who gets paid what is also part of the argument, but its a good point. If 9.99 is the optimal price, then books should tend to gravitate toward that as publishers figure out they get best sales in that range. Except they might not. In fact, if recent history is any guide, they probably would not. Consider this little bit of news about Apple's e-book market and big publishing:
The judge in the Apple e-book case has given preliminary approval to a proposed $450-million settlement, Reuters reports. Apple was found guilty in 2013 of colluding with five major publishers to fix e-book prices.Now, putting aside the annoying stupidity of lawyers getting 50 million for the settlement (if I was on the jury I'd fight to make the settlement a tiny portion of that for lawyers, like 5 million at most), consider this a moment. Publishers worked to keep prices up, breaking the law to fix prices higher.
The settlement will provide $400 million to consumers and $50 million to attorneys.
The e-book price-fixing case found Apple had colluded with publishers to set e-book prices. It moved e-book pricing sales from a wholesale-retail model, in which retailers paid a flat rate to publishers and then set their own end prices, to an "agency model," in which Apple took a percentage of an agreed-upon sales price.
Why do this? As I noted above, they're not making as much money as they were, and that caviare and those Lexuses won't buy themselves. They want those sweet, sweet profits rolling in. And publishers have for centuries enjoyed a monopoly on publishing. If you wanted a book printed you could either pay to have a vanity publisher put one out (taking huge profits) or go through a publisher. You had to give them the bulk of the profit and be satisfied with crumbs.
Publishers understandably liked that situation and do not like how its changing. They want that money and they want as much as they can get, to the point of not being particularly smart about it. Plus, this is a fight for control over e-books. Here's a bit more background on the case and why they did it, also from Farhad Manjoo at Salon this time:
The ruling is a chronicle of these firms’ incredible stupidity. In 2009 and 2010, the judge says, Apple and the publishers conspired more or less in the open, telegraphing their moves to the press, memorializing their discussions over email, hinting at their anti-competitive agreements in public statements, and strategizing in swanky restaurants. For a short while, they succeeded in their goal of raising book prices: Overnight, the average price of e-books rose by nearly 20 percent, with some best-sellers shooting up by close to 50 percent. Books that used to sell for $9.99 were now $12.99 or $14.99, prices that Apple and the publishers believed would threaten Amazon.com, the undisputed king of e-books.See, the books were 9.99 and publishers rammed the price up, to defeat Amazon.com. As I said above, this is about who controls the industry more than anything else. Amazon has their arguments, big publishers have theirs, and in the end its not about customers or independent publishers or prices, but about who has the power.
Now, I don't particularly like Amazon.com as a company, and I don't want them to have so much power over publishing. True, they're on my side as a publisher and a customer... now. But will they be once they've won? Amazon.com has a history from its very beginning of being a predator, they devour and destroy everything in their path on the way to being the biggest retailer on earth. And they're willing to take big losses to get there - the company lost over a billion dollars last year alone.
But the situation we were in before Amazon started selling e-books was just another monopoly by a cold, heartless corporate body. Publishers competed with each other, but not in any way that helped authors. They all had exactly the same policies and payment systems for we authors; there was no competition at all benefiting us.
Publishing houses have been feasting off the talents of people for centuries, and while I'm not a fan of Amazon, maybe its time to give someone else a try? Its strange, but I've noticed that the people most vocal about the evil corporations usually have one or two that they like and exempt from their litany of corruption. Apple, for example gets a pass from the occupy crowd.
Some people act like Amazon is a great evil and we should back publishers in this fight. Some act like the publishers are bloodthirsty monsters and Amazon is trying to help out.
Neither Amazon or the big publishing companies are your friend. They are not noble, altruistic, or friendly. They are out for money, and that's their goal; after all that's why you make a company, to earn money. The bosses of these companies go to work the same reason you do: to get paid, not to serve people and be humanitarian.
But between the two, right now at least, Amazon seems to be much more interested in the customers and authors in publishing, while the big four publishers just seem to want to get rich and keep things just the way they were.
And honestly, I think the world has seen enough of that.