Chip MacGregor

June 3, 2014

The Biggest News at BEA?


Just got back from a week in New York, seeing all the books and publishers and figuring out what direction the industry is moving. There was a great spirit at Book Expo this year — none of the angst and worry that has dogged the show the past few years. They tried something new this time at the Javits Center — opened up the floor to the public on Saturday, sold tickets at $20 a pop, publicized a ton of author signings, and watched 10,000 people buy their way into the show. (For the record, it was apparently all teen girls, looking to get their YA and romance novels signed, or to catch a glimpse of a celebrity like Cary Elwes signing copies of his latest tome.) But the biggest topic of conversation? The dispute between Amazon and Hachette. No question.

You may or may not be familiar with the issues, so let me offer an outsiders perspective…

1. There is some bad blood between Amazon and Big Six publishers. On the one hand, the publishers know that Amazon is their biggest account, so they want to keep the relationship healthy. On the other hand, the publishers know that Amazon is predatory, and is on record as having said that they could live in a world without publishers. So while they’d like things to continue, the relationship is not without some problems.

2. If you’re an author who doesn’t pay much attention to the news, the Big Six publishers were all taken to court last year for using an agency model (and, in essence, for looking suspiciously like they were colluding to keep ebook prices high). The Department of Justice sided with Amazon, the publishers all paid big fines, and agreed to modify the way they do business.

3. Each of the Big Six publishers have some sort of term contract with Amazon, that clarifies things like discount rates, returns, etc. It just so happens that Hachette’s contract is up first, so they’re the ones who are currently in negotiation with Amazon — and it has gotten nasty.

4. We don’t know all the disagreements Hachette and Amazon are having in their discussions, but one of the biggies is that Hachette does not want Amazon to sell books for less than they bought them. In other words, if Amazon buys a book for five bucks from Hachette, then the publisher wants assurances the book will be sold for at least five dollars — NOT as a loss leader at $3.87. Why? Because doing so puts other booksellers at a severe disadvantage. Amazon can afford to lose tens of thousands on a loss leader to draws in customers, but Mrs. Weinstein at David’s Bookshop cannot.

5. Here’s why that is important to publishers: The Big Six publishers recognize the need to keep small booksellers in business. If independent booksellers all go out of business, Amazon will have a monopoly on book sales. And that, in turn, will drive publishers out of business.

6. Amazon, on the other hand, doesn’t care one bit if small booksellers go out of business. They’re in business to make money, and they’ll do what they can to be the biggest bookseller on the planet. If that means using loss leaders, so be it.

7. So it’s gotten nasty. In February, Amazon stopped discounting nearly all Hachette titles. You know how you could usually go to Amazon and find a $23.99 hardcover on sale for $18.99? No more. In March, Amazon started slowing down all Hachette sales. You used to order a book online and receive it within a few days — now the page will say the book will be available within four to six weeks. In April, Amazon stopped discounting Hachette ebooks, or in many cases simply not listing the ebook at all on their site. So while the average Hachette ebook sold for roughly $7 a few months ago, it’s now about twice that… if you can find it at all.

8. So Amazon, a company that used to pride itself on being customer focused, is deliberately choosing to treat customers badly, in order to try and force better terms from Hachette. (In addition to wanting to sell books at a loss, they want more marketing dollars from Hachette, and of course are pushing for greater discounts. This fight is ALL about money.) There’s no debating that Amazon has played dirty — dirty enough that they’ve made Hachette, who is a multi-billion dollar entertainment conglomerate in France, look as sympathetic as a wounded soldier.

9. At the same time, Hachette is getting support from other Big Six houses — which is odd, when you think about it, since the other Big Six houses are the competition. But the publishers recognize that Amazon is perfectly happy to see all the publishers go out of business, so publishers recognize they’re in a major battle here. So far, they’re holding fast, explaining the situation to readers, and pleading for them to buy their titles through other outlets.

10. Who Hachette is not getting support from is small publishers, who sell all their books on Amazon. To them, Hachette is just another big company fighting over a few bucks. They don’t feel sorry for Hachette Book Group at all.

11. And all this has led to a sales bonanza for WalMart, who has stepped in and sold more Hachette titles than ever. Books-a-Million (BAM) has also sold more Hachette titles. And I’m expecting to see B& use this as a boon for their Nook business. In fact, the discussion has been that all the Big Six publishers could conceivably walk away from Amazon and start doing business with BAM or B&N.

12. The problem with that solution is that the US Department of Justice is freaking in love with Amazon. They’ve fallen all over themselves to support Amazon’s position (read Judge Cote’s decision in the previously mentioned case, and you’ll see — she makes huge pronouncements about technology that she, um, appears to know very little about). So right now the word among publishers is that the US DOJ is visiting all the publishers, asking to look at emails and letters, to make sure the Big Six aren’t colluding with each other, which would be a restraint of trade. (My prediction: They’re going to charge the publishers with collusion eventually. I mean, the DOJ just can’t stand to see publishers act badly… though they can live with Amazon acting badly.)

13. Know-it-all-pundits like Joe Konrath and others are rallying to the side of Amazon, of course. These are the people who see all publishers as evil — which is stupid, though they’ll never admit it. Amazon is a business, not your friend. I love Amazon, and appreciate what they do for the authors I represent, and want them to continue selling books and making a profit. But I DON’T want to see them create a monopoly. Why? Take a look at the audio book industry. Once Amazon gobbled up every independent audio company, they immediately slashed the royalties they were paying authors. Why wouldn’t they? They’re in business to make money, so if they can pay less to authors and generate more profits for the company, that’s exactly what they’ll do. But that’s a lousy deal for authors, and it’s why we have laws preventing monopolies in this country. When there’s a monopoly, retail prices go up, and royalty payments go down — and there’s plenty of historical evidence to support that notion.

14. I’m not siding completely with Hachette in this situation, by the way (though I should probably tell you that I used to be a publisher for Time-Warner Book Group, which is the former incarnation of HBG). I understand that this is basically a fight over money, and it’s a LOT of money, and both side in this fight are worth billions. I laughed at bestselling novelist James Patterson telling everyone at BEA that publishers aren’t making much money. The publishers are doing fine. But I’m going to remind you of something… As an author, you don’t really want the publishers to go out of business. Sure, some authors have made a fortune indie publishing on Amazon, which I think is great. But for all the writers posting books on Amazon, it’s a very small percentage who are making significant money. And legacy publishers, whether you like them or not, continue to help get some authors started, publishing and publicizing them, and helping some authors to make a living. Sure, it’s a small percentage, just like on Amazon, but it happens, and I’ve got authors I represent who have benefited greatly from working with publishers (just as I have authors who have benefited greatly from indie publishing). In other words, publishers offer a choice, an alternative, and for some it’s a valid choice. The world of publishing isn’t going to be stronger if big publishers go out of business, or if independent booksellers go out of business, or for that matter, if agents go out of business. For all the blather about each part of the process, each still can bring value to an author’s career, and having choices is a good thing.

So what happens next? It would be interesting to see Hachette, Penguin/Random House, HarperCollins, and Simon & Schuster all leave Amazon and throw their weight behind BAM or B& Competition would be a great thing for Amazon, who has clearly forgotten the value of the customer. But I don’t think that will happen. Eventually, they’ll settle on a number, the folks at Amazon will realize they’re better off selling books instead of NOT selling them, and the argument will get settled.

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  • Susan Holmes says:

    Well written and thoughtful analysis. I find myself wondering what might happen if the Big Six threw their collective weight in partnership with and how that might impact the current landscape of publishing and sales.

    • chipmacgregor says:

      My guess is the Big Six have thought about that very thing, Susan, but they have to be careful… the DOJ is already sniffing around to see if they’ve colluded on this matter. If it happens, they’ll have to do it one at a time. And that’s gutsy. But yes, I could see it happen. Really appreciate your comment.

  • Peter DeHaan says:

    Great explanation, Chip. I was aware of most of this, but now I understand the details!

  • Denise Hunter says:

    Thanks for the break-down, Chip. Although many indie authors seem gleeful over this situation, I’m very uncomfortable with Amazon holding all the chips . . . and that seems to be where this is headed. Indies don’t seem to realize that if the big 5 can’t hold their own against Amazon, they don’t stand a chance. I’d like a healthy balance of power, thank you very much.

    • chipmacgregor says:

      EXACTLY. Thanks for summing this up so well, Denise. That is indeed where this is headed, and those who are in the Amazon-only camp don’t appear to recognize the possible future problems. Excellent stuff. Thanks!

  • Jack says:

    Seems to me Amazon is thinking very hard about their customers. They want the lowest price possible, which is also what the reading public wants.

    • chipmacgregor says:

      Way too simplistic way of viewing this, Jack. Their customers would be considerably less happy if Amazon became a monopoly. And, frankly, even the staunchest defender of Amazon has to take pause at their tactics. But this is what happens when a retailer announces they don’t need a supplier. Again, I appreciate much about Amazon. But in this case, they’re not doing readers any favors.

      Low prices aren’t the only thing that matters — it’s why some of us struggle with purchasing clothing that has been created by children forced into servitude, or products from companies that rape the earth. Sometimes there are other issues at play besides price. In this case, Amazon (a good company, who has much going for it) is striking a definite blow against a publisher. I don’t see how trying to force a publisher out of business (which is the overall direction this is going) is good for anyone in publishing.

      Hachette could simply pull their books from Amazon, and announce they are working exclusively with B&N and BAM. But they’d probably only survive if they were joined by Penguin, Random House, HarperCollins, Simon & Schsuter, and the various Macmillan lines. And, if they do that, Amazon will be squealing to their buddies at the DOJ that things aren’t fair. It’s why I wanted to explore the situation… there are no easy villains and heroes here, but the results matter to all of us.

    • Jack says:

      Since when does a manufacturer (Hachette) dictate prices to a retailer (Amazon)? Does Hachette do that with bookstores and print copies?

  • Insightful, Chip. I think we all do business grudgingly with Amazon.

    • chipmacgregor says:

      Again, I love Amazon, who sells all my authors, and makes me a lot of money. But in this case, the tactics they’re using make it hard to root for them, Karen. (And I really do feel the DOJ has been almost totally one-sided in this stuff.) Nice to hear from you, by the way. Appreciate you coming onto the blog to comment.

  • Robin Patchen says:

    This is the clearest explanation I’ve seen of this issue. Thanks for breaking it down. It’s scary that one corporation can wield so much power.

    • chipmacgregor says:

      Both companies have a lot of power, in my view, Robin. But one of them is certainly wielding power in a tough way.

  • Dr. Michelle Bengtson says:

    Thanks for the well-spoken, and might I add, well-balanced explanation. It’s too bad that concern for “the common good” in this case doesn’t seem to include either the author or the reader, but much like what we face in healthcare, it comes down to the big conglomerates making even more money rather than those actually doing the hard work.

    • chipmacgregor says:

      I suppose both sides would argue they’re pursing the common good, Michelle. Amazon would say they are trying to keep costs down (which is a good thing, in general — let’s call it “the WalMart defense”), and Hachette would say they’re trying to protect independent bookstores. Both would say they’re trying to help authors, by the way — Amazon by selling books, Hachette by making sure the books are sold at value. Again, there’s not necessarily a good and bad guy here. It’s a fascinating fight with far-reaching consequences.

  • Great summation. Thank you for that!

  • Tim Akers says:

    Good information. Thanks Chip

  • Slim says:

    Something worth talking about here that the one reason Hachette and the other publishers do not want Amazon to sell books as loss leaders is because it DEVALUES books. All those .99 ebooks? They are teaching readers that books should cost the same amount as a pack of gum or a sponge at the Dollar Store. Amazon is training consumers that an author’s written work, sometimes years of investment, is less valuable than a tee shirt. Some believe that cheap or free ebooks turn readers into fans of the authors… nope, it turns them into people who only download cheap or free books. Talk to some reader friends and you’ll hear it from them, “I had to pay $9.99 for that book!” The good news out of this, and from BEA, is that there is some rebound amongst indie bookstores – and I’m hoping that we’ll see evidence of that in my town soon because while it maybe yelling in the wind, I’m kicking my Amazon habit.

    • chipmacgregor says:

      I agree that there’s been a devaluation of books in general (and I realize one could argue that books are simply a commodity, and are therefore sold for whatever the market will bear). I just hate to see an artist’s work devalued to the point where he or she isn’t even making any money. By the way, there was an interesting article in PW a few months ago — a small publisher who also claimed to be “kicking my Amazon habit.” He said he came to the conclusion that Amazon wasn’t really helping publishers — they’re just propping up smaller houses until they can take over the market. You’d find it interesting — Randall White in the January 6 edition.

  • Ron Estrada says:

    You’re correct, Amazon and publishers are in business to make money, not seek fairness. An author is a supplier. We’re also in business to make money. As independent contractors, we need to work out our best deal, whether it be Amazon, B&N, or a publisher. There are no allies and enemies, only multiple parties participating in free trade. Monopolies happen, but are usually temporary. The last thing we want is government intervention. They seem to create more monopolies than they prevent (says the Detroit guy…any new car companies in the last few decades?). A smart suppllier will seek multiple customers, so it serves us best if we don’t choose sides and simply supply our wares wherever we can make the best profit. Yes, I know, it’s all very business-ish and not something us artsy types like to deal with, but it’s a fact of free-market living. There are no bad guys or good guys. It’s just you and me playing the game with the other players. We fight and squabble over nickels, but at the end of the day we still need each other. So play nice.

    • chipmacgregor says:

      That’s an interesting perspective, Ron. I guess I feel as though the scales have been tipped in favor of Amazon by the DOJ, but again, I don’t want it to sound like I’m totally on Hachette’s side here. The fact is, it’s the authors and readers who are really getting the point of the spear.

  • rachelhauck says:

    How depressing…

    Thanks for the update.

    • chipmacgregor says:

      It is depressing… but it’s what everyone in the industry is talking about, Rachel. You couldn’t turn around at BEA without hearing someone mention the situation.

  • Karen Pashley says:

    Your insight proves why a savvy agent is the author’s best asset in this complicated era of publishing. Especially for new authors like me. Thanks for an enlightening (though somewhat frightening) post.

  • Lynn Chandler-Willis says:

    Thanks, Chip, for breaking this issue down into something understandable. Years ago I worked in the merchandising dept. for the world’s largest apparel manufacturer and WalMart ‘demanded’ we sell them our bread-n-butter product which, if we had, would have put every mom and pop clothing store out of business. It’s hard sometimes for ‘creative’ minded people, like writers, to see the business end on larger scales.

    • chipmacgregor says:

      Thanks for the analogy, Lynn. You’re correct — it’s sometimes tough to see the larger picture.Appreciate you coming on to comment.

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