Saturday, 9 August 2014

Amazon versus Hachette - I Don't Have a Pony in This Fight!

Hi Guys,
Well the big news today - at least for us indies on KDP, is that Amazon sent us an email asking us to get involved in their dispute with Hachette - if only by sending the CEO a letter.
I have to admit that when I saw the email from Amazon I was shocked. It was something completely out of the blue, and equally unlike anything they've sent before. For a while I did actually wonder if it was a hack. However, after reading fourteen pages of comments about this same letter on Kindle Boards from other KDP authors, and also having waited a day without a retraction from Amazon, I have to assume that it is genuine.
So here it is in all its unvarnished glory:
Dear KDP Author,

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:

Copy us at:

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

Sorry for the lengthy cut and paste but I didn't want to be unfair to anyone by cherry picking sections.
And my response? I will not be sending an email to Hachette CEO Michael Pietsch.
It's not that I don't agree with Amazon's stand on the issue. I actually do for the most part. It's that as the title says - I don't have a dog in this race or a pony in this fight.
Look, my view is that I am both an author and a publisher - indie of course. And as such I am deeply grateful for what Amazon has done for me in making it possible for me to publish and sell my work. I owe them for that. But at the same time I recognise that this was not done out of charity. It was a business decision and Amazon expects to make money out of it too.
As an author I naturally feel some sympathy for some of the other trade published authors being given poor returns through their work. However, I remind myself that they signed the contracts, and they accepted upfront lower royalties in return for other services such as marketing and exposure. It may have been a good deal or a poor one for them, I don't know. But it is their choice.
I also have some annoyance at being used in this way. Especially when one of the things Amazon asks for from Hachette is for them to stop using their authors as leverage and to leave them out of the dispute, and then does exactly the same thing.
I'm also a reader, and as a reader maybe I do have a dog in this race - a small terrier perhaps. Certainly not a big dog! As a reader I would like to see lower prices on some of the books I love. And it seems unreasonable to charge such high prices for ebooks. But at the same time as a competing publisher I have another terrier - running the opposite way. It's good for me as a publisher that some companies do appear to be over-charging since it makes the market less competitive for me.
So perhaps I do have two small dogs in this race, running in opposite directions. And as any student of modern math knows, two dogs running, one positive and one negative, adds up to one very confused hamster running around in his wheel going nowhere fast!
Which leads me to my position. I have no vested interest in this battle. I think on balance I prefer Amazon's side from a principled perspective. But at the same time I don't think it's right for Amazon to try and force publisher's prices down through coercive tactics. It is a free market after all, and if Hachette thinks they can sell lots of books at higher prices, that's their business decision.
So I will not be writing a letter to anyone on this matter - just blogging about it ad nauseum! My advice to other authors and indies is to do the same (plus or minus the blogging!).
Cheers, Greg.