There were some developments in the battle between Amazon and Hachette (which includes Yen manga), over the past week, that give more insight into what the fight is about, and the prospects for it ending. Both companies clearly believe that the future of the book business is at stake.
Amazon has been increasingly active on the public relations front recently and continued that strategy with a post on its Kindle forum in which it revealed that it is trying to get e-books priced at $9.99. The post also reveals that Amazon’s offer is for a 30% share of the retail sales, the same percentage it has now.
Amazon argues that lower prices produce higher revenue, saying that its data shows that "for every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99... The important thing to note here is that at the lower price, total revenue increases 16%."
The post also attempts to drive a wedge between Hachette and its authors, who have largely sided with the publisher, by suggesting that the publisher give authors a larger share of ebook revenues than is currently the case. Amazon earlier suggested that until the dispute is settled, authors get all the money from ebook sales (see "Hachette Rejects Amazon Proposal").
After a late start, Amazon has been doing a better job of making its case recently. The points it makes are consumer- and creator-friendly, and tough for Hachette to simply refute.
But there are a couple of issues Amazon does not address in its post, and these may be why Hachette is so dug in. One is the question of the impact of lower e-book prices on print sales. It may be that the total revenue for e-books goes up when prices are lower, but it’s also possible that some of that growth comes at the expense of print sales. And if e-books end up competing with print on price, it becomes harder to hold the print prices at their current level. This may be why Hachette sees this issue as important enough that it’s willing to go to the mat over it: potential damage to its print business.
A movement of market share from print to e-books would also increase Amazon’s market leverage. It has a higher share (some estimate as high as 60%) of e-book sales than it does of print sales, so if sales move to e-books, Amazon will end up having a larger market share and sales than if those same dollars were sold in print.
Meanwhile, Hachette parent Lagardere reported its financial results for the first half of 2014 last week, and it turns out that sales in its Hachette Book Group division were up 5.6% over sales in the first half of 2013, according to Publishers Weekly. This is the division that was affected by Amazon’s reduction in service on its titles. Hachette added Hyperion’s titles and Disney distribution clients during the period, but still, it can be seen as a positive sign by Hachette.
So with Hachette doing reasonably well despite Amazon’s sanctions and potentially viewing the e-book price issue as an existential threat, and Amazon holding to its position that prices on books should come down to stimulate demand, it seems like the parties are dug in, and the dispute is unlikely to be resolved soon.
Hachette is not the only major publisher in talks on these issues with Amazon. Simon & Schuster is also negotiating with Amazon, according to the Wall Street Journal.
The consolidation of book sales into fewer, larger companies, with now really only one giant online bookseller and one giant print bookseller for many trade books, sets the stage for these battles between the retailer and its suppliers. Both sides have enough scale to care deeply about the strategic issues in pricing and other decisions, and the market size to enforce their will. This is truly a clash of the titans, and it will be fascinating to watch it play out.
As Hachette Sales Increase
Posted by ICv2 on August 4, 2014 @ 7:59 pm CT
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