Blog

Amazon on Hachette: It’s just business

Amazon wants everyone to know that its ongoing dispute with Hachette is nothing personal.

“Hachette has operated in good faith and we admire the company and its executives,” Amazon wrote in a  highly unusual blog post Tuesday. “Unfortunately, despite much work from both sides, we have been unable to reach mutually-acceptable agreement on terms.”

Still, the retailer is “not optimistic” the dispute will be resolved anytime soon, and it is prepared to see blood spilled if necessary:

Negotiating with suppliers for equitable terms and making stocking and assortment decisions based on those terms is one of a bookseller’s, or any retailer’s, most important jobs. Suppliers get to decide the terms under which they are willing to sell to a retailer. It’s reciprocally the right of a retailer to determine whether the terms on offer are acceptable and to stock items accordingly. A retailer can feature a supplier’s items in its advertising and promotional circulars, “stack it high” in the front of the store, keep small quantities on hand in the back aisle, or not carry the item at all, and bookstores and other retailers do these every day.

It then added, “This topic has generated a variety of coverage, presumably in part because the negotiation is with a book publisher instead of a supplier of a different type of product.”

That last shot left a mark. “Amazon indicates that it considers books to be like any other consumer good. They are not.” Hachette said, huffily, in a statement to the New York Times Wednesday. “We are determined to protect the value of our authors’ books and our own work in editing, distributing and marketing them.”

Former Authors Guild president Scott Turow was equally un-amused. “Can you imagine Best Buy telling you they’ll take three to five weeks to deliver a television set that … say, Sears has today?” Turow said in an interview with the Chicago Tribune.

Actually, I can, if Best Buy didn’t like the terms the TV manufacture was offering it. It’s how big retailers deal with vendors and always have. Walmart has forced vendors to overhaul their entire supply chains in order to meet the retailers’ terms. To paraphrase Mr. Dooley, business ain’t beanbag. The publishing industry, historically, may have been shielded from the worst of the rough-and-tumble that vendors in other industries have long faced, because the business was relatively small and insular, and even the biggest bookstore chains operated largely as overgrown mom-and-pops. But vendors getting beat up on price by their biggest customers is certainly not anything new under the sun. It’s really on the publishers to figure out how to respond constructively (pro tip: price fixing is not a constructive response).

Once upon a time, back in the days of VHS cassettes and video rental stores, Blockbuster Video was the 800-pound gorilla. It so dominated the retail scene that it effectively controlled the studios’ margins in what was then their biggest market because it how the market power to dictate wholesale prices.

One of then-Warner Home Video president Warren Lieberfarb’s key reasons for dragging the industry, kicking and screaming, into the DVD age was that he understood that to break Blockbuster’s hammerlock on Hollywood’s margins the studios needed a format with cost characteristics that would allow them to price movies for sale, through a broad range of retail outlets, rather than price them for rental through a limited number of specialty shops. VHS cassettes needed to be copied in real time, and contained multiple, moving parts, making for a slow, expensive and inefficient production process. DVDs, on the other hand, could be stamped out on high-speed machines and contained no moving parts. Movies could now be stamped out quickly, by the millions, driving down the marginal unit cost and allowing for sell-through pricing.

Many (even most) of Lieberfarb’s peers at the studios were skeptical — why lower our prices? — but the gambit worked. The sell-through market gradually overtook the rental market, and Blockbuster’s hold over the studios’ margins was broken as it began its long slide into irrelevance. The studios’ meanwhile, enjoyed an unparalleled windfall as DVD sales exploded.

Even then, however, the studios got beat up ruthlessly on the wholesale price of their DVDs by Walmart, and yes Best Buy, both of which were perfectly capable and willing to short their orders or even pass on particular titles if they didn’t like the terms. But no one tried to make a federal case out of it.

“To me, the current situation proves that the Justice Department’s view was wrong and Amazon is not strictly interested in low prices for consumers,” Turow told the Tribune. “They are interested in using their market power to their own advantage and to pad their bottom line.”

You don’t say.