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Amazon exec on Hachette dispute: “It’s all about ebook pricing”

As Amazon(s AMZN) and Hachette’s contract dispute wears on, Amazon has had little to say publicly about it: The company released an unattributed statement on the Kindle forums at the end of May, but until now no executive from the company had commented. That changed Tuesday, when Russ Grandinetti, Amazon’s VP of Kindle content, gave a few quotes to the Wall Street Journal.

Amazon has been criticized for tactics like turning off pre-orders on upcoming Hachette titles. Grandinetti told the WSJ that Amazon is working “in the long-term interest of our customers.” He also seemingly confirmed reports that Amazon is demanding a larger commission on ebook sales, up from the 30 percent it currently receives: “This discussion is all about ebook pricing. The terms under which we trade will determine how good the prices are that we can offer consumers.” Grandinetti seems to be arguing that if Amazon gets a bigger payment on each ebook it sells, it will pass those savings on to consumers.

This also means lower payments for authors: If a publisher makes less money on each ebook sale and the price of the ebook doesn’t change, the author takes home less. The article didn’t touch on that, though.

Separately, the New York Public Library hosted a panel discussion on Hachette vs. Amazon on Tuesday night which you can watch here. Over at The Bookseller, Porter Anderson has a good writeup. One oddity: Amazon declined to send an executive to speak but, Anderson writes, “”recommended that contract attorney and blogger (The Passive Voice) David Vandagriff be there. Vandagriff explained that he doesn’t work for Amazon but that he was flown to New York  by the company to be on the panel.”

25 Responses to “Amazon exec on Hachette dispute: “It’s all about ebook pricing””

  1. Jeffrey N

    The retailer should not be getting more than the author, especially not when the product is electronic and does not require any warehouse space or handling or postage and packing.

  2. eyemahsource

    I doubt that this ongoing meme of Amazon selling an ebook below cost is true. A typical ebook is a smaller file than a song. Songs sell for about $1.00 as digital distributions. Factor out the cost of paper and printing press and pre-press manual typesetting and the cost of shipping and returns of overstock and I’m left to conclude that an ebook should cost less than the cheapest paperback book in a used book store. Show me an honest detailed spreadsheet of the comparative cost structure of paper vs. digital.

  3. The comment boards always make me glad we don’t really live in a democracy, which, by definition, would give everyone, no matter how ill-informed, a chance to vote. Because that would lead directly to chaos. Instead we live in a Republic, thank god, where people who actually understand the issues make the law (or, in this case, the business decisions.)

    Amazon has killed the bookselling competition and now largely controls the distribution of books in this country. That means that they have the power to Wal-mart the publishing business and squeeze their “vendors” down to such a low profit margin that the vendors can barely survive. They are only giving readers cheap books in order to lure them through the doors to sell them pricier goods. This is about developing and controlling a customer base. Not being the peoples’ bestest friend. What they’re doing to Hachette is trying to get more of Hachette’s profit (and profits on books is already low.) Amazon loses money on books already, in order to bait the store with them. So this is not about anything other than Amazon being greedy, not saving money for customers.

    • Three Blind Mice

      “They are only giving readers cheap books in order to lure them through the doors to sell them pricier goods.”

      On what basis do you make such a unsupported claim? There’s no evidence in Amazon’s history of gouging customers on price. Amazon’s retail margins are historically low which is why all of Wall Street scratches their head. As Matt Yglesias, economics columnist for Slate put it, “Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers.”

      It’s understanding if you’re a publishing company you may not like what Amazon is doing, but why pundits are jumping on the Amazon-hater bandwagon is a real mystery. Maybe because pundits work for publishing companies?

    • John G.

      I work in the publishing business, Deborah, and you are correct. Ebooks have been around for at least five years now and publishing revenues have been in steady decline. Large publishers like Harlequin with 50% ebook-to-print sales sold more and more units, but lost money in the process until they finally sold out this year to, as I recall, Harper-Collins. Folks may love to buy songs for $1, but the music industry has shrunk to less than half it’s peak revenue following the transition to an essentially all-digital format. Artists have suffered in this shrunken business model, and authors will too.

      Controlling more than 30% of the book market, Amazon is, for all practical purposes, a monopoly because no publisher — or company in any industry — can afford to lose a third of it’s business by dropping a client of that magnitude. So we kowtow to Amazon. It’s their world; their rules. And they wield that power like a cudgel.

      Many posters on these Amazon articles seem to think that there is lots of money in publishing, but that’s never been true — not for publishers, bookstores or authors, with only a tiny few exceptions. I’m not whining about change. This is simply the reality book publishers and authors are facing. It is what it is and I think, ultimately, it’s something consumers should consider whether they feel comfortable supporting.

  4. Enemy of nonsense

    It would be perhaps a good idea for Ms. Owen to open her Econ 101 text book once in a while.

    The contention that “This also means lower payments for authors: If a publisher makes less money on each ebook sale and the price of the ebook doesn’t change, the author takes home less” is ridiculous. Please see chapter 3: “Elasticity of Demand.”

    It is undoubtedly true that more books are sold when prices are reduced. Absent knowing how many more books are sold for per $ in price reduction, statements such as the above are idiotic.

    For many entertainment products, lower prices increases overall profitability of the title. Particularly with respect to digital products, where the marginal cost of a producing and distributing an additional unit is $0.00, the optimal price is certainly way lower than the price of an print book. How Hachette chooses to split eBook revs with authors is a different question. Somebody ought to look at that. How much higher royalty rate is Hachette paying on ebooks because they have lower costs of production?

    • David Emil Henderson

      The notion that lower prices will lead to a higher sales volume for an author may apply to “dime novels” or “pulp fiction.” But demand for good literature isn’t based on low prices. There is a market segment, consisting of those who willingly pay $25 or more for a hard cover edition, that constitutes the bread and butter for truly ambitious authors, if only in the authors’ dreams. And there’s another segment that shops ebooks and paperbacks at discount prices. And yet another segment that shops yard sales for used books, paying $1.00 for hard covers and 25 or 50 cents for paperbacks. And finally, there’s the library segment, paying nothing.

      When a major retailer treats all books like pulp fiction, it discourages new authors from even attempting to sink years into a grand “great american novel.” We’ve already had a year when the Pulitzer committee failed to find a book worthy of “the prize.” If the trend gets any worse, the Pulitzer may end up a relic of the past.

      I appreciate what Amazon does for its buyers. I just hope it doesn’t sacrifice its suppliers in the process.

      • The problem with this reasoning is twofold. First, “good literature” is the kind of phrase thrown about, usually without specific definition, while denigrating other works as “dime novels” or “pulp fiction.” Such a statement relies quite heavily on subjective designations, presumably those that align with the opinions of the individual using the phrase. It is an imprecise and parochial method to draw a line of quality that supposedly justifies higher prices.

        Second, it seems irrational to suggest that any books, even those anointed as “good literature,” however defined, are exempt from basic rules of economics. Hardcover prices of $25-30 are certainly an impediment to the sales and reach of any book. While there are certainly those intrigued enough by a specific book to pay that price, it is foolish to suggest that others (either because of economic limitations or a more moderate level of interest) are not deterred from purchasing because of high prices.

        While there are certainly people ready to spend $30 for a given hardcover, there are also people who will not pay $30, but would buy and read a book for a lesser amount. This could be due to economic limitations or simply because of a lower level of perceive interest (e’g’ “it’s only worth X to me”).

        Where the maximum profitability point lies is a difficult calculation, one that varies with each title, I suspect…and also one that may be different for a publisher vs. and author. Do you want 5,000 sales at $30 hardcover or $7,000 sales at @22 hardcover or $10,000 at $15 trade paperback? The answer depends on a lot of specifics we can’t apply to books in general. I tend to think that an author would prefer the maximum level of sales, even if that is marginally less profitable. More people reading his work, talking about it, and possibly buying his next book. So interests diverge among all parties in trying to determine these kinds of answers. Even for “good literature.”

  5. Jack C

    I disagree with the ~editorial spin here. To tie this issue with the notion that authors will get paid less strikes me as not only a stretch, but also a disingenuous oversimplification.

    First, the notion that cutting the price of a product will necessarily decrease overall revenues (what the Author takes home) is patently absurd. I’m sort of assuming that paragraph was a bit of a mistake, but often cutting the price of a product lets you sell far more units and actually generate greater revenue. There are entire industries that are fabulously profitable relying on the notion of selling more units for less.

    Second, Amazon doesn’t set the amount that authors get paid; publishers do. If Amazon is handling the entire inventory/fulfillment/distribution/support chains for the ebooks they sell, the cost structure for Publishers is radically different and so one might ask whether or not authors are due a greater piece of the gross/net for that sort of product from the Publishers. Isn’t a question directed at Publishers on this issue a more pertinent one (I use the phrase “more pertinent” a bit loosely here, as the Amazon connection isn’t pertinent at all)?

    • Hi Jack, thanks for the comment. Re: “Cutting the prices of a product”: There is a common misperception thaAmazon cutting ebook prices *for the consumer*. That’s not what Amazon is specifically arguing for in these negotiations; it is already allowed to discount Hachette ebooks, with a few restrictions. It is looking to increase its own commission, so for example for an ebook that costs $10, where Amazon now gets $3 when it sells that book, it wants to get more, like $4 or $5. That is what Grandinetti refers to when he says “the terms under which we trade will determine how good the prices are that we can offer consumers.”

      So, yeah, Amazon’s arguing that if it gets a bigger cut on ebook sales, it can turn around and sell them to the customer cheaper. But to say that “to tie this issue with the notion that authors will get paid less strikes me as not only a stretch, but also a disingenuous oversimplification” doesn’t really make sense to me, because they are directly tied. The author definitely makes less per sale if Amazon gets a bigger cut and the ebook price stays the same (or lower). Your argument is that overall the publisher will sell so many more copies if a book’s price is lower that the author will end up making the same amount or more, but that’s by no means a guarantee.

      Re: The idea that authors should get higher royalties on ebooks, I absolutely agree with you.

      • Jack C

        Your piece basically asserts that this issue will result in authors taking home less.

        It sure seems that Amazon is trying to cut the price of ebooks. Presumably, getting a larger commission gives them greater flexibility to cut into said commission and offer deeper discounts. The obvious rationale here is to sell more ebooks. This is pretty much par for the course for Amazon.

        Even if you maintain that greater quantity of sales isn’t a guarantee of more money to the authors, we’re left with a couple of logical conclusions.

        First and foremost, we might conclude that it isn’t clear how this issue will financially impact authors. That’s basically the gist of my problem with your original assertions. This lack of certainty is why I called your assertion “a stretch.”

        Second, one might suggest that even if Amazon sells more ebooks it still may not result in authors taking home more money. This gets at the fundamental fact that Amazon doesn’t set the amount that authors get; their publisher does! Pointing to Amazon as *the* reason for lower payments to authors is so circuitous in it’s avoidance of the fact that publishers are *the only entity* that sets those payments, that is strikes me as a bit disingenuous.

      • William Ockham

        You should really listen to what Hachette’s CEO said about the Amazon negotiations. He said that Hachette was negotiating to end Amazon’s discounting of Hachette’s ebooks at the end of this year (when the restrictions on Hachette’s contracts with ebook retailers expire). It is disingenuous to say that Amazon “is already allowed to discount Hachette ebooks” when, in fact, that is true only because of the restrictions imposed by Hachette’s settlement for their participation in an illegal price-fixing conspiracy.

        It is pretty obvious based on leaks by Hachette sources that Amazon wants to return to the status quo ante of wholesale pricing. Even the conspiring publishers admitted that they and their authors made more money under the wholesale arrangements. You are just wrong on the facts.

  6. Christian k

    Wow. Rather surprised at the bias of this article. When amazon speaks to controlling prices they are talking about… Controlling priceing not revenue splits or commission. This is about whether suppliers can dictate what Amazon must charge customers.

  7. there’s lots of content out there, and if you accept the matchbox principle, there should be no issues with pricing, as the market is growing. the production of ebooks should be simplified, for authors and content creators, if there is an issue, getting content into the format easily and cheaply should be the issue that matters, and having the same content rated correctly

    • Apparently, Amazon submitted a white paper on Apple’s transparent dealings with all publishers. 70/30 with 30 going to Apple and the publisher setting the price. Amazon’s core strategy is eliminating all competition and one way they achieve that is by selling products below cost.

      Let’s hope the book publishing business has learned something from what’s happened to the record business. For established and mid-level authors e-books are better (financially) for the distributor than the writer.

    • Jack C

      I’m not sure if this is just a troll, bit of ~astroturfing, or if you are being serious (-ly disingenuous).

      Apple isn’t being scrutinized for their ebook business. Apple was found guilty of having colluded with the publishing cartels (who all settled rather than be convicted) to artificially fix ebook prices high. That’s a fact.

      • Not trying to troll at all…I just think that it is rather sad that Amazon doesn’t seem to be scrutinized for their rather blatant disregard for authors and consumers as they play out petty arguments (for example, blocking certain companies from having books being sold on Amazon until they receive the terms of whatever deal they are chasing). I don’t think that benefits anyone, Apple customer or not.

        • A Ch0w, sneeze

          If you’re not trolling then you seem to not understand the difference between price fixing and a retailer demanding higher profit margins.

      • David Emil Henderson

        “artificially fix ebook prices high”? There’s nothing artificial about setting prices that adequately compensate authors for their hard work. Many of them devote a year or more to a book, not counting the prior years of research and experience necessary for a quality outcome.

        Of course, if quality doesn’t matter to you….