The Shatzkin Files


All the Amazon-Hachette coverage doesn’t seem to cover some important causes and implications


A great deal has been written in many venues about the current tussle between dominant Internet retailer Amazon and one of the three smallest of book publishing’s Big Five general trade houses, Hachette Book Group. Although neither side has been particularly explicit about the precise points of contention, both what I read and what I hear tell me that the argument is about adjusting the ebook sales terms that were first hammered out in the doomed initial Agency implementation and then modified by a settlement reached under the Court’s direction. That settlement restored Amazon’s ability to discount from the publisher-set agency price (which pretty much defeated the purpose of agency from the point of view of the publishers who implemented it) but did not change the 30%-of-agency-price margin that had been established. Expanding that margin seems to be Amazon’s current objective.

My “position” on all this is that it reveals an imbalance that only the government can fix. I don’t know enough about the law to have an opinion about whether Amazon is abusing its marketplace power in an illegal way (although some seem to think they are), but I am quite sure (and so is an op-ed from the Wall Street Journal) that there is not a lot Hachette (or most publishers) can do to resist Amazon’s demands except suffer and hope the suffering is mutual. Hachette has gotten some recent strong support in the marketplace from some of Amazon’s competitors. Little fledgling retailer Zola started it, but Books-a-Million, Walmart, and now Barnes & Noble have joined to push and discount the books that Amazon is trying to bury. It would surprise me if their efforts covered Hachette for half of what they’ll lose.

Even when I’m credited by somebody else with coming up with a suggestion — raising the author split of ebook revenues so that the publishers don’t wave fat ebook margins in front of observant and powerful retailers — that would have made Hachette’s position stronger had they accepted it, I am dubious that the publishers can do much about this. Nothing publishers can do — or could have done in the past — would change the fact that Amazon controls anywhere from 35 to 75 percent of the sales for most trade books. Anybody with that much market inside its corral can charge a considerable toll for getting inside its gates.

For all that has been written, there are some critical points that I think have not been made as often or as emphatically as their importance warrants.

1. Amazon used the book business to build an enterprise no longer dependent on books. Although the executives at Amazon I know maintain that they have always had a “profitable” book business (and I don’t doubt them), the company has famously been willing to live with less margin than its retailing competitors. That takes the oxygen out of the room for any retailer competing with them within the four walls of the book business. Amazon has skillfully used books as a customer acquisition tool and focused on the lifetime customer value across product types, not the margin that could be earned from the book business alone. There’s nothing morally, ethically, or legally wrong with that, but it has been steadily demonstrated for the past two decades (and acknowledged on this blog years ago) that it makes it very hard, perhaps impossible, for somebody retailing books alone to compete with them.

2. Partly as a result of that, Amazon has changed the book business ecosystem. It was almost certainly inevitable that more and more book business would move online. But the consolidation of all the online business in one place — helped along by Amazon’s skillful integration of the used book business (the dimensions of which nobody knows much about) and their market-making Kindle initiative (more about which below) has created a distribution and revenue-source imbalance that publishing has never had before.

3. Amazon, at great expense and with great vision, made the ebook business happen. Before the Kindle, the ebook marketplace was small and unambitious. The biggest player in terms of sales was Palm, which wasn’t really interested. The most interested party was Sony, which repeatedly tried over more than a decade to establish some sort of ebook device and ecosystem. But Amazon made a significant corporate commitment — creating the Kindle device, pressuring the publishers to make much more of their catalog available as ebooks, and investing heavily in discounted sales and screen real estate to build the consumer market. When B&N with Nook in late 2009 and Apple with iPad and iBookstore in early 2010 entered the market, they were attempting to capitalize on a product class that Amazon had pretty much single-handledly created.

4. Amazon is just about every trade publisher’s largest and most profitable account. (Academic and professional publishers, which operated on “short” or “professional” discounts in their interactions with retailers, have been pushed way up on discounts so this generalization usually doesn’t apply to them.) Amazon is a unique account for publishers. They sell both print and ebooks and they sell them globally. Because they don’t have to stock tens or hundreds of far-flung stores, their efficiency of sales, as measured by their very low returns, is almost certainly the highest among retailers and probably the highest of all accounts (including the wholesalers Ingram and Baker & Taylor, which can also be pretty efficient). Amazon has no interest in being anybody’s most profitable account; what the publisher profitability suggests to them is that their efficiencies are responsible for a lot of margin generation and they are inclined to want more of it. From Amazon’s perspective, being equivalently profitable to other large accounts is “generous” enough. From many publishers’ perspective, the enormous marketplace control Amazon has was built on the back of the publishers’ and authors’ intellectual property. With Amazon now having effectively replaced large components of the marketplace: Borders being gone and Hastings in the process of going, the independent channel a shadow of what it was a decade ago (despite recent signs of “growth” that might just be partial replacement of Borders demand), and B&N — at the very least — slowly shrinking its store footprint, publishers rely on the margin Amazon provides.

The contradiction here, of course, is that the high relative profitability is all created by efficiencies in the (shrinking) print marketplace. Amazon wants to take the margin back on the (growing) ebook side.

5. Amazon wants lower prices for consumers — at least right now. (They’d say it is a core value and they’ll want it forever; there is room for an honest difference of opinion about how they’ll feel about it when their market share rises further.) Everybody else in the book business (authors, agents, publishers, other retailers) want prices at the very least maintained and probably would prefer they rise. This is the crux of the publishers’ problem with the government and with some quarters of public perception. Lower prices for consumers is catnip for politicians. They simply can’t resist it.

6. Amazon pays amateur authors, often unedited, who upload files not yet ebook-ready to them and don’t know anything about marketing or metadata, as much as 70 percent of retail if they meet certain exclusivity and price stipulations. (Obviously, there are great gems among those, but they are still mostly unproven, unknown, and unsuccessful.) They are apparently fighting hard to avoid giving Hachette — which invests substantially to be consistently superior to a fledgling author on all these counts — the same cut.

7. In the course of building the powerful position they now occupy, Amazon both made substantial infrastructure investments and subsidized sales for publishers through heavy discounting, sometimes below the price publishers charged them for the goods (particularly for ebooks in the days before agency pricing). Very few publishers complained about Amazon’s deep discounting of print books in the late 1990s when it began. Amazon’s pricing strategy discouraged many brick-and-mortar retailers from even entering online selling at that time (which, of course, must have been part of the calculus that motivated them to do the discounting the in the first place) but publishers just benefited through greater sales.

8. Hachette is, essentially, tied with Macmillan and Simon & Schuster for third place among the Big Five publishers. HarperCollins is twice as big. Penguin Random House is more like five times as big. This fight is already being costly to Amazon’s reputation among authors (many of whom, including Malcolm Gladwell, John GreenJames PattersonCharlie Stross and Michael J. Sullivan, have been heard from directly) and can’t be well-received among consumers. They’re not likely to try the same tactics with PRH. That means PRH is the most significant beneficiary of what is now going on. If nature takes its course, they should have much better terms than the other big publishers after this round of negotiations over new terms is concluded. That, along with their deepest pockets and excellent execution, puts them in a position to take down their competitors author-by-author, or editor-by-editor.

In some ways, the die for a reshaped publishing business was cast when Jeff Bezos had the vision to get Wall Street to finance an “everything store” (hat tip to author Brad Stone) built on a foundation of book-buying customers. Amazon has plenty of internal justification for believing that their investment and risk-taking has been a huge benefit to publishers for most of the 20 years of their existence. But that doesn’t change the fact that an imbalance exists that will feed on itself. Amazon will grow at the expense of all other book and ebook retailers and Penguin Random House will grow at the expense of all other trade publishers. Smaller publishers have already felt the pain and self-published authors will in the future. That’s what will happen naturally and organically from now on, unless a stronger force intervenes, and on the right side instead of the wrong side the next time.

The last two posts, the most recent one on subscriptions and the prior one about Amazon-Hachette, were not sent out by the Feedburner service that delivers email versions of the posts to subscribers. I suspect this one won’t be either. Until we move to a new distribution capability, I’ll continue to link to the undistributed posts with each new one, as I’ve done here.

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  • Bardic

    Mike – This was a fairly balanced op-ed, but you really need to quit calling indie authors “amateurs”. There are enough professional indie authors such as Konrath, Howey, Ward, et al, that such terminology is bunk. Are there poorly made $2 indie stories? Yes. I’ve seen some pretty crappy $30 Tradpub ones, too – some from big authors. They may be less frequent, but I can let a $2 story slip on quality a hell of a lot easier than I can a $30 hardcover.

    • http://idealog.com/blog Mike Shatzkin

      Aw, c’mon, Bardic. You know as well as I do that *far *more than 90 percent of indie authors *are *amateurs and that the percentage that make a living doing it is vanishingly small. And Konrath, the example you chose, had lots of help from publishers honing his craft and establishing his brand.

      Sure there are crappy books published by regular publishers too. There are exceptions in every situation. In this case, the amateurish books from established publishers are exceptions, and so are the indie authors who do professional work.

      • Citation?

        “You know as well as I do that *far *more than 90 percent of indie
        authors *are *amateurs and that the percentage that make a living doing
        it is vanishingly small.”

        Citation?

      • http://idealog.com/blog Mike Shatzkin

        Just cite me. It’s my guess. You are welcome to make a different guess. I don’t do much in the way of citation here. People either believe me or they don’t. I am not trying to build a mass audience and I am comfortable having those who accept what I say continue to read me and have those who don’t abandon me.

      • agclaymore

        I don’t have a good feeling about that number, Mike. You know as well as I do that 87 percent of folks who quote statistics make them up as they go along…

      • http://idealog.com/blog Mike Shatzkin

        I am willing for people to accept my guesses and estimates or reject them. I have years of history for people to judge from. I’m not always right. If you want to reject my conjecture, you are free to do so. But I think the notion that any but a small percentage of indie writers deliver high quality or make a living is preposterous. Unsupported by data. Only supported by whatever experience and logic I can muster. And yes, I did “make it up”.

      • SMBarrett

        You’re hand-waving, Mike. Hundreds of Indie authors report making a living from their writing, meaning the pay their bills, buy their groceries and have income left over for savings, leisure, etc. You come across as outdated or willfully misinformed when you say otherwise. You can see this here…http://www.thepassivevoice.com/06/2014/indie-authors-quitting-their-day-jobs/
        So as you can see, I didn’t “make it up”.

      • http://www.bellbridgebooks.com Deborah Smith Author

        Hundreds is a fraction of the millions.

      • http://idealog.com/blog Mike Shatzkin

        Thanks again, Deborah. You’re spotlighting a generic flaw of these non-logicians. They focus on numerators and ignore denominators. They have lots of anecdotes but have no clue about the ODDS.

      • Steven Zacharius

        This is the key point and Deborah hit it on the head. We hear all about the hundreds that are making a good living writing indie books. More power to them. It’s a wonderful occupation for a person who loves to write. But the success rate is a teeny piece of the overall pie. There isn’t a week that goes by where we don’t get at least a dozen books submitted to us that are published by indie authors who still think there’s a benefit to going with a traditional publisher; even if it’s with one of our digital only lines.

      • http://idealog.com/blog Mike Shatzkin

        Steve, on this one YOU hit a nail on the head.

        I am going to start asking publishers and agents how many submissions they get from authors who have *already self-published*.

        You’re entirely right that the problem with the whole conversation from the indie side is that there is no “denominator” to the equation. We hear about the growing number of authors who have made it work (the numerator), but have NO sense of “the odds”.

        You’ve just hit on one way at getting at that denominator anecdotally which is, of course, how we get the numerator!

      • Robotech_Master

        You know, you can’t play in the Olympics if you earned even one cent for playing your sport. Earning any money at all makes you a “professional.”
        So, all a self-publishing author would have to do to become a “professional” is sell one single thing.

      • http://idealog.com/blog Mike Shatzkin

        Hey, you’re revealing your age. You see NHL and NBA players in the Olympics all the time!

        There are *highly *professional self-published writers. Many. However, they are dwarfed in number by those who aren’t. I’m sorry the generalization seems to insult some of them but this is where I express *my *opinion, not somebody else’s.

      • Bardic

        I get the point you’re trying to make, Mike, but very few Tradpub authors can make a living from writing, either. In fact, *only *5% of Tradpub authors can make a living off just their writing. Most have to keep their day jobs. Does that make the other 95% amateurs, as well? If money is the primary motivator for that argument, then there are just as many indies making a living as Tradpub authors, if not more.

      • http://idealog.com/blog Mike Shatzkin

        It’s a pointless argument. I think most of the people who read me who aren’t indie authors would not find the distinction I’m making either incorrect or painful. Some people take some things personally. I’m not good at dealing with that. I don’t take this personally. You’re welcome to your opinions, your definitions, and your phrasing. You’re just not welcome to mine..

      • Bardic

        Fair enough. Again, I thought it was a decently balanced piece otherwise. It just sucks that labeling (on both sides) seems to be creating a larger and larger divide between BPH and indies. I would love to see more Hybrid authors, and see less vitriol between the parties, but at this point it seems to be getting more and more intransigent.

      • http://idealog.com/blog Mike Shatzkin

        Bardic, I have never seen — nor been made aware — of any unfriendliness from BPHs (I got it: big publishing houses!) toward indies. I am frequently made aware of annoyance and resentment by indie authors toward publishing houses. Mr. Konrath is a major spokesman here. To his credit, Hugh Howey — who (unlike Konrath) achieved his success entirely on his own (hats off to him!) sees value in working with publishers. I think ultimately *most *successful
        authors will be hybrids, unless publishers change their practices to publish shorter works and deliver product to market faster. Otherwise, there are just too many cases where an author with a brand will have no choice but to put something out him or herself.

      • Steven Zacharius

        Where does that 5% of traditionally published authors making a living come from?

  • http://alexandralynwood.com/ Alexandra Lynwood

    Interesting article, Mike.

    One line did stand out to me, however.

    “My “position” on all this is that it reveals an imbalance that only the government can fix.”

    Wasn’t Big Government™ and Government Interference™ a source of much annoyance and anger just recently? I refer of course to the DOJ vs Apple/BigPub. The frustration with the Government over the pricing collusion debacle was palpable. Apparently the Government felt that there was an imbalance that needed addressing there.

    The industry can’t have it both ways. Is government intervention now meant to be palatable when they’re not in the firing line?

    • http://idealog.com/blog Mike Shatzkin

      I don’t know about “the industry” having it “both ways”. The problem wasn’t that the government got involved. That’s the Wall Street Journal complaint, but I’m not a libertarian or a small government advocate although, of course, they exist in “the industry”. The problem with the Apple suit wasn’t that the government got involved; it is that they got involved in the wrong way. They strengthened the strong and weakened the weak.

      But that water is over the dam. We are where we are. And we are in a place where, absent a counterbalancing force, Amazon has the marketplace power to take the oxygen out of the air for other retailers and to keep pushing publisher prices down if they want access to the book-buying audience. Some might say that’s okay. I don’t think it is. The laissez faire approach will continue the concentration of power at the head at the expense of everybody else, just like it has in the society at large and in the financial sector in particular.

      • http://alexandralynwood.com/ Alexandra Lynwood

        One thing was illegal (price collusion), the other is not (having market muscle). That is why a call for Government intervention is rather moot at this point in time in my opinion.

        The question of whether the second thing should be illegal is a different issue and not one that I think would be a successful argument based on the history of publishing.

        If we go back twenty, or even ten, years the market muscle was in the hands of the chain bookstores and the publishers. All that’s happened is the paradigm has shifted to a new party. There were no shouts for intervention then that I am aware of. Ergo it just seems like sour grapes from where I am sitting.

        On a side note, I would politely suggest the idea that the problems of multi-billion corporations are in any way similar to the poorer parts of society are misguided at best. BigPub are far from being “everybody else” in the analogy you use.

      • http://idealog.com/blog Mike Shatzkin

        I don’t take any positions about the law. I don’t know anything about the law. I know about commerce and I know about ethics. You need to talk to another blogger if you want to discuss the law. I don’t personally accept that there was any collusion. You’d have to have been a fool to be running a big company and not see Apple and agency as an opportunity. None of those CEOs are fools. They didn’t need each other to know what was a good idea for their own companies.

      • Steven Zacharius

        Not all books comes from big multi billion dollar publishers. Harlequin was not a multi billion dollar company nor are we at Kensington yet we publish close to 500 books per year.

      • Steven Zacharius

        BTW, I think the problem with the chains ten or twenty years ago was different. There were still many chains out there. You had B&N, Borders, Books-A-Million and Crown. Now we’re down to B&N and BAM. But there was also other major competition from WalMart, Target, Sam’s, Costco, BJ’s, big supermarkets like Kroger, HEB, etc….and also the airport stores like Hudson News. The military was also a big market until recently. So although one chain had more clout than the others, there was still a fair amount of competition. We also shouldn’t forget about the library market. The library is still a huge piece of business for publishers and is probably the best source for avid readers who then recommend books to their friends. They can be reading printed books or ebooks from their libraries. They’re served primarily by Ingram, Baker & Taylor, Broadart and OverDrive for ebooks….as well as some others like 3M. Many libraries are opening up their own consortium of state run ebook systems now for their libraries. That’s a growing trend I’ve noticed lately.

      • http://idealog.com/blog Mike Shatzkin

        I didn’t see this earlier for some reason.

        There has never been market muscle equivalent to Amazon’s in the book business. Nothing even close. Publishers complained and fought about the “power of the chains” 20 years ago, but Borders and B&N COMBINED never had the market share Amazon does now. Most publishers I talk to say that on most books sales from Amazon exceed sales from B&N and indies combined today.

        So we have a unique and new situation. Comparisons with anything in the past is one of apples to oranges, or maybe apples to loaves of bread.

      • Tom

        You say they got involved in the wrong way and strengthened the strong and weakened the weak but wasn’t that simply a side effect of the original purpose of protecting the consumers, us readers, from collusion that threatened to raise prices for all readers?

        I can’t see how that is the “wrong way”.

      • http://idealog.com/blog Mike Shatzkin

        Right. Amazon (now, who knows about the future?) wants lower prices for consumers. Everybody else in the industry — authors, agents, publishers, and retailers — wants the line held or prices higher. If lower prices are your highest value, you’re absolutely right to take the Justice Department’s side. All I’ll say here is “I don’t agree with you”.

        PS: this was clearly stated in the post. Did you notice that? Re-read point number 5.

    • Steven Zacharius

      The DOJ wasn’t concerned with the agency model per se; they were concerned that there may have been collusion between the publishers to insist on it.

  • Robotech_Master

    Why does the government need to do it?
    Rewind to the ’90s. The ABA files Robinson-Patman lawsuits against the major publishers, Barnes & Noble, and Borders. Wins a number of legal victories, including a $25 million settlement from Penguin. They didn’t wait around for the government to get involved.

    Rewind to 2008 or so. Amazon illegally attempts to require small presses to use its BookSurge POD platform to sell through Amazon. BookLocker takes them to court. Amazon backs down and settles.

    So, if Amazon is really doing something illegal, why isn’t the ABA filing suit again? Why aren’t the publishers filing suit? You can’t tell me those multi-billion dollar publishing conglomerates can’t afford lawyers at least as good as teeny-tiny BookLocker. Why is it up to the government? The laws are there for private interests to use, too.

    Sure is funny how those publishers would rather break the law than use it.

    • http://idealog.com/blog Mike Shatzkin

      Very few commercial enterprises sue their biggest source of revenue. Your examples don’t include any of those. And the ABA would have a helluva time proving damages against Amazon. The way things are going though, Amazon could push publishers into deals that would make the ABA sue *them*. That would be interesting, right?

      • Robotech_Master

        And yet, BookLocker sued its biggest source of revenue, and won.

      • http://idealog.com/blog Mike Shatzkin

        I am not a lawyer. I don’t know what legal grounds there were in the BookLocker case nor what would be the grounds here. In general, I think it is a bad practice to sue a trading partner you depend on and a rare one. I don’t give legal advice. When I need it, I go to experts to get it.

    • Steven Zacharius

      I will give you a good answer to your question. It hasn’t been challenged yet that I know of, but ebook retailers believe that Robinson Patman does not apply to digital sales because it’s not a physical product and is a license. I’m sure this will be challenged by someone with deeper pockets than me one day. I have been told this directly.

  • A.K.

    Mr. Shatzkin,

    You say it isn’t wise for a company to sue its largest supplier — but what about Hachette authors and fellow publishers all over the media painting Amazon as an Evil Empire because they are negotiating instead of giving in to whatever Hachette wants? You don’t think Jeff Bezos reads the newspapers? Calling him names isn’t much more conducive to good business relations as bringing a lawsuit. The difference is that with a lawsuit, you have to bring in proof.

    As an aside, the situation with Indies is opposite of what you are suggesting. Instead of 90% being dreck, with a few gems scattered, the overall sales of Indies is coming close to dwarfing big publishing in certain genres,* and in fact, is providing so much of Amazon’s book revenue that Amazon doesn’t have to be as concerned with the small percentage of sales represented by Hatchette. Amazon is smart: It wants revenue from lots of sources. Big Publishing put all its books in the Barnes and Noble cart, squeezing independents out of business by offering better discounts to BN. Amazon is too smart to play the same game, hence the publisher’s frustration with Amazon.

    *I have stats for that: Hugh Howey and Data Guy have demonstrated that a large percentage of the books on Amazon bringing in lots of money are Indie.

    Closing your eyes to reality doesn’t make it disappear. You are not serving your clients if you paint a picture of Amazon sales which is not accurate — even if your clients do believe your guesses and estimates.

    An industry looking for government bailouts is generally an industry in trouble.

    • http://idealog.com/blog Mike Shatzkin

      You’re not cutting any ice. The cumulative impact of indies (which is what Hugh tracks) don’t take into account the many tens (hundreds?) of thousands of them who don’t make five dollars. Hugh’s analysis is meant to make the point that, cumulatively, the indie authors sell a significant number of books and take in a significant number of dollars. His spin is always to maximize that. Your sentiments in the Hachette-Amazon dispute are clear. Did you notice what happened to the royalties of the indie authors that work with Audible? Do you have complete faith that the share cuts now being visited on big publishers will never be visited on indie authors? If you do, I have this bridge I’d like to discuss giving you terms on…

      I believe Amazon is surprised that Hachette’s authors are mad at Amazon, not at Hachette. They seem to be softening some of their punishment according to today’s news. Maybe authors are saving the publishers! That would be nice (and well-advised for most of them).

      • A.K.

        The large numbers of Indies not making money does not matter to the equation. What matters is that lots of them are bringing in major revenue streams for Amazon.

        I’m not worried about Amazon later trying to take a larger cut from the Indies. I feel confident that of and when that happens, Apple, Kobo, and others will step forward to create other outlets.

      • http://idealog.com/blog Mike Shatzkin

        A.K., I think I’ll seek my business advice elsewhere. I guess you will too.

      • Elliot1234

        I suspect the publishers are saying the same thing.

      • http://www.bellbridgebooks.com Deborah Smith Author

        There are numerous outlets for indie publishing already, but Amazon has little real competition in that arena. I doubt your view of the future will happen. I predict that Amazon will whittle away royalties in the KDP program while finding ways to separate the bestselling indies from the rest. Other ways to draw revenue out of the books will be added–non-optional ways, like the lending program now. authors don’t think of that as taking profits away from them.

      • Steven Zacharius

        They’ve already cut audio royalties so you’re probably right.

    • http://www.bellbridgebooks.com Deborah Smith Author

      The Hugh Howey stats have been disputed by knowledgeable analysts and aren’t taken seriously. While there are success stories in self-pubbing, they mostly come from hybrid authors. The majority of self-pubs are not making much, if any, money.

    • Steven Zacharius

      Indie authors sell high units, not high dollars. We all bank dollars. We recently had a book that made it into the top 25 on the paid Kindle list because it was $ .99. It was a great way to debut the author and even though it stayed on the list for about a week, the revenue was miniscule.

  • A.K.

    Error: I meant “isn’t wise for a company to sue it’s largest account.” I typed quickly. Sorry. (Probably other errors. Please overlook.)

  • A.K.

    One more comment about your point #6:

    Mr. Bezos has the opposite philosophy. He believes that eliminating gatekeepers is better for the advancement of culture, literature, and the arts. He has said that gatekeepers hinder culture rather than foster it.

    Your point #6 assumes — contrary to Mr. Bezos’s beliefs — that gatekeepers further culture by selecting and editing.

    Because Mr. Bezos is open about his feeling that gatekeepers get in the way of the advancement of culture, It’s easy to see why the publishers and Mr. Bezos have a hard time seeing eye to eye.

    My guess — reading between the lines of the public statement Amazon made — is that Hachette wants to create the same situation with Amazon that it had with Barnes and Noble, but Amazon is refusing partly because they want to keep distribution open equally to Indies and small presses.

    • http://idealog.com/blog Mike Shatzkin

      Give me an effing break on the “no gatekeeper” argument about Bezos! Have you been reading what’s been happening. He’s pushing self-published authors to people who want to buy Patterson or other Hachette writers. That’s what gatekeepers can do! He’s slamming his gate pretty hard on Hachette, wouldn’t you say?

      Mr. Bezos’s philosophy happens to also be the best thing for him financially. There’s nothing wrong with that — it is true of most people — but it is awfully convenient. Bertrand Russell said that when your opinion coincides with your self-interest, it is a good idea to check your opinion.

      • AK

        I have been following, but I’m not sure I understand what you mean by “he’s pushing self-published authors to people who want to buy Patterson . . .” Do you mean that the same buyers who like Patterson might like certain Indie books?

        Maybe Bezos was lying when he said he thinks gatekeepers hinder culture, although I can’t think of why he would lie like that. It might make better financial sense for him to cut deals with the big publishers, you know — give them the equivalent of table space and front of store placement in exchange for deep enough discounts to put other bookstores out of business. But he isn’t doing that.

      • http://idealog.com/blog Mike Shatzkin

        Oh, yes, he IS doing that! We don’t know exactly what the fight is about but “coop”, which is payment from publishers to stores for preferential placement and merchandising, is almost certainly part of what they’re arguing about.

      • A.K.

        I think so, too. My guess, though, was different from yours. My guess is that Hachette — concerned with “discoverability” is pushing for the equivalent of front-of-store placement, but Amazon won’t agree.

        Here’s why: Part of the service Amazon offers readers and buyers is that the algorithm is not purchased or rigged. For example, rumor has it that publishers purchase the numbered spots in the Barnes and Noble lists. Buyers think the book is #1 in the store because it’s the biggest seller, whereas in fact, the publisher bought the spot (or so I heard :)

        I know you don’t think Amazon has any integrity, but I don’t think it wants its recommendations to be rigged or bought

        Go ahead. Call me naive.

      • http://idealog.com/blog Mike Shatzkin

        I don’t think Amazon lacks integrity. In this piece, I tried hard to demonstrate that I can see the argument from their side. But I’m almost certain you’re wrong if you think that none of their recommendations are “bought”! Or that they’re all driven by neutral algorithms. Yeah: naive would sum it up.

      • AK

        As you pointed out, the Amazon algorithm continues to recommend Patterson books. One report said that Amazon algorithm was suggesting Hachette books even as customers were encouraged to buy the books elsewhere.

        This would indicate, in fact, that the recommendations are driven by neutral algorithms.

        You said all the CEO’s understood that agency pricing was in each’s best interest — no collusion needed. But agency didn’t increase the publisher’s profits (if I understand correctly) — it prevented Amazon from discounting so far that other stores (i.e. Barnes and Noble) could no longer compete. Why did this matter so much? Because the publishers could buy “coop” or however you phrase it from physical stores — but has a “discovery” problem online.

        Barnes and Noble gave big publishers an edge by allowing them to buy front of store table space and ranking on “best seller” lists

        Amazon, more customer centered, runs neutral algorithms, which gives rise to the publisher’s “discovery” problem.

        But what is a discovery problem is an opportunity for Indies and smaller presses and e-start ups. Amazon has leveled the playing field, which is why there is so much fury and angry and panic and hyperbole: Patterson claiming that Amazon wants to control everything, when really what’s happening is that Big Publishing can no longer has an advantage.

        You suggest when it’s Random Penguin’s turn to negotiate, they’ll be able to throw around some weight. I wonder. Is there enough weight to throw around for Amazon to corrupt its algorithms and take a chance on losing customer confidence?

        I see the problem. What big publishing always had to offer was (preferred) placement in bookstores. If they can’t offer preferred placement in the country’s largest bookstore, how can they compete with the Indies and e-start ups?

      • AK

        P.S. Yes, you did try to be neutral. But your use of the word “punish” for Amazon’s actions is anything but.

        Without knowing precisely what is happening in the negotiations, or what is being demanded or refused, there is no way to know whether refusing to stock items is a natural result of demands or threats, or a way to strong-arm someone.

        Do I think Jeff Bezos is an angel? No, I do not.

        I think it’s business as usual, typical negotiations between retailer and supplier. Nothing requiring government intervention.

      • http://idealog.com/blog Mike Shatzkin

        I don’t try to be neutral. I try to be fair. And I try to see things from each player’s point of view.

        But it’s really just bs to say that the failure to stock books is somehow due to something Hachette has done. It was a deliberate decision by Amazon. They have the right to make it, but let’s not try to make up reasons why it might be due to anything but them playing hardball in a negotiation.

      • AK

        “Deliberate decision” and “in response to something” are not mutually exclusive.

        it can be a deliberate decision in response to something Hachette said or did.

        As it happened, I took a negotiating class in law school. Negotiations involve a lot o back and forth.

        I can think of several scenarios in a negotiation which would make refusing to stock extra books an appropriate deliberate action.

        Calling Amazon’s tactic punitive, though, assumes that Hachette authors have a right to be stocked in Amazon stores.

      • http://idealog.com/blog Mike Shatzkin

        No, calling Amazon’s action “punitive” means that they did some extraordinary things that don’t benefit them immediately (and, in fact, hurt them) in order to inflict pain on Hachette. I really don’t think it is such a big stretch to characterize an action which has no purpose but to hurt a trading partner as “punitive”. It may be legal. It may be ethical. Hell, it may even be justified. But it is still punitive!

      • Ak

        How is Hachette not punishing Amazon by stirring up all that bad publicity? Don’t tell me they didn’t, that the bad publicity was all spontaneous. I read the two public statements. One was balanced. One was shrill, filled with fury, and stopped just short of name calling.

        How is Hachette not punishing Amazon by refusing to give Amazon a bigger cut of the pie when Amazon is making it possible for Hachette to survive as a company (among other things, by inventing ebooks, which allow Hachette to show enormous profit margins because their overhead is lower, there are fewer returns, no distribution costs, etc.)

        How is Hachette not punishing Amazon by demanding that Amazon warehouse lots of copies of its books while denying a larger cut of the pie?

        To use a word like “punish” is to slant heavily toward one side.

        And how do you know Amazon didn’t benefit directly :) Because of the bad publicity that followed?

        The fact is that this is a power struggle, and Amazon has more power. This is not something requiring government intervention. It’s a fact of life that in contract negotiations, one party often has more power. The government cannot intervene every time one party to a contract has more bargaining power than the other.

      • AK

        P.S wrote quickly. Amazon didn’t invent ebooks. But as you said in your post, they created a huge and flourishing market.

      • http://idealog.com/blog Mike Shatzkin

        Your “writing quickly” is for your benefit, not mind. Just don’t press “send” next time.

      • http://idealog.com/blog Mike Shatzkin

        Really. Enough. You’re not making any further point that engages me. It’s a pointless argument. Thanks for your time and have a nice evening.

      • AK

        P.S. And while I don’t think Amazon is incorruptible (again, a sensational word) I do think that Amazon strives for neutrality in its algorithms and is very customer-centered.

        I don’t see that in traditional venues.

        Yes, I did hear that Barnes and Noble and the Big Publishers worked very closely together. This isn’t a conspiracy theory. I see it as a relationship that evolved: In fact, what I’ve heard is that the buyers in large chains had a lot of power over what publishers acquired and published. Barnes and Noble and the publishers worked closely together, creating the “blockbuster” model that benefited both the stores and the publishers — but hurt all but a few writers.

      • http://idealog.com/blog Mike Shatzkin

        Actually, it is the other way around. Blockbuster titles (Harry Potter) bring people into the stores, which helps the sales of all the other books. Publishers work with B&N to make bestsellers because they are the single largest merchant capable of helping. They also worked with Borders. They also work with Books-a-Million. And they also work with Amazon, driving pre-order business to them quite deliberately because the consolidated opening day sale boosts them onto the bestseller list. That’s why it was a big deal when Amazon took those pre-order buttons down. I hope you see that puts at least a small dent in your theory that it is all about serving the customer and nothing else.

        And blockbusters bring sales to Amazon too, by the way.

      • AK

        I’m confused. What puts a dent in my argument? That publishers drive preorders to Amazon so they can hit bestseller lists?

        How does that hurt customers?

        Figure out ways to goose a ranking on a bestseller list will exist whenever there is a bestseller list and people can figure out how.

        Indies don’t even get pre-order buttons, by the way.

        I agree in part that bestsellers help all authors: The really big writers, like Rowling and Meyers, create new markets and open up new genres.

        But the “bestseller system” — whereby, given the nature of distribution and bookstores placement before online buying took over a few writers sold most of the books — is not better for writers. The same 20 writers kept selling all the books because their books were everywhere : Airports, etc.

        In fact, one of my friends, in about the year 2000, said, “I don’t understand why I see the same 10 books everywhere.”

        Better for (most) writers if a lot of writers make a little money.

      • http://idealog.com/blog Mike Shatzkin

        I think this is enough for one exchange for one day. But what I said was that it wasn’t customer-friendly to take the pre-order buttons off. That’s a convenience to customers which Amazon, in their effort to *punish *Hachette, decided to turn off.

        Blaming the “bestseller system” for power law distribution, which is even *more *pronounced in an Internet world than it is in a controlled bookstore system is a little like blaming the rooster for the sun coming up in the morning.

        Thanks for your time. But now you’ve taken as much of mine as I have for you.

      • http://www.bellbridgebooks.com Deborah Smith Author

        Ak, trust me, you’re wrong about the neutrality issue and you’re wrong about the relationship between the big publishers and B & N. Side note: B & N has been wonderfully supportive of my small press. We have a longterm relationship with their main buyers, and they regularly stock our books. We sell all our titles in their online store in both print and ebook, as well as stocking in their brick/mortar sites.

      • http://idealog.com/blog Mike Shatzkin

        Right!!! Let’s inform the paranoid ignoramuses! Thanks for this.

      • http://idealog.com/blog Mike Shatzkin

        Not EVERY recommendation (there are many made) is for sale.

        You introduce an interesting paranoid conspiracy theory I hadn’t heard broached before: that the reason publishers wanted to keep B&N alive was because they could bribe them to feature their books while Amazon is uncorruptible.

        Since the first time you wrote, I have read Michael Cader’s reporting about the current dispute. It is very clear from reading it — which is behind a pay wall but indispensible to people in the business so just about everybody pays if their company doesn’t — that the current dispute is about Amazon pressuring Hachette for more ebook margin. Hachette is still prohibited by terms of the settlement for asking for much of anything.
        It is no secret that publishers want to see B&N kept healthy and other booksellers kept healthy, but it isn’t because they can bribe them to feature their books. It is because a diverse marketplace is better for them, rather than having one entity controlling just about all of it. Book by book, it might be *cheaper *that way, but there are plenty of social costs that go along with the “cheap”.

        It is certainly true that Amazon has enabled indie authors to do amazing things, and they’re willing to give them better terms than they give big corporations to do it. That’s a perfectly good strategic decision by Amazon. At some point it will be a good strategic decision not to be so generous to them. Remember what just happened at Audible.

      • AK

        Interesting.

        Sorry to be so argumentative, by the way. I am a regular reader, and learn a lot from you. Maybe I’m not one of the readers you want, but I have you bookmarked and read every post carefully,

        “bribe” is a strong word. If, as I’ve heard, the numbered racks in stores are purchased by publishers, then “bought” is the correct word. “Bribe” is rather sensational.

        I happen to be trained in law. While “bribe” suggests criminal behavior, purchasing placement on a rack is not criminal. At all.

        Oh, and there IS a diverse marketplace. What I’ve read is that independent bookstores are coming back. Also there are lots of online bookstores.

        I never thought Barnes and Noble contributed much to diversity. In fact, I think they contributed to the opposite (would that be homogeneity?)

        Amazon, at heart, is a high tech company. One day someone will come up with better technology. Meanwhile lots of people use the Amazon website to research books, then buy them elsewhere, because there are so many other places to buy.

      • http://idealog.com/blog Mike Shatzkin

        You’re simply not correct about B&N. Although central systems do a lot of the buying, and, as you say, many of the key slots are “bought” (I’m quite sure they are on Amazon too), the store managers have a tremendous amount of autonomy. The stores are *not *all the same.

        Independent stores have gotten a temporary lift from Borders going out of business. In my opinion, the lift won’t last. Book buying is moving inexorably online. Store sales won’t go to zero, but, like for many other things, they have a long further way to reduce. The tides favor Amazon.
        What you say about people shopping Amazon and buying elsewhere is kind of funny in light of the fact that the brick stores all feel like they’re victims of “showrooming”. People browse the stores and then get on their phones and order the book from Amazon to be shipped to them. Of course, Amazon gives them a better price!

      • AK

        Oh, yes. Certainly people browse stores and order on Amazon. There are aps to make that easier.

        The tides also favor another high tech company able to compete with Amazon.

        20 years ago, who expected Apple to basically put Microsoft out of business? (I can’t remember when Microsoft helped bail out Apple — just before Steve Jobs came in)

        Another Jeff Bezos or Steve Jobs will pop up somewhere else, another company will come along and challenge Amazon’s dominance.

        Until then, we have Amazon.

        Nice chatting with you, Mike . ..

      • AK

        Sorry, one more: From an author’s viewpoint, Barnes and Noble was a big monster that either stocked your books (and you were golden) or didn’t (and you were toast.) Except those authors who were lucky enough to have their publisher put big bucks behind their books, so they were featured on the tables, most authors do prefer Amazon — not just the Indies.

        Maybe that’s conspiracy theory, too — except I know too many authors with big publishers who felt devastated when they learned they were not going to be stocked by Barnes and Noble or Borders.

        If I root for Amazon over Barnes and Noble it’s because so many authors have a better chance there . . Some don’t, obviously. Like Patterson. But he is anything but typical.

      • http://idealog.com/blog Mike Shatzkin

        Barnes & Noble brought backlist to the masses. Characterizing them as a gatekeeping villain is totally devoid of context and history.

        The idea would be to have both an online store that stocks everything and individual brick and mortar stores that are locally merchandised. Of course, that’s not what we’re going to have.

        Of COURSE online retailing allows more (i.e. all) authors to be stocked! You’re elevating something that could be no other way into some sort of virtue. BN.com stocks all the authors too. Any online retailer does. If you don’t have to *have *the book to sell it, you can sell everything!

      • Steven Zacharius

        You do not buy placement on a bestseller list at B&N. You can purchase placement in a store which might mean they would buy more copies of the book; and thus hopefully sell more copies.

        Sales have become a bit more transparent since the advent of Bookscan and it allows us to see how our books are selling at retail.

      • http://www.bellbridgebooks.com Deborah Smith Author

        Based on my observations as a small press publisher and an Amazon vendor, I believe the algorithm does whatever Amazon wants it to do at any given time, based not only promotional programs but on other factors, as when most of the top ten bestsellers are published by Amazon imprints.

      • http://idealog.com/blog Mike Shatzkin

        Deborah, we’ll never know for sure (unless somebody very high up at Amazon someday tells us) but I suspect your characterization has a lot of truth to it.

        Mike

    • Steven Zacharius

      I think you’re over estimating the impact of indie publishing on Amazon. Although there are a good number of units sold; they are sold at much lower prices than traditional publishers sell their own ebooks. It’s pretty hard for Amazon to make any serious money when unit prices are only $.99 to $3.99 on most indie books. Although it makes wonderful publicity to talk about indie publishing it can’t possibly be a big money maker for Amazon.

      • Pastor Lindstedt

        “It’s pretty hard for Amazon to make any serious money when unit prices are only $.99 to $3.99 on most indie books. ”

        ==========

        It is called volume. Everyone going to Amazon to buy their e-books — I paid nothing for most of my over 3,500 e-books — to feed their Kindle means that Amazon makes pure profit on most every “sale” of millions per day.

        I no longer even go to my local public library unless it is to read an out of print public domain hardcover book. I download a Kindle equivalent every so often from the public library when the e-book has been out for six months and the demand lessens and it is available for download.

        When I do buy print books it is for used books that are cheaper than the Kindle equivalent, if there are any such. I get the used paperbacks for $4.00 to $8.00 (.01 – $4.00 price plus $4.00 delivery) and get them via my Prime membership in two days.

        The closest Barnes and Noble is in Springfield Missouri. There is a Books a Million in Joplin. Hastings went out of business two years ago in Joplin. There is a used bookstore in Granby, which in a building less than 20 x 20 feet, almost never has anything I want, even though I get up and walk three blocks to see once per month.

        I buy all my books at Amazon. Twenty-plus to one ratio I get free books, most of which go to my Kindle “Cloud” so I am able to look at the Prime Instant videos on my First-Generation Kindle Fire I bought three years ago. Then there are the $1.99 books of old favorite authors and books republished at a discount from $10 or more by a major publisher of some sort. Not to mention the expensive e-books by White Nationalist or Christian Identity authors that I can download and read on my Prime membership once per month.

        So tell me and others like me who read more than ever before thanks to having a Kindle how much we need Hachette or Barnes and Noble or traditional publishing. And how we are going to be hurt when Amazon has its way in the end. I don’t see it happening.

        If it does, then I suppose I’ll have to download my 3500+ volume e-book library to the Kindle, then go out and buy after Thanksgiving a newer, bigger Kindle with twice as much memory for half the price I paid for my old Kindle three years ago.

        Hail Victory!!!

      • Steven Zacharius

        Fortunately most people don’t share your beliefs and do want to see traditional publishing survive. You don’t make any money with volume when the price is almost zero…..take ten times the volume and we haven’t see that happen. You’ll have some indie authors who have very nice sales but why aren’t all of the low priced titles like that? The reason is because people still go the big names that they know and like to read. It takes a long time to build a following and with a few exceptions, it doesn’t happen overnight.

  • Howard

    Yet again Mike exposes his deep bias caused by his long life in the publishing business. Yes he often has sensible things to say about the publishing revolution but imho he cannot escape his nature.

    What I object to in this tome are these:

    1. Amazon built a shop and became incredibly successful. That’s not Amazon’s fault.

    2. The Publishers did nothing to compete with Amazon in selling their product. They could have but they chose not to.

    3. Amazon is perfectly entitled to decide what it sells in it’s shop, and Hachette is perfectly entitled to not do business with Amazon if it doesn’t like it’s terms.

    4. There is absolutely no evidence that there is any need for the Government to interfere with the market. Amazon has no control over the product. It simply sells it. The publishers can turn off the tap whenever they chose.

    5. Mr Shatzkin’s insulting side swipe at self publishers is embarrassing and shameful in it’s ignorance.

    6. Mr Shatzkin’s swipe at Amazon for wanting lower prices and politicians to agree with them, inferring some kind of sleazy nature to their support, is naive and disingenuous. The fact is that Publishers want to retain high prices for no other reason than to profit themselves, while paying authors less.

    7. If Mr Shatzkin wants his supposed imbalance to be corrected, what he should be doing is urging the publishers to open competing retail outlets to the public. What he should be doing is encouraging others to be more competitive and offer the public an alternative. It is far from being a difficult task. Yahoo was the top dog once, as was Sony.

    The truth is that writers are moving way from the big publishing houses in a steady and growing flow. They are using their own editors and their other skills by publishing directly through Amazon and other sites like Smashwords. It is a dishonest and disingenuous claim to make that self publishers are delivering any lower quality than the big publishers, who’s publishing decisions have always been based not on quality but on pure marketability and profit.

    The big publishers have screwed writers over for too long and will not be able to get away with it for much longer. They are thrashing around like fish caught in a trawler net and they know their death knell is sounding.

    • http://idealog.com/blog Mike Shatzkin

      Happy to provide you this forum for your excoriation. The mischaracterizations and ad hominems are too numerous and convoluted for me to respond to. It is amusing to me — and a bit flattering — that whatever I have to say would motivate people to spend this much time enumerating my faults and the illogic (and corruption) in my thinking.

      Fortunately for me, I don’t really give a damn. I think if you think I’m what you say I am, you’re must be crazy or a masochist to spend time reading me and commenting on it. The exchange doesn’t interest me.

      • Elliot1234

        Farewell and adieu to you fair Spanish ladies,
        Farewell and adieu to you ladies of Spain,
        For we have orders to sail back to Boston,
        And we never will see you fair ladies again….

      • Howard

        A rather sad response to an attempt at fair discussion. I also find it sad that someone still with a decent reputation should express such contempt for others with different views. Perhaps age is taking it’s toll. Or perhaps it was just one of his bad days.

      • http://idealog.com/blog Mike Shatzkin

        I’ll make my own decisions about what lengthy polemics are worthy of my time to respond. I’m a busy guy. You have a higher opinion of your opinion than I do, and a lower opinion of mine. We’re entitled to our opinions and we’re also entitled to decide how to spend our time. I didn’t take you down; I left you up. I believe most of my readers won’t need a response from me to understand my point of view, whether or not you choose to. Here’s a hint: “publishers have screwed over writers long enough” is not likely ever to get a response from me. Again, you’re entitled to your opinion. I think it is ignorant and misinformed, and I really don’t have any interest in trying to persuade somebody who has convinced themselves of that point of view that they’re mistaken.

    • Steven Zacharius

      I don’t think there is a single shred of proof that writers are moving away from big publishers in a steady and growing flow. Publishers are certainly not thrashing around like fish caught in a trawler. This sounds like wishful thinking by an indie author. Every single day we have books presented to us by indie authors still. We haven’t lost a single author of any size to self-publishing nor do I know of any larger authors leaving any major publishing house. I support indie publishing because the current lack of shelf space does not allow publishers to publish the amount of books that we used to publish. Many of us have digital only lines that publish debut authors or even established authors who want an additional outlet for more books. There’s room for everybody to be publishing in whatever business model they like.

      • Howard

        Clearly you are not familiar with the volume of previously big publisher authors that are now self publishing on Amazon and places like Smashwords. I am in touch with this every week.

        “Publishers are certainly not thrashing around like fish caught in a trawler.”

        So you’re not familiar with the gush of complaints by big publishing against Amazon and Apple ? and the annual value of self publishers on Amazon eBooks alone ? They are showing all of the sign some an industry looking at the precipice over the next 10 years.

        However as an industry insider, I understand your attitude perfectly.

      • Steven Zacharius

        I absolutely am familiar with the authors that are publishing on Amazon and Smashwords. I participate in all these blogs when I can. I’d love to know what big published authors have gone to KDP. Those that are consistently on the NYT Bestseller list. Most of the publishers have had there best years in a long time recently so I’d love to know where you’re getting your data that we’re looking at the precipice.

      • Steven Zacharius

        Do you know the value of self publishing to Amazon because if you do, you’re the only one since they haven’t released any information about it? They never share revenue, nor do they have to. I really don’t know why anyone cares either. There are indie authors making a living writing and there are traditional authors making a living writing. Both can coexist. We’ve published authors that were indie authors before and we publish authors now that are still self-publishing at the same time. We just like to coordinate our activities with their own so we don’t cannibalize each other and rather help build each other instead. That’s the way it should be.

    • Steven Zacharius

      The publishers did do something to compete with Amazon. They also supported Nook, Google, Sony, iBooks, etc…but none of those accounts are willing to sell books at or below costs to just gain marketshare.

    • Steven Zacharius

      Publishers wanting higher ebook prices has nothing to do with paying authors less. In fact, it’s the exact opposite. Since most ebook sales are on a percentage of net receipts, the more the publisher gets, the more the author gets as well. Publishers don’t want to see content devalued so that it’s all generic. As I said previously I don’t know of any movement of big authors leaving publishers. All publishers I know keep resigning their big authors. I agree with you that the fact that an indie book is self-published is no indication of poor quality. Many are quite good and we’ve actually take some indie authors and ended up publishing them ourselves as well. There are good books and bad books no matter who’s publishing them.

  • EricWelch

    Interesting piece. Apropos, I have seen some reports, I believe from Hacehette author Michael Sullivan, that he has some evidence that Hachette was being slow in shipping to Amazon. Some people think that’s foolhardy and/or specious. There is a case to be made and an example of a company with a strong brand out-muscling a much larger company.

    As an example of a small company (not that Hachette is small) taking on a large one over pricing and winning is Organic Valley Dairies. I happen to know one of the board members involved so I have some of the details. Walmart wanted to sell organic milk. Organic Valley is a large coop of farmers who insist on controlling the price of their product and they pretty much have a monopoly on organic milk much as Hachette has a monopoly on the titles of their authors. You want to get a Patterson book, you have to get it from Hachette.

    After the success of the organic milk sales in their stores, Walmart tried to get Organic Valley to lower their price. OV said no and at an impasse, OV withdrew its milk from Walmart. Not being able to find a competing source or organic milk, Walmart caved and is now selling OV milk *at whatever price* OV wants. There are several lessons in this.

    In order to be able to control price at the retailing end, you have to have a monopoly on the product, (Hachette does for its authors,) and you have to be willing to withdraw your product (assuming there is a demand for it – Patterson is in demand, although I have no idea why) and sell only to the retailer/wholesaler willing to meet its price demands.

    The danger is that consumers will move to non-organic milk or other (continuing the analogy) authors, but that’s where branding and a consumer base enter into the picture. I suggest that’s precisely why it’s in Hachette’s interest to reduce/delay or even stop delivery of their books to Amazon. *If* they believe they have a strong brand and base for their authors, consumers will go elsewhere to get the books IF they are willing to pay more. (Somewhat mystifyingly, Amazon is even encouraging them to do so.) As in the case of organic milk, perhaps they will go elsewhere, and Amazon, like Walmart, will have to fold on the discount issue. I think Hachette has everything to gain by simply not selling its product to Amazon. I realize Walmart is their largest account, but so was Walmart for OV.

    In the meantime the big publishers must set up an alternative to Amazon by selling directly to readers at a discount.

    • http://idealog.com/blog Mike Shatzkin

      Cogent. But there are some flaws in the analogy.

      Hachette, and all other publishers, sell both directly to retailers and through wholesalers. The wholesalers sell to whomever they want. So Amazon could always get James Patterson books, even at a slightly higher price, by ordering them from Ingram or Baker & Taylor. It is not in the power of any publisher to actually withhold their product from any retailer the way your mild producer could from Walmart.

      And publishers organizing to do the selling themselves won’t work either. Amazon already discounts books to consumers more than a publisher coop would think it could afford to because it a) wouldn’t have an operation of the same scale for quite some time and b) wouldn’t have the “subsidy” of other revenue per customer — the Everything Store model Amazon created.
      Because ebooks work as licenses rather than sales (although publishers will never admit it and contracts are artfully drawn to deny it), it is possible for Hachette to withhold sales from Kindle. But that would be 70 percent or more of the ebook market and more than half the sales of some, if not many, books.

      Hachette has to do business with Amazon. Amazon also has to do business with Hachette. However, I believe the standoff while it happens is more painful in every way for Hachette than it is for Amazon.

      • EricWelch

        Good points, all. I had forgotten about the role of distributors. I’m guessing that currently Amazon orders directly from publishers rather than Ingram or B&T, right? If they had to buy through Ingram or B&T wouldn’t they lose the price advantage they currently have?

      • http://idealog.com/blog Mike Shatzkin

        They do both. Almost all big retailers do both. Barnes & Noble does both. They have complicated ways of deciding when to order from whom.

    • http://hipsterbookclub.com Dorothy Parka

      Hachette was not slow in fulfilling orders. All orders from Amazon to Hachette have been fulfilled in the same timely fashion as previously. Amazon has chosen to either let Hachette books go out of stock or just remove the buy button.

      Sullivan doesn’t have any evidence of a failure of Hachette to fulfill orders.

      • EricWelch

        Of course, I never said they were. I have no inside information. Michael Sullivan, a Hachette author, was the one who raised the idea, especially when Hachette wouldn’t supply him with invoices to prove the contrary. See http://www.digitalbookworld.com/2014/an-authors-perspective-on-the-hachette-amazon-battle/. I was presenting a scenario making an argument for why it might be to Hachette’s advantage to do so, citing the Organic Valley Farms example. (Mike very kindly indicated why it wouldn’t work.)

        I’m sure everyone would be very interested in seeing the evidence you have that Hachette is fulfilling “orders in the same timely fashion as previously.” It would seem it’s in their interest to make it public.

      • Steven Zacharius

        Showing invoices would mean nothing without seeing the purchase orders first.

      • EricWelch

        True, it’s just that the invoices, in places I have worked, show PO’s, dates ordered, shipped, qty., etc.

      • Steven Zacharius

        I can assure you that no publisher would deliberately hurt their own sales by shipping books late. There is no benefit to them to lose sales.

      • Steven Zacharius

        Do you seriously think that Hachette would not be shipping the new Galbraith book Silkworm to only Amazon now?

    • Steven Zacharius

      A publisher can’t be slow in delivering ebooks but a retailer can stop recommending their books. The big power of Amazon is in ebooks, not in physical books. I doubt a publisher would deliberately slow down shipments of their books to hurt their bottom line. Publishers can’t et up their own ebook distribution because of DRM being a proprietary security system depending on each device. Readers buy books for their particular device. There are far more iPads out there than Kindles but the iPad is not a dedicated ereader although it’s a great all around device. If books were DRM free that would solve the issue but it would open up a new one of piracy.

  • Elliot1234

    This fight is already being costly to Amazon’s reputation among authors (many of whom, including Malcolm Gladwell, John Green, James Patterson, Charlie Stross and Michael J. Sullivan, have been heard from directly) and can’t be well-received among consumers.

    Costly? Are authors pulling their books from Amazon? Think consumers are more concerned with a French publisher or getting a huge selection, low prices, and free delivery?

    • http://idealog.com/blog Mike Shatzkin

      If you respond to what’s in your head instead of what I write, there’s really no point to my joining the conversation.

      • Elliot1234

        Amazon’s reputation with consumers is very good. There is no reason to think the unhappiness of Hachette has any effect on them. They don’t care about publishers.

        And those authors who don’t like what Amazon is doing? So what? Consumers don’t care what they think. Neither does Amazon. And the authors continue to sell on Amazon.

        So what is the observable harm to Amazon’s reputation? Amazon won this PR war five years ago.

        The notion that Amazon’s reputation is sinking because of a French publisher and a few authors is bogus. Nobody cares.

      • http://idealog.com/blog Mike Shatzkin

        For the most part, marketplace power is all that counts, so you’re right. There’s no doubt that Hachette hurts much more through all this than Amazon. That’s why I make the point that Amazon wouldn’t try this with Random House, which has other implications. My interest is in foreseeing what will happen, not in making any particular thing happen. And what I foresee is a retailer with more than 3/4 of the book market and a publisher with more than 3/4 of the most commercial books within the next ten years. I personally don’t think that’s desirable for a number of reasons. Your opinion may, and apparently does, differ. But I’m much less interested in debating the desirability of it as I am in figuring out what is likely to happen.

      • Elliot1234

        OK. Then we need a standard of desirability. In most markets plentiful supply, increasing availability, and lower price is seen as a social and economic good. I would apply that standard to books.

        So, predicting a firm will have 75% of the market tells us nothing about the desirability of that situation because it tells us nothing about supply, availability, and price.

      • http://idealog.com/blog Mike Shatzkin

        Right, except that intellectual property is different. Copyright owners have rights too. And concentrating all that book recommendation power in one company’s hands is not unlike concentrating news dissemination. Lower prices are cheap thrills, and cheap vote-getters. They’re not necessarily the best policy. If you accept the likelihood that the share will grow that much and you’re okay with it, we have nothing to argue about. I’m not okay with it, but that’s a matter of opinion and worldview that is not likely to change with a conversation. When we get there, though, I think you’ll see some unintended consequences you won’t like either.

      • Elliot1234

        Intellectual property rights don’t alter the standard of desirability. The standard I suggested includes increasing supply and increased availability. That means the property owners are making their property available.

        The IP owners do have rights. They have the right to exploit their property as they choose. Some choose to do this by signing their rights away to publishing houses. Others choose to do it by placing their books on Amazon Kindle. Others choose to do it by doing nothing,

        Lower prices mean consumers are getting goods for less. They can then spend the money they save on other things. In aggregate, they become more prosperous.

        A consumer may have a policy of taking advantage of low prices. This seems to be a very popular policy among consumers.

        A seller may have a policy of offering low prices. The wisdom of the policy depends on the individual sellers situation and the overall strategy of the seller.

        Some people may get a cheap thrill from low prices. Most are more serious about how they use their money and try to get the best they can for the least expenditure.

        I agree we will see what the future holds when the future unfolds. OK. But I have seen nothing in your presentation that demonstrates a firm with 75% of market cannot exist in an environment where we also have increasing supply, increased availability, and low prices.

      • http://www.bellbridgebooks.com Deborah Smith Author

        When the perceived value of the reading experience is reduced to the approximate cost of a candy bar, and assumed to be worth no more than that because there is no longer any paper or binding involved, then the publishing business (authors included in that term) cannot survive, any more than a shirt company can make a profit if shirts are reduced in retail value to 99 cents. What’s happening via Amazon is driving down consumers’ willingness to pay a fair price for books. Yet those of us who write and publish them still bear all the costs of editing, legal, accounting, production (yes, even with ebooks) distribution and marketing.

      • http://idealog.com/blog Mike Shatzkin

        Deborah: BINGO!!! So glad you showed up. Not only are you more accurate than all the windbags, you’re concise. Signs of a REAL writer!

      • Elliot1234

        What market did not see increasing prices when supply dried up?

        Perceived value routinely falls to supply and demand. Books aren’t special.

      • http://idealog.com/blog Mike Shatzkin

        What the HELL does a vendor willing to sell certain selected products at a loss in order to capture customers for other products have to do with supply and demand for the products being discounted?

        Your libertarian laissez-faire view of the world often doesn’t apply, and this is a case where the degree to which it is actually “fantasyland” is in bold relief!

      • Elliot1234

        Supply and demand is at the core of a retailer’s operation. He pays attention to supply in order to acquire a given stock at a given cost. Then he pays attention to demand because it tells him how much he can sell at any given price. It is critical to him if he sells units at a marginal profit, marginal loss, or at acquisition cost.

        It is important to analysts trying to understand the industry because it provides information on cost and price trends that can be used to forecast the future of the market.

        I don’t know if laissez-faire applies. I’m not sure what applying means. We can all look at the history of markets and see how suppliers behave as prices fall. The socialist and libertarian will both observe the same thing. They might not like it, and might recommend different policies, but their recommendations both stem from observation of the same events. We don’t have to like what we see to see it.

      • http://idealog.com/blog Mike Shatzkin

        Eliot, with all due respect, you don’t know what you’re talking about.
        Supply and demand has some relevance to a physical goods retailer because s/he has to invest in inventory and the key metric is how fast s/he can turn over the stock.

        It has *nothing *to do with selling virtual goods, which have unlimited supply and zero replication costs.

      • Elliot1234

        Of course it does. They may have unlimited unit supply, but they also have a cost. Cost is very important. That is part of supply. So are any pricing provisions that give volume discounts based on the number of units taken from the supplier.

        Many retailers face a supply situation where they can acquire many more units than they can move. That sure doesn’t make supply unimportant to them.

        And demand is extremely important. There is a demand and a demand curve for virtual goods just like there is for physical goods.

        Put the supply and demand together, and any retailer pays lots of attention, even if he is selling some units below supply cost.

        I’d say we will have a very hard time finding retailers who ignore supply and demand. Anyone know any?

      • http://idealog.com/blog Mike Shatzkin

        You’re talking gibberish, Elliot and in my opinion working harder on formulating your responses than in trying to understand what I’m saying. I know it is making sense to you on some level. I am not going to untangle the convolutions. People who read it either will or they won’t.

      • Elliot1234

        A question was posed:

        What the HELL does a vendor willing to sell certain selected products at a loss in order to capture customers for other products have to do with supply and demand for the products being discounted?

        What I am describing is basic supply and demand economics. We see it woking in all kinds of markets. It is at work with book retailers, too. Neither books, nor intellectual property, nor virtual goods are exempt.

        Retailers care about supply. They care about demand. Their success depends on balancing the two.

        Those who sell some goods at a unit loss plan this by paying attention to supply and demand.

        Perhaps someone can tell us about retailers who ignore supply and demand?

        And maybe someone can show us how a demand curve does not exist for eBooks? Hachette authors have reported unit sales falling as retail prices increased. I’m not sure how they know unit sales, but if so, it represents yet another confirmation that demand curves are downward sloping.

      • http://idealog.com/blog Mike Shatzkin

        Thanks Elliot. You’re talking in circles. I think you’ll find no answers here. Perhaps another blog…

      • Elliot1234

        No. It’s not circles. It’s standard economic analysis that is applied to industries all across the economy. It applies to books. Books aren’t special.

        Suppliers offer different amounts of goods at different prices. That is a standard supply curve. Normally they slope upwards, where a supplier will offer more goods if he can sell them for more. The situation we see with virtual goods like books is a horizontal supply curve, where the suppliers offer the same volume at a single price.

        Retailers pay attention to that. They are especially interested in the price the supplier will charge them. That is becuse they have to pay the supplier. Cash management demands attention to supply.

        Consumer demand is a normal downward sloping demand curve. Consumers will buy more units at lower prices, and fewer units at higher prices.

        Retailers find this vital since it gives them an idea of how much revenue they can generate. They use it to price their goods. This includes virtual goods. So retailers find consumer buying behavior is vital to their business.

        Put together, we can see retailers pay great attention to both supply and demand.

        One of the more interesting aspects of the book market is the huge supply of authors and titles with widea ccess to the market. This situation always results in lower prices. The path prices take to get lower might vary, but the direction is th esame.

        As those prices fall, we see many supplers dropping out of the market until equilibrium is achieved. Those who can prosper in the new market conditions will remain.

        Hope that answers your question.

      • http://idealog.com/blog Mike Shatzkin

        Enough. Post elsewhere. I’m deleting you from here on in.

        You think you’re saying something, but, really, you’re not. You resist any understanding you didn’t come into the conversation with.

        You are applying analysis that has to do with holding inventory to ebooks, where retailers *don’t *hold any inventory. I really didn’t mind the first couple of times I had to introduce you to that reality (as well as the point that supply and demand doesn’t apply to a market that is being gamed for another purpose, a point you steadfastly ignore). But I’m done with you now. From this point on, on this thread, you get the delete button. I won’t even read what you write.

      • http://www.bellbridgebooks.com Deborah Smith Author

        Thirty years in publishing. Big house. Small press. Hybrid author. You name it. I’ve got lots of dogs in this fight. P.S. Thank you for your commentary. Best ever. I read all your columns.

      • http://idealog.com/blog Mike Shatzkin

        Thanks, Deborah. Please feel free to help me handle the comments here any time you like. I gotta go find one of your books.

      • Elliot1234

        That’s not how markets work. If supply dries up, then prices increase to the point where supply returns. We see this happen in zillions of markets. Books aren’t special.

        Do we have any examples of markets where supply has been eliminated because price is too low?

        We do have markets where some suppliers are forced out because they cannot make a profit at prevailing prices. In those cases, the suppliers who can make a profit remain.

        Bottom line, they are being forced out by competition from other suppliers. Again, books aren’t special. Authors compete with each other.

        I hear a lot about consumer willingness to pay. I see little reason to care. That candy bar? It used to cost a nickel.

  • InklingBooks

    Great comments! I’ll add some of my own.

    First, Amazon isn’t really for low consumer prices. It wants to create an impression of low consumer prices while denying it in covert ways. Search results lie at the heart of its trickery and are often biased to display only a higher price item when there’s one at a lower price from some other source.

    It even seems that the greater the price difference, the more Amazon does to hide the better deal. If one source is $120 and the other is $115, it’ll display both. If one is $120 and the other is $80, the latter disappears completely from search results. When Amazon lies, it really lies.

    I first noticed that years ago when one of my $15 trade paperbacks completely disappeared from Amazon search results, replaced by someone claiming to sell a used version of my book for $50. It was so strange, I contacted Amazon. I talked to a Amazon lawyer and she didn’t deny that happened or claim that it wasn’t deliberate. She merely said that by clicking here clicking there, my version would eventually appear.

    That’s still true, just over a week ago, I checked Amazon for the price of a particularly popular Bluetooth headset. All the search results came up around $120. Applying a few tricks I know, I was soon looking at the same headset from other sources, including its maker, for about $80. If we still had journalists in this country who actively pursue scandals, that’d be getting a lot of coverage.

    Second, it’s naive to think that Amazon sells items with thin profit margins. Amazon’s prices on most items are competitive but, given their huge economy of scale, not that impressive. I often use Amazon to find what I want to buy and then Google to find it cheaper or with better terms elsewhere. The only real argument being advanced for Amazon’s low profit margins are the low profits it claims each year for its entire business. The media tends to focus on that without asking questions.

    A wiser news media would realize that no company as large and with a business as complex as Amazon could slice its profit and loss that thinly. What Amazon is actually doing is reinvesting large profits into expansion and instructing its tax accounts to apply those investments in such as way as to almost but not quite eliminate the appearance of profit. What we are seeing is smoke and mirrors.

    Finally, there’s no question in my mind that the 35% royalties that Amazon pays ebook authors outside the narrow $2.99-9.99 price range hints at the royalty rate it intends to pay should its market dominance become total.

    That’s the primary reason for Amazon’s zeal to dominate the ebook market. The other is that its current profits there are already quite high. Remember that from the technical standpoint, selling an ebook is no different from selling apps, music or videos except for a smaller file size. For some seven years Apple has been making a handsome profit with a 70/30 split for music, apps, and videos.

    During that time, the cost of providing those file download services has been plummeting. I heard that from no less a person that one of Amazon’s top AWS gurus when I lived in Seattle. Since 70/30 was profitable seven years ago, an 80/20 split is more than profitable today. The fact that Amazon already demands an extremely lucrative 65/35 split at some price levels hints at just how lucrative it intends to make its ebook business.

    Personally, if I were an executive at Apple, I’d call this nasty game Amazon is playing and raise the royalties for iBookstore ebooks to 80/20. There’d still be a decent profit and almost every author in the country would be driving readers toward the iBookstore and away from Amazon.

    • http://idealog.com/blog Mike Shatzkin

      This is a well-written, well-informed and provocative comment. It told me some things that I didn’t know. I would only prefer it if it were attached to the name of a human, not just a company.

    • JayneA

      @Michael W. Perry- Have you removed your books from Amazon yet? If not, why not?

  • TJ

    >>My “position” on all this is that it reveals an imbalance that only the government can fix.

    So what would be the fix that you mention?

    • Steven Zacharius

      I think a reasonable requirement would be that books cannot be sold below a retailers cost for starters. If the retailer wants to work on a paper thin margin like stores like Costco and Sam’s do; that’s perfectly acceptable. They make it up in volume. But if you’re selling at a loss, you’re not making it up in volume, you’re just grabbing up marketshare intentionally.

  • DXW

    It’s amazing how people don’t get what’s happening here. Hachette wants to charge $15 for eBooks. They also want to window the titles so the digital version comes out when the paperback comes out, months after the hardcover, and they want to charge twice as much for the digital version as they do for the paperback.

    All Amazon is doing is looking out for authors and customers by saying no too Hachette’s ridiculous demands.

    No matter what happens with these negotiations between Hachette and Amazon, the game is over. The technology exists, and it’s not going away no matter how much the NY publishing cartels wish it would.

    • http://idealog.com/blog Mike Shatzkin

      It is indeed amazing. I’m one of the people who doesn’t “get whats happening here”..

      The point that you make is reflected in my piece. I didn’t ignore it. You’re not “answering” anything I wrote. I really have no “answer” for you.

      • DXW

        I didn’t write it for you, but since you chimed in… I don’t see where you mentioned Hachette making ridiculous demands on Amazon, even after the government ruled against them. Maybe I didn’t read it close enough. These posts are one in a million these days, and yours is just one more adding to the noise.

        To be fair, I did tune out when you so passive aggressively referred to self published authors as “amateur writers”. I’m not sure how that works since a lot of those people make a hell of a lot more money than most traditionally published authors. But maybe I misunderstood what you were saying. Does writing a book and having it distributed through the traditional channels mean something more than writing a book and having it distributed through modern digital channels? And if the amateur authors are getting paid for their work, can they still be called amateurs?

        Can you explain the logic behind your comment, or did you just throw it in there because it’s something that bothers you and you just wanted to be snarky?

      • http://idealog.com/blog Mike Shatzkin

        I’m sorry but exactly when did you stop beating YOUR wife?

        Running a blog doesn’t require me to respond line by line to somebody who, from all appearances, is a jerk. Since I think that’s how you look, I’ll leave it at that. I really don’t have the time. I know you will interpret this in a self-serving way, but you’d interpret anything I said that way. Just ain’t worth it.

      • DXW

        Yeah, that’s what I thought. Make a snarky comment, deflect when someone calls you on it, then slink off to the corner, unable to justify your position.

        Standard internet behavior.

        This is starting to feel about as sporting as shooting cripples, so I’ll drop out here and let you get back to your busy busy day, and I won’t press the issue.

      • http://idealog.com/blog Mike Shatzkin

        Gee, that’s so gentlemanly and kind of you. You’re far better off not wasting your time with people like me.

    • Steven Zacharius

      Where did you get your information that Hachette wants to window the titles? I haven’t seen that mentioned anywhere and in most ebook agreements that I’ve seen, it’s strictly prohibited. Publishers have the digital version directly in proportion to the format of the book that is available at that time….so when a hardcover is out, the price of the digital book is also higher. When the mass market book comes out, the price of the ebook drops. If we didn’t do this, earnings for publishers and writers would drop overnight and hardcover books would totally vanish.