Amazon and Hachette Finally Make Nice Over E-Book Pricing

Illustration for article titled Amazon and Hachette Finally Make Nice Over E-Book Pricing

Amazon and Hachette, two companies that have been in an e-book price battle since May, ended their heated feud today.

The new terms are part of a multiyear agreement between the publisher and the online retailer for e-book and print sales in the US. Amazon executive David Naggar says he's "pleased with the new agreement" and details that Hachette will be receiving "financial incentives" for delivering lower prices, as detailed in a brief press release. This leaves the control of pricing in Hachette's hands, but if it follows Amazon's rules, it will "benefit" though no specifics were disclosed. These new terms will take effect in early 2015, but normal trading will begin immediately.

The bitter dispute, which at one point pitted authors against their own publishers, mainly came down to e-book pricing. Amazon wanted to charge less, and Hachette wanted to charge more. This all spiraled from a judge's order in Apple's 2013 e-book price collusion case to renegotiate prices with retailers. Hachette was the first publisher to enter negotiations with Amazon and the two companies clearly had very different ideas on what was going to happen. As negotiations dragged on, Amazon applied some pressure by raising Hachette prices, extending shipping times, and offering other suggestions in place of Hachette titles. Even Stephen Colbert had a few words (and one specific hand gesture) for Amazon's shadow war with Hachette.


In October, Amazon reached an agreement with Simon & Schuster that was, at the very least, an important factor to the end of today's e-book hostilities.

At first glance though, it now looks like the companies met at some sort of middle ground and finally buried that hatchet that's been hanging over the publishing industry for many, many months.

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I think it's time to once again make a big post explaining all the things gizmodo seems to be intentionally leaving out of their coverage of this controversy.

Hachette was part of a scheme with several other publishers and Apple, to get a large cut of the profits from iBooks sales and set what their prices were - but in exchange, that they have an agreement with Apple not to set their prices any lower in any other store. You may recognise this as a scheme to fix and undercut prices, which is why the DOJ sued them. Successfully. Yes, Amazon is playing dirty, but they're also on the side of consumers paying lower prices and authors making bigger cuts, which of course the publisher disapproves of. They are under no obligation to stock Hachette's products nor to do so under unfair terms that don't make a profit for them, like Hachette is asking. The way Hachette is demanding they collect profits from sales - which I'll explain in a minute - is unfair to Amazon and it's also unfair to their own authors.

The fact that Gizmodo has not once asked WHY Amazon is treating Hachette in this manner, not once examined what led to this negotiation in the first place, is seeming less and less like any possible oversight and more and more like willful ignorance. It cannot be stressed enough that Amazon is the victim here and again, I have no sympathy at all for a major publishing house (you know Hachette isn't some underdog, right? Hachette is one of the "big five" publishing houses, and owned by a major media conglomerate called the Lagardère Group) who got caught fixing prices.

The accusations against Amazon remind me of a joke I first heard in college:

Three prisoners were sitting in a U.S. jail, found guilty of "economic crimes" and were comparing stories. The first one said, "I charged higher prices than my competitors, and I was found guilty of profiteering, monopolizing and exploiting consumers." The second one said, "I charged lower prices than my competitors, and I was found guilty of predatory pricing, cutthroat competing and under-charging." The third prisoner said, "I charged the same prices as my competitors, and I was found guilty of collusion, price leadership and cartelization."

Basically, what Hachette wants in this dispute is a scheme called agency pricing, where Hachette (or other publishers) decide the discount rate of a book on sale. The reason they want this is that they get a flat cut of the full price of the book, and yet they also decide at what rate the book gets discounted. This means they can cheerfully set the price at something Amazon breaks even at - or worse - while they make all the money, and when you put it like that no freaking duh Hachette wants that scheme to continue! They're not valiantly fighting the evil big corporation for the sake of consumer protection or the rights of authors. They're bitterly clinging to the model that makes them the most money, i.e. the exact thing people seem to hate about Amazon. What Hachette wants is for the default price on their ebooks to be set at $14.99, and for Amazon to discount the book (from their profit margin) to lower the price to about $9.99 (note that they get a cut of the nominal retail price, NOT the sale price). What Amazon wants is for ebooks to be priced at $9.99 or lower - Amazon has historically wanted ebooks to remain under the $10 line to drive ereader sales, since they have such a stake in it through the Kindle. Authors benefit from greater sales of their books, but publishers lose bigtime through smaller profit margins when the books are cheaper and - quite frankly - publishers are much less necessary when there's no actual press involved.

People have accused Amazon of predatory pricing and "dirty fighting" for suddenly raising the price on Hachette's books, but what they fail to realize is they simply stopped discounting them - that is to say, they raised the price to the actual price level the publisher (Hachette, if this wall of text is putting you to sleep) set in the first place! People need to understand that these "predatory" prices are what Hachette is fighting to set.

You may also wish to know colluding to force the agency pricing model in order to fix prices as being the exact thing they just got sued for doing with Apple. Meaning, if Amazon caved to this (and you realize Amazon is also set to renegotiate its contracts with the other publishers in the collusion lawsuit, right? Hachette is just up first!) they might actually be sued for the exact same collusion charges that came up last time - and meanwhile, the iBookstore, legally barred from taking part in agency pricing for the next few years, would be free to sell ebooks as loss-leaders and gain market share, so it really makes zero sense whatsoever for Amazon to accept Hachette's terms and that's why Hachette, not Amazon, has brought this fight into the public eye while trying to position themselves as the underdog. Again, the fact that Gizmodo willfully refuses to explain this has gone well beyond oversight and seems actively malicious.

I have some recommended reading for anyone who actually wants to hear both sides rather than Hachette's only. For starters, Lagardere's presentation to its investors, in which you might notice their referencing to their efforts to secure control of pricing in the ebook market and forcing the agency model (again, it bears repeating that they got sued for doing this a couple years ago). I direct your attention to the third and sixth slides.

I also direct you to the International Publisher's Association, of which Hachette is a member, which promised a year-long well-funded media campaign to advance its interests suspiciously around the time all these media outlets started clamoring for Amazon's head (these same outlets - most owned by the same media groups that own the publishers in the lawsuit, because that's honest - did the exact same thing right before the DOJ filed suit, too).

Here's some selections of the DOJ lawsuit, a look into how the agency pricing model was intended to force Amazon to lose market share and raise prices and why it's worth fighting.

Here's a great perspective from an author caught in the middle.

This is nothing more than big corporations fighting with other big corporations. It's healthy - it's worse for all of us when they get along. And I do mean BIG corporations - Hachette is owned by the Lagardere Group, as I previously mentioned. Simon & Schuster is owned by CBS Corp. HarperCollins is owned by News Corp - yes, that one, the one that Gizmodo has never sided with until now. Penguin Random House is owned by two companies, Pearson with a 49% share and Bertelsmann with a 51% share - the latter being the largest magazine publisher in Europe, a media group that has interests in over 200 media companies and stakes in TV, radio, and publishing. This is not Amazon picking on the little guy. These are not little guys. Anyone trying to tell you otherwise is lying to you.

I find it amazing I'm willing to do more research for free than Gizmodo authors who get paid for this. Gizmodo, are you hiring?

P.S.: This was originally posted back in July.