Ministry of Innovation / Business of Technology

Amazon tries to argue for its Hachette stonewall with math

Everyone gets more money—why wouldn't you want this? Amazon asks.

A Hachette title currently being sold at $14.99, the price Amazon is fighting against.

As the war between Amazon and Hachette carries on, the Amazon Books team released a longer explanation Tuesday of what it's trying to accomplish by stonewalling the publisher. The gist of Amazon's claims is that e-books need to be cheaper because cheaper books sell more volume, resulting in a larger "total pie" that gets consumers lower prices.

The New York Times first highlighted Amazon's interference with Hachette book sales at the end of May, which involved the company systematically making books unavailable or shipping them very slowly. Hachette has yet to mount a formal defense for holding the line on what was long suspected to be e-book price fixing on Amazon's store. The public has tended to take Hachette's side.

Meanwhile, Amazon has already defended its actions in a forum post, saying that "stocking and assortment decisions" based on publisher relationships are typical for a retailer. In Hachette's case, Amazon implied, it doesn't seem fit to bestow the publisher with shipments or good featured placement on its virtual shelves. In the meantime, Amazon encouraged readers to buy Hachette books elsewhere or even get them secondhand. "If you order 1,000 items from Amazon, 989 will be unaffected by this interruption," the company wrote in May.

Now that the standoff has dragged on another two months, Amazon is attempting more concrete reasoning with its customers. "A key objective is lower e-book prices," Amazon wrote. "E-books are highly price-elastic… when the price goes up, customers buy much less." The post went on to explain that based on Amazon's data, every book sold at $14.99 would sell 1.74 copies at $9.99. The total revenue from a $14.99 book that sells 100,000 copies would therefore be around $1,499,000, while the same book priced at $9.99 would sell 174,000 copies for a total take of $1,738,000 (a difference of $239,000).

Amazon then stated that the $9.99 scenario results in a 16 percent bigger royalty payout for authors. The scenario also results in a 16 percent bigger payout for Amazon itself, as well as the publisher, assuming that the conversion rate of customers who buy books at those respective prices holds. A little more math shows that Amazon would have to sell 116,000 copies of a $14.99 book to equal the take from 174,000 copies of a $9.99 book. Amazon didn't write whether the 1:1.74 ratio is some kind of average or typical of a certain kind of bestseller, but it stands to reason that those numbers don't work for every book.

The fight is an echo of the e-book price-fixing battle Amazon waged with Apple and a collective of publishers—one of which was Hachette—over the last few years. The dispute at that time centered on Amazon trying to hold down e-book prices closer to the $9.99 range while publishers were pushing to set their own prices in the store. Now, Amazon and Hachette are carrying out a similar version of the same fight without Apple's so-called alleged "ringleading."

Amazon also called out the cut that authors get from e-book sales. "We believe 35% should go to the author, 35% to the publisher and 30% to Amazon," the post said. Twenty-five percent is a more typical cut from e-book sales for authors going through publishing houses, according to The Times. "We believe Hachette is sharing too small a portion with the author today, but ultimately that is not our call," wrote the Books team.

Even as Amazon tries to be reasonable, its numbers and approach are only a sliver of the whole picture of a complex negotiation. The company hasn't changed what caused all of the outcry in the first place: using authors and customers as pawns in the contract dispute. The Times suggested in its July 12 feature that the negotiations could be coming to an end. With this latest strike, it appears the fight may carry on a bit longer.

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