Biz & IT —

Amazon to publishers: You think too small about cheap e-books

In the war for cheap e-books, Amazon tries to take shots at its opponent—and fails.

Amazon is fighting hard to maintain its image as authors and customers slowly tear it apart over its fight for low e-book prices.

Amazon and Hachette escalated their e-books PR battle over the weekend with an impassioned message from a product team on one side, a response from a CEO on the other, and both pleading for their loyalists to help. As the fight carries on, it's clear Amazon knows it has a retail reputation to lose, but the company is unsure how to reconcile that with the business dealings coming to light over the last few months.

The dispute surfaced publicly in late spring, when it became clear Amazon was suppressing Hachette book sales and shipments in response to Hachette's refusal to agree to lower e-book prices. Since then, Amazon has tried twice to justify its actions, and Hachette has responded by saying it doesn't intend to give in, and Amazon's market influence should not be underestimated. At the end of last week, 900 authors got involved and created a $104,000 full-page ad in The New York Times condemning Amazon for putting writers in the middle of the contract dispute, handing out Amazon CEO Jeff Bezos' e-mail address to encourage readers to give him what for.

On Saturday, the Amazon Books team wrote a long letter to its Kindle authors invoking George Orwell and asking the publishing industry to get on board with its product and pricing "innovations." At the end of the letter, the Books team asked readers to e-mail Hachette's CEO with a form letter that included demands like "stop working so hard to overcharge for e-books. They can and should be less expensive" and "stop using your authors as leverage and accept one of Amazon's offers to take them out of the middle."

Hachette CEO Michael Pietsch began responding to the form letters, saying that the company already sets low e-book prices because they are cheaper to make and distribute. Amazon is angling for still-lower prices because it is "seeking a lot more profit and even more market share, at the expense of authors, bricks and mortar bookstores, and ourselves," wrote Pietsch.

Even as the argument continues on, Amazon is repeating the same basic points: cheap e-books sell well enough that they are a better prospect than more expensive e-books that don't sell as many copies; Hachette is too concerned about "devaluing e-books" by pricing them lower; and e-books are relatively cheap to make and manage compared to paper books, therefore they shouldn't be so expensive. Meanwhile, Hachette insists that it already prices over 80 percent of its e-books in the $9.99 range. Even when the prices are higher, most are at "$11.99 or $12.99," Hachette says, a price point that accounts for the $2 to $3 cost difference in "manufacturing, warehousing, and shipping that print books have."

In all the talk of price, both parties are largely leaving out the matter of control, the problem that was best discussed by The New York Times in a feature from July. If Amazon can get its way about e-book prices with Hachette, it will be able to use that point to depress contract prices with other publishers big and small. If Hachette can win, it will retain (some) control of pricing its books, forcing Amazon to continue to bear the burden of the $9.99 price point that, for a long time, it proudly used as a way of forcing itself into the e-book retail market.

Amazon has now mounted a sustained defense of its actions for several weeks, even as it continues to insist that both what it wants from Hachette and the ways it's trying to get it are completely within the bounds of normal business operations. The company stated that retailers frequently only give featured placement and good service to suppliers in good standing, and Amazon even showed its math work as to why Hachette should submit to its $9.99 mandate. But it seems the more Amazon says, the deeper a hole it's digging with authors and customers—it's plain the issue isn't as simple as Amazon is trying to make it in its PR missives.

The problem with Amazon's reasoning? It is, unsurprisingly, Amazon-centric. If Hachette gives low e-book prices to Amazon, they would likely trickle down to other retailers, because there is little other way to compete with a retailer like Amazon that holds around 70 percent of the market share for e-book sales as of 2012. And while e-books don't quite have the lock-in potential of, say, smartphone platforms, ownership of one of Amazon's Kindle devices or membership in its Prime program encourages loyalty in a way that traditional retail stores selling paper books do not.

Mid-letter, Amazon botches a reference to George Orwell, quoting him as saying that newly cheap paperbacks in his time were a scourge of the publishing industry and that if "publishers had any sense, they would combine against them and suppress them." Despite Amazon's attempts to make an enemy out of the literary world, Orwell shared Amazon's viewpoint more than he did Hachette's. As The New York Times points out, the rest of that Orwell quote continues:

"The cheaper books become, the less money is spent on books… this is an advantage from the reader’s point of view and doesn’t hurt trade as a whole, but for the publisher, the compositor, the author, and the bookseller, it is a disaster."

The Amazon Books team is inventing new opponents, like the literary establishment, to "fight" in addition to its fellow corporate giant, Hachette. It suggests that the PR for this conflict may be spinning a bit out of control. Amazon isn't without its tacit allies, but its attempts at talking around its retail practices in order to retain its reputation are starting to become strained.

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