Thursday, November 13, 2014

Amazon Bends on Ebook Pricing in Hachette Deal

An agreement on ebook terms between Amazon and Hachette was announced this morning. In the announcement, the online bookseller and the major publisher described the resolution only in the vaguest terms, so we really have little idea on what the resolution was. However, some of the statements make clear that the dispute was entirely about ebook pricing and that executives at Amazon had given the ebook division the power to throttle the sales of Amazon’s print book division. It shows how committed Amazon is to its proprietary ebook format and platform.

Looked at through a traditional business management lens, this is a bizarre situation. Amazon’s ebook division has never made money and does not appear to have a long future ahead of it. Its print book sales operation is generally said to be the only part of Amazon that makes a profit. But it appears that Amazon is willing to sacrifice its cash cow to possibly bolster the long-shot chances of future profits in an area that is still in the experimental stages.

For the larger economy, the most important point is that Amazon was willing to bend on its often-repeated contention that no information product should ever sell for more than US$9.99. Under the new deal, Hachette ebooks at Amazon may sell for higher prices than that. Hachette is giving up some, or perhaps most, of its profit margin on ebook sales at Amazon, but that is not a major concession. A publishers’ profit from Amazon’s ebook platform, if they make anything at all, is generally not enough money to care about.

Although Amazon’s public statements would try to persuade you that it was standing on principle, its arbitrary US$9.99 price ceiling is really just the latest expression of the old, dare I say medieval, idea that workers shouldn’t be paid for their work. This position has been a public relations disaster for Amazon, and rightly so. This morning on Twitter, some of the most repeated comments were the ones suggesting that readers might have an easier time buying books from independent booksellers, which don’t have the same history of trying to squeeze authors out of the book business.

There is one more lingering bitter aftertaste in today’s announcement — it is only a temporary truce in an ongoing dispute. Without specifying the expiration date, Amazon made clear that its deal with Hachette would last just a few years. It sounds just like those deals between cable carriers and TV channel owners. When you hear those deals announced, restoring a channel that had gone dark on your television, you can be pretty sure that same channel will be going dark again a few years later.