For the past six months there has been a public relations tug of war going on reflecting a serious business negotiation.

Hachette Book Group (HBG)  has been trying to negotiate a higher price for e-books on Amazon.  HBG is owned by Hachette Livre the largest French publisher and third largest in the world.  This is no small matter for the consumers of e-books everywhere.

Publishers have been grumbling about Amazon having a maximum $9.99 e-book price for some time.  In 2012 publishers worked with Apple to try to make the iPad a favored delivery vehicle for their premium e-books.  The U.S. Justice Department accused publishers and Apple of an illegal price fixing scheme.  My own opinion at the time (and still is) that the Justice Department action was premature.  E-books are still an infant industry, growing wildly yes, but I believe it would have been better to let the business world sort out pricing and distribution on its own.

The upshot of the 2012 Justice Department action was to make Amazon a defacto monopoly for e-books.  E-books make up about 30% of all book sales and Amazon has two-thirds of the e-book market.

About six months ago Hachette decided to publicize its disagreement with Amazon to generate market sympathy for its position of wanting to charge more for e-books on Amazon.  Certainly I don’t sympathize with Hachette wanting to charge a higher price for e-books and I support Amazon as a retailer seeking the best deal possible for its own customers.  Of course I believe the government should stay out of this business too and this is just classical buyer and supply chain haggling.

There have been a number of competing press releases between Hachette and Amazon on who’s right in this e-book pricing tug-of-war.  The New York Times has reported on this public relations war, in fact over-reported on it, but today there was an interesting tidbit in their article.

The disclosure was that 80% of Hachette e-book titles are already at the $9.99 price.

These are likely the backlist titles and that means that Hachette is seeking a premium price for 20% of its e-books, no doubt the recent and better selling titles.  Why fight so hard to push up price on 20% of your titles?  Especially when a higher e-book price means you will sell fewer e-books?

I believe Hachette is worried about e-books cannibalizing their paper printed book sales and so wants to ensure they get an equivalent amount of revenue from e-books.  While e-book sales have grown to 30% of overall book sales, printed book sales are in decline.

So for Hachette this is about the existence of their business model as customers switch to e-book purchases.  For Amazon this is about getting the best deal possible for their customers.  Amazon has stuck to its guns and held firm in the public relations battle.  I only see two possible outcomes here.

(1) Hachette caves and agrees to the $9.99 pricing for e-book versions of its hot sellers.  This will cause cannibalization and ultimately revenue decline for Hachette.  It’s not quite slow death, but Hachette Book Group will have to become a smaller organization.

(2) Hachette rejects Amazon and does not distribute its e-books with Amazon.  This will prevent e-books that cannibalize its print books, but will also lock Hachette out of two thirds of the only growing area in books.  This might be slow death.

What hasn’t been discussed very much is that publishers are becoming disintermediated in the new e-book model.  The distributors of e-readers (Amazon, Barnes & Noble, Apple) are very much in charge of what is available for potential readers and all of them let authors submit e-books directly to them.  We’re in a new age of independent author as publisher and old time publishers will find their businesses just plain difficult.

One Response to “Bury the Hachette”

  1. [...] Jeff Bezos an angel?  Certainly Hachette Book Group considers him the devil.  PDXmobile has an interesting take in this battle of publisher vs. e-book distributor.  You can read it here.  Posted by [...]

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