Wednesday, August 20, 2014

Amazon vs. Hachette

I had a thought.

Right now, publishers want Amazon to discount paper books, but they don't want Amazon to discount ebooks.

There is a very easy fix that will force publishers to lower their prices.

All Amazon needs to do is stop discounting paper books.

By discounting paper, Amazon has essentially been subsidizing publishers. Publishers have become so accustomed to this, they've taken it for granted. They maintain their margins while Amazon's profits are slim, or Amazon takes a loss.

What's actually happened is publishers have handed Amazon ammunition which can be used against them.

Publishers want $14.99 ebooks? Fine. Amazon will then also price the hardcover at list price, $30, and the paperback at $9.99, which are the prices printed on the books.

Right now, Hachette titles are full price on Amazon, and it is hurting Hachette. This is compounded by the lack of pre-order buttons and long shipping times, but I think even if those went back to normal, Hachette's high list prices would still hurt their sales.

During the agency model days, Amazon had a disclaimer on the book's page that said, "This price was set by the publisher."

They should add that disclaimer to all of a publisher's titles, and let the publisher price however it wants to. This would also silence all the misguided critics who maintain the wrongheaded belief that Amazon is a monopoly using predatory pricing.

All Amazon has to do is stop all discounting, and publishers will be forced to lower their prices on their own. Remember that Amazon isn't just the largest seller of ebooks, it is also the largest seller of paper. If they stopped subsidizing paper, paper sales would plummet. Publishers would depend on ebooks to make up that profit, and the only way they could do this is to lower ebook prices.

Now this may run counter to Amazon's insistence on being customer-centric, and wanting to offer the lowest prices on everything. But right now, Amazon is doing this very thing to Hachette, so they're obviously comfortable with it. Some bestselling Hachette titles will still be bestsellers, but sales will drop across the entire catalog, and the market will even itself out. Hachette will have to lower prices in order to makes sales, because it doesn't have an oligopoly on Amazon as long as KDP and A-Pub exist.

Let me break this down into bullet points.

  • Publishers want Amazon to discount paper books. Amazon does, which is subsidizing paper sales. Discounting is artificially keeping a legacy technology afloat.
  • Publishers don't want Amazon to discount ebooks. This is because publishers control the paper sales market, and they all price their books comparably, like a cartel. When a company is part of an oligopoly that controls a market, they dictate pricing and do not compete on price.
  • If Amazon sells both paper books and ebooks at a publisher's list price, sales of both will diminish because KDP, Amazon imprints, and other publishers are selling books for less.  Many readers look for lower prices. Amazon became the biggest paper bookseller in the world by selling for less.
  • Because publishers don't have control over Amazon's customers like they do over customers who go to brick and mortar bookstores (and who are forced to pay the publisher's list price), they can only match prices with other publishers. These prices will be unfavorable to customers who are able to buy indie, and other, ebooks for less.
  • High paper prices will make even more customers switch to ebooks. Hardcovers at $30 and ebooks at $15 will make customers choose ebooks. In the past, publishers tried windowing (releasing the ebook after the hardcover) and customers balked.
  • Only bestselling authors will sign with a publisher who charges $14.99 for ebooks. Even diehard legacy Stockholm Syndrome authors with group narcissism are comparing their Amazon rankings to those with cheaper prices and seeing the sales they're losing. No matter how dependent on the system you are, when you watch it fail while watching others succeed, you eventually abandon ship.
  • Amazon would no longer be competing on price with other retailers, but it would still win on customer service and wide selection.
Publishers' mistaken belief that they can slow the growth of ebooks by controlling price depends upon on Amazon discounting their paper books.

Going forward, Amazon is going to face this same issue with the other four major publishers. Kindle Unlimited, and KDP benefits such as offering self-pubbed authors pre-order pages, are going to continue to attract readers and authors, while the high prices dictated by publishers will continue to repulse readers and authors.

If publishers want to still be around in a few years, they should heed my advice. They're alienating readers, their biggest retailer, and the majority of authors. When the only people on your side are those wedded to the past, you aren't going to come out on top. 

74 comments:

w.adam mandelbaum said...

Excellent argument!

T. M. Bilderback said...

That is a fantastic idea, Joe! I actually emailed a link to your blog post to the "Jeff@Amazon.com" email address!

If he won't stop selling Hachette-published titles outright, at least he can stop discounting them!

Michael

Evan Boatwright said...

The same nincompoops who are mad at Amazon now for demanding lower ebook prices would be mad if Amazon stopped discounting:

WE 900 AUTHORS DEMAND THAT AMAZON DISCOUNT OUR BOOKS. AMAZON IS HURTING AUTHORS BY SELLING AT FULL PRICE.

Rob Gregory Browne said...

Hmm. I think it's a sound argument, but wouldn't it be counter to Amazon's desire for customer service? They discount books because they want to attract customers and have the best book buying experience possible.

I'm not sure they'd go for this idea.

sashagirl said...

Joe,
I value your opinion and actually started self-publishing in 2012 because of your informative blog, so..what do you think of Kindle Unlimited? I'm a KDP author and since Kindle Unlimited has begun 20 days ago my actual sales have been cut in half...the other half going to the KU/LOLL column. That's never happened before. What exactly is Kindle Unlimited and how will I know what I will make on half of my sales now? Do you think it will be good for us KDP authors? Please comment or blog about this. Author for over forty-three years and twenty novels published since 1984, Kathryn Meyer Griffith rdgriff@htc.net

Michael N. Marcus said...

Absolutely perfect.

Mightyflub said...

The stockholm syndrome authors would still blame amazon though

Joe Konrath said...

wouldn't it be counter to Amazon's desire for customer service?

Amazon is doing it right now with Hachette titles, and they did the "price set by publisher" disclaimer for a long time.



Joe Konrath said...

what do you think of Kindle Unlimited?

There isn't enough data yet to have an informed an opinion, especially since Amazon screwed up July. But right now I'm all in.

Rob Gregory Browne said...

Amazon is doing it right now with Hachette titles

Good point.

Nirmala said...

What I don't understand is why Amazon is still discounting Hachette's ebooks. Why don't they let them see how many they would sell at full list price? I would think all of your arguments regarding selling paper books at list price also apply to ebooks. Right now, Amazon is selling The Goldfinch ebook at $6.99 and the list price is $14.99. My guess is that Amazon is losing a couple of bucks on each ebook sold, and Hachette is happily counting the increased revenue from the increased sales. It is #11 in the entire Kindle store, so the sales are dong just fine. Why doesn't Amazon start with Hachette's ebooks and show them what a $14.99 price does to sales?

Curtis Manges said...

Joe,
Your thinking is logical, but I don't know how well this strategy would work in the real world. You fail to consider readers who are fans of certain trad-pub authors. What would they do in this scenario? If the higher prices make them grit their teeth, it seems their choices are:
* pony up for their favorites (and gripe about the cost)
* look for another author's work at a comfortable price--AGAINST THEIR WILL (and gripe about selection), or
* buy nothing, and wait for the prices to come down (and maybe gripe about cost AND selection).

So, the readers' reaction is a wild-card. Unless there's something I'm missing, all the possibilities lead to unhappy readers. The NUMBER of unhappy readers and what they do is important in predicting the success of your idea.

Still, I do like that your suggestion is to give the trad-pubs what they want and make them suffer the consequences.

Joe Konrath said...

You fail to consider readers who are fans of certain trad-pub authors.

Those readers will blame the publisher for pricing their books to high. Which is what the publisher is currently doing.

Nirmala said...

@Curtis: You left out one choice which is to go buy the book on Barnes and Noble or another online bookstore.

Broken Yogi said...

Joe, I agree in principle with this, but in practice, I don't think it would work for Amazon - not if this ends up being the arrangement for all Big Five publishers.

There's two big problems with Amazon taking a hardball negotiating approach, and we saw it force Amazon to capitulate in 2010 to the agency pricing model. The reason for that capitualtion is that Amazon's business model depends on two major factors - one, that Amazon carry virtually every book available, and two, that it underprice the competition.

Your solution is a recipe for disaster for Amazon, in that it means that Amazon won't be discounting any of the Big Five books. Bad enough that they wouldn't be allowed to discount ebooks, if they can't discount print books they are no longer Amazon. And they can't just walk away from publishers who won't let them discount, because then they won't be carrying all the books in the marketplace. Sure, that hurts publishers, but it destroys Amazon's reputation as the one-stop shopping place for books.

I've slowly come to the conclusion that Amazon is taking the wrong tack in its negotiations with Hachette, and presumably with the rest of the Big Five. It is trying to force its own pricing model onto publishers, and using various threats such as no discounting, no pre-orders, no fast shipping, etc. It can possibly weather that against Hachette, but it can't against all of the Big Five. And I am presuming that each of the Big Five is going to take a similar position in their negotiations as Hachette, just without any collusion. The justice department, you have to remember, does not consider agency pricing to be illegal, unless it is achieved by collusion. If their lawyers are smart, and I assume they are, they are making sure to not leave any evidence of collusion this time around. So Amazon is back to 2010, and will have to capitulate.

I think Amazon will have to come to realize that it's taking the wrong tack in trying to bluff publishers into accepting its pricing model. Because when it comes down to it, it really is a bluff. Amazon needs the Big Five just as much if not more than they need Amazon. So I have a different suggestion, and it involves Amazon pursuing a strategy that isn't a bluff, and that really can severely undermine the publisher's strengths. It is a free-market competitive approach, rather than a negotiating bully bluffing approach.

The answer is what Amazon has already been doing, but made even stronger. It's KDP on steroids, I'd like to call it.

As you've pointed out many times, the real strength of traditional publishers has always been that authors need them to get published. KDP has challenged that, by convincing more and more authors to not publish through the traditional houses, but instead to self-publish. The steady growth of KDP has undermined the publishers to some degree, but not enough to make them truly vulnerable, because they still have most of the major authors in their stables. So what Amazon needs to do is ramp up KDP so that it can attract even more of the traditionally published authors.

Cont.

Broken Yogi said...

For example, what if Amazon offered not just 70% royalties, but even 80-90% royalties, on a sliding scale based on volume? Instead of wasting their money discounting Big Five books, use that money to essentially discount KDP authors who sell in high volume. Remove restrictions on pricing for this, knowing that these high volume authors will of course price their books low to get that high volume. Create special free marketing programs for high volume KDP books as well, to help those authors achieve even higher volume. And create a print distribution network for high volume authors so that they can get those books into bookstores. Also give volume discounts for Createspace titles as well, rather than the exorbitant cut they are currently taking that forces print books to such high prices.

Do all this to attract the established authors away from traditional publishers and into KDP (or Amazon's own publishing vewntures). Use the free market to Amazon's advantage, rather than trying to squeeze publishers as if they were ordinary suppliers of widgets that Amazon could do without.

True, this is a slower moving strategy than trying to force publishers to accept Amazon's pricing model. But in the long run, it's the way for Amazon to win. It's not a bluff, in other words. Poaching more and more authors from traditional publishing is the way to win this war. Go against traditional publishing's true vulnerability, which their relationship to content providers - authors. If that falls, so does everything else.

Anonymous said...

"Right now, Hachette titles are full price on Amazon, and it is hurting Hachette."

They are not full price.

Joseph Ratliff said...

The key with your advice from my perspective is the disclaimer "The publisher has set this price."

The trad. publishers will commit business suicide at their own pricing "knife."

It will be like watching the Samurai on Saturday Night Live (John Belushi).

sashagirl said...

YOU SAID about Kindle Unlimited:
"There isn't enough data yet to have an informed an opinion, especially since Amazon screwed up July. But right now I'm all in."

Thanks Joe! Whew! That eases my mind a lot. If you're all in, so am I. Horror writer, and author of Witches, The last Vampire, Dinosaur Lake and Dinosaur Lake II, Kathryn Meyer Griffith rdgriff@htc.net

Merrill Heath said...

All Amazon has to do is stop all discounting, and publishers will be forced to lower their prices on their own. Remember that Amazon isn't just the largest seller of ebooks, it is also the largest seller of paper. If they stopped subsidizing paper, paper sales would plummet. Publishers would depend on ebooks to make up that profit, and the only way they could do this is to lower ebook prices.

I think this is faulty logic. I think the publishers would raise ebook prices to try to make up the difference, not lower them.

Nirmala said...

Hachette paper books are being discounted still on Amazon as anonymous said. The hard cover of The Goldfinch is currently $18.00 with a list price of $30.00, so if Amazon is not discounting Hachette titles, it does not apply to all titles.

The drawback to not discounting is losing buyers to other online stores.

And I think Broken Yogi's idea is brilliant. Just focus on continuing to create a whole new ecosystem for authors and books that does not involve the publishers at all.

K Brown said...

Joe, I tend to think this article makes sense and also explains why Amazon can't take the approach you suggest. Increasing the prices creates room for the other big guys to have sufficient margin to be interested.

https://medium.com/@jakedfw/making-sense-of-amazon-hachette-6ef55a961cbe

Matt said...

what if Amazon offered not just 70% royalties, but even 80-90% royalties, on a sliding scale based on volume?

Where do I sign up?!

Joe Konrath said...

Your solution is a recipe for disaster for Amazon, in that it means that Amazon won't be discounting any of the Big Five books.

Remember that pre-big box bookstores never discounted. Most indie bookstores don't discount. Discounting is relatively new in the bookselling world, even though publishers have begun to rely on it.

Right now Amazon sells over 600,000 titles that aren't sold by the Big 5, and most are low priced. If a customer doesn't want to pay $14.99, they'll find something else. Or they'll get a cheaper hardcover at Sam's Club.

Terrence OBrien said...

If Amazon's objective is to defeat Hachette, then the suggestion works.

But if Amazon's objective is to enhance its own position as much as possible, then the suggestion may not work as well.

We really don't know what Amazon wants other than a general policy of lower priced books which it believes to be in the best interests of Amazon, authors, and consumers. Details matter. That is what negotiations revolve around. We don't know them.

Raising paper prices hurts Hachette, but also hurts Amazon. It is an easy fix, but Amazon would be better off with something that benefits Amazon, regardless of what it does to Hachette.

What would happen if Amazon simply ignored the whole idea of discounting. Discounting from what? What is the calculation to figure the discount?

Amazon pays X for a book. They sell if for Y. Can discount be determined from X and Y? If not, forget about it.

Ann Christy said...

While that sounds great in theory, I don't think it would work for Amazon because they built their platform on the best customer experience possible. It weakens their negotiating position and the Big 5 know it. I'm sure they're using it as well.

This is such a sucky situation all the way around.

Joe Konrath said...

They are not full price

You are correct, they aren't. I just checked the latest Preston & Child, and the hardcover is 10%. Other publishers have much better discounts. I see a lot of 20%-30% off hardcovers. P&C's previous title is full price in both paper and hardcover, no discount at all.

Broken Yogi said...

Joe,

"Remember that pre-big box bookstores never discounted. Most indie bookstores don't discount. Discounting is relatively new in the bookselling world, even though publishers have begun to rely on it."

true, but those days are over. Partly due to the big box bookstores, and mostly due to Amazon itself, which has made widespread discounting (and near universal selection) it's major advantage over other retailers. That's what's built Amazon's huge sales and market share, and it's something that Amazon doesn't want to relinquish for that very reason.

Also, it's not enough for Amazon to have books that other retailers don't have. They also have to have all the books that other retailers have, or they will lose their reputation, and their market share. If Amazon only has KDP titles, and other eretailers have the Big Five, Amazon will lose. They need to have both of them. That's what got them so much success in the first place. They can't only have one, they need both. And I think they and the publishers know that.

Max Munro said...

Admittedly, I haven't been following this closely, but why can't publishers/creators set whatever price they wish? They own it, after all, and indie creators can price at less than $10, no matter what publishers are doing.

If the future really is less than $10 books, then the price will come down naturally over time, won't it?

Amazon seem to want the same race to the bottom the App world has seen, but that only worked because they can do microtransactions inside the app. A free game app can make you millions of dollars, wheras a free book will make you zero dollars (directly).

I don't see why everyone is scrambling for lower prices. There will be downsides.

Dan Meadows said...

Not necessarily. There's always the library or buying used once they get out there which I would guess is fairly quick with all the resellers on Amazon amongst other places. If the reader wants a book, they can get it. Its their discretion whether or not the method they choose puts money in publishers (and by extension, authors) pockets or not. Like almost all corporations who get complacent, they're behaving like they have a captive market when what they've really got is an almost entirely discretionary one.

Angry_Games said...

Broken Yogi,

I think in your long argument, you forgot just how big a percentage of books Amazon sells for the Big 5.

It won't hurt Amazon... Amazon will still sell books from other publishers that have yet to come to the table to negotiate. The other publishers will see the noticeable drop in sales of Hachette's titles from being sold at non-discount prices.

As much as they hate Amazon, they've already been busted for collusion and price fixing once, and the one thing they CANNOT afford is to lose sales.

Amazon has all of the leverage. If publishers stop selling their books on Amazon, Amazon will still continue (and in fact, might actually make more profit since they won't be subsidizing books for publishers). Plenty of authors will still sell their books on Amazon.

Publishers will lose more in this game of chicken than Amazon. Amazon will still sell billions of dollars' worth of computers, paper towels, stand mixers, and dvd's. Publishers will lose 60%+ of their potential sales, and publishers only produce one item: books.

Amazon sells MILLIONS of items.

steve davidson said...

I'm not going to comment on the A vs H issue. Instead, I want to mention that I see something here that mystifies me:
Based on various comments and responses, there is a suggestion here that "books" are interchangeable commodities, like car tires or drain plugs for kitchen sinks and that people buy them in the same way - balancing convenience, features and price.
I've never purchased a book based on anything other than a targeted purchase for a specific book. Price, publisher, format don't influence the purchase in any way. I don't go out looking for "a military space opera" where anything marketed under that label will do. Sometimes (very few sometimes) I'll have a dither over edition (hardback, paperback, trade); sometimes I'll hunt by price - but always for a specific volume (usually something long out of print).
The 'hint' of the idea that readers are treating books like interchangeable commodities is horrifying to me. If that's how people purchase (price and vague marketing niche description), we may as well start leaving authors names off the covers.

Broken Yogi said...

Angry_Games,

If it won't hurt Amazon to lose the Big Five publisher's business, why did they cave to them in 2010? Are things really much different now?

And while surely the publishers get a lot of sales from Amazon, if they think their entire future depends on holding the line on agency pricing and protecting their print distribution, they'd be foolish to do otherwise. As it is, they are all part of gigantic corporations that certainly can afford to lose some revenue in the short run, if it protects it in the long run. They will certainly suffer some losses, but people will just learn to go to other websites like B&N and Apple and Kobo, etc, for books and ebooks. Amazon will be always be known for its self-published books, but that market will suffer also if Amazon is so marginalized in the book trade.

And sure, maybe Amazon can learn to live with the other things they sell, and abandon their reliance on being the place people go online to buy books. But it would hurt them more in the long run, because after all, Amazon is just a retailer. They don't actually make or produce anything. Their whole business model was built on books, but if they don't want to lead the marketplace in books anymore, that's certainly their decision to make. I think it would be an incredibly stupid decision, but you can't stop people from making stupid decisions.

Patrice Fitzgerald said...

Provocative suggestion, Joe. But like many who commented, I think Amazon would find this antithetical to its primary directive of giving the customer the best experience possible.

Tom Maddox said...

You are correct, they aren't. I just checked the latest Preston & Child, and the hardcover is 10%. Other publishers have much better discounts. I see a lot of 20%-30% off hardcovers. P&C's previous title is full price in both paper and hardcover, no discount at all.

It looks like it varies by title. Patterson's Unlucky 13 is listed at $28 for the hardcover and does not show a discount.

Meanwhile they are discounting the Kindle version pretty heavily as it comes in $20 cheaper at $7.99

Anonymous said...

Am not sure about Joe's opening line.

"Right now, publishers want Amazon to discount paper books, but they don't want Amazon to discount ebooks."

Where did the publishers (all of them I guess) say that?

It would be interesting for many other retailers if Amazon did stop discounting.

Where Amazon fails to discount many other retailers could benefit.

And customers could go where the best deals are available, which might not be Amazon if Joe's plan is followed.

Anonymous said...

Joe said:

"Discounting is relatively new in the bookselling world"

Not in the UK it isn't. Discounting has been going on for years.

Along with many other special offers like buying 3 books for the price of 2.

Anonymous said...

According to this article Waterstones in the UK have been discounting books since 1991

http://www.theguardian.com/books/2009/nov/10/waterstones-high-street-bookselling

It's a very interesting article on book pricing and book retailing because it's just after the launch of the Kindle.




Joe Konrath said...

I don't go out looking for "a military space opera"

That doesn't mean other readers don't.

My wife looks for thrillers with serial killers. She has a few favorite authors, but that's the genre she reads in, and for the most part it doesn't matter who wrote it.

Joe Konrath said...

If it won't hurt Amazon to lose the Big Five publisher's business, why did they cave to them in 2010? Are things really much different now?

Right now, Amazon doesn't seem worried that it's Hachette sales are down.

As for 2010, you believe Amazon caved? What does history show?

It shows Amazon protested by removing Macmillan order buttons, and then later got their way when the DOJ brought suit against the collusion. That doesn't sound like Amazon caved. They won the long game.

Joe Konrath said...

I think Amazon would find this antithetical to its primary directive of giving the customer the best experience possible.

And yet, this is what they're doing right now with Hachette.

Tony Harrington said...

Excellent suggestion Joe!

Just from a consumer standpoint alone it makes perfect sense and will send a clear message to Hachette.

This has probably been said ad nauseam, but I will add my two Lincolns anyway.

Hachett's stance is a slap in the face to their customers.The people buying the books want lower pricing. They are applying "physical book" value to an ebook, which has a significantly lower overhead cost for them.

Is this fuss really over not having to redo their business model to account for the paradigm shift in the world of traditional publishing?

This shouldn't be any different than the music industry. iTunes started selling full albums for 9.99, versus $14-15.00. Music publishers latched onto this concept and embraced it. The only difference is, at the time it was a lot better taking a cut in the cost of the album than losing it completely to people using Napster and other file sharing sites.

Reducing the price of ebooks, and even print versions makes common sense. The world is evolving and publishers have to evolve with it.

I think Joe makes a great point in his suggestion for Amazon to cut out reduced print prices. It will speak to the publishing house in the one language they understand: dollars.

What is the most you would spend on a print book? What is the most you would spend on an ebook? I am guessing there is quite a disparity between the two, and there should be.

Joe Konrath said...

Where did the publishers (all of them I guess) say that?

Hachette and Hachette authors have. So will other publishers when they begin negotiations.

These publishers want Amazon to discount paper. They're so dependent on it, they've raised hardcover prices 49% in the last decade, knowing that retailers would discount.

http://www.thepassivevoice.com/08/2014/im-backing-amazon-and-authors-should-too/

Joe Konrath said...

Not in the UK it isn't. Discounting has been going on for years.

In the history of bookselling, 25 years is relatively new.

It began with the rise of big box stores demanding discounts for bulk orders, then passing on that discount to customers.

Nirmala said...

Broken Yogi's suggestions keep sounding better and better. There is a functional approach to unhealthy habits where instead of trying to stop the old habit, you just create a new habit that is healthy and works as well as or better than the old habit to satisfy your needs. If you smoke cigarettes to relax, then instead you find other ways to relax that work even better. That way there is no struggle to get rid of the old habit, you just focus on creating the new one.

So maybe Joe could start a new post like his recent advice to publishers thread, only this one would be advice to Amazon, not about how to deal with Hachette, but how to create even more momentum to KDP and thus lure even more traditional authors to self-publishing. It does seem like this is the ultimate long term play, and everyone knows Amazon likes long term strategies.

My suggestions to add to the ones Broken Yogi mentioned would be:
1-Make the "royalty" rates permanent for all ebooks currently published. Over on Audible, when they recently lowered the rates, they grandfathered all existing audiobooks so they kept the higher old rates. Amazon could change the terms so that whatever royalty rates you currently have will always stay the same or at least not go lower, even if they lower the rates for newly published ebooks in the fututre. This would give new KDP authors the confidence to commit to Amazon knowing that their rate was locked in.
2- I am not sure how Amazon can get POD books into bookstores, but since they seem to be willing to take a very low margin on some printed books, maybe they could offer larger discounts for self-published paperbacks that are also offered through KDP. But perhaps a better discount would entice some bookstores to also carry CreateSpace titles. I remember reading somewhere that in actuality, the main reason indie bookstores do not stock CreateSpace titles is that the discount to the retailer in Creatspace's expanded distribution is much less than what they normally get.
3-Create a page featuring titles only available on Amazon and link to it on the home page. Amazon could really play up the titles that are in KDP Select on their site, and maybe offer additional discounts and promotions that direct readers to these books even more. Maybe there could even be a KDP Select Plus program where even the paperback is only available on Amazon.
4-For titles in KDP select, Amazon could start offering epub versions. This would lure more readers to these ebooks exclusively available on Amazon.
5- This is a far out one, but maybe Amazon could roll all of its imprints into something like the KDP Select Plus idea, and just make all Amazon exclusive titles into one big happy family. Then they could just focus all of their marketing efforts onto the top-performing KDP titles instead of trying to do it through their imprints. If they are willing to lose money on ebooks from the Big 5, then why not use some of their percentage from KDP titles to promote, discount, and feature the best selling KDP books?

None of this is affected by whatever they end up negotiating with the big publishers. As someone mentioned, the big publishers are still an important part of their sales, but maybe if Amazon shifted their focus and discounting costs over to self-published titles, it would eventually accomplish much more than even the best possible outcome with Hachette and the others.

Anonymous said...

Joe - big fan of your blog. Do you still have some kind of quasi-publishing business in the works (or already up and running)? Would love to hear the details....

Anonymous said...

If I want to buy a hardback why wouldn't I order it at a discount from B&N? Amazon is not the only place to buy books and they do not want to become seen as the place with higher priced books. I can't imagine Amazon adopting this idea.

Joe Konrath said...

If I want to buy a hardback why wouldn't I order it at a discount from B&N?

That's what Amazon is currently recommending Hachette readers do. You can't imagine Amazon adopting this idea? They already have.

Terrence OBrien said...

The 'hint' of the idea that readers are treating books like interchangeable commodities is horrifying to me. If that's how people purchase (price and vague marketing niche description), we may as well start leaving authors names off the covers.

No need to hint. I do it all the time. For years I spun the rack looking for something to read on the Red Eye. Now I page through my Kindle wondering what all that stuff is. I don't know those authors either, even though something prompted me to click the Buy button.

I took the Preston 900 test at home. I didn't recognize 95% of them. So, it wouldn't matter if their names were on the covers.

But, I do insist on Ball Park Franks. Won't buy unless their name is on the package. Best hot dog ever made. I also chased down everything written by the Venerable Hunter S Thompson. Fear And Loathing In Las Vegas and a Ball Park Frank? What more can you ask for?

Broken Yogi said...

And yet, this is what they're doing right now with Hachette.

Yes, but this is a short-term half-measure as a part of their negotiations with Hachette, who I think only represent about 8% of the total market. Not sure whether it's higher or lower in Amazon's sales/profit figures. Point is, they can limit Hachette in this manner without severely compromising their customer service model of all the books, all the time, at the lowest possible price.

It's quite another story to try to do this to the entire Big Five, which represents 85% of the market. Much less to actually no longer carry their books. I don't think Amazon could turn that to their advantage. KDP is great, but not enough on its own, and even KDP sales would go down quite a lot if 85% of the market were gone from their store. SO I think self-pubbers should also be concerned that things not go that root, because it would hurt them quite a lot as well.

As we saw in 2010, Amazon had to back down when faced with losing that 85%. I don't think things have changed much since then. KDP is still nowhere near strong enough to sustain Amazon on its own, and it depends on the traffic and availability of all the big pub titles to drive its own sales on Amazon.

So I'm just not seeing how this hardball strategy of Amazon's can work, not now at least. KDP would have to be quite a lot stronger and able to sustain itself on its own first. Which is why I think the best long-term strategy is to go after traditional authors much more strongly and aggressively with KDP. If Amazon wants to speed up the natural market process of winnowing out bad pricing, that's the way to go. Make KDP so strong and well-supported all the way around that traditional authors start moving over in droves, rather than the slow leak as is currently the case.

I've made some suggestions along that line, and so has Nirmala. I'd second her request that you make a new post similar to this one of suggestions for what Amazon should do. To me, that would be even more interesting, because Amazon actually listens to you, whereas the Big Five seem to have blocked you out entirely.

Thanks again for listening.

William Ockham said...

Joe has an interesting idea. It is useful to remember what the fight is over. Neither side wants to admit that what they care about most is the price differential between the hard cover and ebook versions of the top 25 Hachette titles. Hachette wants that to be as little as possible and Amazon wants it to be as big as possible.

Amazon controls the retail price of the hard cover version. In the absence of an agreement, Amazon can raise the retail price of hard covers to cover losses they incur by discounting the ebooks. Remember, starting next month, Amazon is under no obligation to turn a profit on Hachette's entire ebook catalog.

I am more devious than Joe is. My advice to Amazon is to offer every single potential buyer of a Hachette bestselling hard cover this alternative: for the same price, the ebook version and a free eink Kindle. With a few of the best indie titles in the same genre preloaded. That would make Hachette sweat.

Nirmala said...

@William Ockham: So is this why Amazon is still discounting Hachette ebooks? To maximize that price differential? It seems that they could make an exception during these negotiations and stop discounting their ebooks to show Hachette what happens when their ebooks sales drop off a cliff due to unreasonably high prices. Then next month, they could go back to discounting them and then release a summary of what happened to the sales with each pricing approach. In other words, they could do a demonstration with Hachette's top selling ebooks of how price affects sales.

Maybe it would wake up the folks at Hachette to the value of Amazon's approach.

Veronica - Eloheim said...

William, would you say more about this:

Remember, starting next month, Amazon is under no obligation to turn a profit on Hachette's entire ebook catalog.

I'm curious what that means and what effect you think it will have.

I always enjoy your contributions. Thanks!

William Ockham said...

@Veronica-Eloheim As part of the ebook antitrust settlement, the price-fixing publishers agreed to allow retailers to discount the price of ebooks. As a sop to these publishers, the DoJ agreed to include a clause that said that retailers (i.e. Amazon) couldn't discount so much that they lose money on a publisher's entire catalog. Publishers appeared to believe that Amazon was using ebooks as loss leaders like supermarkets sometimes do with staples like milk or bread. I thought this was silly at the time (and it was) because as best I could tell Amazon never did that. But now Amazon can point to that ruling and say that they are now free to do that without heightened antitrust scrutiny. It was a truly stupid move by the publishers because it essentially gives Amazon a "get out of jail free" card to do what they feared most. Amazon is blessed or cursed, depending on your viewpoint, with "competitors" who act like total idiots.

Anonymous said...

I'm surprised that authors want their books to be sold at the cheapest price given that their own earnings depend on a percentage of that price.

Amazon, like supermarkets, may well love loss leaders.

But you only have to ask farmers what cheap supermarket prices have done to their margins.

William Ockham said...

@Anonymous
I'm surprised by your inability to reason logically. Ebooks have zero marginal costs. The revenue-maximizing price depends on the price-sensitivity of potential customers. Pricing a romance novel at $9,999,999.99 will earn the author less than $2.99. Even $9.99 is too high for almost all romance ebooks.

For all sorts of reasons, high ebook prices benefit publishers and harm the writers they publish. But understanding that requires an open mind and the ability to think systematically.

Drew Gideon said...

Joe, over at the Writer's Cafe we were having this same discussion as a side-effect of the Lee Childs conversation at TPV.
I'll c/p what I wrote at WC, because it fits here as well:
What happens if Amazon allows Hachette to "set their own prices" which really means "prohibit Amazon from discounting"?

"The most likely [scenario] that I came up with is this:
Hachette prices their books on Amazon sky-high, while keeping their books on B&N, Apple etc around the $9 mark - to purposely drive customers away from Amazon and reduce Zon's market share. (After all, Zon is not only a retailer, but also a competing publisher.)

I'm all for letting a producer set prices for the products they make and I abhor the thought of anyone stepping into that fundamental right. (The gov't, other companies, etc.) In a free market, mistakes would be self-correcting. (Too bad we don't actually have a free market.)

The retailer also has the right to sell products at a loss to himself (discounted [lost profit] or loss leaders [the producer still gets paid their full asking price with each sale]) - his risk hurts no one but his own company and investors.

What Hachette (producer) seems to be fighting for is the power to deny Amazon (retailer) the right to use products as loss leaders and/or discounts.

If they win this power, they'll have the ability to seriously affect and manipulate Amazon's customer base and business model."

Your idea of bundling Big5 titles with indie titles has merit, but I'm not sure if Amazon wants to go through the hassle of combing through hundreds of indie titles to vet three that match with the original Big5 book.
They could though, you never know. Bezos might see that as fun.

Terrence OBrien said...

I'm surprised that authors want their books to be sold at the cheapest price given that their own earnings depend on a percentage of that price.

The cheapest price is easy. Give them away. Sell them for nothing.

But, many authors want the price that will generate the most revenue. This is a price where raising it generates less revenue, and lowering it generates less revenue.

This hapens because consumers buy different numbers of units at different prices.

If the price can be lowered and generate more revenue because consumers buy more units, those authors want to lower it. They want to continue lowering it until it reaches a point where any further reduction will generate less revenue.

Maybe $9.99 does that for some books. Maybe $2.99 does it for some other book. Maybe $25.99 does it for another.

We can see this at work in KDP. Some auhtors are moving price around to see what price gives them the most revenue. Amazon is encouraging that with their new dashboard tool that estimates total unit sales and total revenue for a specific book at different prices.

Guy Anthony De Marco said...

Why not let Hachette set their prices, but let Amazon change how much it costs to sell? I'm sure those books that are selling for more than $9.95 are netting around 70%, even though it would drop to 30% if self-pubbed/small presses had their prices set so high. Let Amazon switch them down to 30% like the rest of us. It's already a long-established practice, now they can enforce it across the board.

Kevin Sivils said...

Who says Amazon doesn't share data?
I just uploaded my latest title on Kindle and found a new Beta feature on the pricing page called Kindle Pricing Support.

I have no idea how it works, but it estimates the best possible price for your new book compared to comparable titles.

The title I uploaded evidently should be priced at $4.49 to maximize my profits and sales at the 70% royalty rate.

I have the option of selecting the suggested price or setting my own.

If this feature works accurately and Amazon actually retains the feature beyond the Beta stage, this would certainly remove a lot of the guesswork involved in hitting the sweet spot in pricing a book.

I have to wonder if the current feud with Hachette has anything to do with this new feature and the pre-order buttons now available to KDP authors.

Nirmala (free spiritual ebooks) said...

Hugh Howey just put up a kind of "advice to Amazon" post as suggested in these comments with lots of suggestions for how Amazon could improve KDP:
http://www.hughhowey.com/stuff-i-want-to-know/#more-33205

Hugh Howey said...

"All Amazon has to do is stop all discounting, and publishers will be forced to lower their prices on their own. Remember that Amazon isn't just the largest seller of ebooks, it is also the largest seller of paper. If they stopped subsidizing paper, paper sales would plummet. Publishers would depend on ebooks to make up that profit, and the only way they could do this is to lower ebook prices."

Except publishers aren't that smart. They'd try to make up for the losses by INCREASING ebook prices.

Nirmala (free spiritual ebooks) said...

I guess some Hachette books are doing very well:
http://online.wsj.com/articles/amazon-cant-cage-the-goldfinch-publisher-1408929960

The article does mention the heavy discounting on Amazon for the book, but does not really connect the dots: Amazon pricing the ebook for $6.99 (which probably means it loses money on every sale since the list price for the ebook is $14.99) is probably a big reason the book is doing so well, as well as the 40% discount on Amazon for the hardcover.

Again, it seems to me that Amazon is enabling Hachette to drag its feet in these negotiations by helping it have a great first half of 2014 (sales up 5.6% from the same period in 2013). Why don't they give Hachette a demonstration of what happens to ebook sales with a price of $14.99?

Nirmala (free spiritual ebooks) said...

Felix Torres clarified the 5.6% increase in Hachete sales over on TPV:

"Hachette isn’t up 5%.
(Hachette + Hyperion) 2014 is up 5% over Hachette 2013 (by itself).

Lagardere itself made the distinction clear, as referenced here.

http://the-digital-reader.com/2014/08/25/amazon-cage-goldfinch-publisher-heres-wsj-didnt-tell/#comments

Harry Maxwell said...

Amazon is the only place where I could publish and is one of my favorite places to shop.
That said it has a stock price far outside safe or normal for it's supposed income.
I don't know how all of this will sort out, .com did nothing but enhance brick and mortar stores who used their brand effectively to establish a .com presence.
I think print is always going to be available, digital did not kill printed photos...
Thanks to you Joe and your team for bringing this to everyone's attention.
As long as I can set the amount I get per copy I don't care about the retail price. To each his own....

Smart Debut Author said...

Hyperion titles make up 8% - 10% of Hachette's sales.

So when Hachette rolls Hyperion into their 2014 H1 numbers and still can only show 5% year-over-year "growth" over their Hyperion-less 2013 H1, they're attempting to hide a significant decrease.

Hachette is dying on their feet.

wannabuy said...

Provocative idea, but too early. Amazon must keep delivering a prime experience to their customers and too many book readers still love dead trees.

They must be converted and will only go to ebooks if tempted to explore by cheap book prices.

Amazon needs to rotate who is on the whipping post, not take on all at once...

Silas Payton said...
This comment has been removed by the author.
Silas Payton said...

Hey Joe,

Off topic but I saw Linkin Park and 30 seconds to Mars in Toronto on Sunday. They put on a great show and I noticed they are heading your way Friday. Well worth it if your free.

Silas

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Anonymous said...

The guys at the Self Publishing Podcast say they've received emails from Amazon saying that indie authors can now take pre-orders.

A nice kick in the teeth for Hachette perhaps.

But SPP worry that indies could ruin the whole thing. How many will take pre-orders? And how many will be able to deliver?

It's an interesting Amazon tactic in the current dispute but let us hope it does not come back to bite them

Anonymous said...

I'd love to know why $9.99 is too high a price for a romance novel as per William. This is fairly insulting to all romance writers. Romances are the number one selling ebooks. There are loads of NYT bestselling romance writers whose book sell in hardcover for $25.00 plus or $21.00 in ebook or $15.00 in trade. Ravenous romance readers can read 20 books per month or some only one a month. Is $9.99 too high for a thriller. This is really insulting to all romance writers. You should all be up in arms.

Anonymous said...

Amazon is a big retailers of print books but there are many other big sellers as well. Target and WalMart are huge retailers. And we shouldn't count WalMart out of the ebook business yet. You never know what one of the largest retailers can still pull off. WalMart and Target are big discounters as are Sam's, Costco, BJ's....Depending on the book, many times these other accounts sell far more copies than Amazon in print. There are even times that B&N sells more ebooks than Kindle. All depends on the title and the audience for it.

Anonymous said...

If Amazon stopped carrying the books from the big 5 publishers there business would be hurt dramatically. It would essentially put them out of the book business which was their initial focus. People first came to Amazon because of books. Readers would find other ways to buy books, They'd use BN, Google, iBooks, etc.... People are starting to read more on tablets rather than dedicated e-readers.