The Trouble With Consolidation: Part 2

After taking a few weeks of some pretty harsh criticism from publishers, indy book retailers, and more importantly, authors, Amazon has responded with a blog post on the Kindle forum where they try to explain their position reagrding their dispute with book publisher Hachette in more detail.

Amazon Kindle

The bottom line is that Amazon wants the price of all electronic books to be $9.99. They want this price because as far as they are concerned, the cost of producing an electronic book is significantly lower than the cost of producing a print book. To a certain sense, this makes sense. There’s no printing, shipping, warehousing, showrooming or (if you’re lucky and have a hit) re-printing involved in electronic book publishing.

hachette_book_logo

Amazon also produces some pretty “compelling” math and statistics to prove that you can sell more e-books at $9.99 at a higher price and that in the end, everyone would make more money.

That sounds nice. And I confess that after reading all this I stood up to take a few turns around the office, and said “Hmmmm” to myself.

As it is Audited Media filing week (formerly known as ABC Audit week) I’m a tad busy. I can’t spend nearly as much time on this as I’d like to. However, here are a few thoughts:

  • Amazon is not the only e-book publisher out there. Who says they get to set the price?
  • Does the price of anything always really reflect the cost of production? Why is that such a big argument when we discuss e-media? Bottled water, anyone? A “small” cup of pop at the movie theater? Does the production cost of a luxury vehicle really reflect the final price the buyer pays? Breakfast cereal? Please.*
  • Continuing on that train of thought: If I want to buy the latest release of Brandon Sanderson’s “Way of Kings” series, I’m going to go to my nearest store and buy it (or download it) whether or not the price is $9.99 or $14.99 for digital or $28.99 for the hardcover, I’m going to buy it. Price sensitivity is important in publishing, but not that important. Although I will concede that I am thinking about established authors. Especially if we’re talking about established authors.
  • And why would you want to set the “high-end” so low? That strikes me as remarkably short-sighted. Does this mean that in a year or two we’ll have Amazon arguing with another publisher about setting the e-book price at $7.99?
  • I will also concede Amazon’s point about e-reading (and all reading) competing against many other forms of entertainment. In the year 2014, this mostly means electronic. But I don’t think price is the issue. It’s the other stuff. We’re a family of dedicated readers and there are books and magazines all over our home. But after a busy day the question is often: Reading or Netflix. You’d be surprised how often Netflix or On Demand win.
  • It feels like Amazon is trying to position themselves as the author’s ally.
  • But unless you’re an indy author self publishing on Amazon, an established author does business with their publisher. Why? Because Amazon is not the only retailer out there. And if you do self publish, then Amazon is both publisher and retailer so Amazon is the “middleman”. I know that must be a shock to all the fanboys out there who think the internet will be the end of all evil and dreaded “middlemen.”
  • And, as I understand it, Amazon tells their indy publishers that they can change the terms of their contract at any moment. As a representative of magazine publishers, if a national distributor or wholesaler or retailer had that in their boilerplate and that was their starting negotiating position, I would look a little askance at that contract, the people who created it, and be very wary about how much business I gave them.

It’s important to retailers to develop their brand and create a look and feel for their customers. If they are smart, like Amazon, they have excellent customer service and a friendly shopping experience. One of the big raps on Borders towards the end of its life cycle was that shopping in the stores was not a pleasant experience.

Do readers really care about the publisher? No, they want a book by a particular author or a book in a particular genre. That will always be the case and that’s what makes this fight a hard one for Hachette. Authors are the brand. Their publishers promote the brand. Retailers can behave like a brand.

Authors, like magazine publishers, are the producers of a very specific, very unique product. It is not anything like toiletries, food, office supplies, dog food or kitty litter or any other retail product. Amazon has been succesful because they did cleverly take advantage of an industry that was complacent, short-sighted and didn’t understand the benefits of the nascent world of e-commerce.

A world of books (or magazines for that matter) that is dominated by only one or two retail outlets is a world that is dependent on the whims of a conference room full of people and their own objectives and algorithms. They may or may not be looking out for the producers or the consumers no matter what slogans they repeat.

And that is the trouble with consolidation.

*: Seriously, this whole “it costs less to produce a book, magazine, newspaper” on the web so the price should be $9.99 or $2.99 or $0.99 really drives me crazy. Since when? What’s the profit margin on your latte this morning?

And let me ask you, if and when Amazon or Alibaba or whoever might win it all owns 85% or 90% or more of the market, do you honestly think the price will remain there? Do you think the offer to the publishers or suppliers will remain where it is now? At what they deem “fair”? Do you really think your customer satisfaction will remain as high as it is today? I’m sorry, I don’t mean to be cynical, but seriously…Oh, look! A pretty unicorn….

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One Reply to “The Trouble With Consolidation: Part 2”

  1. Amazon makes a compelling case for lowering the price of the ebook based on projected sales / revenues — and they certainly have the data to know what they’re talking about.

    But the fact that they think the price of a thing should be determined by the cost of making that thing shows an absurdly backwards attitude. The correct price for any commodity is what people are willing to pay for it. How much trouble it took to make it is an entirely different question.

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