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.