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Amazon's E-book Price-slashing Campaign and on Replacing One Evil with Another

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Earlier today I have received a letter from Amazon, which I'm going to copy-paste below for completness and archival. It …

Earlier today I have received a letter from Amazon, which I'm going to copy-paste below for completness and archival. It basically tries to invoke sympathy for Amazon in its "debate" with a publisher called Hachette. I don't follow the publishing world that closely and I admit to never hearing about Hachette until earlier today, but I am very aware of the problem at hand, which is pricing and distribution of digital goods (e-books in this case).

Amazon's letter frankly caused a mostly opposite effect from the intended one in me, and I find its tactics, for lack of a more vivid word, brutally capitalistic.

Amazon's effort tries to conjure into existence a grass-roots initiative, but lead solely by Amazon, and furthering Amazon's goals above all, and calls for all authors to send whining and admonishing e-mails to Hachette which are centred around the following points, given verbatim in the letter by Amazon:

  • We have noted your illegal collusion. Please stop working so hard to overcharge for ebooks. They can and should be less expensive.
  • Lowering e-book prices will help – not hurt – the reading culture, just like paperbacks did.
  • Stop using your authors as leverage and accept one of Amazon’s offers to take them out of the middle.
  • Especially if you’re an author yourself: Remind them that authors are not united on this issue.

The rest of the letter basically whines about Hachette and other publishers colluding to fix e-book prices higher than Amazon would like to, and reminds the reader that such practice is illegal. Amazon more-or-less overtly wants to "cut out the middle man" and deal with authors directly, bypassing the "greedy" publishers, and "allow" the authors to set lower e-book prices.

Well, I hope most of the authors are smart enough to investigate the issue themselves and not buy into Amazon's manipulative message blindly. As for me, here are my thoughts on the issue:

  • Of course the consumers want cheaper e-books
  • Of course the current price structure of books looks very skewed, as most Kindle owners can readily attest: paperbacks and e-books usually cost about the same, and it is not at all unusual to find books where the Kindle edition actually costs more than the printed version, which is ridiculous.

But:

  • Amazon is freakishly huge. In its recent expansionary moves, Amazon basically aims to become the World's only retailer of everything. From this position, it's easy for them to price e-books lower than absolutely any other competitor in the entire world. They can literally lower prices by some ungodly factor and still earn ridiculous profit solely based on the volume of books (and other stuff) they move. Smaller publishers of course cannot, and such a move by Amazon would push them out of business.
  • Amazon is practically already an immoral monopoly. If it were a European company, there would be no way it would be allowed to lock-in the Kindle devices to only their own e-book shop (yes, allowed, because goverment of the people for the people, etc.). If the Kindle was an open platform, allowing each and every publisher (such as Hachette) absolutely the same access, position, etc to the device as Amazon has, then it would be a valid and moral point for Amazon to claim that the prices the publishers dictate for e-books need to go down. As it stands, Amazon simply looks greedy and sleazy. This open access to the Kindle platform for the publishers would of course need to be priced symbolically or at least realistically for the publishers (because not all of the world is as stupid as the U.S. when it comes to intagible goods).
  • Writing the book and clicking "Publish" in the Amazon's self-publish centre is not the whole story. Good publishers are worth their middle-man money. Authors and artists are not exactly well known for their prowess in non-writing or non-artistics areas, such as having basic business sense.
  • The cost of actually printing a book, meaning the cost of material like paper, ink and the amortized cost of the machines involved, is actually pretty low - around $3-$4. Everything above that price covers various additional stages in book publishing: from getting the book ready, to book marketing, to the salaries and profit of the publishers and the authors. When is the last time you saw Amazon offering proof-reading for authors? Does Amazon pay for newspaper advertisments and billboards annoucing new books? Basically, the current state of the bussines is such that the "small" publishers do all that "boring" and "non-essential" work, while the Holy Amazon reaps all the benefits by simply sending a few hundred kilobytes of data wirelessly to your device. No wonder the publishers are angry.
  • Amazon's big point is that it supposedly takes out the middle man from the publishing business. But as I see it, it only replaces it with a worse one.

tl;dr: yes, the price of e-books should be lower than the price of paperbacks, but only by about $3.

As a general aside, the only way to truly remove middle-men from any digital goods distribution chain is to make it possible for everyone to create and host his own Kindle-enabled web-shop, with a cheap and easy payment processor - and even then most authors would simply opt to have someone else take care of the boring business parts.

The rest of this article is a copy-paste of the Amazon's letter:


Dear KDP Author,

Just ahead of World War II, there was a radical invention that shook the foundations of book publishing. It was the paperback book. This was a time when movie tickets cost 10 or 20 cents, and books cost $2.50. The new paperback cost 25 cents – it was ten times cheaper. Readers loved the paperback and millions of copies were sold in just the first year.

With it being so inexpensive and with so many more people able to afford to buy and read books, you would think the literary establishment of the day would have celebrated the invention of the paperback, yes? Nope. Instead, they dug in and circled the wagons. They believed low cost paperbacks would destroy literary culture and harm the industry (not to mention their own bank accounts). Many bookstores refused to stock them, and the early paperback publishers had to use unconventional methods of distribution – places like newsstands and drugstores. The famous author George Orwell came out publicly and said about the new paperback format, if “publishers had any sense, they would combine against them and suppress them.” Yes, George Orwell was suggesting collusion.

Well… history doesn’t repeat itself, but it does rhyme.

Fast forward to today, and it’s the e-book’s turn to be opposed by the literary establishment. Amazon and Hachette – a big US publisher and part of a $10 billion media conglomerate – are in the middle of a business dispute about e-books. We want lower e-book prices. Hachette does not. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there’s no printing, no over-printing, no need to forecast, no returns, no lost sales due to out of stock, no warehousing costs, no transportation costs, and there is no secondary market – e-books cannot be resold as used books. E-books can and should be less expensive.

Perhaps channeling Orwell’s decades old suggestion, Hachette has already been caught illegally colluding with its competitors to raise e-book prices. So far those parties have paid $166 million in penalties and restitution. Colluding with its competitors to raise prices wasn’t only illegal, it was also highly disrespectful to Hachette’s readers.

The fact is many established incumbents in the industry have taken the position that lower e-book prices will “devalue books” and hurt “Arts and Letters.” They’re wrong. Just as paperbacks did not destroy book culture despite being ten times cheaper, neither will e-books. On the contrary, paperbacks ended up rejuvenating the book industry and making it stronger. The same will happen with e-books.

Many inside the echo-chamber of the industry often draw the box too small. They think books only compete against books. But in reality, books compete against mobile games, television, movies, Facebook, blogs, free news sites and more. If we want a healthy reading culture, we have to work hard to be sure books actually are competitive against these other media types, and a big part of that is working hard to make books less expensive.

Moreover, e-books are highly price elastic. This means that when the price goes down, customers buy much more. We've quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000. The important thing to note here is that the lower price is good for all parties involved: the customer is paying 33% less and the author is getting a royalty check 16% larger and being read by an audience that’s 74% larger. The pie is simply bigger.

But when a thing has been done a certain way for a long time, resisting change can be a reflexive instinct, and the powerful interests of the status quo are hard to move. It was never in George Orwell’s interest to suppress paperback books – he was wrong about that.

And despite what some would have you believe, authors are not united on this issue. When the Authors Guild recently wrote on this, they titled their post: “Amazon-Hachette Debate Yields Diverse Opinions Among Authors” (the comments to this post are worth a read). A petition started by another group of authors and aimed at Hachette, titled “Stop Fighting Low Prices and Fair Wages,” garnered over 7,600 signatures. And there are myriad articles and posts, by authors and readers alike, supporting us in our effort to keep prices low and build a healthy reading culture. Author David Gaughran’s recent interview is another piece worth reading.

We recognize that writers reasonably want to be left out of a dispute between large companies. Some have suggested that we “just talk.” We tried that. Hachette spent three months stonewalling and only grudgingly began to even acknowledge our concerns when we took action to reduce sales of their titles in our store. Since then Amazon has made three separate offers to Hachette to take authors out of the middle. We first suggested that we (Amazon and Hachette) jointly make author royalties whole during the term of the dispute. Then we suggested that authors receive 100% of all sales of their titles until this dispute is resolved. Then we suggested that we would return to normal business operations if Amazon and Hachette’s normal share of revenue went to a literacy charity. But Hachette, and their parent company Lagardere, have quickly and repeatedly dismissed these offers even though e-books represent 1% of their revenues and they could easily agree to do so. They believe they get leverage from keeping their authors in the middle.

We will never give up our fight for reasonable e-book prices. We know making books more affordable is good for book culture. We’d like your help. Please email Hachette and copy us.

Hachette CEO, Michael Pietsch: Michael.Pietsch@hbgusa.com

Copy us at: readers-united@amazon.com

Please consider including these points:

  • We have noted your illegal collusion. Please stop working so hard to overcharge for ebooks. They can and should be less expensive.
  • Lowering e-book prices will help – not hurt – the reading culture, just like paperbacks did.
  • Stop using your authors as leverage and accept one of Amazon’s offers to take them out of the middle.
  • Especially if you’re an author yourself: Remind them that authors are not united on this issue.

Thanks for your support.

The Amazon Books Team

P.S. You can also find this letter at www.readersunited.com


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