Philadelphia, Pennsylvania – (StockNewsDesk) – 11/14/2014 — The contentious battle between publisher, Hachette and e-commerce giant, Amazon.com has finally come to an end with both sides reaching an agreement. Immediately, business went back to normal for Hachette books listed on Amazon with discounts reinstated, pre orders available, and inventory fully stocked.
The dispute spiraled out of control, fomenting bitterness on both sides, as Hachette and its authors accused Amazon of using dirty tactics to force the publisher to make an unfair deal. Amazon countered that Hachette was not interested in providing fair and transparent pricing to the public for ebooks.
Agreement on Ebook Pricing
The main source of acrimony between both sides was due to ebook pricing. It is Amazon’s goal to make all ebooks have one standard price somewhere between $7.99 and $9.99. However, publishers are not in favor of handing over pricing power to booksellers, as they feel it is necessary to recoup their costs, and they want the ability to price books according to public demand.
According to the agreement, pricing power will remain with the publishing house in the near future, indicating Amazon ultimately giving in to Hachette on this issue. However, the deal did include significant incentives for publishers to keep prices low for ebooks. A similar deal was signed in 2012 between Simon & Schuster and Amazon. Clearly, Amazon feels it can use these incentives to influence pricing for ebooks to make them more attractive relative to physical books.
Amazon wants to keep all ebook prices low because they want to expand the Kindle ecosystem. If there is a significant discrepancy between Kindle prices and physical book prices, then consumers would be incentivized to switch to ebooks. Further, Amazon claimed that its pricing policy on ebooks would lead to greater revenues for the publishers, as the total number of units sold would be more than compensate for the loss in revenue per unit.
Additionally, Amazon argued that the marginal cost of producing an additional ebook is basically zero, so it is unfair to gouge customers. In contrast, there is a real cost to produce an additional hardcover or paperback with the additional cost of shipping the product. Amazon’s ambition has enabled it to win market share in many different areas, however, they were beginning to feel the pressure, as rivals such as WalMart and Barnes and Noble were able to win back book sales. The campaign from many authors also made Amazon look bad like a predatory company looking to put publishers out of business.
Catalyst for Agreement
Amazon has hit a rough patch, highlighted by its underwhelming third-quarter earnings report, which showed a slowing in revenue growth as well as continued loss in operations. Many of the company’s recent high-profile projects such as a smartphone or Amazon Prime streaming video contributed to the company’s losses, leading many to question Amazon CEO Jeff Bezos’ judgement and leadership.
The problems with Hachette, which led to reduced book’s sales for many popular titles also contributed to Amazon’s dreadful quarter. Amazon’s stock price is a valuable currency, which has been slowly losing value as Bezos has been unsuccessful in attempts to convert market share to profits. Thus, he has less bargaining power when it comes to these types of negotiations.