New York City, New York – (StockNewsDesk) – 08/01/2014 — The contentious and public negotiation between Amazon and Hachette continues on as both companies dig in their heels. What started as a simple disagreement has morphed into an existential battle that will have a long lasting impact on the future of publishing and retail.
At its core, this fight is about Amazon exercising its dominance as the premier seller of books and ebooks to force publishers to accept their terms, most notably on pricing. Hachette has refused to budge on its assertion that ebooks need to be priced according to their costs. Amazon has been criticized for fighting “dirty”, as they have delayed shipping on Hachette books, disabled pre-orders, and drastically reduced stocking of its warehouse.
This has hurt Hachette and its authors and significantly cut into its book sales. Obviously, Amazon is looking to exert pressure on the company, forcing it to accept its terms. The latest development was Amazon’s public statement regarding its dispute with Hachette, clarifying its primary objective – lower ebook prices.
The company went on to explain that they believed that all ebooks should cost less than $9.99. This is apocryphal to publishers who are looking for 50-100% higher prices for its ebooks, comparable to paperbacks and just under hardcover books. Amazon insists that ebook costs should be lower as they are much cheaper to produce, and customers should share in these savings.
One benefit of lower ebook pricing is that it favors people purchasing and consuming books on Kindles versus normal books. If ebooks and physical books were of similar price, more people would opt for books instead of ebooks. The company also insists that this is in the best interests of publishers as absolute revenues would rise since the number of books sold would more than double.
In fact, Amazon claims a $9.99 standard pricing would raise revenues by 74%, so it is in everyone’s best interests. Hachette counters by claiming that publication costs and public appetites of books differ and the publisher should be allowed to determine appropriate pricing.
Amazon has also pledged that if Hachette accepts its latest offer, then it will end the battle once and for all, even letting Hachette and its authors keep 70% of revenues while Amazon keeps 30%. This is one sign that the negative PR has begun to affect Amazon and they are willing to end the dispute with a public face saving move of magnanimity of continuing its role of looking out for consumers, even at the expense of its bottom line. Even as it attempts to end the battle, the company strives to claim the moral high ground.
However, Amazon did lob another attack at Hachette by proposing an even split of Hachette’s revenues and suggesting that half should be shared with the authors. Currently, Hachette only shares ebook revenue with authors after publishing costs are met, but this tends to happen only with the most popular books. Amazon is continuing its strategy of trying to increase its leverage by splitting up the alliance between the publisher and its stable of authors.
This is really the first instance of Amazon taking such a hard line with its suppliers, even at the risk of bad press. While Amazon has valiantly tried to assert that its intransigence is due to looking out for the best interests of the consumer, there may be another reason for the ugly dispute.
Here is a weekly, three year chart of Amazon’s stock price:
The performance of its stock in 2014 has been abysmal. Amazon has been a Wall Street darling for the past decade, investors believe in CEO Jeff Bezos’ growth strategy even at the cost of profits. The ascendant stock price has been a key component of Bezos’ strategy as well; it allows the company to borrow at cheap rates and gives it currency to acquire talent and competitors.
Now that the stock price has faltered, Bezos and his team are beginning to feel the pressure. The battle with Hachette is one manifestation of this pressure, although this latest salvo from Amazon makes it seem as if the company is willing to compromise as long as Hachette agrees to its pricing scheme for ebooks. If Hachette agrees, it has to be considered a misstep as Amazon would only win set pricing for ebooks, rather than something that would heavily affect the bottom line, such as increased revenue sharing for ebooks, which was Amazon’s initial objective in its negotiations.