Hugh Howey

Bestselling author of Wool and other books. Currently sailing around the world.

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Amazon and Hachette Come to Terms

Finally. Hachette has put an end to their nightmare of a standoff and has agreed to terms with Amazon. This is great news for book buyers and Hachette authors and the industry in general. It comes right on the heels of Simon & Schuster signing a multi-year deal with Amazon for both print and ebooks, and the wording of that announcement was practically identical to the wording of the Hachette announcement today. What does that tell us?

It suggests to me that Amazon offered Hachette and Simon & Schuster the same deal. But what took Hachette most of 2014 to agree to took S&S a single offer / counteroffer. It must be said, though, that Hachette was at a serious disadvantage by being forced to negotiate first. The settlement with the Department of Justice forced the major publishers to negotiate with Amazon in 6-month windows. This was to prevent them from colluding with one another the way they did in 2009.

I don’t know how the order was picked, but Hachette drew the short straw. This meant two things: They had to negotiate with Amazon without knowing if their fellow publishers would fall in line and help pressure the retailer as they did in 2009, and it also meant that Hachette had six months less sales data to go on to judge the fairness of what Amazon was offering.

A year ago, jacking up ebook prices to protect print seemed like standard operating procedure. Over the course of this year, publishers have watched operating margins go up due to the rise in ebook sales, and many titles have moved a lot of units by employing sane pricing. In a way, Amazon was offering a deal based on what they saw coming, while Hachette was rejecting that deal based on what they saw in their rearview mirror. Simon & Schuster had six months extra of road to study. I hope this helps portray Hachette in a less harsh light. Again, they had a lot of disadvantages. 

That doesn’t mean they weren’t wrong in this dispute, however. I believe they were. The wording of Amazon’s announcement today reinforces what I’ve assumed this offer was about since June, and that’s an incentivized form of agency pricing similar to what self-published authors receive. David Naggar, a VP at Amazon, said it thusly:

“We are pleased with this new agreement as it includes specific financial incentives for Hachette to deliver lower prices, which we believe will be a great win for readers and authors alike.”

This is exactly what many of us have been saying from the beginning. Now, this isn’t about who was right and who was wrong—this is about learning from history to understand the present and gauge the future. Twice now, Hachette and major publishers have waged wars with Amazon over the price of ebooks. They waged these wars with big box discounters like Barnes & Noble. Conflating our love of books with the virtuousness of those who package them is a very bad idea. Publishers belong to multi-national, multi-billion dollar corporations. They need to make profits. They do this by pushing prices up on readers and pushing wages down on writers. I don’t blame them for that (though I do try to pressure them to be more fair to both parties).

The people I blame are those who should do their homework, understand this business better, and get on the right side of these debates. The real damage has been done by those who refuse to fight for the little guys; the real damage has been done by the parties who seem to think that publishers can do no wrong and that Amazon can do no right.

This includes the New York Times and many other traditional media outlets. It includes The Authors Guild and Authors United. By waging a PR campaign without understanding the issues (often stating things that were patently untrue), these parties caused severe damage and helped to prolong this negotiation. They aligned themselves with a party that has broken the law to raise prices and refuses to pay authors a decent digital royalty. I don’t think this damage is done intentionally or with malice but by simple ignorance. As stated above, they conflate their love of books with a love of who puts stories in wrappers.

We need to do better in the future. Coverage of this industry should shift to coverage on what’s being done for readers and what’s being done for writers. These are the only two parties that matter. If publishers disappeared tomorrow, writers would continue to write great works of fiction and non-fiction. If Amazon disappeared tomorrow, readers would still seek these works out. The middlemen are not necessary. They are not crucial. They exist to serve readers and writers only.

So in the future, when middlemen squabble, perhaps we can be a little more balanced in our consternation. Perhaps we can start putting just a modicum of pressure on publishers to behave better, and maybe the vitriol spewed toward Amazon can be toned down a bit. Because in the case of Hachette / Amazon, the vast majority of the rhetoric got it all wrong. I’m usually an optimistic guy, but I have a feeling the people who were wrong won’t be able to see it, won’t be able to admit it, and will continue to fight on the incorrect side of history. But hey, maybe I’m wrong about this. I’d love to be able to admit it one day.

58 replies to “Amazon and Hachette Come to Terms”

They can do what they want. My upper limit tends to be $4.99 for a e-book.
Anything more than that, I try and get it from my friendly local library (Overdrive).
Not available from the library, then I wait for the price to come down.
Reading “The Abyss Beyond Dreams” by Peter F. Hamilton right now and loving it, but was not willing to pay $11.99 for it.

I don’t think this damage is done intentionally or with malice but by simple ignorance.

“Never attribute to malice what you can reasonably attribute to stupidity.”

So spake Ray Feist, in a series of columns on publishing contracts in the SFWA Bulletin. Words to live by.

Well said Hugh. It’s easy to look to high powered, wealthy writers as authority figures on the subject of publishing because you think they must know the business inside and out. I think that in large, we’ve found the opposite to be true. Just as a lottery winner getting a large sum of money all at once doesn’t make them a finance expert, being that lucky writer who strikes rich does not instantly make you an expert on the entire publishing business and yet these are the ones that everybody listens to. It is an appeal to authority which is a logical fallacy. Instead of listening to that famous person who must know everything, find the facts for yourself. Do your own homework. Then draw conclusions. Anybody who did that in regards to this Hatchette v. Amazon dispute could pretty easily see which way the wind was blowing.

I agree with the urge to be positive and I don’t attribute this to malice. But real livelihoods were hurt with the delay here, and those sitting on top of the money pile don’t feel the fiscal pain like those down below do.

This was hardly a culture war. It was a business negotiation, and Authors United and company turned it into some kind of moral crusade.

That kind of posturing and rhetoric is difficult for the promulgators to ever go back on. The stubborn is strong here.

The last people I would ever ask about the publishing industry would be the writers, they pay people to do it all for them, self published writers know a lot more than people like Stephen King do.
It is good this is over, Hachette got more than they deserved. Never forget this was all hard because Hachette tried to fix ebook prices and rip people off. Saying now that we should all get along is fine, but do not forget Hachette made this ugly, not Amazon.

Hachette took the same deal they rejected almost a year ago. They didn’t win any concessions here. Except maybe the right to call this “Agency Pricing,” which it isn’t.

I’m just glad they saw in their earnings reports and with what S&S did that holding out didn’t make any sense. They probably are also watching brick and mortar sales decline, and are seeing the returns go up as shelf space shrinks, and are less willing to fight a war against their readers and writers just to prop up old business partners. I think that had a lot to do with it.

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Where are you getting your information on the details of this deal? I haven’t seen anything describing the terms, upon which to judge how this compares to other deals offered or made previously. How do you even know this isn’t “Agency Pricing”? If it’s pretty much the same deal as S&S got, it sounds like it really is Agency Pricing for the most part. But if you have some inside sources, we’d all love to hear about them.

Because Amazon and the publishers have both stated that discounting will be possible under certain circumstances. Agency does not allow discounting at all. That’s the defining principle of Agency Pricing: the retailer cannot alter the final sale price. It is predetermined.

We know from the parties involved that discounting is still possible. Which tells me that Amazon got what they wanted: the ability to lower prices when they are set too high. How can it mean anything else?

By Post Author

I think there’s a semantic and practical difference between putting some books on sale and lowering prices when they are set too high. The two actions are taken for different reasons. Discounting is usually for promotional reasons, or to take advantage of a book that’s doing well and driving traffic. Lowering a too high price implies that Amazon would ‘discount’ books that have been priced in a tier they don’t approve of, say, moving large chunks of $14.99 books down to $9.99. I don’t think you’ll see that happen. Popular Hachette titles are already being discounted again, but I believe the announcement will mean higher prices for their books across the board.

And I think this is part of why the whole thing dragged on for awhile. While Hachette was most likely standing off, I don’t think Amazon was in any real hurry to prod them to a decision. Every month that goes by, Amazon is able to add books to it’s site that are improved in quality, sell for a reasonable price, and can’t be found anywhere else. As this continues, Hachette raising prices is more likely to only hurt Hachette, rather than also hurting Amazon or their ebook ecosystem.

With the wholesale model, the retailer sets the price of every item, based on the wholesale price and the retailer’s judgement. This agreement has Hachette (and S&S, they said the same thing), setting the retail prices. Unless a large percentage of items with those set prices is discounted in some way, that’s agency, and I believe the discounting will be limited.

Well, no, Hugh, it doesn’t mean that at all. An agency model can have some flexibility on pricing and discounts and still be an agency model. It depends on what exactly the “some” amounts to. If Amazon had gotten what it wanted, it would have gotten a wholesale pricing model. Because that’s what it wanted.

An agency model means the publisher decides what the retail price is, and what discounts are allowed. What Amazon wanted was the ability to price at whatever levels it wanted, and to discount as steeply as it wanted to. Apparently, it didn’t get that at all. The best it seems to have gotten is an incentive it offers to the publishers to price things lower, and take advantage of better margins at those lower prices. But the publisher doesn’t have to take advantage of those incentives if it doesn’t want to, because the margins at higher prices are still what they have always been.

Amazon wanted a model in which publishers would be punished for having higher prices, rather than rewarded for having lower prices. Meaning, something like a 50% margin for books priced above 9.99. Instead, the publishers are getting 70% on those books, but some kind of even higher margin on books priced 9.99 and below. So, no, at least on the S&S deal, it sounds like Amazon didn’t get what they want. They made a compromise, it sounds like, but it would appear that S&S got most of what they wanted. If the Hachette deal is similar to the S&S deal, the same holds true there. Some compromises on both sides, but basically it’s the publisher who controls the pricing, and even sets the limits on how much discounting is allowed. So that’s a win for the publishers, not Amazon, whose major issue was having control over pricing.

Wrong, Yogi. Amazon doesn’t care if it’s Agency or Wholesale. They have no preference. The just want reasonable prices. The reason they were against Agency is that publishers couldn’t be trusted to price ebooks in a sane manner.

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Hugh, no again. Amazon does want lower prices overall, but this agreement doesn’t sound like it does that. (Market forces might do that, but not because of this agreement). In fact, it sure sounds like it’s the publishers who can set the prices, and set them as high as they like, because agency pricing is the mechanism for that. Now, you’re right that if publishers were setting prices as low as Amazon wants them to be, it wouldn’t matter if it were through an agency model or a wholesale one. But that’s why there was so much conflict in these negotiations. Publishers wanted agency pricing so they can set prices as high as they want, and not have them gravely reduced by Amazon. It sounds like they won that part of the battle. But we’ll see when the agreement actually takes effect next year what happens.

As for discounting, Amazon has always had a very aggressive discounting policy, seeking to undercut the competition, and create much lower prices. Since we don’t know what the actual discounting ability that remains is, I can’t make any absolute claims, but “some discounting” definitely doesn’t sound like what Amazon is used to doing with its wholesale model. I also note that just today Walmart announced that it would have a policy of matching Amazon’s price on all products that both carry. I don’t think that’s a mere coincidence either. Walmart is sending a signal out that it will be not be undercut by Amazon. They can do this, because they see agency pricing as limiting Amazon’s ability to discount. Expect other retailers, including Apple, to follow suit. That’s definitely not something Amazon wanted to see happen. They wanted to be able to discount below levels that any competitor has been able to sustain. So it doesn’t sound like they got what they wanted there either.

What did they actually get that they wanted? It’s hard to see much of anything at this point, other than just resolving the conflict and moving on. Sure, they get to offer better margins if publishers price their books lower. Big deal. They could have offered that without all these conflicts and negotiations. I’m not really seeing anything gained from all that struggle on their part. But maybe there’s some concessions on the side that at least give them a bone to chew.

I don’t know the details of the agreements. Amazon doesn’t call me like they do everyone else.

But any contract that offers higher total revenue at lower prices is a powerful incentive to lower some prices. They don’t have to treat all books the same. They can take advantage of the opportunity by producing a set of books specifically tailored to the lower prices.

History doesn’t show many examples of producers holding the line when they can make a buck at the other guy’s expense.

Think of the fun a publisher could have if his strategy is to back out of fiction or substantially reduce his exposure. But those guys don’t call either. It’s just wrong.

If Amazon didn’t care about whether a publisher chose Agency or Wholesale they would allow more Agency publishers. Guess what; they don’t. Only the biggest publishers are on Agency. It would be nice if the facts were nice. And nobody really knows what terms are agreed to. All everyone knows is that Hachette has the opportunity for an incentive if the prices are lower. That certainly doesn’t mean they’re going to lower prices. Actually I think it’s a win for Hachette because when Hachette does offer promotional pricing on a title, like all publishers do, they will now get a better discount most likely….but again, nobody knows for sure.

I think Hugh knows he’s being overly generous here. We all saw and heard their spokespeople on this issue, there was more than stupidity going on here, they flat out lied and tried to deceive.

Seems like the best way to protect print books would be to give every print book buyer the eBook for no additional cost. I am baffled that nobody seems to do this.

The only party that does that is Amazon. Authors have to opt-in, of course. If you buy a copy of my children’s picture book, which comes out next week, you get the ebook for free. I’m like you — bookstores should have jumped on this years ago. I was screaming for it when I was a bookseller.

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Now the bookstores are probably a simple case of being led by idiots. They probably couldn’t grasp the concept of giving something away and actually making more money as a result.

This is a great succinct summary of the economics behind the new information economy. The logic is actually quite simple, the marginal cost of production for information assets is approaching zero. At that point, the traditional scarcity model which relies on trade to creat markets breaks down. Information creators literally ‘print money’ to a multiplier equal to the enjoyment they create. More sharing and giving increases the total pie exponentially, hence increasingly small returns on equity are needed. Many don’t get this.

Perhaps those who watched Star Trek as a model of an economy without energy and information scarcity ‘get it’ more readily. It gives me great hope for our future that perception of scarcity is being reduced in some markets, because its elimination (scarcity) brings out the natural generosity and desire to share in humans.

I didn’t notice anything in the announcement about Hachette agreeing to any of the three deals Amazon offered to compensate authors for their losses during the negotiations (in which Amazon and Hachette would share that burden). Isn’t the only meaningful organized response from authors, including the Author’s Guild and Authors United to pressure both parties to accept this deal and compensate authors for the financial pain they have had to endure as the result of this power struggle between the big boys? I hope to hear in the coming days some strong demands from authors and author groups for Hachette to at last accept one of those deals. If not, it’s pretty clear they don’t care about authors.

Well said, the vast majority of famous authors get paid before the book is even out, and rarely make another penny on the deal. Most people don’t know this, the big names get advances based on expected sales, and sales rarely are as good as they think.
I think people would be surprised if we could find the truth, if there was a list somewhere of advances and actual profit, to see if any author ever gets more than their advance.

Well, some authors got some money. Others, not so much. What was all that yelling about hurting authors, if authors weren’t being hurt, and don’t need to be compensated at all? Both can’t be true.

Hachette cares about authors as much as any other business cares about its suppliers. The only real difference here is the zillions of suppliers to other businesss don’t engage in public whining about how they have to be protected from normal market actions.

Hachette behaved like most companies on the receiving end of digital disruption. We watched them progress through the five stages of grief for their terminally ill business model. It’s never pretty, especially when they chew the scenery for an extended period.

IMHO, NYT’s conduct was far more destructive – to publishing, to what’s left of journalism, and in turn to the role of a fair and open press in a democratic society. NYT’s PR campaign for Hachette was breathtaking in its scope and audaciousness. They seriously damaged public trust in one of the few remaining sources for (we thought) credible news.

As misguided as Hachette may have been, at least it can be said they were (ostensibly) operating in what they believed to be their economic self-interest. NYT actions were more egregious precisely because we expect them to be fair and impartial.

I think it does matter who was right and who was wrong, because next time this happens we don’t have to figure who we can trust, we have learned that lesson already.

I don’t know about anyone else, but I love seeing the strong powers in charge for the last 100 years starting to lose power, it’s so beautiful. It eloquently falls so tenderly into the hands of millions…

Good to see David Streitfeld in writing about deal is taking his public chastising to heart (not!) in his NYT article announcing the deal.

Proving again his even-handedness, he gives space to Preston (of course) comparing Amazon to Napoleon coveting territory:

>>> “I’m relieved that Amazon and Hachette reached an agreement,” Mr. Preston said. But, he added: “If anyone thinks this is over, they are deluding themselves. Amazon covets market share the way Napoleon coveted territory.”

He finds room in this short piece to mention the Authors Guild urging that Amazon be investigated for antitrust…

>>> Authors United and the Authors Guild are in the midst of writing a lengthy letter to the Justice Department urging an investigation of Amazon on antitrust grounds.

Then he squeezes in some James Patterson being all ominous about future dealings with Amazon…

>>> James Patterson was another forceful voice against Amazon during the dispute. “Books and publishing need to be preserved if not protected in this country,” the best-selling novelist said in an interview. “For the moment, this deal helps do that.”

>>> Any peace, he added, would not be permanent. “I am sure there will be continuing skirmishes, if not worse,” he said.

And because’s he’s so damn even-handed, he also includes ONE (1) Amazon supporter! To come to Amazon’s defense!? Uh, no. To compare Hachette’s stupidity to Napoleon’s in invading Russia in winter!?? Uh, no.

The ONE (1) Amazon supporting quote he managed to include is ENTIRELY devoted to reassuring us of HACHETTE’S sincerity!!!

>>> Len Edgerly, who hosts an independent podcast, The Kindle Chronicles, called the last six months of fighting “a painful ordeal.”

>>> “As a longtime Kindle enthusiast, I have been in Amazon’s corner throughout the struggle, but I never doubted the other side’s sincerity in wanting what’s best for authors and readers,” he said.

Yep, even after the fight is over, we’ve been Streit-failed again!

http://www.nytimes.com/2014/11/14/technology/amazon-hachette-ebook-dispute.html

Even the Washington Post, which is owned by Bezos, quotes Authors’ Guild and Preston, but no third party that’s pro-Amazon.

My reference to “the other side” in my quote used by Streitfeld was meant to include supporters of Hachette, not just the publisher itself. I agree with Hugh that many of them just don’t see what’s happening in this industry, which is not so surprising given that it’s tough to grasp disruption of this scale when you are in the midst of its unfolding. That said, a moment like this seems to be a good one for affirming that book lovers and supporters of readers and authors may well disagree at specific junctures on which is the best way forward.

I certainly have no issue with the quote itself or the sentiment, Len. Just Stretfield’s cynical use of it to fill the “included Amazon supporter quote” checkbox so he can claim he was “balanced” in his reporting by giving voice to both sides, when in fact he was anything but.

anti-trust, lol.
Step one for anti-trust violations… They must control 100% of the market. Like you local utility company. Amazon isn’t the only game in town, they can never be guilty of anti-trust.

This comes as no surprise as I’ve been seeing heap loads of traditionally published authors brand new releases headlining BookBub for $1.99 lately. Clearly they have caught on that they have to lower their prices, they are just trying to hide the truth from their authors, some of which are surprised to find themselves on BookBub at such discounts.

Yup. The landscape has changed. Hachette really was at a disadvantage going first. What might have helped them is to spend more time analyzing what self-pubbed authors are doing rather than taking advice from their own bean counters or intuition. People have known these things for years. Just taking forever to get the legacy establishment to cop on.

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Hachette should have paid to have you, Bunker and a few other Amazon stars flown in for a meeting. Once they saw a crowd of people who don’t need them, they might have realized they needed to wake up, it would have saved them millions in lost revenue.
I am curious how many books died during this. We know they give 30 days of shelf space, but with all the delays they caused, did we miss any good books? We readers might have had to wait longer, but Hachette writers might have been the ones actually hurt by this.

I still say that in it’s essence, what this boils down to is all the old top dogs in publishing are now having to fight for their place in the new publishing landscape that is developing more and more every day. We’re becoming a paperless society. It increases every day. This is having huge changes on our society in general. The US postal service is struggling because most people communicate via paperless means now.

I have felt for a while now, and I still do, that there is a great reluctance to accept this coming change among the corporate community, especially among those in the publishing community (i.e. newspapers, magazines, book publishers). What was once science fiction is becoming every day life. As a sci-fi writer who is finally able to pursue her high school dream, I find it all fascinating and liberating.

The saddest part is that it didn’t have to happen this way. If HAchette jumped into ebook publishing early, listened to the experts at Amazon, they would be making more money now than ever before. Ebooks might cut the sales of real books in half, but they sell a lot more ebooks, so more total books overall, and with Amazon giving 70% they could have made bigger profits than ever before. Everyone could have won.

I’m just glad to see (this chapter) over!

Mind you, if I was a Hachette author, I would only be getting started with my own campaign of bloody mindedness (I’d have my lawyers looking for an out on my contract).

It’s hard to fathom what Hachette has dragged them through. And for what?

That was the perfect first ‘sentence.’ :-) I agree with much of your analysis, Hugh. I’m pleased to see that incentive for lower e-book prices. The incentive may have come about as a compromise, but I believe it will do much good for the future of e-publishing.

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