The Amazon Conflict

They were a team, once. In the mid-1990s, the fledgling e-retailer Amazon and the major New York publishing houses—the Big Six, as they were then known—professed themselves partners in a new era of online bookselling. One senior executive recalls Amazon’s founder, Jeff Bezos, announcing his enthusiasm for their common cause. “I remember sitting at a conference table with Jeff telling a handful of us about what he wanted to do,” says the executive, who asked to remain anonymous. “We said, ‘That’s great.’” And for years the partnership was mutually beneficial. As Grove/Atlantic’s president and publisher Morgan Entrekin conceded back in July, at a forum at the New York Public Library (NYPL), Amazon provided “a smooth transition to digital” that kept publishers happy: “It was primarily that there was a reliable vendor; we didn’t have piracy problems, and we got paid decently.” Good times, those.

For much of 2014, Amazon and Hachette Book Group...have been locked in a hostile public dispute over e-book pricing that some view as threatening the fragile ecosystem of the book industry, which includes writers, readers, publishers, brick-and-mortar bookstores, and online book retailers.

But that age of convivial cooperation seems to be over, replaced by accusations and acrimony. For much of 2014, Amazon and Hachette Book Group—one of the Big Five publishers, as they’ve been known since the 2013 merger of Penguin and Random House—have been locked in a hostile public dispute over e-book pricing that some view as threatening the fragile ecosystem of the book industry, which includes writers, readers, publishers, brick-and-mortar bookstores, and online book retailers. On the simplest and most immediate level, Amazon wants to be allowed to sell e-books more cheaply, which it argues will benefit readers and lead to increased sales and higher royalties paid to writers. Hachette, whose divisions include Little, Brown and Grand Central Publishing, among others, begs to differ. (Although Amazon and Hachette have refused to grant most media interviews about the details of their ongoing negotiation—both declined to comment for this article—they have issued statements summarizing their positions.)

Is the current dispute just about e-books, or does it have more fundamental, perhaps existential implications? “In the publishing business, people tend to think you’re either going gangbusters or you’re on your way to death, but in reality, people are just evolving,” says Edward Nawotka, editor in chief of the trade journal Publishing Perspectives. “It’s like marriage. Husbands and wives will blow up at times, and the smallest, most insignificant thing can start a fight that appears to be the be-all and end-all. But people are just evolving. It’s the small stuff that makes you crazy.” Others, however, tend to view the Amazon-Hachette fight as less of a lovers’ squabble and more of a prelude to a real crisis that could damage American literary culture by crippling traditional publishers’ ability to publish books with great artistic merit or scholarly value but far lower commercial prospects than more popular books. “Publishers don’t make a lot of money,” the megaselling thriller writer James Patterson said at the NYPL forum. “The great fear for me is that if [traditional publishers] get squeezed down any more than they’re getting squeezed now…they’re not going to have money to bring authors along, they’re not going to have money to buy [books like] Infinite Jest.”

In this way of thinking, the dispute is about far more than the price of e-books; it’s about the future of literature itself. Some fear, for example, that Amazon’s drive to increase its already dominant share of the e-book market could spill over into hardcovers, ultimately depriving traditional publishers of a sustainable business model and making it impossible for them to offer advances that many authors depend upon. And if Amazon continues to increase its market share by underselling its competitors (including chain and independent bookstores as well as other e-retailers), many believe that it will eventually become effectively a monopoly, concentrating unprecedented power in the hands of a single corporation—one that treats books as commodities rather than as intellectual capital whose intangible value to the culture transcends economics.

“Perhaps I’m biased, but I think that books are more than commodities like vacuum cleaners," says Amy Berkower, a leading New York literary agent and a member of the board of Poets & Writers, Inc. “I don’t know the terms of the Hachette-Amazon dispute, but I suspect Amazon is seeking more than lower e-book prices, and I fear they are asking for greater discounts that will seriously affect the already slim profit margins on which publishers operate. Unlike Amazon, publishers can’t depend on other products like vacuum cleaners to pay the bills. If their profit margins are seriously diminished, they won’t be able to afford to pay the kind of advances that finance serious works of fiction and nonfiction. I’m all for self-publishing, lower prices, and higher e-book royalties, but not at the expense of destroying a model that, however faulty it may be, provides the capital for books that require years to research and write.”

Whether such a scenario comes to pass or not, only time will tell. In the short term, Amazon argues that e-books should be cheaper because they cost less than physical books to produce. Furthermore, they say, cheaper e-books will strengthen, not harm, the culture of reading. “For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99,” the company stated in an open letter to readers. “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 at the lower price, total revenue increases 16 percent. This is good for all parties involved: The customer is paying 33 percent less. The author is getting a royalty check 16 percent larger and being read by an audience that’s 74 percent larger…. The total pie is bigger.”

But as book-industry observers point out, this formula is unlikely to apply to many books, such as literary novels, with great cultural importance but far lower commercial expectations than popular or genre fiction. “What Amazon says might be true for some writers, but it’s not necessarily going to be true for all writers,” says Roxana Robinson, president of the Authors Guild—the nation’s leading professional association for writers—and the author of eight books, including the novel Sparta (Sarah Crichton Books, 2013). “That means if their sales don’t increase, they’ll just get a drop in revenues. So for Amazon to say they’re doing this to benefit writers, it doesn’t ring true.” And one publishing executive at a Big Five house, who asked to remain anonymous, calls Amazon’s position on e-book pricing “disingenuous at best, not to mention a fundamental misunderstanding of the marketplace. There are costs associated with e-books. It’s true that the profit margins are better on e-books, but e-books are not published in isolation. E-books are published in tandem with physical books, which are very costly to produce.”

In August, Michael Pietsch, the former Little, Brown editor and publisher who is now Hachette’s CEO (and is also a member of the board of Poets & Writers, Inc.), responded to Amazon’s statement with his own open letter. Hachette’s e-book prices are far below those for print books, he noted, with more than 80 percent of its e-books priced at less than ten dollars, and the prices for e-books are lowered when the paperback version of the original hardcover is published. “We know by experience that there is not one appropriate price for all e-books, and that all e-books do not belong in the same $9.99 box,” he wrote. “Unlike retailers, publishers invest heavily in individual books, often for years, before we see any revenue. We invest in advances against royalties, editing, design, production, marketing, warehousing, shipping, piracy protection, and more. We recoup these costs from sales of all the versions of the book that we publish—hardcover, paperback, large print, audio, and e-book. While e-books do not have the two- to three-dollar costs of manufacturing, warehousing, and shipping that print books have, their selling price carries a share of all our investments in the book.”