Amazon vs. Hachette Update - It's About Price

[SteveEisenberg]

Amazon released a statement this afternoon:

http://www.amazon.com/forum/kindle/r...x3J0JKSSUIRCMT

. . . e-books are highly price-elastic. This means that when the price goes up, customers buy much less. 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. . . .

Is it Amazon's position that all e-books should be $9.99 or less? No, we accept that there will be legitimate reasons for a small number of specialized titles to be above $9.99.

One more note on our proposal for how the total revenue should be shared. While we believe 35% should go to the author and 35% to Hachette, the way this would actually work is that we would send 70% of the total revenue to Hachette, and they would decide how much to share with the author. We believe Hachette is sharing too small a portion with the author today, but ultimately that is not our call.

I've tried to quote Amazon's strongest arguments above. Doesn't mean they convince me . . .

[Skydog]

Thank you for the link, but why the double post?

[fjtorres]

People have been ragging on Amazon for years, trying to get them to release some of their data. Well, they just have.

It's also important to understand that e-books are highly price-elastic. This means that when the price goes up, customers buy much less. 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.

Lots of sputtering to follow, I suppose. Especially over this:

We believe 35% should go to the author, 35% to the publisher and 30% to Amazon. Is 30% reasonable? Yes. In fact, the 30% share of total revenue is what Hachette forced us to take in 2010 when they illegally colluded with their competitors to raise e-book prices. We had no problem with the 30% -- we did have a big problem with the price increases.

Pretty consistent of them:

- Indie titles - 30% Amazon, 70% for the author-publisher
- Tradpub - 30% Amazon, 70% for the author & publisher, split 50-50


Basically, Amazon is telling Hachette that if they want no-discount agency, then can have it...at $9.99 but not at $14.99.

The gloves are off; pass the pringles...

[pwalker8]

That's their assertion, but I don't see any data. How do you measure that? The book either sales for $14.99 or it sales for $9.99. This assumption of book elasticity might be true for generic books, but may not be true when it comes to the big name authors.

But hey, nice attempt at trying to cut off any discussion. Anyone who disagrees with you is sputtering. The standard "No Real Scotsman" fallacy argument in action.

[AnemicOak]

Originally Posted by pwalker8

That's their assertion, but I don't see any data. How do you measure that? The book either sales for $14.99 or it sales for $9.99.

Well, most $14.99 books eventually drop to $9.99 so I'd guess that's how they measured it.

This assumption of book elasticity might be true for generic books, but may not be true when it comes to the big name authors.

I'd think it might be even more true for big name authors.

[fjtorres]

Originally Posted by AnemicOak

Well, most $14.99 books eventually drop to $9.99 so I'd guess that's how they measured it.

I'd think it might be even more true for big name authors.

Price elasticity is one subject Amazon is clearly the top authority in the world on.
And, unlike publishers, they know exactly how consumers react to price changes; they constantly run experiments and collect the data.

[SteveEisenberg]

Originally Posted by fjtorres

People have been ragging on Amazon for years, trying to get them to release some of their data. Well, they just have.

They are telling me that when eBook prices rise above $9.99, less money is spent on eBooks of the average title. But they don't say what happens to Amazon's total revenue for a title, eBook and paper, when eBook prices rise. That data was just as easily available, and is more relevant to their argument. Maybe it would even support their argument, but, if so, it would show a much more modest effect.

They had a choice as to whether to give the more relevant figure, or to try to slip something past us, and choose the latter.

Pringles my foot

[Barcey]

Interesting, they're happy with the fixed 30% but want the ebooks priced at $9.99. This could be a long time until it's settled. I bet the old wholesale model is looking pretty good to Hachette about now.

[fjtorres]

Originally Posted by Barcey

Interesting, they're happy with the fixed 30% but want the ebooks priced at $9.99. This could be a long time until it's settled. I bet the old wholesale model is looking pretty good to Hachette about now.

That is the whole point Amazon is making: they know more about retailing than Hachette ever will and it is going to be a cold day in the Amazon jungle when they let Hachette tell them how to run their business. They can have no-discount Agency on Amazon's terms or not at all. (And they'd be wisest to choose "not at all".

That release looks fairly mild but there's several implied threats in there that need to be taken seriously. Bringing in the subject of author royalties is a big escalation. If Hachette's royalty accounting is anything less than pristine Amazon can mess them up big with just one PR release.

[Fluribus]

Originally Posted by pwalker8

This assumption of book elasticity might be true for generic books, but may not be true when it comes to the big name authors.

I don't know about other folks, but I don't care how big the author's name is. Unless it's a scholarly tome, or some other specialty work, I'm not paying $15 for it.

I've got a fair number of Hachette titles. Bought when they seemed to me to be a reasonable price. All under $10. I could easily flush all future Hachette titles without breaking a sweat. If all the large publishers move in lockstep, I'm quite willing to flush them all.

[pwalker8]

Originally Posted by Fluribus

I don't know about other folks, but I don't care how big the author's name is. Unless it's a scholarly tome, or some other specialty work, I'm not paying $15 for it.

I've got a fair number of Hachette titles. Bought when they seemed to me to be a reasonable price. All under $10. I could easily flush all future Hachette titles without breaking a sweat. If all the large publishers move in lockstep, I'm quite willing to flush them all.

Perhaps so, but when my favorite author comes out with a new book, that's the book I buy, not some random author whose book just happens to be a specific price point. Given that name authors might sell millions of copies and generic authors are lucky to sell 10-20 K, I'm thinking that there is more than just price at work.

[pwalker8]

Originally Posted by fjtorres

That is the whole point Amazon is making: they know more about retailing than Hachette ever will and it is going to be a cold day in the Amazon jungle when they let Hachette tell them how to run their business. They can have no-discount Agency on Amazon's terms or not at all. (And they'd be wisest to choose "not at all".

That release looks fairly mild but there's several implied threats in there that need to be taken seriously. Bringing in the subject of author royalties is a big escalation. If Hachette's royalty accounting is anything less than pristine Amazon can mess them up big with just one PR release.

Classic appeal to authority fallacy. Amazon is "the expert" and therefore are right because you think they are the expert. No proof needed. I could make the same argument by saying that Hachette knows more about the value of specific authors and books than Amazon ever will and thus has a better handle on the proper price point for the latest JK Rowling book.

There is a reason that Amazon wants the big 5 publishers to support Amazon's new ebook subscription and why people look to see if there are any ebooks that they are interested in before signing up. There are certainly a group of people who simply want cheap, generic books. The old pulp market was built on that model. For that matter, franchises such as Star Wars and Star Trek are built on that model. However, that doesn't mean that it's the right price model for all books and authors.

That is what the fight is about. Amazon considers books just another generic product, like toilet paper. For all their asserts of treating authors well, they see authors as interchangeable cogs in a machine that produces generic product that can easily replaced with someone willing to take less money. Hachette sees value in a specific author and that author's name recognition. The name JK Rowling on a book is going to sell a whole lot more books than then name J Q Public on that same book.

[tubemonkey]

Originally Posted by pwalker8

Perhaps so, but when my favorite author comes out with a new book, that's the book I buy, not some random author whose book just happens to be a specific price point. Given that name authors might sell millions of copies and generic authors are lucky to sell 10-20 K, I'm thinking that there is more than just price at work.

If I want to read a book by a best selling author, I check it out from the library.

[tubemonkey]

Originally Posted by pwalker8

I could make the same argument by saying that Hachette knows more about the value of specific authors and books than Amazon ever will and thus has a better handle on the proper price point for the latest JK Rowling book.

If that's the case, then why does Hachette even bother selling their books through Amazon? Why don't they pull their catalog and let other retailers sell them? If Hachette had a set, they'd tell Amazon to take a hike.

[ST-One]

Originally Posted by tubemonkey

If that's the case, then why does Hachette even bother selling their books through Amazon? Why don't they pull their catalog and let other retailers sell them? If Hachette had a set, they'd tell Amazon to take a hike.

Because a lot of people shop through Amazon.