How Book Publishers Could Have Averted the Latest Amazon Power Grab

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May 30 2014 6:24 PM

Bringing Down the Hachette

Publishers could have thwarted the latest Amazon power grab. They didn’t, and books will suffer for it.

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Which side should authors and book lovers be on in the Amazon-Hachette dispute?

Photo illustration by Slate

Amazon is digging in for a lengthy fight with one of the Big Five publishers, Hachette, and flexing its extraordinary market muscle while the two companies negotiate a new contract. It’s understocking Hachette books so as to create shipping delays, cutting discounts, suggesting alternative titles to buyers, and even refusing to take pre-orders, foreclosing a major sales opportunity. If you want to give Amazon your money for the forthcoming pseudonymous J.K. Rowling novel, sorry, you can’t.

Neither side is officially discussing exactly what it is they are fighting about. But all indications and industry chatter suggest that Amazon and Hachette are revisiting the pricing and revenue split for e-books—the same contentious issue that prompted the 2012 price-fixing suit against the Big Five publishers, from which Amazon emerged more powerful than ever.

The publishing industry is cheering for Hachette to hold the line and has denounced Amazon’s anti-Hachette tactics almost unanimously. So have prominent media figures, to the point of declaring boycotts. (The New York Times’ David Streitfeld tweeted, “Nearly 8000 tweets of our story on Amazon/Hachette. Still looking for one that takes Amazon’s side.”)* The blockbuster writer James Patterson, an indie-bookseller advocate and, by no coincidence, a Hachette author, blasted Amazon in a speech on Thursday at the BookExpo America conference in New York. Even former supporters have turned on the online giant for blatantly contradicting its stated mission—“to be Earth’s most customer-centric company”—by sticking it to book-buyers as a ploy to gain leverage.

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But the publishing world that is speaking as one against Amazon is really made up of two principal factions: publishers and authors. Their interests are not identical, and authors should consider the possibility that the publishers have contributed to the difficult situation they now face. Literature could end up suffering for it.

The crux of the issue is that in recent years, e-books have been more profitable for publishers than print books, despite the substantially lower price tag. But they’re less profitable for authors of new releases. This is not a well-known fact, but one group to have noticed is literary agents, who are in the business of ensuring that authors (and they themselves) get their fair slice of the pie.

So when HarperCollins, another Big Five publisher, boasted about its digital profits in a presentation to investors last year, literary agent Brian DeFiore seized on Harper’s own PowerPoint slide to point out that authors of new releases get the short end of the deal. On the blog of the leading agents’ trade association, DeFiore published a post headlined “e-books and profitability—What we’ve always said and publishers have always denied.” He noted that Harper’s chart neatly demonstrated that for a given title, the e-book is more profitable than the hardcover edition precisely because the author makes less money on it.

“Look at Harper’s own numbers,” DeFiore wrote. “$27.99 hardcover generates $5.67 profit to publisher and $4.20 royalty to author. $14.99 agency priced e-book generates $7.87 profit to publisher and $2.62 royalty to author.”

Looks fishy, doesn’t it? And the same basic math holds throughout the industry, including at Hachette.

A prominent industry analyst, Mike Shatzkin, has been arguing for some time that publishers ought to raise e-book royalty rates. For him, the point is not that this would be the fair thing to do; he just thinks it would be the best move strategically. By leaving royalty rates where they are, publishers have left their nice digital margins hanging out there for everyone to see. And when Amazon sees someone else’s healthy profits, it’s like a dog smelling a steak. As Jeff Bezos has said, “Your margin is my opportunity.”

What I suspect is happening right now is that Amazon is telling Hachette that they want some of that margin. If Hachette had spread some of those digital profits to authors in the first place, it would not be vulnerable to this tactic. What’s more, if Hachette had been the first to raise author pay, it no doubt would have snagged some marquee writers.

If Amazon prevails and gains revenue that could have—and should have—gone to writers, that would be a lamentable outcome for literature. The available pot of money in the publishing business is essentially divided up among three key players: the retailer, the publisher, and the author. To the extent that the retailer—in this case, Amazon—wins a bigger share, the other two parties collectively lose. Amazon disputes this point by arguing that its low prices and convenient Kindle platform make people buy more books, thus “growing the pie.” But it’s hard to imagine that people are going to spend more and more of their finite income on books just because Amazon is getting its way and thriving.

Among the three key players, the author and publisher are the ones devoted to producing interesting books, or at least trying. Amazon just sells the end product. (Its beleaguered publishing division remains a sideshow.) At heart, Amazon is basically a Walmart with some tech-company trappings. It is not truly a part of the book world. Amazon’s executives have never seemed sensitive to the fact that constantly squeezing the people who write and edit and publish the books could easily damage the quality of the books. Don’t you get what you pay for?

The Amazon–Hachette dispute is different from a battle over terms between, say, Walmart and Coca-Cola: Diet Coke has a set formula of ingredients, so the actual beverage is not going to get worse if Walmart drives a hard bargain. That’s not necessarily the case with books, each of which is a unique product. If publishers make less money on every book, they are going to pay people less to write and edit them, and talented people will decide to do something else with their time. Consider that it takes at least five years, and usually more, to write a definitive presidential biography. If an advance of $100,000 exceeds the budget that an Amazon-dominated world will allow, then the only author who can write such a biography must be either independently wealthy or subsidized by a full-time job, probably teaching at a university. In this scenario, there’s no such thing as a professional biographer—so there goes two-time Pulitzer Prize–winner Robert Caro, responsible for the consensus greatest presidential biography ever written.

As a person who knows a lot of writers and editors, I would venture that brain drain is a real threat. If books do decline and become more generic because Amazon is hoarding the revenue, the readers will be slow to notice. How do you notice a great book that never gets written?

*Correction, June 6, 2014: The original version of this article erroneously described David Streitfeld as the New York Times' publishing-beat reporter. (Return.)

Evan Hughes is the author of Literary Brooklyn and “The Trials of White Boy Rick.” Follow him on Twitter.