Amazon Finally Explains Why It's Fighting A Big Publisher

Amazon Finally Explains Why It's Fighting A Big Publisher

Amazon is finally opening up about its fight with publisher Hachette.

The two companies have been embroiled in contentious negotiations over e-book pricing for months. Until now, no one was talking about the specifics of the deal.

In a post on the Kindle forum Tuesday afternoon, Amazon said it wants to lower the price of most e-books it sells to $9.99. Thirty percent of the sale would go to Amazon, 35 percent to the author, and the remaining 35 percent would go to the publisher.

"A key objective is lower e-book prices," the message, signed by the Amazon Books Team, said. The company added that $14.99 and $19.99 for e-book titles are "unjustifiably high" prices because the digital books don't have the same printing, warehousing, transportation or other costs bound books do. "E-books can be and should be less expensive," Amazon said.

In the Kindle forum note, Amazon said it thinks Hachette isn't giving enough of the profits from e-books to authors. "But ultimately that is not our call," the company wrote. Amazon's proposed solution is to lower prices, which it says will mean more money all around because customers will buy more books.

According to the company, customers would buy 1.74 copies of an e-book priced at $9.99 for every copy of an e-book priced at $14.99. When a lot of e-books are sold -- Amazon used 100,000 copies as an example -- that math works out in favor of everyone, at least according to Amazon.

"[I]f 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," Amazon said. "So, at $9.99, the total pie is bigger," Amazon noted.

Amazon also said the lower prices are necessary to compete against "mobile games, television, movies, Facebook, blogs, free news sites and more."

Michael Pietsch, the Hachette Book Group CEO, offered the publisher's take on the controversy to The New York Times earlier this month. “This controversy shouldn’t be misinterpreted,” Pietsch said. “It’s all about Amazon trying to make more money." Hachette didn't return a request for comment on Wednesday morning.

Amazon's unusual disclosure about the terms it seeks from Hachette comes after months of stalled negotiations with the publisher, the fourth-largest in the country. To pressure Hachette, Amazon earlier this year removed pre-sale buttons on some Hachette titles and delayed shipping times on others. The company even took the drastic step in May of recommending that customers order Hachette titles at other bookstores.

Authors have mixed feelings about the dispute. Some independent authors, who've benefitted from Amazon's self-publishing platform, have come out in support of the giant retailer. "Major publishers like Hachette have a long history of treating authors and readers poorly," reads a petition, spearheaded by Hugh Howey, an independent author. "Amazon, on the other hand, has built its reputation on valuing authors and readers dearly. The two companies didn’t simultaneously change directions overnight."

But some big-name bestselling authors, like Stephen King, Barbara Kingsolver and James Patterson, say they're stuck in the middle, and have asked Amazon in an open letter to "resolve its dispute with Hachette without hurting authors and without blocking or otherwise delaying the sale of books to its customers." Hundreds of them have urged their readers to email Amazon CEO Jeff Bezos "to change his mind."

Amazon's stock is down almost 20 percent this year, and the company is under intense pressure from shareholders to make more profit. It posted losses last quarter of $126 million, even though it reported revenue of $19.34 billion. The company said that it expects to lose between $410 million and $810 million this quarter.

Novelist Roxana Robinson, who is president of the Authors Guild, said she doesn't buy Amazon's claim that lower prices for eBooks will lead to more sales.

"They don't include any sources for the study that they cite, so it's unclear how they reached the numbers they put forth," Robinson said by phone Wednesday. "The idea of simply lowering eBook prices over and over isn't necessarily good for all authors."

"Amazon keeps promoting the idea that an eBook should cost much, much less than a hardcover because the cost of producing it is so much lower. But what they aren't acknowledging is that an eBook represents an enormous amount of time from the authors," Robinson said. "It's an investment of time and intellectual energy from the author, and time and money from the publisher."

This article has been updated with comment from the Authors Guild.

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