Amazon-S&S Deal Sparks Debate, Commentary

3190443246_77ab8e8245[1]Many in publishing were surprised Monday night when news broke that Amazon had signed a new contract with Simon & Schuster. What few details are publicly available for the deal suggest that it is a modified version of agency, which surprised pundits just as much as the fact that the deal was signed two months before the old contract expired.

The S&S-Amazon deal has led some to look at the ongoing dispute between Amazon and Hachette in a new light, raising the question as to why exactly that fight has continued so long.

Some, including Doug Preston and David Streitfeld, sounded like broken records when they discussed the deal. NPR sought out Preston when they covered the deal, and he said:

If Simon and Schuster is happy with this agreement, and if Hachette's being offered the same terms, I would, you know, be wanting Hachette to strive to solve this problem as soon as possible. But it doesn't solve the problem of Amazon. Every time they get into a negotiating problem with a publisher, are they going to target the authors? I mean, it's just unacceptable.

I do agree that it was terrible how Amazon targeted S&S authors ... No, wait, I'm thinking of B&N and their 8 month long negotiation with S&S in 2013. Amazon hasn't been accused of taking any steps to curtail S&S sales. My mistake, sorry.

Elsewhere, the commentary is far less friendly to Hachette. Passive Guy weighed in the story yesterday, writing:

The deal between Amazon and Simon & Schuster has put Hachette in a box.

The Amazon/Hachette agreement was critical to Big Publishing because Hachette’s was the first of the court-ordered Price-Fix Six contracts to expire. The new Hachette deal would set the pattern for the other miscreants when their Amazon contracts expired.

By making a deal with S&S two months before the S&S contract expired, the Amazon/S&S contract is the pattern contract for the other publishers. One does not assume that S&S has harmed its authors or itself with its Amazon contract.

Amazon has performed a switcheroo. Now the onus is on Hachette. What’s wrong with Hachette that it can’t get the same contract that S&S has?

David Gaughran concurs, noting that the sky hasn't fallen as a result of deal between Amazon and S&S:

It also begs a question: what exactly is Hachette holding out for? As everyone knows at this point, Hachette’s contract with Amazon expired in March and the two parties have been unable to agree a deal since.

The narrative being pushed by the media was that Amazon’s desired terms would harm Hachette and its authors, yet Simon & Schuster was able to agree a contract very quickly which CEO Carolyn Reidy called a “positive development.” She characterized the deal as “economically advantageous for both Simon & Schuster and its authors and maintains the author’s share of income generated from e-book sales.”

Gaughran also brings up the same point I did about Bonnier and its new deal with Amazon in Germany, and if you haven't yet read the second half of his post, you should.

He explores the history of one of the previous times Amazon was accused of bullying (the Macmillan buy buttons removal in 2010) and notes how the details revealed later in court documents cast a different light on the behind the scenes events than what the media reported at the time.

It's worth noting, though, that not all of the commentary is as critical of Hachette. Hugh Howey, in particular, is far more magnanimous than I would have been. He offers a nuanced dissection of the deal and the affect it will have on Amazon's upcoming contract negotiations.

Starting with the point that the KDP TOS is what Amazon would see as an ideal contract, Howey notes that the S&S deal is probably structured along the same lines:

There isn’t a sliver of a leak about this deal that doesn’t fit the model of Incentivized Agency. S&S sets prices; Amazon can discount; there are “financial incentives to drop prices.”

...

My guess is that Streitfeld learned the split is dependent on price, but he doesn't want to be the one to break that news. Eventually, it’ll be public knowledge that Amazon pays a higher rate when wholesalers provide ebooks at a sane price. And people will be shocked. Except for self-published authors, who have been pressured by Amazon to keep ebook prices in a reasonable middle range for years.

The one statement we have from Amazon about this deal claims: “Importantly, the agreement specifically creates a financial incentive for Simon & Schuster to deliver lower prices for readers.

If Howey's expansion on the limited public statements is right, then Amazon has managed to avert what I and many others feared most: that the publishers would push for a return to straight agency.

It's a shame we don't know more, because I for one would really like to know if Amazon actually got a major publisher to agree to a KDP-style contract. That would represent a major shift in the landscape of the publishing industry.

image by thisisbossi

 

About Nate Hoffelder (11589 Articles)
Nate Hoffelder is the founder and editor of The Digital Reader:"I've been into reading ebooks since forever, but I only got my first ereader in July 2007. Everything quickly spiraled out of control from there. Before I started this blog in January 2010 I covered ebooks, ebook readers, and digital publishing for about 2 years as a part of MobileRead Forums. It's a great community, and being a member is a joy. But I thought I could make something out of how I covered the news for MobileRead, so I started this blog."

18 Comments on Amazon-S&S Deal Sparks Debate, Commentary

  1. One argument towards why S&S came to a deal so swiftly is that it clearly puts to rest any conspiracy theory of S&S colluding with the other publishers. They have quickly proved that they are acting on their own accord and are not standing firm with the rest of the Big 5. Additionally, this also shows that Amazon is not against agency pricing, and that the agency model is not bad, it was just the manner it was implemented by the 5 colluding publishers and Apple. I’m curious, do we know if there is any language similar to the Most Favored Nation clause in the earlier agency contracts?

    • What, like the pernicious MFN clause in the KDP contract that Howey calls “ideal”?

      • Both Nook Press and Kobo Writing Life have MFN clauses similar, if not identical, to KDPs. I remain puzzled why the one is pernicious and the others go unmentioned.

        • Because it’s Amazon.
          Duh!
          😉

        • Can’t recall ever receiving any emails from Nook or KDP threatening to remove all my titles from the store because I’m price cheaper on Amazon.

          • So it would seem it’s not the clause you find pernicious but rather that Amazon expects you to abide by the terms you agreed to, yes?

          • “Can’t recall ever receiving any emails from Nook or KDP threatening to remove all my titles from the store because I’m price cheaper on Amazon.”

            The impact of MFN has been distorted by Amazon and its supporters. MFN clauses are generally not policed diligently by either party or even using algorithms to make sure the effects are immediate and real. This is because retailers benefit from small differentiations among other retailers.

            MFN’s are insurance policies against another retailer offering broad discounts that significantly affect whether or not your consumers return to you or flee to the competition. No retailer is going to enforce every small discrepancy even if they do have such recourse under an MFN. If they start to see large price disparities and changes in their audience/customers, then they will utilize the MFN as a safety measure.

    • The feds made it clear that honestly-negotiated agency is not illegal.
      Agency imposed via hub-and-spoke conspiracy most definitely is.

      Also, don’t read too much into S&S execs as “good buys”. The deal was brokered by Moonves, not Reidy. CBS these days is looking to digital for revenue growth (setting up their own for-pay streaming video service, for example) so they are not about to sacrifice digital revenues to the gods of dead tree pulp.

  2. Passive Guy asks, “What’s wrong with Hachette that it can’t get the same contract that S&S has?”

    The big question is, were Hachette offered the same deal as Simon & Schuster?

    One has to ask what happened to the demand for ebook prices to be below $9.99, that was apparently so important to Amazon that we indies were asked to write to Hachette on Amazon’s behalf?

    One alternative view to that favoured here is that Amazon could not afford to be carrying on a simultaneous battle with two Big 5 publishers just as it announces its disastrous Q3 finances , so played softball with Simon & Schuster to remove that problem.

    It’s no coincidence that there is always a flood of initiatives and happy news from Amazon immediately before a bad finance report. Both S&S and Bonnier joyously settling their differences the week before Q3 is a doubtful coincidence.

    • Uh, S&S made the first offer.
      Amazon countered and agreement was reached.
      Hachette has never said what they want.
      (Other than telling Lagardere stockholders they want no-discount agency.)

      • Okay, so let’s agree S&S made the first offer and Amazon agreed (which would be consistent with Amazon wanting to avoid a fight prior to day’s Q3 report).

        In what way does this make this deal the same as the one on the table with Hachette?

        Clearly it does not. Either Hachette made the first offer, and Amazon refused, of Amazon made the first offer, which clearly is not going to be the same as what S&S offered.

        Amazon made very clear when begging indies to help them, that ebooks priced over ten dollars were a central issue in the Hachette dispute. It was all about getting ebook prices down for consumers. Or more specifically getting Hachette ebook prices down.

        A concern that seems to have been brushed aside to get a quick settlement with S&S.

        If that issue has been agreed with S&S I somehow think Amazon would now letting us know.

        • There is no deal on the table with Hachette because they have not negotiated. They’ve orchestrated a disinformation and whining publicity campaign but they haven’t negotiated.
          Takes two to tango.

          Hachette wants submission, not compromise.

    • +++ One has to ask what happened to the demand for ebook prices to be below $9.99, that was apparently so important to Amazon that we indies were asked to write to Hachette on Amazon’s behalf? +++

      Yes, that is an interesting question, isn’t it. Here Hugh Howey and David Gauhgran and Joe Konrath have spent so much time telling us how awful agency pricing was. Awful, awful, awful. And that $9.99 was a golden number. (Of course, anyone who actually believed that nonsense either A) failed math in high school or B) buys bridges crossing the East River in New York.) As a Brit, you should understand the concept of the number 42 and Vogon poetry.

      But, apparently, agency’s not so bad after all if Amazon gets more margin and more MDF. Which it did. Which is what channels always want.

      All the above sites and several others, including Passive Voice, who blocks posts pointing out what’s actually going on, have done a deep, deep disservice to indies. This was NEVER about helping us. Here’s what it was about:

      http://www.rule-set.com/ricks-blog/what-hugh-howey-wont-talk-about-but-should-the-book-channel-part-v-of-several-parts-the-resellers-and-agency-vs-wholesale-pricing-and-mdf-oh-my

      It was about a channel seeking power over its suppliers and suppliers seeking power over a channel. This happens ALL the time.

      And if you, as an indie, think you were being used, you were. The publishers used their writers and Amazon used you.

      Now, read back through the series. Note I point out multiple times that it’s INDIES who exist under an agency pricing regime. On his site, I called what Amazon was imposing on indies “modified agency.” David Gauhgran thought that was “ridiculous.”

      Well, it looks like Hugh Howey has caught up! (I’m not sure where Gauhgran is in the new reality.) Now, you indies will be glad to know that you are part of “incentivized agency.” Isn’t that special.

      But, you know, some on this site thought I was being all mean and such to Amazon, but it’s heart warming to know Hugh and I are on the same page. We’re just on different adjectives.

      Read it for yourself:

      http://www.hughhowey.com/speculation-on-the-amazon-simon-schuster-deal/

      While you’re there, you should enjoy reading this:

      +++ What does this mean? It means if we price our ebooks at $14.99, Amazon has plenty of meat left on the bone to discount our ebooks back down to $9.99. The customer gets a good price, and Amazon still makes a profit. That is, we the authors are punished for jacking up the prices. +++

      Yep, that’s great. Hope you all like being punished by Amazon. Maybe they should hand out a free copy of “50 Shades of Grey” to get you all in the mood for your bottom whipping. But don’t worry. S&S’s tender rear is being spared any angry red lines as they can use agency pricing to protect their new releases and bundles and all kinds of cool things while you can’t. Oh, and they can sell all kinds of specialty and niche books at above the magical, radiant, oh so special $9.99 price because they don’t live in a $7 pricing box. You do.

      That should make it all feel better, I hope.

      BTW, here’s my take on Howey’s analysis of how indies are being treated. Because he’s not done spreading the good news. You need to read more and learn more about what else Amazon can do…uh…”for” you.

      http://www.rule-set.com/ricks-blog/hugh-howey-serves-up-a-turd-to-indies-but-does-polish-it

      But, never let it be said that people can’t start to learn. There’s a poor schmoo who comments on Howey’s article that finally seems to be starting to get it:

      +++ As I noted over at PV, the deal here is certainly incentivized Agency, but the comparison to KDP depends on the margin breaks. With KDP, the incentives are huge and almost insurmontable. 70% margins on 2.99-9.99, but 35% outside that narrow range. From the reports so far, S&S is getting at least 70% across the board, with no limits on that. The incentives, therefore, would only increase S&S margins above 70% for lower prices. The numbers aren’t mentioned, but the suggestion is that they could be significantly higher. Not just to 75% say. So this is way, way better than what KDP authors are getting. +++

      This poor naif’s handle is “Broken Yogi.” I think he’s on the road to becoming an “Enlightened Yogi.” Read the rest of his comment. It’s priceless. Painful reading for some, but who said gaining inner knowledge was going to be easy.

      For those of you who still haven’t gotten it, this is what happened.

      After the publishers lost the collusion case, Amazon had the whip hand in the negotiations.

      Amazon swung for the fences. Why not? They had nothing to lose. By forcing the publishers to abandon agency pricing, they would gain control of the E-book publishing pricing model. Channels always like being in charge of that.

      Part of their strategy was to proclaim the wonders of $9.99. It’s a price calculated to put pressure on the publishers. THAT’s why they put you in that box and are keeping you in it. If indies start to be allowed out of the box, some of you are going to find out why that box is bad for you and you’ll talk about it. And once you do, Amazon loses an arrow in its quiver to fire at the publishers.

      Amazon overplayed its hand. Hachette failed to break (Hachette, BTW, will get the same basic deal as S&S, as will all the other publishers). Playing games with product availability didn’t play well in the press. Having highly visible writers dabbing their eyes while muttering about censorship didn’t help. I don’t think Paul Ryan noting his book had disappeared off Amazon played well either.

      Amazon started to hear rumblings from the Feds about being a monopsony. That’s why they put in that odd phrase about “legitimate” reasons for pricing books above $9.99, which I covered in the article Amazonium Codexorum. And I can assure you that every time the feds wanted to talk about the ramifications of the collusion case, the publishers jumped up and down pointing to movie theaters, threw around .pptx files loaded with slides on famous monopsony cases and flashed sock puppets who asked why no one could find possible presidential candidate Paul Ryan’s book in the AMZ search engine.

      This was all becoming a bit noisy and complicated so Amazon decided to grab that extra MDF and margin and be happy.

      Now, hopefully, some of you out there have learned something. Get up, brush those tire tracks off your clothing, and focus on these two things:

      Put pressure on Amazon to let you out of the $7 roach motel. If S&S can price a book above $9.99, so should you. If your pricing is stupid, the market will let you know almost immediately.

      And think a little bit about why you want out of the box. Yes, I’m going to write an article about it, but really. You can figure it for yourself.

      Put pressure on Amazon to stop calling its 30% retail usage fee a “royalty.” What you need to do is put pressure on the company to drop that damn retail usage fee to something sensible. 15% is a very reasonable amount, especially for an indie. If Amazon wants 30 freaking points, it can provide proactive, measurable marketing programs to justify that margin.

      Rick Chapman (The Man Who’s Gotten It Right)
      Author “Rule-Set: A Novel of a Quantum Future.”
      Just Released. More info at http://www.rule-set.com

  3. Now let’s see if Authors United petitions Hachette to strike a deal with Amazon.

    • They won’t have to. S&S is the template for the industry. Everyone else will get the same deal. Evil agency pricing is alive and well and will be in the future. Amazon is not going to talk anymore about optimal price points and 1.7 more readers and all the rest of that junk. That’s in the past.

      New books from hot authors will be priced at $X for Y period of time, then drop back to $Z based on wholesale pricing and promotional patterns. IOW, the long tail will be activated. Publisher will also do things like publish big fat art books with lots of illustrations and not have to apply for the Amazon pricing codex to wholesale them out to Amazon over $9.99. They are happy boys and girls!

      Amazon gets fatter discounts (more margin) and more MDF. They are happy boys and girls!

      Established publishers such as Doug Preston and pols like Paul Ryan will see their books shine in the Amazon search engine. THEY are happy boys and girls!

      Indies are in exactly the same place. Stuck in a $7 roach motel paying 30 points for a download service.

      If YOU (I use the collective you here) are happy about, I think you definitely need to pick up 50 Shades as you squirm in the happy sadistic grip of “Incentivized Agency.” The hour and the book are met.

      Instead of worrying about the past, my suggestion would be turn to how to use the disruption to benefit you. Press for better terms from Amazon and publishers. Figure out how to get access to important data about how your book is read and bought. Find out means to prevent yourself from being disintermediated from your readers. Ignore the very bad information and biased analyses that came from far too many sites that left indies blindsided (well, some of you. I pretty much knew what happen this go around. Worked in and with channels and wrote and researched them extensively. None of this was new).

      Rick Chapman (The Man Who’s Gotten It Right)
      Author “Rule-Set: A Novel of a Quantum Future.”
      Just Released. More info at http://www.rule-set.com

  4. The line about “preserving the authors’ share” concerns me for a few reasons. One, it has nothing to do with Amazon. The author’s share is in the contract between S&S and the author. In fact, the only comment Amazon has made about the author’s share advocated that it should go up (the 30/35/35 split they mentioned). In that light, preserving the authors share means it didn’t go up. Secondly, if this is actually a higher price/lower cut deal, it’s technically true that the authors share is preserved, say 25% of net for instance, but it’s 25% of 50% at 14.99 vs 25% of 70% at that price before the deal (guessing at percentages, I have no clue what they really might be). It may be technically accurate but misleading. Third, was the authors share being cut actually a consideration? It’s widely argued that 25% of net is too low. Going lower than that doesn’t seem like a tenable position. But that statement makes it seem like it was on S&S’s table of possibilities. That’s very concerning to me that it was even a consideration, if true.

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