Kris Rusch: Amazon is in a Price War With Publishers

2388395268_a3a2871d26_bAmazon surprised many pundits over the past year as they signed deal after deal that gave publishers control over ebook prices, but now I think we know why.

While Amazon was publicly fighting with Hachette last summer and fall, it also quietly negotiated a new "agency lite" contract with Simon & Schuster. That deal was followed by similar quiet negotiations that resulted in deals with Macmillan and HMH, and not so quiet negotiations that lead to deals with HarperCollins and then Penguin.

No one is talking about the specifics of those contracts, but from what we can see from the outside all of those deals involved publishers having control over their ebook prices (ie, Agency). Given how Amazon bitterly fought against Agency pricing, these deals came as a shock.

I think Kristine Katherine Rusch may have the explanation. She was browsing for books and noticed that while the ebook prices were consistent, Amazon's prices for paper books were shockingly low:

Agency pricing has returned to ebooks, which means that publishers are setting their own ebook prices and the retailers, like Amazon, are not discounting. The ebook price on Amazon is clearly a price-match with Barnes & Noble, not something that Amazon has done.

I poked around Amazon, looking at e-book prices, and almost fell off my chair for a second time. Lisa Scottoline’s next book, which releases in October, has a $14.99 ebook. So does Michael Connelly’s November release. And Stephen King’s November release. Robert Crais’s next book shows a $12.70 Kindle edition paired with a $13.37 hardcover. Does that sound familiar?

And what’s fascinating to me is that these books, and the dozens of other traditionally published upcoming releases that I looked at are coming out of different publishing companies. Not different imprints of the Big 5, but each of the Big 5.

Once again, pricing seems…agreed upon.

After some more digging, she concluded that "Amazon is leaving the ebook prices—set by the publisher—alone…and messing with the paper prices":

I mean seriously messing with the paper prices. I should not have been able to get a brand-new hardcover for more than half off the list price on the day the book released. Maybe at Christmas. Maybe nine months from now, as the publisher gets ready to release the mass market paperback.

But now? Release day? Seriously?

I looked at all of my other preorders and found the same issue. The hardcovers are the same price—or nearly the same price—as the Kindle edition.

Rusch thinks that Amazon has accepted that it can't win the ebook fight with the major publishers and has instead turned to fighting a price war by aggressively discounting the print editions.

Basically, if Amazon can't get the publishers to offer what Amazon sees as reasonable ebook  prices, the retailer has decided to make sure that no one is going to buy those expensive ebooks.

I think Rusch is right, because her conclusion also explains why Authors United suddenly launched a media campaign against Amazon a month ago.

Authors United initially formed as an astroturfing group during last year's bitter negotiation between Amazon and Hachette, so you would think that it would have died when the deal was struck in October 2014, but AU reappeared last month and called for the DoJ to investigate Amazon.

I questioned their motivations at the time, and now I think Rusch has explained it.

Amazon was hitting authors in the pocketbook.

Rusch's explanation is too long to quote here, but the tl;dr version is that traditionally published authors aren't making much under the new agency contracts because Amazon was discounting paper book prices to discourage ebook sales, and the authors also weren't earning anything on print book sales because of those same deep discounts.

The publishers and Amazon are fighting a price war, and traditionally published authors are getting trampled.

Or have I missed something?

images via Flickr

 

About Nate Hoffelder (11582 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."

6 Comments on Kris Rusch: Amazon is in a Price War With Publishers

  1. This strategy serves multiple purposes:
    1- it puts a serious squeeze on the BPHs by helping them choke on Agency by reducing the volume of high margin ebooks and shifting it to low margin pbooks
    2- it puts a squeeze on B&N by undercutting their B&M prices on both fronts, ebooks that are too expensive to sell and pbooks they can’t afford to discount to Amazon levels
    3- it puts a squeeze on Apple, Kobo, and Google who only sell ebooks and rely strongly on BPHs titles
    4- It shifts ebook market share from the BPHs to Indies and smaller tradpubs

    A four-way win for Amazon, all perfectly legal.

    And the fun part is they got there by “reluctantly” giving the BPHs exactly what they wanted: higher ebook prices and higher pbook volumes.

    With enemies like that you hardly need friends. 😀

  2. Very true. But let’s not forget the purpose of agency pricing. It was to prevent Amazon from having any competitive advantage over other distributors (Apple, etc.) with the goal that Amazon’s share of the market shrinks and they have less and less leverage in future negotiations.

    That Amazon is taking legal measures to mess with the publishers that forced agency on it is sweet justice.

    It’s simply bad business to go to war with your best business partner. And if you find yourself with a knife in your back, don’t be surprised.

  3. “But let’s not forget the purpose of agency pricing. It was to prevent Amazon from having any competitive advantage over other distributors (Apple, etc.) with the goal that Amazon’s share of the market shrinks and they have less and less leverage in future negotiations.”

    I think it is more the publishing house’s fear of self-publishing. It is hard to get a book published and broadly distributed on store shelves – authors need publishing houses to do this. On the other hand, the act of publishing an ebook requires less work and be be done by indies. This puts downward pressure on physical book prices – competition – and reduces publishers’ control and profits.

    I think the big publishers’ goal is to maintain control of the industry, and Amazon’s low ebook prices and function as a publisher competes with this.

  4. I think it’s more the publishers’ actions in pricing ebooks high that’s hitting authors in the wallet. Thats where everything starts. Plus the deep discounting of print might not even be negatively affecting the pubs, only their authors. In fact, I theorized last year that, if Amazon wasn’t discounting print like this, the pubs would be doing it themselves. Just like the Hachette negotiations, the authors ire is once again pointing in the wrong direction.

  5. Too bad trad-pub didn’t agency their hardbacks too — oh wait, then the B&M stores couldn’t discount them either! 😉

    I’d still love for Amazon to have a ‘Trad-Pub is in the driver’s seat’ week where even their hardbacks carry a ‘price set by the publisher’.

    Start it say, Black Friday? 😉

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