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A New Leak Reveals that Amazon Wants Increased Co-op Fees from Hachette

amazon parrotNew details concerning the ongoing Amazon-Hachette contract dispute were leaked yesterday in the NY Times.

According to James Stewart, Amazon’s tough negotiating techniques come as a sindeline to demands for higher co-op fees.

The article is well worth a read (you’ll need to get around the paywall).

As has been widely reported in the press, Amazon has incrementally been increasing the pressure on the publisher by selling Hachette titles at retail, reducing stock on hand, and disabling the pre-order buttons.

Amazon has only publicly commented about the ongoing contract dispute with Hachette once, while Hachette has released several official statements (here’s one) and multiple leaks. And today we have another leak from Hachette.

According to the NYTimes, the current contract fight is your ordinary run of the mill negotiation over service fees manufacturers (in this case, a publisher) regularly pay to major retailers. The only difference this time is that Amazon is ratcheting up their demands:

I spoke to someone involved on the Hachette side of the negotiations, who is under orders not to discuss them and asked not to be named. This person said that Amazon has been demanding payments for a range of services, including the pre-order button, personalized recommendations and a dedicated employee at Amazon for Hachette books. This is similar to so-called co-op arrangements with traditional retailers, like paying Barnes & Noble for placing a book in the front of the store.

Amazon "is very inventive about what we’d call standard service," this person said. "They’re teasing out all these layers and saying, ‘If you want that service, you’ll have to pay for it.’ In the end, it’s very hard to know what you’d be paying. Hachette has refused, and so bit by bit, they’ve been taking away these services, like the pre-order button, to teach Hachette a lesson."

This type of negotiation is fairly common, even in the book industry. In fact, Barnes & Noble had a similar dispute with Simon & Schuster last year. That fight went on for at least 8 months (January 2013 to August 2013), with B&N stooping so low as to forbid S&S authors from having events at B&N stores and letting S&S titles go out of stock.

So not only is Amazon playing dirty, they also ripped off B&N’s idea.

On a more serious note, little in the current leak comes as a surprise; it matches with what I assumed was going on when the story broke (and then was confirmed) 6 weeks ago. Amazon is gambling that the sales they lose by cutting off Hachette will be made up in the long run in fees. Amazon has good accountants, so they could well be right.

As a consumer, I don’t have a horse in this race and thus I only have a bystander’s interest in who wins. I will note, though, that Amazon appears to be taking steps to fix one of the longstanding gripes shared by many in publishing.

One common refrain in the book industry is that Amazon has too large of a share of the book market in the US. I won’t comment on whether or not that is true, nor if it is good or bad. But it is worth noting that in the case of Hachette, Amazon is reducing their market share.

Amazon is giving its detractors what they wanted: for Amazon to sell fewer books.

I plan to send Amazon a gift basket to say thanks; would you like to chip in?

NY Times

image by Tambako the Jaguar

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Will O’Neil June 22, 2014 um 1:47 am

Thanks for reminding us of the S&S–B&N tug-of-war; the parallels are very strong. The only real difference being that Hachette seems to be calculating that it will somehow serve their interest to make a public row. Having been one, I’ve observed that corporate executives very frequently miscalculate on such matters—they’re characteristically often wrong but never in doubt.

I suspect that Amazon sees Hachette as making the running for the others, and is all the more insistent for that. This is no fun for the Hachette management (who get paid to bear such pains stalwartly) or its authors (who do not).

Reflecting on this, one observation that occurs to me is that as an independent author I get the privilege of agency pricing from Amazon! (On the e-book version only.) I set the price of the Kindle in each market and they don’t fiddle with it at all. On the other hand, they give me strong incentives to keep it under $10. But I see good reasons not to charge that much in any event in my particular case.

Some have tried to make the case that Amazon really is no friend to the independent author, but I think that’s transparently false. Amazon goes well out of its way to encourage and support independent authors as a class. There’s a lot more attention paid to KDP and CreateSpace than they are worth in terms of revenue. I feel sure it’s because they see it as a way to undermine the hold of trade publishers as the gate-keepers. Those who feel that it is right and natural that publishing conglomerates should control who is published and who is not damn Amazon for this with bitter fury. That’s not a view any rational independent author can sympathize with.

Deborah Smith June 23, 2014 um 2:00 am

The short-sighted view of this as Amazon (good guy) vs. traditional pubs (bad guy) is 1. wildly wrong and 2. a pointless distraction. Amazon is not your friend, indie author. It’s a juggarnaut selling merchandise and using you as a means to do that. You are cheap bait. In fact, for the most part, you are merely a type of customer click-bait. The difference with Hachette and other major publishers (and also, let’s not forget, with the many, many smaller publishers who make up the "other" outside the Big 5 of Amazon publisher vendors) is that their business depends on selling books and books alone, not on using you, indie author, as a customer data device or books in general as a loss leader to sell toasters. Do not, dear god, make the mistake of thinking Amazon is in this to make democracy better for booklovers. Oh, dear Jesus.

fjtorres June 22, 2014 um 7:05 am

The way it looks is that Amazon told Hachette that if they wanted Agency that bad, they would give them agency. But that if they wanted any sales support, that would cost extra.

After all, Agency is about letting Hachette be the seller of record, no? Well, agents provide services and set their prices for those services: for 30%, Amazon will list them and let Hachette figure out how to get them to sell. Promotion and marketting services? Those cost extra. And then, to show them the value of their services, they slowly cut them off…

Seems like a reasonable way to deal with somebody who wants to control how you run your business. It is also how Amazon deals with the TV manufacturers who want to limit discounting: they list them but don’t promote them.

This also explains why they’re squealing like stuck pigs: they want Apple style agency where the street price is the list price and no discounting. With Amazon’s approach to agency they end up with the financial equivalent of wholesale and a low list price, the two things they don’t want. 🙂

It really is funny that the whole thing goes away if they simply revert to the wholesale model and let Amazon be the seller of record and set their own retail prices. Set a high listprice (like on pbooks) sell them to Amazon at a 45-50% discount and pocket the money without trying to meddle in Amazon’s business. Instead, they want to set the street price, tell Amazon how much of a margin they are allowed, and want Amazon to eat the cost of promoting and stocking the books from that allowance? That is not how pbooks are sold so why should Amazon agree to that for ebooks? Only a fool or a desperate retailer signs that deal.
Or one facing a cartel.

Amazon is neither foolish nor desperate.
And if Hachette is speaking for a cartel (like MacMillan in 2010)… Well, that could get interesting.

Still don’t see where Hachette has any left cards to play. (Other than to break non-disclosure and publish all the proposals.) 😉

Amazon can (and should) sit back and wait to see if the other BPHs also want Apple-style agency. Force the cartel to act like a cartel or break ranks.

Nate Hoffelder June 22, 2014 um 9:15 am

You know, it hadn’t occurred to me until you mentioned it but Amazon’s a la carte offers might be in response to Hachette hypothetically wanting to launch a Pottermore-esque ebookstore which is closely integrated with the Kindle platform.

I know Hachette is toying with the idea of a store; perhaps the fight with Amazon is over integration and support from Amazon as well as fees paid to Amazon.

In 2012 I speculated this could happen, and how it might play out:

I wonder if I was right?

fjtorres June 22, 2014 um 10:39 am

It could be.
Maybe they asked for a store-within-a-store to segregate their titles from the rest of the books or maybe they asked Amazon to deliver books sold from an upcoming ebookstore. Both notions are anathema to Amazon but the first they might do for a big enough cut: say 50-50. Which might explain the whining about Amazon asking for a 50% cut: it would be their way of saying "if you want us to do something stupid, pays us to be stupid."

If Amazon is going to help somebody build up a brand and customer relationship (*their* stock in trade) and dilute their in the process thry’ll want to be handsomely rewarded.

flyingtoastr June 22, 2014 um 10:28 am

"So not only is Amazon playing dirty, they also ripped off B&N’s idea."

You’re still wrong about the BN thing Nate, for the simple fact that Amazon did the same thing to IPG in December 2012, before BN and S&S had their spat. And if you want to go even further back, Amazon has stopped sales of an entire publisher’s catalogue long before (St. Martin’s in 2010).

Swing and a miss!

Nate Hoffelder June 22, 2014 um 10:36 am

Hehehe. That was a joke.

fjtorres June 22, 2014 um 10:41 am

So, Amazon invented it and B&N’s defense is they were merely copying it from Amazon?

Eic June 22, 2014 um 11:01 am

The article had several errors. When I checked the Silkworm today, Amazon was selling the hardcover at 40% off not full retail as in the article, but with a 2-4 week delay, and the Kindle price was $14.99, not $9.99. I know it’s probably impossible for a newspaper to keep up with the way prices change on Amazon, but the difference could lead one to a different interpretation.

The irony in all of this, as you hint, Nate, is that the one factor totally ignored in the battle is the reader. I suggest the vast majority of us could care less who publishes a book (authors are different hence Pottermore makes some sense) . We care about content and price. We also don’t care who delivers it (I do care in what format now, having shifted entirely to ebooks.) So while we will be the ones ultimately to decide who profits, we are ignored.

The idea that Hachette could create a store that anyone would go to is rather silly, in my mind. Why would anyone bother?

AvidReader June 22, 2014 um 11:25 am

"The idea that Hachette could create a store that anyone would go to is rather silly, in my mind. Why would anyone bother?"
Only if there brand was truly unique enough. Once upon a time, I would buy Fawcett Crest or Del Ray with little hesitation because their choice of all their authors didn’t disappoint. Having some popular authors with the rest a grab bag doesn’t cut it

fjtorres June 22, 2014 um 2:03 pm

In their day, DelRey stood for great fantasy and Doubleday for great SF.
Now they stand for nothing special. Except maybe higher prices.

DavidW June 22, 2014 um 11:40 am

Some of the comments are still talking about agency pricing and treating Amazon as a white knight. That is silly. We know now that this is not about the agency model. This is about amazon creating fees for what they used to offer for free. Amazon does that. I’ve seen that selling things off of Amazon MP. I’ve also seen smaller companies squeezed by those tactics. This is the equivalent of the Netflix fiasco where they doubled their rates while not offering anything new. I don’t like the Big 6, but this news paints the dispute in a different light.

Bob W June 22, 2014 um 7:24 pm

All that we know is that someone on the Hachette side leaked something. We don’t know for sure it’s the truth and I doubt it’s the whole story.

Deborah Smith June 23, 2014 um 2:08 am

Please everyone understand that Amazon is not just squeezing the big players, Amazon is squeezing the smaller publishers to the limit. the general public has no idea. Confidentiality agreements required by the Big A in its vendor contracts protect the Big A, not the vendors.

Mackay Bell June 23, 2014 um 4:29 pm

Then the smaller publishers who are being hurt need to make their case known and I might have sympathy. But Hatchette is not a small publisher and the argument that Amazon needs to be nice to Hatchette in the hope that they’ll be nice to everyone doesn’t fly.

I thought is was interesting that in Amazon’s statement about Hatchette they link to a statement by a smaller publisher who seems quite happy with Amazon’s treatment of them. To quote: "I always have a lingering suspicion that when one of the large publishing cartels complains they are being treated unfairly by Amazon, it’s probably good for most all of the smaller, independent presses. "

That makes sense to me.

Maria (BearMountainBooks) June 22, 2014 um 1:06 pm

Another thought is that Amazon might be seeing a trend in lower sales of books overall (or expecting it)–thus it might be time to start charging for other services. This was common practice in the computer world. When hardware sales began to level of, you start up a services business. So as soon as hardware did sell, you stick service contract on it–and suddenly "customary" support that was there before now has a charge. You want us to set up your hardware? Turns out that is a service. We’ll do it for a price, etc.

The service business because the growth business after the hardware margins become too thin or are flatlined.

Michael W. Perry June 22, 2014 um 1:13 pm

Quote: "This person said that Amazon has been demanding payments for a range of services, including the pre-order button, personalized recommendations and a dedicated employee at Amazon for Hachette books."

Contrary to what you might think, as a consumer you do have a 'horse in this race.' All those charges mean higher retail/wholesale not just at Amazon but anywhere you might want to buy a book. That’s Amazon game, not merely getting money, but getting it in a way that means that the copy you get from your local bookstore or at Walmart is a bit higher.

It’s called competitive advantage. The chief of the robber barons, John Rockefeller, did much the same in the early days of oil when the source was Pennsylvania and transportation was by train tanker cars. Secretly in control of the state’s railroad board, he got shipping costs altered to favor him. His oil shipped at a low rate, perhaps below cost. His competitors oil not only shipped at a higher rate, some of the extra money they paid was kicked back to him.

This is like that. Amazon wants to pay less for books by charging fees for services other retailers will offer for free. That gives it an advantage. Like the vile JR’s Standard Oil, they’ll be subsidizing Amazon. One jerk meets another: JR meet JB.

There’s an additional factor. Paying for benefits like "personalized recommendations" turns them into little more than lies. Pay and Amazon treats your books as great. Don’t pay and even a great book will be slighted.

And, of course authors and small publishers who can’t afford to pay get really screwed. They not only don’t get recommended, their position in Amazon’s far-from-honest search results are likely to get lowered. There’ll be good books that you, as a consumer, won’t discover because of Amazon’s greedy pay-to-play scheme.

In short, corruption isn’t selective. Poison one part of the marketplace and every part of the marketplace become unhealthy. And no one is poisoning the marketplace for books like Amazon.

fjtorres June 22, 2014 um 2:07 pm

Hachette has made it clear, in public statements this week, that they want no-discount agency back.
That is not something readers want, especially at the levels Apple mandated.
So if Amazon is selling Hachette ebooks at full "list" it is to show the folly of such pricing by giving them exactly what they want: less sales at Amazon.

Nate Hoffelder June 22, 2014 um 2:28 pm

Why do you assume I have to read books from major publishers?

If the prices go too high then I’ll simply buy ebooks elsewhere, wait for sales (or used books), or use the library. That’s what I did under agency; why would it not work here?

"All those charges mean higher retail/wholesale not just at Amazon but anywhere you might want to buy a book. That’s Amazon game"

No, that’s everyone’s game. Amazon is merely one player in it, so in the case of Amazon-Hachette I have no more of an interest than with any other contract dispute. I don’t recall anyone saying I had an interest in the B&N-S&S dispute last year, did they?

Peter Turner June 22, 2014 um 2:20 pm

I think it’s a mistake to draw too close a comparison here between Amazon’s co-op fees and those traditionally negotiated between publishers and retailers in the bricks-and-mortar arena.

Co-op paid to B&N, for example, is for X $ in exchange for X number of copies bought of a particular book with prominent display in an agreed upon location instore (new titles table, new paperback fiction, health and wellness, for instance). From the publishers POV, the co-op fees are considered part of the promotional plan for a book that may benefit for this added attention. If an agreement for co-op placement can’t be reached the book is still stocked and may actually be displayed. That is, failure to come to terms over co-op doesn’t result in a punative action by the retailer.

Amazon’s notion of “co-op” is really quite different—it amounts to payment in exchange for access to consumers. If the co-op is not paid the book or books are suppressed in various ways; pre-order buttons disabled, search “de-optimization,” removal of from “If you liked X you’ll like Y,” and the nuclear option of removal—the removal of buy buttons.

Traditional co-op is more of a cooperation between parties with strongly shared interests; Amazon’s tactics are more like the mafia’s “request” for protection money.

Nate Hoffelder June 22, 2014 um 2:30 pm

You should go look at what B&N did last year. Blocking author events sure looks to me like B&N is denying S&S from having "access to consumers".

Peter Turner June 22, 2014 um 6:13 pm

Point taken, though the broader perspective is the many years that publishers and the chains mostly amicably negotiated co-op terms without fear for their kneecaps. And that may be the most tell-tale sign of the core difference. Ask any sales director at a trade publishing house which he prefers: negotiateding with B&N or Amazon. If the dynamics and tactics being used where equivolent so too would their response.

Nate Hoffelder June 22, 2014 um 11:08 pm

Those negotiations were amicable probably because the bookstore chains depended on books to much to be aggressive. Walmart and other major generalist retail chains don’t play as nice.

On a related note, this is another reason why pundits are foolish to want Walmart to launch a bookstore chain. It would be like having two Amazons playing rough, harming smaller competitors and publishers alike.

Peter Turner June 22, 2014 um 11:13 pm

My comment was only directed at the comparison of Amazon’s negotiating tactics and that of the b&m chains historically.

Deborah Smith June 23, 2014 um 2:10 am

you nailed it. Amazon makes vendors an offer they can’t logically refuse.

Maria (BearMountainBooks) June 22, 2014 um 2:29 pm

And countless authors used to blog about how their publisher paid for co-op and then B&N failed to display the books as agreed.

It’s just two sides trying for a position. Amazon’s marketing is essentially co-op. Just like they promised KDP authors "marketing" and whatnot if they went exclusive. Very little of that materialized and it *appears* that after Amazon figured out that prime lending wasn’t working, they stopped promoting any individual titles as being in the program. Sure the books are still marked with "borrow for free" but that isn’t the same as "recommending" titles or giving them more display time.

I don’t think Amazon’s tactics are any worse or better than any other vendor vying for position in the marketplace. Of course, the only "bargaining" table I see is from the KDP side and it’s a take-it-or-leave it negotiation as well.

Caleb June 22, 2014 um 4:46 pm

Amazon offers something with their co-op monies, including inclusion in Daily Deal emails and other very smart email selling targeted follow-ups. Unlike with many brick and mortar co-op or MDF monies, they provide proof of spending when they deduct these monies from invoice payments. There are several retailers who simply take the extra discount and apply to their bottom lines with no proof of extra marketing. MDF is always a sticking point in these negotiations across product types, not just for books. And these always increasing retailer margins are why so many vendors really want to sell direct if possible. And as Peter says, taking these ways of doing business across from storefronts to online is maddening for vendors. We paid to get on your plane, now you want more money for me to use toilet paper? Lots of "hosing" out there. It could be that all these near-term practices will only hurt the brands that demand them. At some point these rising costs of doing business mean you cannot offer your product in that way, which is where this current stalemate presently resides.

puzzled June 22, 2014 um 6:34 pm

Hachette’s quote from a different point of view:

Hachette “is very inventive about what we’d call standard service,” this author said. “They’re teasing out all these layers and saying, ‘If you want that service, you’ll have to pay for it.’ In the end, it’s very hard to know what you’d be getting.”

Mackay Bell June 22, 2014 um 6:59 pm

All these comparisons to robber barons and the Mafia (and Netflix raising subscription prices!) are way over top. More importantly, they aren’t working with the general public, which still loves Amazon because Amazon provides value. Even if Amazon evilly removes pre-order buttons and fiendishly hurts a poor giant billion dollar publishing corporation by asking for more bucks.

You can spin this how you want (like Attilla the Hun moving across Asia!), but it really is just a typical business negotiation. But here’s my new spin. Amazon ran at a loss for most of its existence and it’s still running with a very slim profit. Amazon took huge losses to build a customer base, starting with providing as many different books as possible at the lowest possible prices. That can’t continue for ever. At some point, they have to start making higher profits. They’ve expanding into a lot off different markets, so maybe they feel it’s time for books to pay their fair share to the bottom line.

Trying to get the general public worked up about what is happening specifically to Hatchette doesn’t work so well. Amazon fans understand that more money to Amazon from Hatchette might mean cheaper prices on other goods or more movies in Amazon Prime, etc. This dog that Amazon should be uniquely generous to Hatchette for the sake of "literature" isn’t hunting.

What is interesting, back to self-publishing, is that Amazon feels this is the time it can make the move against big publishers. How much of that decision comes from the fact that books are only a small part of Amazon’s business now, and how much might be coming from the fact that self-publishing is taking off and traditional publishers are less important to desirable readers?

In other words, contrary to the argument that if Amazon squeezes Hatchette today, they will squeeze self-publishers tomorrow, what if Amazon has decided that self-publishing is the future, and they aren’t invested in keeping the old guard happy anymore?

Let’s take this one step further. Amazon has tons of user stats. What if they KNOW that the people that buy self-published books are the better customers? Contrary to what we are being sold by Trad PR spin, the kind of people who enjoy buying lots of books by new cutting edge authors at $4.99 are the same people who subscribe to Amazon prime, buy Kindles, and buy a bunch of other stuff. And the people willing to spend $14.99 to buy another Patterson novel aren’t such good customers. They only buy Patterson and "keep off my lawn" signs.

That may be a bridge too far. But this debate, that Hatchette’s spin machine is forcing into the media, ultimately isn’t good for traditional publishers because it brings up a lot of uncomfortable questions. I’m learning a lot of inside dirt on how Trad’s pay for prime shelf space, and frankly, it doesn’t sound all innocent or good for "literature." Sounds like rusty gatekeeping. And I think a lot of Hatchette writers are going to come out of this damaged for taking sides by promoting false and self-serving arguments.

Deborah Smith June 23, 2014 um 2:12 am

You have no idea how Amazon actually treats its vendors. If you did, you wouldn’t say any of that.

Mackay Bell June 23, 2014 um 4:21 pm

If you’re talking about how Amazon treats self-publishers, I’ve read a lot by individuals who are quite happy with how they are treated, and others who have problems and explain why. If you’re talking about big publishers, I’ve read a lot about their complaints and they seem overblown. I have heard some reasonable complaints from smaller publishers caught in the middle.

What are you specifically referring to?

Anne June 23, 2014 um 4:36 pm

@ Deborah- Please educate us.

Eric June 24, 2014 um 7:48 am

The problem with your post is that is a speculation built on a speculation resting on a teetering assumption. Way too many what ifs. One might as well ask what if Mt. Hood blows up and sweeps Seattle away. We don’t know if the leak is true, what its motivation might have been, what will come out of the negotiations. Time for everyone to take a deep breath, go back to reading whatever book you were reading, wait for the dust to settle and enjoy the day.

William Ockham June 23, 2014 um 7:38 am

Let us not be naive. Did anyone think about why this leak happened? The number of people outside of the publishing industry who care about this stuff is statistically indistinguishable from zero. This leak is for the benefit of the other Big 5 publishers. They need to know what Amazon’s strategy is. This is just part of an attempt by the Big 5 to coordinate their negotiation strategy without running afoul of the DoJ.

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