
Amazon/Hachette Business Interruption - jamesmoss
http://www.amazon.com/forum/kindle/ref=cm_cd_tfp_ef_tft_tp?_encoding=UTF8&cdForum=Fx1D7SY3BVSESG&cdThread=Tx3J0JKSSUIRCMT
======
IgorPartola
While I believe they saw these numbers, specifically that lowering the price
from $15 to $10 lead to a 74% increase in purchases, I don't believe that this
is a good general rule of thumb. Here's the problem: there are only so many
potential ebook readers out in the world, and they only have so much time.
This means there will be market saturation at some point, or at least market
movement. This elasticity is there, for sure, but the relationship between
price and purchases is not going to stay the same, especially as _everyone
follows this advice_. Basically, everyone will price their books at $10 and
the playing field will be level. Then the advice will be to price your book at
$7. Then at $5. Then at $2. Then at $0.99 cents. This is the problem we
currently see with Apple's App store and the Google Play Store: too many apps,
all priced similarly. For most apps, and probably for most ebooks it would
almost be better to go in the exact opposite direction: one sale at $1000 is
better than 10 sales at $1.

Also, why would Amazon care so much about how others market their content, to
the point of trying to interfere? If your content is not worth $15, then
nobody will buy it. If you suck at marketing, nobody will know to buy your
(possibly great content). Why does Amazon get its hands dirty instead of
simply giving you analytics-backed suggestions? Oh, that's right, because
controlling the publishers is more profitable for them, and using their market
position as leverage against publishers is a great way to do so.

~~~
chatmasta
I don't know exactly what you mean by market saturation in this case, as your
logic seems to imply that each book has a finite market of _N_ customers, and
enough of a subset of them, _M_ , are willing to pay $1000 (or whatever), such
that _M_ (1000) > _N_ (5).

The error in your logic is that the size of the market for a given book
actually depends on the price of that book. There's millions of books out
there. Why would I pay $1000 for one when I can get so many others for $5? By
lowering the price of books, Amazon increases the market size of each one.

There's also some behavioral economics involved, as I would assume people are
_far_ more likely to make a $5 impulse purchase (and look at that, Amazon has
"one click send to Kindle!") than a $15 one.

~~~
bsder
> Why would I pay $1000 for one when I can get so many others for $5?

Because market data suggests that most people _won 't_ switch. They will buy
book from "the new, hip writer X" or they won't buy _at all_.

Someone who intends to buy something by Malcolm Gladwell is unlikely to buy
something from somebody else just because it's a little cheaper.

Amazon wants to maximize sales volume whereas the distributors and authors
want to maximize profit. The two are often correlated, but not always.

~~~
kamakazizuru
Yes - but a person looking to buy the Malcolm Gladwell book - willing to buy
it at 10$ - but who can only buy it at 15$ or more - will probably end up then
either borrowing it from a friend or in the worst case downloading it as a PDF
illegally. Both of which are a lost sale for the publisher and author.

~~~
simias
Do you have any numbers to back that up though?

I mean, I know that with e-readers book piracy is now potentially practical
but is it really a concern for publisher? I'm really curious to know how
mainstream it is.

I wouldn't be surprised if the main cause of piracy for ebooks was not the
price but rather that the book is not available on a particular platform or
only in paperback. Besides the demographics for book readers owning an
e-reader is probably older and more wealthy than the average movie pirate.

The only numbers we have are those given by amazon, but we don't know exactly
which books they used to make their statistics. We also don't know what the
people who didn't buy the 15$ ebooks ended up doing, maybe they didn't buy
anything at all, maybe they just bought the paperback...

~~~
kamakazizuru
A kindle costs <50$ - load it up with free PDFs downloaded via Torrents or
other means and the notion : "book readers owning an e-reader is probably
older and more wealthy than the average movie pirate" falls flat.

I dont have numbers to back it up - but plenty of anecdotal evidence and just
common sense too. I myself have borrowed that malcolm gladwell book or the
other - because the cheapest I could buy it was 20$ - and while I was
interested in reading it - not enough to spend that much. Had it been 10$ - it
would be worth it for me to just buy it rather than ask around friends if
someone had a copy I could borrow. (You can also "borrow" books from friends
on Kindle)

------
krschultz
_For every copy an e-book would sell at $14.99, it would sell 1.74 copies if
priced at $9.99. So, for example, if 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._

That seems like a hard won data point, I'm surprised they threw it out to the
public domain. It makes intuitive sense to me though. I buy a lot of ebooks
and when they're really cheap I just buy them immediately rather than track
them somewhere to go and purchase when I have time to read them later. My
kindle has probably a half dozen books to read on it at the moment, and I
imagine if they were $20-30 each I wouldn't be that flippant about it.

~~~
WalterBright
Sure. I buy books by the bushel at $1 each (from ebay). I buy almost none at
$14.99.

~~~
gknoy
That sounds like an interesting model. Do you have tips you'd be willing to
share? I wouldn't mind having books to read which I won't mind my young kids
destroying accidentally.

~~~
riffraff
FWIW, I've gotten dozens of used books from amazon UK in the 2£ range, which
is higher but still in the destroyable-without-drama range.

I'd expect your local amazon has the same kind of resellers.

~~~
WalterBright
The minimum price for a physical book from Amazon is $4.00 plus sales tax.
($.01 for the book, $3.99 shipping)

------
nsx147
_In fact, the 30% share of total revenue is what Hachette forced us to take in
2010 when they illegally colluded with their competitors to raise e-book
prices._

Shots fired

------
coryl
_We believe 35% should go to the author, 35% to the publisher and 30% to
Amazon._

What do publishers even do with regards to e-book distribution? Are they going
the way of the record label company?

~~~
krschultz
The publishers and record labels are doing the same thing they were before -
curation and editing. The book printers & CD burners are out of the mix, but
they were never that expensive anyway. There are still fixed costs associated
with a book (editor) or an album (studio time), not to mention the marketing
costs.

Are they worth 35% of the profit? I don't think so. But probably more than 0%.
I personally think it should be 70% author, 20% publisher, 10% Amazon.

~~~
JohnTHaller
The publisher can always sell directly as an unencrypted EPUB and MOBI (works
on Kindle) to the consumer and set their own pricing and percentages.

~~~
lesterbuck
Not exactly. Turns out you can sell via Amazon, or you can sell directly, but
if you use the undocumented Amazon-only tool to construct your .mobi, you
can't sell that directly. And Amazon is now blocking the output of many/all
other ebook construction software so you can't use Send to Kindle or email.
USB is the only option to load a book.

[http://devblog.avdi.org/2014/04/02/why-does-amazon-hate-
eboo...](http://devblog.avdi.org/2014/04/02/why-does-amazon-hate-ebook-
authors/)

~~~
mintplant2
Just yesterday I used [http://epub2mobi.com/](http://epub2mobi.com/) to
convert a public domain ePub file to MOBI, then sent that to my Kindle's email
address. It was delivered wirelessly to my Kindle. Are you sure this hasn't
changed? Or is epub2mobi doing something to circumvent this?

------
isomorphic
Amazon is using language like "e-book(s) sold" when the reality is that they
mean "e-book license(s) sold." The difference may be subtle, but if an e-book
comes with DRM, the buyer certainly does not "own" it. Amazon even makes that
point themselves, as they promote e-books as having "no secondary market."

This is an important point when you consider the vendor lock-in of the Kindle
"ecosystem." Instead of "e-book," a better phrase might be "Kindle software."

Amazon should be careful of throwing stones about illegal collusion as they
approach market domination. It will be very easy for them to make a mistake
which runs afoul of anti-trust law.

~~~
rahimnathwani
DRM vs. no DRM

Sale vs. licence

These are two separate issues.

~~~
isomorphic
Theoretically yes, but technologically no. I can't "own" something with
server-based DRM on it. DRM creates a right (or an ability) of revocation for
the seller.

~~~
rahimnathwani
It's not DRM that prevents you from owning the book. It's the licence. The DRM
just makes it easier for the licensor to enforce the terms of the licence.

I 'buy' DRM-free books from O'Reilly. The lack of DRM means that O'Reilly
won't ever be able to remove my ability to read those books on a new device.
However, I still don't own the books, and have no second-sale rights.

------
jpatokal
This old blog post of mine needs a refresh, but there's nothing magical or
permanent about $9.99: the average price of an e-book bestseller (= Amazon Top
100) has been trending down roughly by a dollar a year, and was already at $7
last year. Likewise, the share of $5 books in the top 100 is already close to
50%.

[http://gyrovague.com/2013/03/26/down-down-down-books-e-
books...](http://gyrovague.com/2013/03/26/down-down-down-books-e-books-and-
apps-all-trending-to-zero/)

Some crappy code for pulling these stats from Amazon:

[https://github.com/jpatokal/amazon-price-
watcher](https://github.com/jpatokal/amazon-price-watcher)

------
cstross
John Scalzi's response to this piece of self-serving agitprop is worth reading
in full:

[http://whatever.scalzi.com/2014/07/30/amazons-latest-
volley/](http://whatever.scalzi.com/2014/07/30/amazons-latest-volley/)

(Shorter Scalzi: Amazon are presenting as "good for authors" policies which,
in fact, are only indisputably "good for Amazon"; the only authors they
_might_ be good for are those who cleave unto Amazon like limpets and don't do
business with the other 70% of the book distribution business, and even then,
it's somewhat questionable: Amazon's T&C's for authors publishing directly are
invidious and include binding arbitration clauses and boilerplate giving AMZN
the right to vary their terms unilaterally -- meaning AMZN basically have
those authors by the short and curlies, in a manner that no real publishing
company even attempts in their author contracts.)

~~~
opendais
Scalzi, like usual is ~90% correct and what little he is off about is easy
enough to ignore. ;)

I easily see #3 resulting in the bottom end selling at $5 and the top end
selling at $9.99 because I suspect the reason Amazon picked that number is,
overall, it generates more total sales [by dollar volume]. One of the few
things Amazon is good at is accurately pricing products to maximize gross
revenue.

That being the case, I don't think its likely to be the disastrous price point
Scalzi thinks it is even if it squeezes the publisher's margins on the higher
end books. Ebooks, once created, are a sunk cost...not an ongoing one so
maximizing gross revenue works in everyone's favor.

~~~
cstross
_Ebooks, once created, are a sunk cost...not an ongoing one so maximizing
gross revenue works in everyone 's favor._

What you're missing is that, from the author's point of view, ebooks are not
interchangeable. A unit of my sales is not usefully interchangeable with a
unit of Scalzi's. To Amazon we're fungible produce, but to us we're suppliers
of bespoke one-of-a-kind products. The Amazon move squeezes those of us who
are able to sell at a higher price point -- like me (current lead title priced
at $12.99 on Amazon and selling jolly well; and at £7.99 in the UK, and doing
well there, too).

Amazon's proposed $9.99 guillotine on pricing would basically impose a 30% cut
in my income if sales volume _of my titles_ remains static. And I haven't seen
any evidence that the price elasticity of demand for novels _by Charles
Stross_ will respond to crude pricing signals the way that aggregate demands
for _all_ books will do across the board.

~~~
opendais
> What you're missing is that, from the author's point of view, ebooks are not
> interchangeable.

> we're suppliers of bespoke one-of-a-kind products

People who make specialty designer products all think this way, it isn't just
authors. I'm well aware of the mindset, I just don't subscribe to it. Many
software products are as unique as two different ebooks, however, they meet
the same general need/desire for products of that category and are ultimately
interchangeable under the right market conditions.

> Amazon's proposed $9.99 guillotine on pricing would basically impose a 30%
> cut in my income if sales volume of my titles remains static. And I haven't
> seen any evidence that the price elasticity of demand for novels by Charles
> Stross will respond to crude pricing signals the way that aggregate demands
> for all books will do across the board.

The number of authors I don't buy on price is a very, very small list compared
to the majority of my ebook purchases. FWIW, I've never bought any of your
books precisely for this reason.

So, if you accept Amazon's premise that aggregate demand for all ebooks will
increase, that leads to the basic question of:

Why should I specifically value the net outcome for _Charles Stross_ over _any
other author that benefits from the increase in demand_?

------
ghshephard
While I buy into many of the arguments being made here, Some of these points
don't make sense. For example,

 _". And that 74% increase in copies sold makes it much more likely that the
title will make it onto the national bestseller lists. (Any author who's
trying to get on one of the national bestseller lists should insist to their
publisher that their e-book be priced at $9.99 or lower.)"_

Well, that's all well and good until _everyone_ prices their e-books at $9.99
or lower, at which point we're back to square one. Unless the objective is to
then have people who want a leg up to price their books at $8.99...

Also got a bit nasty when they mention, _" ilegally colluded with their
competitors"_ \- was this ever established? I thought the publishers settled
before it went to court, and only Apple was found guilty.

Finally, Love how Amazon is now trying to drive a wedge between the publishers
and authors - _" While we believe 35% should go to the author and 35% to
Hachette, the way this would actually work is that we would send 70% of the
total revenue to Hachette, and they would decide how much to share with the
author. We believe Hachette is sharing too small a portion with the author
today, but ultimately that is not our call."_

This is Amazon turning up the heat on the publishers. Remember, Amazon/Bezos
are _ruthless_ \- they could not care at all what is _fair_ \- but they are
going to use every tool in their kit to win at this negotiation.

~~~
shiven
_Amazon /Bezos are ruthless - they could not care at all what is fair_

I fail to see how the authors getting 35%, unhindered by the publisher's
whims, can be _unfair_.

~~~
ghshephard
The point I'm trying to make is that Bezos is suggesting that number because
it drives a wedge between the authors and the publishers. It's entire purpose
is to weaken the solidarity (such as it is) that exists between hachette and
their authors.

~~~
larrys
What is interesting is that the technique (wedge) will work even if the
authors are fully aware that that is what Amazon is doing.

~~~
tjl
If you read the John Scalzi piece on this, it's not working with him.

Everyone is talking about the price, but that's not the only thing they're
negotiating. We've heard about some of Amazon's demands from some of their
other negotiations, so I'm not surprised that Hachette is holding the line.

------
fpgeek
I'm a bit surprised that Amazon said listed "no returns" as one of the
differences with ebooks. I have personal experience with their incredibly
generous ebook return policy (right in line with their other generous return
policies).

Is this an implicit admission that Amazon is eating the cost of those returns?
Or do they mean something specific like the physical infrastructure for
returns?

~~~
jmedefind
When I worked at a bookstore we would ship boxes full of un-sold books back to
the publishers every month (Mostly consisting of cheap Romance novels). I
imagine having to track and handle all of that to be a major cost to
publishers.

~~~
pyoung
I believe I re-call an internet comment (most likely on HN) about how some
publishers would instruct bookstores to shred the unsold copies. Apparently it
was cheaper than shipping them back and trying to re-sell them somewhere else.

~~~
gknoy
Is there any way to find out when they're going to do this, so I can offer to
buy a few? :D

~~~
mcguire
According to the agreements (that used to be) in place between publishers,
distributors, and booksellers, that would be a _very_ serious no-no.

------
preinheimer
I've written a book, it's available on Amazon (including kindle).

What % I get when it's sold (kindle or dead tree) is absolutely none of
Amazon's business. I negotiated with my publisher (not Hachette), I'm happy
with the results, I don't need other people telling me what's best.

------
bambax
The competitor of Amazon is Google.

If you're an author the absolute best you can hope to get is 35% of the sale
price -- that is, the price your readers are willing to pay to read your work.
Usually, it's even much less.

The publisher keeps at least 35%; the distributor, 30%. It's unclear to me
what value these actors are offering, for this amount of money.

Disintermediation hasn't happened yet (what happened is, Amazon took the place
of bookstores, and publishers are still around).

But disintermediation will happen eventually; when that day comes this
discussion will sound silly and strange.

------
andor
_It 's also important to understand that e-books are highly price-elastic.
This means that when the price goes up, customers buy much less._

But what is the alternative for those customers: do they maybe buy the
paperback version instead? If that's the case, Hachette _might_ miss out on
revenue, but they also keep their paper-based business running and stay
somewhat independent of Amazon.

~~~
joedrew
They don't buy, or they buy something else. If there's one thing that
economics has taught us, it's that people will reduce their consumption when
prices go up; even water demonstrates price elasticity:
[http://www.nber.org/papers/w13573.pdf](http://www.nber.org/papers/w13573.pdf)

------
hownottowrite
The New Science of Retailing has a good section on elasticity. Anyone
interested in data-driven retail will enjoy the book.

[http://newscienceofretailing.com](http://newscienceofretailing.com)

------
credo
Amazon has mastered the art of saying nothing with a lot of self-serving words
:)

Their post is titled _" Update re: Amazon/Hachette Business Interruption"_.
However, they don't state what their specific demands are and why the business
was (in their words) interrupted.

Amazon's proclaimed objectives aren't as important as knowing what their
specific demands (from Hachette) are. I'm not a book-author, but as a
developer, I set the prices of the software products I develop (Apple and
Google let me do that, Amazon doesn't). So my sympathies are with the book
publishers, but even if they weren't, I'd still like Amazon to explicitly
spell out their demands instead of using self-serving pricing elasticity
theories to sway public opinion.

~~~
gergles
You set your _wholesale_ price. You don't get to set _retail_ prices. If I
want to buy something from you at $1000 and resell it at $1, that's my
business. eBook publishers have this delusion where they get to set retail
prices, and it's backwards and wrong.

------
matthewowen
From the perspective of the publisher and author, this analysis is somewhat
meaningless because it doesn't factor in any impact on sales of the book in
other formats.

------
hartator
"It's also important to understand that e-books are highly price-elastic."

Won't this mean actually the reverse?

------
a3n
> With an e-book, there's ... no lost sales due to out-of-stock

Well, with Amazon there could be lost sales due to refusing to stock/sell.

------
WalterSear
Books aren't video games. People don't collect them. I don't consider a game I
don't finish to be a failure, a waste of my time. I do so a book.

Despite Amazon's talking points, they are relatively price inelastic. Perhaps,
right now, they aren't, since people are still dealing with market novelty,
but over the long term, time is a bigger sink than money, when it comes to
books.

~~~
joshAg
Well, this was a horrible way to discover that I'm not a people.

If I stop collecting books, can I become a people? Is there like a specific
process or licensing body?

~~~
lotsofmangos
I dunno. You could ask the firemen, they'll be able to tell you.

