It looks like Hachette's PR department has stepped up a gear. This subject has been covered several times before and I think this comment [1] did a good job of explaining Hachette and Amazon's positions. To summarise:
When Hachette's contract with Amazon expired, Amazon (rightfully) stopped ordering advance inventory for stocking, but continued taking orders for available titles and transmitted those orders to Hachette as they arrived. From there, it's Hachette's responsibility to deliver the orders to an Amazon distribution center. Once the books arrive, Amazon packs & ships them to purchasing customers as normal.
That's why, when Hachette's contract expired, all of their books were listed as "Out of stock: ships in 1 to 6 weeks" - that's how long it takes Hachette to deliver stock. That's slow as hell.
Amazon didn't "boycott" or "drop" or "betray" authors or "discourage" readers from buying their books - it ceased offering retail inventory management services to a supplier whose contract had expired, and made a rational and defensible business decision when it became clear that the supplier was not negotiating in good faith to establish a new agreement.
Krugman's point is summed up in another quote from the comment you linked to: "Hachette failed to come to mutually agreeable terms with [Amazon]. That's their most important job as a publisher, and they blew it, to the tune of permanently costing their authors 50-60%+ of sales they'll never recover."
When one buyer represents 50-60% of sales, the "most important job" of any seller is to come to "mutually agreeable terms" with that buyer. Is Amazon's "most important job" to come to terms with Hachette? Not even close. One party to the negotiation can walk away; the other cannot. So "mutually agreeable terms" is kind of a hilarious phrase meaning, "we will state the terms, and then you will agree to them. That is now your most important job."
And Hachette is the largest publisher, with something like 16% market share (2010 numbers). That's why this negotiation is even happening.
When Amazon talks to smaller publishers, this isn't even an issue. They are your boss; they tell you what to do; you do it. Except they're a little different from a normal boss, because they absolutely do not care about you; it is actively in their interest to see your business fail. People who survive in Amazon's buying department have to be OK with that -- the in-house name for Amazon's Small Publishers Negotiation Program was the "Gazelle Project," before the lawyers made them change it.[1]
Support publishers, don't support publishers, whatever. If you think authors will be better off without publishers that's a separate conversation. But if there's any industry you do like, you should be very concerned about Amazon gaining market share in that industry.
>When one buyer represents 50-60% of sales, ... One party to the negotiation can walk away; the other cannot.
I don't follow the logic here. Your fatalistic assessment assumes Hachette (and other publishers) are paralyzed and cannot adapt. However, the business world isn't static therefore Hachette can walk away. (If not this particular contract renewal because of timing pressure then at least the next one -- if they have a smart strategy.)
If amazon has 60% of sales, it was the book publishers who willingly signed previous business deals to allow amazon to become that dominant. Likewise, those book publishers can put on their business-thinking hats and figure out how to make amazon less powerful.
Victim thinking: ok, amazon wants to pay us less for our books. Since we're helpless deer in the headlights, what do we do?
Business thinking: ok, we got our executive team in a conference room here. The CEO says, "this is where all you vice presidents and MBAs earn your salaries. Give me a business plan to lessen amazon's pricing power over us." Options:
1) Rethink/reprioritize other reseller relationships and offer better terms to Barnes & Noble, Apple iBooks, etc
2) Open our own online book store. Talk to other publishers about starting a consortium or joint venture to create a new online book store to sell direct.
3) Maybe Google Inc is also interested in partnering with us to beat amazon.
4) Call CEO of Sony and tell him we want help his eReader beat Kindle by offering exclusive titles just for that device.
5) dozens of other creative business ideas...
If all the big publishers want to, they can join forces and pull all their book titles from amazon. Amazon is then left with just the self-published CreateSpace titles. The book publishers made voluntary deals to get them into this position of weakness and likewise, they can start making voluntary strategic moves to get them out of it.
Airlines used to pay a big commission to travel agents. The airlines used the emergence of the internet to reduce commissions to agents. In this case the vendor (airlines) got more leverage than the reseller (travel agents). However, cruise ships still rely on travel agents for the bulk of their bookings. Maybe the relative positions of market power will change. Maybe not. Businesses can adapt and change if they want to.
All the articles from New York Times, salon.com, author blogs, etc sympathizing with the book publishers have not convinced me that Hachette is a helpless victim of amazon dominance.
Excellent points, whenever I read Krugman I always get the feeling that he wants everyone to be a victim so they'll support whatever government intervention he wants this week.
Hachette is a major company that has no problem fighting back, problem is in the internet age they are incompetent, for that they deserve whatever the market is dishing out to their outdated business model.
Note that some of these ideas count as collusion and are illegal. See: the Justice Department's successful lawsuit against publishers over their deals with Apple.
Unfortunately, the set of solutions {!collusion, practical} is very small. It might be empty.
The illegal collusion with Apple was over coordinated price fixing.
I don't see what would be illegal about book publishers partnering up to create their own online store and making their titles exclusive to that store.
The major record labels jointly own Vevo[1] for youtube content. They also collectively own a big chunk of Spotify.
Pearson Publishing is a competitor of O'Reilly and yet they were partial owners of the O'Reilly online subscription system.[2]
Joint ventures almost never pan out; especially for content. Once you create a joint venture, none of the partners have full control. That means decisions need to be made by consensus. It's hard to have consensus on a regular basis with one of your competitors. Do it too much and it's anticompetitive; don't do it enough and you'll never get anything dine.
If your company is relying on a joint venture to save its future, you should probably update your resume...
O'Reilly is a specialized technical book publisher. Hatchette, on the other hand, is an undifferentiated conglomerate (one of the big 5 publishing companies). The types of people who would start their book search at O'Reilly are fairly well defined. That isn't the case with Hatchette. People on HatchetteStore.com are less likely to browse and more likely to search, and the second they fail to find a book they were looking for, they'd probably bounce back to Amazon.
Indeed, HBO's plans for direct subscribers[1] may be part of their strategy to be less dependent on the cable providers. When contracts expire and are up for renegotiation, HBO will have more leverage with Time Warner, Comcast. I think channels such as ESPN and HBO already do have quite a bit of leverage with cable providers but having their own direct link to consumers would give them even more.
To relate back to amazon, I'm guessing Jeff Bezos has to buy old HBO content at a loss to fill out the selections for Amazon Prime Video. That way, the $99 membership fee looks like a good value. Could amazon put a price squeeze on HBO? It doesn't look like it. Amazon needs HBO content more than HBO needs Amazon.
20 years ago, HBO didn't have these type of business options. If HBO didn't like Comcast terms, it would be unrealistic for HBO to start digging streets and laying new video cables to a million residential homes. With the internet, they don't have to. I'm not convinced that book publishers have no chess moves left to use.
First of all, believe me, I would love it if publishers came and asked me how to beat Amazon. A new online bookstore (with a radically different approach to DRM) would definitely be on the list. I agree with you that publishers are not necessarily beat.
But you can't wave away the power Amazon has in that fight. The number of businesses that can survive, say, a 50% drop in sales for a year is pretty darn small, and the number of businesses that will tolerate a 50% drop in sales for six months without tossing out the CEO is even smaller. That means Amazon has a lot of power right now to decide how practically every supplier in the book market behaves. And they are pushing in exactly the opposite direction with all that power -- they're trying to consolidate.
So this is dynamic in both directions -- it's a tug of war where Amazon's monopsony power will either increase or decrease. I feel like the smart money has got to be on increase. (See Amazon's P/E ratio.)
I would posit that Hachette failing to see the direction that the world was headed in is a large failing on their part. OK, it's too much to expect a publisher to see how the world will be in a decade and react accordingly.
But the idea that they could see Amazon becoming a bigger and bigger buyer and fail to do anything to diversify their wholesale and retail outlets should also be a strike against Hachette.
They didn't come to terms, that's true, but unless we saw each side's balance sheet it's hard to know where the fault lies. Supposing Hachette gets a better price - how do we know this will get passed on to authors?
This comment is still ignoring the main point. It shouldn't matter what Hachette's balance sheet currently is. The point is that Amazon appears to have complete control over it. Given that situation, it will inevitably reach zero.
Why is that so outrageous? Double Nobel winner Linus Pauling became a complete nutcase in later life, for example, strenuously advocating baseless and potentially destructive alternative medicine. Winning a Nobel Prize doesn't make a person immune to misbehavior.
So many Nobel winners have said or endorsed crazy shit, that some people have even created a name specifically for the phenomenon: "The Nobel Disease": http://rationalwiki.org/wiki/Nobel_disease
It's not intended as an appeal to accomplishment, more as a suggestion that he would have as much to lose in reputation than to gain by getting involved in such a thing if he didn't genuinely believe his position.
EDIT: I'd also suggest that as a default with the participants in this particular disagreement, anyone with self interest at heart should probably think about siding with Amazon. Jeff Bezos doesn't lose too many fights.
You mean the Paul Krugman who was chief staffer (international economics) on the Council of Economic Advisors under the Reagan Administration and was hand-picked by Martin Feldstein?
Krugman has a very full bio so you can find all sorts of things there, he hasn't hesitated to work with anyone willing to listen to his opinions and expertise.
It's not one of the original Nobel Prizes but it is considered by the foundation to be on the same standing as the other prizes. Winners are selected by a committee appointed by the Royal Swedish Academy of Sciences but voted on by the Academy as a whole.
"In 1968, Sveriges Riksbank (Sweden's central bank) established the Prize in Economic Sciences in Memory of Alfred Nobel, founder of the Nobel Prize. The Prize is based on a donation received by the Nobel Foundation in 1968 from Sveriges Riksbank on the occasion of the Bank's 300th anniversary. The first Prize in Economic Sciences was awarded to Ragnar Frisch and Jan Tinbergen in 1969.
The Prize in Economic Sciences is awarded by the Royal Swedish Academy of Sciences, Stockholm, Sweden, according to the same principles as for the Nobel Prizes that have been awarded since 1901."
When Hachette's contract with Amazon expired, Amazon (rightfully) stopped ordering advance inventory for stocking, but continued taking orders for available titles and transmitted those orders to Hachette as they arrived. From there, it's Hachette's responsibility to deliver the orders to an Amazon distribution center. Once the books arrive, Amazon packs & ships them to purchasing customers as normal.
That's why, when Hachette's contract expired, all of their books were listed as "Out of stock: ships in 1 to 6 weeks" - that's how long it takes Hachette to deliver stock. That's slow as hell.
Amazon didn't "boycott" or "drop" or "betray" authors or "discourage" readers from buying their books - it ceased offering retail inventory management services to a supplier whose contract had expired, and made a rational and defensible business decision when it became clear that the supplier was not negotiating in good faith to establish a new agreement.
[1] https://news.ycombinator.com/item?id=8151181#up_8151480