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Comment by frandroid | Hacker News Reader

You kiiiiiiind of forgot the central issue of the story: Amazon trying to tell publishers how much they can sell their books for. Amazon could continue offering "retail management services" to these sellers, at a fixed percentage cut, like it does to sellers of countless other goods where it does not try to fix prices. Amazon and the publishers had a perfectly good agreement before, and Amazon decided to play hardball upon renewal, punishing readers and authors. That's unprecedented in the book business, and it is incumbent on Amazon to justify this. The only reason Amazon can pull this off is that they control half the retail book market, so it becomes an anti-trust issue.

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It's the other way around, actually: by law in the US and most countries worldwide, suppliers are free to set whatever prices and terms they like, but retailers have the final authority to set the price that's presented to the retail customer. Suppliers can not unilaterally dictate to retailers the final sales price the retail customer pays.

That's why "Manufacturer's Suggested Retail Price" (usually abbreviated MRSP) is a thing. The manufacturer / supplier suggests a price, but the retailer makes the final call. The only recourse suppliers have to this is pulling distribution from that retailer entirely, as long as they apply the same policy to all retailers - companies like Apple and Bose make credible threats to do this to suppliers that violate their guidelines, which is why their prices are so consistent across retailers.

Otherwise, retailers have the final call on retail pricing unless they waive that right via negotiation: if they want to sell at a loss, or reduce their own margin to use lower prices as a marketing tool, they can. That's why Walmart and Target often sell bottles of Tide below cost - it's called a "loss leader" strategy, and it's very common as a way to attract new business.

Amazon used loss leader pricing on bestselling titles to establish the Kindle platform, which is a major reason why it's the dominant ebook platform now.

A big part of this dispute is that Hachette is demanding final authority on setting prices, and demanding that Amazon gives up the right to discount and use its ebooks as loss leaders - instead, they'd get a flat percentage (likely ~30%) of whatever Hachette decides to charge. This is a major part of what's now called "agency pricing," and the big 5 publishers and Apple colluded to force Amazon to adopt it several years ago. That's why the DOJ filed suit for antitrust / collusion / price fixing, and the publishers each lost or chose to settle.

As a condition of the judgement / settlement, publishers now have to renegotiate their contracts with Amazon. Amazon, justifiably, isn't willing to agree to agency pricing without major concessions. Hachette won't agree to standard retail non-agency pricing. Hence the impasse.

EDIT: also to clarify, wholesale non-agency pricing isn't "unprecedented in the book business." Barnes & Noble and independent retailers have operated on wholesale pricing for print books for decades. Otherwise, B&N wouldn't be able to place a "20% off" sticker on bestselling titles, or offer large discounts to move remaindered stock. Hachette is asking Amazon to agree to something no other book retailer has or would agree to. Retailers like Apple and B&N/Nook have agreed to agency pricing on ebooks in the hopes of shutting down Amazon's ability to discount, with the understanding that publishers were attempting to force Amazon to do the same. (Via collusion.)

The larger game is that Hachette (and other large publishers) are attempting to protect their hardcover print sales by inflating the price of ebooks, which makes them less attractive to readers. Ebooks are more profitable, but it's a more difficult market to control, so publishers are fighting Amazon and doing what they can to slow ebook adoption as much as possible. It's not a smart strategy, IMO, but that's what they're doing.

Both of these posts have been educational and I now understand the debate in far more detail than before. Thank you!

When Amazon decides to discount a product, who swallows the loss? Does the supplier still get a fixed cut per sale regardless of sale price, or do they get a fraction of whatever the sale price was?

I ask because I believe in things like grocery retail, the retailers have immense power over the suppliers. If you see pasta sauce at 2-4-1, it's the supplier picking up the cost of that. Favourable placement in store? The supplier pays. The big retailers can hit the supplier over the head with the threat of simply stopping selling the suppliers entire catalog, which would cause massive revenue loss for the supplier. With this stick, the retailer can ensure that they're getting a fixed income for every unit sold, regardless of the actual unit sale price. They pretty much have the suppliers completely over a barrel.

Seems like the balance of power between retailer and supplier is drastically different between sectors.

Amazon swallows the loss. For example, with eBooks, they were purchasing wholesale from the book publishers for $15, and then selling them to customers for $9.99.

As much as I love my Kindle, and Amazon, and as much as I realize that the publishers probably extract more value from the entire chain than is reasonable given their contribution (as compared to the author, who I believe should be rewarded a great deal more) - I realize that we will face dark times in the future if Amazon is able to corner the eBook market.

>Amazon swallows the loss. For example, with eBooks, they were purchasing wholesale from the book publishers for $15, and then selling them to customers for $9.99. //

What were the books selling for in paperback? I'm guessing less than $15 - I know it's priced to the market and the utility improves the value, and thus a higher price can be attained. But, I didn't think that Amazon would let publishers rip them off in this way - paying more for something that costs less to produce.

Amazon if ebooks are even marginally above paperback costs should just buy the paperback, format shift to ebook, sell the paperbacks as pulp.

I don't think anyone wants to hand over the ebook market entirely to Amazon; all the publishing houses needed to do was not be evil and not try to squeeze the system dry ... oh well. Death and taxes and human greed can always be relied upon.

I remember when "Under the Dome" was selling wholesale (Hardcover) for $13 and I ended up buying it from Walmart for $6.99 - because (A) it was $3.00 less than the eBook, and (B), well, I then could, in theory, resell the book.

It's odd watching two book sellers compete with each other to sell a book at loss.

But, your comment, "Amazon would let publishers rip them off in this way - paying more for something that costs less to produce." brings to mind Scalzi's comment,

http://whatever.scalzi.com/2014/07/30/amazons-latest-volley/

"(This is where many people decide to opine that the cost of eBooks should reflect the cost of production in some way that allows them to say that whatever price point they prefer is the naturally correct one. This is where I say: You know what, if you’ve ever paid more than twenty cents for a soda at a fast food restaurant, or have ever bought bottled water at a store, then I feel perfectly justified in considering your cost of production position vis a vis publishing as entirely hypocritical. Please stop making the cost of production argument for books and apparently nothing else in your daily consumer life. I think less of you when you do.)"

Think about the software that I purchase online that costs $0.001 to deliver and I pay $595 - it costs 1/10,000th what the old version with paper books, and CDs, and nice glossy boxes.

I agree with Scalzi - the argument about "it costs less to produce" is bogus. Something should be worth whatever value it has to the person buying it intersecting with whatever price the person willing to sell it wants, plain and simple. The cost of creation is not particularly interesting.

Scalzi is arguing that the packaging is the important thing, not the contents, which is a funny thing for an author to argue. Because if the content is the important thing, then there is now a system that delivers the exact same thing more efficiently. We, as consumers, should definitely push to benefit from that efficiency with lower prices. To do otherwise would be irrational.

Aside from being a straw-man, Scalzi's just wrong. We pay less for a soda at the fountain than we do in a bottle. That's the comparison that should be made. When you buy Coca-Cola, you are buying more than just the raw ingredients processed. Otherwise you'd be buying Store Brand Cola.

Yeah - I thought his examples were actually not very good. The other one is water - you pay a certain amount of money for bottled water (which presumably doesn't have the crappy lead / metals from the pipes, and ideally will store well, and be available in a disaster, etc...) - but you pay less when you fill up your water containers at the store, for water of roughly the same quality.

I agree. If Scalzi is saying that the cost of production should not alter the price of the product, then I would ask him why paperback and mass market prints of books are less than hardback books in regards to the price. According to his argument, paperback books and hardcover books should be set at the same price regardless of what it takes to produce them.

The difference in price between hardback and paperback books is not due to the difference in production costs (which is minimal). The difference in price is because it provides a way to capture consumer surplus. Some people are willing to pay $20 to read a given book, and some more people are willing to pay $15. If you charge everyone $15, you get the largest number of sales, but you don't get the extra $5 that some people would have paid. But you can give people an excuse to pay that extra $5 which they would have been happy to pay for the regular version of the product, by providing a slightly superior product at the higher price.

How often do you see a new hardcover of a book that's been our for more than a year or so? The surplus hardcovers historically capture is of the people who want early access - for the first month or two after publishing, only hardcovers are available. The fact that it is slightly physically superior* is only to make this early-access purchase palatable to the consumer.

If Amazon wants higher-priced ebooks to be more palatable, they should go the hardcover route. Add something to the product to make it seem better. Maybe a preface not found in print versions, maybe features that only work in ebooks - a zoomable version of the map often found at the beginning/end of fantasy books, etc.

*I'm generally of the opinion that they're actually worse - unless you're putting them on display, that's just more bulk to carry around. The number of books I've read enough times for the better binding to matter is easily single digits. And those usually end up given to friends, so I'm buying a new copy every so often anyway.

Yeah, but ideally, you never want to be in the position of telling people, "oh, this was just price discrimination, it wasn't really worth paying more for."

>Think about the software that I purchase online that costs $0.001 to deliver and I pay $595 - it costs 1/10,000th what the old version with paper books, and CDs, and nice glossy boxes. //

Er, what? The software doesn't cost $0.001 to produce.

This is more akin to being able to buy that software in a Staples store for $595 in a box with a DVD and manual. Then the producer starts selling it online for $650, because after all you no longer have to go to the store. They just refuse to cut the consumer in on the savings of not producing boxes, not producing media, not creating manuals and instead only focus on the added utility.

When you're dealing in cultural arts and informational products that can benefit society and instead of allowing the benefit of new technology to enrich you further and enrich society more you instead steal the whole benefit for yourself that's evil.

In terms of Scalzi's example: Yes a soda that's sold for $2 in a can might cost 20c to produce, fine no problem. But then recycling takes off and tech develops and that can now costs 12c less to produce so you put the price up to $3 because you're using more recycled material and that's now a selling point. That's what's wrong here. You already had more profit by selling at the same price point, the move in tech and society created the benefit and you leached it and cynically did one over on your customers because you knew that their desire to improve the world could allow you to get a better price.

The thing is - I've always been willing to pay a great deal more for software online than on CD - it has more value to me.

The fact that it costs zero dollars to produce (on the margin) is immaterial.

One good argument though, against eBooks being more expensive - you can't resell them, or ven easily give them away, or lend them. That issue, right there, should make eBooks worth less to the person buying them - but having nothing whatsoever to do with the fact that they cost less to produce.

>software online than on CD

FWIW I meant to be downloaded, not to be available via internet/web (as that would be a different product and the analogy wouldn't work).

It's not the zero dollars extra, it's the fact there is no actual publishing and so there is a huge cost-saving through - in most cases - no effort of the publisher. Instead of sharing that cost saving to the benefit of society they swallow it and add extra charges which undoes the benefits that the technological move has created. The only reason an ebook costs more than a paperback is greed; allowing the greedy to dictate access to arts (eg fiction books) and informational sources is not right IMO.

I'm not at all arguing that publishing houses can't abuse the power but when they do like this it makes it hard to side against Amazon coming along to whip them in to line. The publishing houses could have set less greedy ebook prices first and Amazon wouldn't then get to do their knight-in-shining-[consumer-championing]-armour act.

Ebook sellers may think you can't resell but first-sale doctrine disagrees. Of course media companies are lobbying to ensure that such established doctrine get reinterpreted to their favour but that again is not acceptable. Again the rich moulding the law to their favour ...

As an aside IMO there should be no copyright protection granted to sellers who lock up their wares in such a way as to prevent them being resold. In addition as such wares aren't going to enter the public domain (so far as is known at the time the copyright is being granted) we - the people - owe them nothing in protection of their works.

Skalzi may tearing apart Amazon's arguments through most of that article, but I think the last paragraph is most important part:

"Authors: Amazon is not your friend. Neither is any other publisher or retailer. They are all business entities with their own goals, only some of which may benefit you. When any of them starts invoking your own interest, while promoting their own, look to your wallet."

Hachette isn't working in the authors' best interest here either - they're looking out for themselves.

And Skalzi we must presume is looking to his best interests which are apparently vested in the established system and may deteriorate if that system is disturbed.

And there are perhaps long term contracts involved.

There's two costs at work here -- marginal cost and absolute cost. eBooks don't reduce the absolute costs of any of Scalzi's books -- the work he and his editor put into it and the marketing expense, principally. But they do reduce the marginal cost, and so if you sell eBooks at the same price as physical books, that's more profit, split up however the parties involved agree to.

Scalzi's comparison to fountain sodas missed the mark -- the reason those cost so much more than the cost of the good itself is that the soda needs to cover the costs of owning, maintaining and providing utilities to the building where the fountain is, and the employees who work in that building. Amazon doesn't HAVE that kind of overhead, and they want to pass the savings on to the consumer. The publishers want Amazon to hold onto those savings (or share them with the publishers), so that Amazon can't undercut the other retailers who DO have that kind of overhead.

Well there is a reduction, in printing, warehousing and perhaps pulping costs. For some books that is a lot, those on the long tail end of the book market in particular.

> Amazon doesn't HAVE that kind of overhead ...

Apparently servers, bandwidth, electricity and developers are free now?

Certainly not free, but the absolute cost invested in Amazon's ebook marketplace pales in comparison to that for their retail book infrastructure, and the marginal cost is nearly negligible for each new ebook they sell.

Similarly, both the absolute and marginal costs of producing ebooks for a publisher are nearly free (at least on top of the physical publishing process).

I didn't say Amazon didn't have ANY overhead, I said Amazon doesn't have "that kind" of overhead where you have to actually have a physical retail presence everywhere you want to sell something. And in the case of eBooks, Amazon doesn't need to deliver a physical object at all.

What do you think the relative costs of distributing 1,000 [one thousand] ebooks vs. distributing 1,000 paperbacks are? We're talking after all production costs, the book has been typeset and rendered to a print/ebook file on a publishers computer system.

Once set up what's the additional cost involved for the publisher in shipping the next 10,000,000 ebook files vs the next 10,000,000 paperbacks. Just the act of transferring the book from the computer system to the ebook reader or the owners bookcase.

I personally distributed > 50,000 computer files this month so far for a marginal cost of < £1. Getting 50,000 DL flyers printed would cost me about £1000 without distribution. It's not entirely comparable but I think it gives the flavour of the savings in production costs available to publishers.

It's amazon's choice to sell for less. The publishers didn't want to price e-books low. So they refused to sell at a $9.99 price. Which is their right.

Amazon believe a low priced e-book market would generate more profits overall. So they priced low anyway. That, in turn, was their right.

I don't see how the publishers are evil in that situation. What would you do if a reseller was convinced your product was priced too high, and they wanted you to slash prices? The standard advice on Hacker News is "raise your prices".

Amazon appears to have been right, but it was hardly obvious. And low pricing may not apply to all books. For instance, I don't release my books on kindle because of the low pricing structure for self published books.

(Amazon gives 70% royalties for kindle books priced $2.99-$9.99, but only 30% for pricing above and below that, IIRC. The optimal price for my books on my own site is above $9.99, so I don't want that deal)

>I don't see how the publishers are evil in that situation. //

[Some made up numbers!]

The paperback costs $10. The publisher removes virtually all the direct production costs of creating the book itself (but obv. not the author, editor, type-setting, marketing and such which remain the same or lower). The publisher puts up the price of books because, hey, why use technology to open access to arts and information when you can use it instead to increase the wealth gap.

Yes, as I indicated, there may be extra utility in ebooks and that enables them to increase the price. But, with no price increase they still make more profit.

Yes, it's just capitalism; it's evil.

Capitalism is now evil?

No, it's a tool, and like any tool it's intrinsically amoral. The morality is derived by the wielder. When capitalism is used as an excuse for immoral behavior, the tool becomes how it is wielded.

Charging the public for an e-book, at a price some are willing to pay is immoral?

No, but some of the things that have been said and done in this negotiation were objectionable, and whitewashing all of it because 'hey, capitalism' is too easy. Nobody forced either side in this negotiation to harm the authors.

I thought that Amazon demanded a most-favoured-nation clause in relation to the price Hachette charged other retailers?

This is one of the most comprehensive and reasonable addendum to an explanation of the situation that I've read in a while. Thanks again!

You've described this issue more clearly than any article I have read about it. It's a bit of a shame that Internet comments are significantly more informative than the New York Times, but it certainly says something about traditional publishing and media.

Just an FYI because you seem wholly ignorant of what's actually gone on, but it was Apple and five of the Big Six (Hatchette included) who were sued by the DOJ in a civil antitrust case for ebook price fixing trying to push prices up by up to $5 to make ebooks more expensive than their hardback counterparts that, unlike the booming paperback sales, are falling of a cliff.

Basically Hatchette and co was trying to illegally force up the price of eBooks for a company responsible for over half of all their sales. There's a reason why Walmart and Costco can make or break companies, and there's a reason why every other publisher so far has come to amicable terms with Amazon when their renewals came up and that's because they'd already fucked with Amazon.

Hatchette is currently trying to use public pressure to extort Amazon into doing what Hatchette has already been sued for: price fixing.

Amazon is a retailer, and retailers have every right to discontinue carrying any product they want at any time for any reason as long as it doesn't void a contract... and hey look! Hatchettes contract ran out. Amazon is currently being graceful by continuing to sell any of Hatchettes product.

The notion that Amazon is the "bad guy" here is quite frankly idiotic. Hatchette tried to do something illegal to hurt consumers (you know the people who pay writers wages). Now again they're trying to negotiate elevated ebook prices and take away Amazons ability to discount books to hurt consumers (again, you know the people who pay writers wages through that 10-15% royalty). And now Hatchette is the one who's unable to agree to terms that the other publishers so far have managed to, and they've held in a deadlock for three months where their writers are seeing their incomes halved.

Hatchette is part of a massive publishing conglomerate trying to prop up corporate profits as Hardback sales evaporate. They're in this out of their own interest and have clearly showed they're willing to use their authors as weapons and have the audacity to try to make public outrage against Amazon for their own actions. It was Amazon who offered to help pay the authors for their lost wages during the dispute, which Hatchette has failed to accept (because it would require them matching Amazon's contribution) - but Penguin accepted during their unheard of contract dispute a few months prior to this.

So not only is Hatchette actively fucking their own authors with this contract dispute, they're not even TRYING to compensate them when "THE BAD GUY" is.

Well, really it's Amazon saying no more agency model for ebooks, so they can set the price (and change the price) to whatever they want. Just like they do now for physical books. So that is a wholesale model, and that is typically 50% of list price for physical books (if the price on the book jacket is 19.99, the publisher's proceed on a sale is roughly $10, and the retailer can set the price to show a discount, like $12.99).

With agency being 70/30 split (like apps and mp3s), a publisher could net 70% of the list price on ebooks (Big pubs tend to sell ebooks at or near the physical books list price, which is a whole other debate). Now they're looking at close to 50% of list (maybe Amazon is pushing this even lower?). You'll see a world where all ebooks are cheaper on Amazon than on say iBooks, because Apple is not going to bother with anything but agency model. Big win for Amazon. Big suck for publishers.

> That's unprecedented in the book business

The printed book business is about 50 years behind every other modern industry. This is always going to be true for the forseeable future.

BTW I am an author who sells books and has no problem with Amazon trying to improve value for the customer.

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