Amazon Release Statement on Hachette Dispute (UPDATED)

Amazon has made its first formal statement on the current dispute with big-five publisher Hachette. The statement was posted to its Kindle Forum Discussions yesterday. Before we take a look at that Amazon statement, you might be asking a very fair and obvious question:

What’s all this nonsense about? I just want to read great books I like.
Here’s the skinny on the background to all this without getting into extensive detail and legalese. If you really want some deep and balanced analysis, David Gaughran has an excellent piece here, and Joe Konrath takes a more indie-author related view here.
Publishers big and small revise and renegotiate their terms and contracts with wholesalers, distributors and retailers from time to time. It may be simply because the contract has reached its end of term or because one or both parties believe significant changes in the book business require new terms to reflect those changes.
In 2010 major publishers began adopting the Agency Model agreement for the sale of their e-books through distributors and retailers, as opposed to the Wholesale Model agreement traditionally used for print books. It allowed publishers to wrestle back control on book pricing, something they felt under threat from with giant online retailers like Amazon heavily discounting titles to customers. This post explains the Wholesale and Agency Models in much more detail.
Following a series of unsavoury legal disputes in the book industry, the US courts and Department of Justice ruled that large publishers (including Hachette) had deliberately and illegally colluded with Apple in an effort to force the Agency model on Amazon, thereby artificially increasing the retail price of e-books. The offending publishers were slapped on the wrists and ordered to renegotiate agreements with retailers. The publishers were also asked not to attempt to limit how retailers set e-book pricing for the next two years. That was two years ago! Judge Denise Cote further ordered that renegotiations must be conducted separately at six-month intervals, and unfortunately Hachette drew the short straw, having to go in and bat first.
No publisher wants to be the first in the door because its agreement with retailers (particularly Amazon) will likely dictate the framework and terms for the subsequent publishers in the door. And while this approach lessens the possibility of further collusion between publishers (yeh, right!), the other major publishers can all point the finger at Hachette and decry—what were you thinking when you agreed to that!
That brings us to where we are now. Hachette are currently negotiating with Amazon, and by all accounts, it isn’t going too well. So badly that Amazon has begun flexing its muscles and casting a scurrilous eye on Hachette’s catalogue of books it currently sells. Amazon began listing adverts for competitor titles on Hachette’s book pages, then we had reports of delays in Hachette titles shipping from Amazon. Now Amazon has removed the pre-order facility on Hachette’s forthcoming releases. The accusations and counter-accusations fly back and forth from Hachette authors affected by this, industry experts all with varying agendas as to how they paint this one out in public.
It’s getting harder to know what to believe and what not to believe.
Let’s look at the Amazon statement now.
We are currently buying less (print) inventory and “safety stock” on titles from the publisher, Hachette, than we ordinarily do, and are no longer taking pre-orders on titles whose publication dates are in the future. Instead, customers can order new titles when their publication date arrives. For titles with no stock on hand, customers can still place an order at which time we order the inventory from Hachette — availability on those titles is dependent on how long it takes Hachette to fill the orders we place. Once the inventory arrives, we ship it to the customer promptly. These changes are related to the contract and terms between Hachette and Amazon.
[Amazon seem to be trying to counter the argument that shipping delays are solely down to them. The implication subtlety suggested here is that Hachette may also be playing silly-buggers with stock movement to create some PR leverage.] 
At Amazon, we do business with more than 70,000 suppliers, including thousands of publishers. One of our important suppliers is Hachette, which is part of a $10 billion media conglomerate. Unfortunately, despite much work from both sides, we have been unable to reach mutually-acceptable agreement on terms. Hachette has operated in good faith and we admire the company and its executives. Nevertheless, the two companies have so far failed to find a solution. Even more unfortunate, though we remain hopeful and are working hard to come to a resolution as soon as possible, we are not optimistic that this will be resolved soon.
[Hmm, we love you Hachette, but you’re just one of our best friends. The fact Amazon has mentioned Hachette are part of ‘a $10 billion media conglomerate’ is a salient point and should not be lost in all of this. All of the big-five publishers are owned by massive global media corporations, which in turn own major newspapers, magazines and TV networks. (You can see our infographic on who owns what publishing houses and service imprints in the industry here.) I’ve already read some very bias articles on this in national newspapers. It helps a lot in protracted negotiations when Daddy company controls some of the media outlets reporting on it. The last line of the above paragraph indicate that Amazon is prepared to go for the long haul. The current agreement in place has still some time to go.]  
Negotiating with suppliers for equitable terms and making stocking and assortment decisions based on those terms is one of a bookseller’s, or any retailer’s, most important jobs. Suppliers get to decide the terms under which they are willing to sell to a retailer. It’s reciprocally the right of a retailer to determine whether the terms on offer are acceptable and to stock items accordingly. A retailer can feature a supplier’s items in its advertising and promotional circulars, “stack it high” in the front of the store, keep small quantities on hand in the back aisle, or not carry the item at all, and bookstores and other retailers do these every day. When we negotiate with suppliers, we are doing so on behalf of customers. Negotiating for acceptable terms is an essential business practice that is critical to keeping service and value high for customers in the medium and long term.
[Amazon reminding publishers that it is a retailer and gets to decide what is stocked—not the other way around. Also that its business focus places the customer first (the end buyer). Hachette is one of their suppliers—not a customer.]
A word about proportion: this business interruption affects a small percentage of Amazon’s demand-weighted units. If you order 1,000 items from Amazon, 989 will be unaffected by this interruption. If you do need one of the affected titles quickly, we regret the inconvenience and encourage you to purchase a new or used version from one of our third-party sellers or from one of our competitors.
[Amazon firmly reminding Hachette just how small a part it plays in its overall product offerings. The last line appears to address criticism that Amazon is holding Hachette to ransom, reminding Hachette that customers can happily buy their titles from other retail competitors. This kind of puts a hole in the argument that whatever terms Amazon withdraws from Hachette during the negotiations, the perceived disruption and affect somehow damages or restricts sales of Hachette titles. Amazon cheekily playing the innocent ‘we’re not the only retailer in town, you know.’]  
We also take seriously the impact it has when, however infrequently, such a business interruption affects authors. We’ve offered to Hachette to fund 50% of an author pool – to be allocated by Hachette – to mitigate the impact of this dispute on author royalties, if Hachette funds the other 50%. We did this with the publisher Macmillan some years ago. We hope Hachette takes us up on it.
[A bit of a bomb dropped by Amazon. Hachette didn’t see that coming, and I doubt Macmillan did either. Amazon will stump up 50% to mitigate against the impact of the dispute on author royalties. If Macmillan didn’t take up this offer two years ago (and I’m not aware it did), many Macmillan authors might be wondering why it didn’t. A couple of points on this. The disruption to book sales is hard to measure on new title, and those titles are still available from Amazon’s competitors. I’ve read some posts from Hachette authors decrying Amazon’s actions, fearing loss of sales, but those authors appear to have forgotten the small matter of an advance on royalties their publishers already paid them. Many books never sell out the amount paid on an advance. A little matter of crying wolf on sales when you already got paid for those sales. UPDATED CORRECTION—Macmillan did accept Amazon’s compensation offer two years ago!] 
This topic has generated a variety of coverage, presumably in part because the negotiation is with a book publisher instead of a supplier of a different type of product. Some of the coverage has expressed a relatively narrow point of view. Here is one post that offers a wider perspective.

 Thank you.
[The wider perspective here is that readers don’t buy books based on which publisher publishes a book. Readers buy books based on author, subject and perhaps pricing. They are largely agnostic to any other factor. If a reader can’t—for whatever reason—get his/her choice of book on Amazon, the reader will go elsewhere. That only serves to hurt the retailer, not the publisher or author.]
If you have followed my commentary on this through TIPM’s social media streams over the past week, then you will already be aware that I have stressed the point that Hachette needs Amazon more than Amazon needs Hachette. Amazon can afford to play out a long endgame of chess—Hachette cannot. This is a game of corporate politics and it will have significant implications on the publishers who follow Hachette in the door to thrash out new deals with Amazon.
As yet, we can only speculate on the reasons why Hachette and Amazon are at loggerheads and just how far apart both parties are on an agreement.

In the interest of balance, here is Hachette’s statement on the dispute:

It is our normal policy not to comment on negotiations underway with any retailer.

However, we have been asked legitimate questions about why many of our books are at present marked out of stock with relatively long estimated shipping times on the Amazon website, in contrast to immediate availability on other websites and in stores.

We are satisfying all Amazon’s orders promptly, and notifying them constantly of forthcoming publicity events and of out-of-stock situations on their website. Amazon is holding minimal stock and restocking some of HBG’s books slowly, causing “available 2-4 weeks” messages, for reasons of their own.

We are grateful for the patience of authors and all Amazon readers as we work to reach an agreement and to encourage Amazon to be back to offering Hachette Book Group’s books within normal shipment times.

But most of all, beyond the politics of business, there exists deep-rooted agendas from all the main players, and those reporting, opinionating and watching from the sidelines. It’s convenient to any argument to tag the main players as either goodie or baddie—some publishers have virtually turned it into a near-daily baiting sport. A publisher’s primary customer is the bookseller. A retailer’s primary customer is the ordinary consumer. To survive in business, you don’t let anyone come between you and your customer unless they add value to that relationship. An author’s customer is his/her readers.
Amazon—for the most part—has been a good thing for authors and their books. Most indie authors glancing at their monthly royalty statements will attest to that. Amazon virtually created the online book market single-handedly and big publishers stood on the sidelines and watched the story unfold, popcorn in hand, often sniping that ‘it will never work.’ If you create a market, you get first option to own it and monopolise it. If you don’t like it; push on and create your own alternative platform. We are already seeing signs that some big publishers are prepared to take the risk and do exactly that.
Publishers big and small can be a very precious bunch. I don’t hear the same vitriolic attacks coming from the clothing, jewellery or electronics industry against Amazon. Where I do have a great deal of sympathy is with independent booksellers who have nothing of the power of big publishers and retailers, and yet better than anyone in the book business understand the value of the reader-customer.

Just like indie authors, publishers are quickly learning that if you place all your eggs in one basket (and you have limited control on that basket), then you are risking more than you imagine.   

I don’t believe for a moment that Amazon will have the monopoly it currently has in five to ten years. Someone else will come along and do what they do even better.

Late today, Hachette responded to yesterday’s statement by Amazon with the following (via Publishers Marketplace):

It is good to see Amazon acknowledge that its business decisions significantly affect authors’ lives […] For reasons of their own, Amazon has limited its customers’ ability to buy more than 5,000 Hachette titles.

Once we have reached…an agreement, we will be happy to discuss with Amazon its ideas about compensating authors for the damage its demand for improved terms may have done them, and to pass along any payments it considers appropriate.

[…] We will spare no effort to resume normal business relations with Amazon—which has been a great partner for years—but under terms that value appropriately for the years ahead the author’s unique role in creating books, and the publisher’s role in editing, marketing, and distributing them, at the same time that it recognizes Amazon’s importance as a retailer and innovator.

[…] Authors, with whom we at Hachette have been partners for nearly two centuries, engage in a complex and difficult mission to communicate with readers. In addition to royalties, they are concerned with audience, career, culture, education, art, entertainment, and connection. By preventing its customers from connecting with these authors’ books, Amazon indicates that it considers books to be like any other consumer good. They are not.

[…] We are extremely grateful for the spontaneous outpouring of support we have received both privately and publicly from authors and agents. We will continue to communicate with them promptly as this situation develops.

[Why does the publishing industry continually insist its products have greater importance or deserve special treatment than the products of any other industry?]

Mick Rooney – Publishing Consultant

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