Founded in 1994, Amazon.com is the world’s largest online retailer. It’s also the world’s largest book retailer, selling 41% of all new books that are sold. The Hachette Book Group is one of the largest publishers in the world, publishing works from well-known authors such as J.K. Rowling, Stephanie Meyer, Tom Wolfe and Harper Lee. Now, the two major corporations are involved in an economic war over the prices of electronic books.
How did it all start?
In a case filed by the U.S. Justice Department last year, Apple Inc. was found guilty of violating Antitrust Laws by conspiring with 5 of the biggest publishers to fix prices on electronic books, in response to competition from Amazon. One of those publishers was The Hachette Book Group (HBG), who worked with Apple and the other publishers to raise the price of e-books and ‘force digital retailers onto a new profit model’. The other publishers involved were HarperCollins, Macmillan, Penguin and Simon & Schuster. The plan was to increase the price of e-books throughout the USA, meaning consumers had to pay more in order to eliminate retail price competition from companies such as Amazon. Evidence showed that the prices of e-books published by the publishers involved increased by an average of 18% as a result of the conspiracy.
Before the collusion was discovered, book publishers were able to set the price at which a retailer could sell an e-book. Furthermore, retailer’s cuts of the profits were fixed at 30%, making it impossible for them to discount the books without losing money. This model meant that there were higher prices for consumers, higher profits for publishers and no control for the retailers.
However, the Department of Justice has now dismantled this model. The publishers were forced to end any outstanding agreements that stopped e-book retailers from being able to lower the prices at which they sell to consumers, allowing for retail price competition to take place.
What’s happening now?
Now, the time has come for Amazon and The Hachette Book Group to negotiate on the pricing of e-books. Amazon wants the power to discount the e-book titles, whilst the HBG wants to keep the prices up.
Amazon’s argument is that when prices go down, people buy more. The corporation also argues that e-books aren’t just in competition with regular books, but with other forms of media engagement such as games, online films and online magazines. Therefore, Amazon argue, they need to keep the prices of e-books down for them to stand a chance at all in the entertainment industry. Amazon has stated that they are willing to accept 30% of the e-book revenue, which is the percentage it currently receives from the HBG, if they agree to lower the prices of their e-books from around $12.99 and $14.99 to $9.99. Amazon also stated that according to their internal data, a book costing $9.99 sells nearly twice as many copies as when it costs $14.99.
However, many publishers and authors worry about Amazon’s dominance of the whole industry. If they have total control over the e-book pricing, there will be no need for consumers to shop anywhere else. Furthermore, discounted books mean that authors are increasingly earning less on their books, after such a large percentage is taken from the publishers and the retailers.
Amazon has responded to the whole negotiations by un-discounting most of the HBG books sold on its site and removing the pre-order buttons from several titles. It has also imposed delays on thousands of the titles, with consumers being told they have to wait weeks to receive their purchase, all with the aim of persuading the HBG to lower the prices.
The battle over the new e-book contract has been going on since May, and looks set to continue for the near future at least.