Amazon Announcement About Hachette Business Interruption
eBook prices at middle of debate between Amazon and Hachette Publishing
FREE PRESS REPORT
SEATTLE, WASHINGTON (NEWS) - Earlier today, Amazon posted an official note entitled, "Announcement Update re: Amazon/Hachette Business Interruption," that shares some information about their views on the dispute with Hachette.
Here is the entire post from Amazon earlier today:
With this update, we're providing specific information about Amazon's objectives.
A key objective is lower e-book prices. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there's no printing, no over-printing, no need to forecast, no returns, no lost sales due to out-of-stock, no warehousing costs, no transportation costs, and there is no secondary market -- e-books cannot be resold as used books. E-books can be and should be less expensive.
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. We've quantified the price elasticity of e-books from repeated measurements across many titles. 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.
The important thing to note here is that at the lower price, total revenue increases 16%. This is good for all the parties involved:
* The customer is paying 33% less.
* The author is getting a royalty check 16% larger and being read by an audience that's 74% larger. 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.)
* Likewise, the higher total revenue generated at $9.99 is also good for the publisher and the retailer. At $9.99, even though the customer is paying less, the total pie is bigger and there is more to share amongst the parties.
Keep in mind that books don't just compete against books. Books compete against mobile games, television, movies, Facebook, blogs, free news sites and more. If we want a healthy reading culture, we have to work hard to be sure books actually are competitive against these other media types, and a big part of that is working hard to make books less expensive.
So, at $9.99, the total pie is bigger - how does Amazon propose to share that revenue pie? We believe 35% should go to the author, 35% to the publisher and 30% to Amazon. Is 30% reasonable? Yes. 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. We had no problem with the 30% -- we did have a big problem with the price increases.
Is it Amazon's position that all e-books should be $9.99 or less? No, we accept that there will be legitimate reasons for a small number of specialized titles to be above $9.99.
One more note on our proposal for how the total revenue should be shared. 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.
We hope this information on our objectives is helpful.
The Amazon Books Team
The dispute between Hachette and Amazon has been going on for a while now. And while Hachette was considered one of the big publishers, it should be noted that Amazon is responsible for over 50% of book sales in the United States. A lot of people have chimed in since the "debate" went public, like author James Patterson who shared his thoughts recently.
The argument between the two companies revolves around Hachette's books being sold on Amazon. While both parties in negotiations have been fairly tight lipped up to this point, many speculate that the biggest issue revolves around the price of ebooks. Amazon wants control over pricing while Hachette wants to maintain control.
The power struggle has been happening for some time. And while Hachette's books are generally available at Amazon, the retail giant has been making a lot of small changes to titles from Hachette they have in their store. If Amazon sounds like a bully, you have to take a look at the other side as well.
Hachette and four other companies were found guilty of colluding with Apple to fix ebook prices not too long ago in a bid to fight Amazon's domination of the ebook market.