Amazon’s Failed Pitch to Authors

Photograph by Axel Heimken/picture-alliance/dpa/AP.

In May, the publishing company Hachette revealed that the online retailer Amazon had been delaying shipment of physical books published by Hachette while the companies argued over how e-books should be sold on Amazon. Since then, the public-relations war between the companies has resembled an altercation between siblings who accuse each other of bad behavior while tacitly agreeing not to reveal what started all the hair-grabbing in the first place. But on Tuesday, Amazon broke the code of silence that both companies, despite their disagreements, had adhered to for nearly three months.

In a short Web post, Amazon named its objective (to lower most e-book prices to $9.99 apiece), disclosed what it was willing to offer to Hachette (Amazon would keep a thirty-per-cent share of the revenue from e-book sales, which is lower than it typically takes), and offered some arithmetic to support its position (by one calculation, cheaper e-books sell so many more copies that publishers—and, by extension, authors—can expect higher revenue). “This is good for all the parties involved,” Amazon’s representatives wrote.

Of all the parties involved, authors have been perhaps the most vocal, raging over Amazon’s shipping delays and other maneuvers. In June, Douglas Preston (who has written for this magazine) began circulating an open letter criticizing Amazon; it was covered widely in the press, and was eventually signed by hundreds of writers. “What we’re saying to Amazon is, ‘Please, in your dispute with Hachette—please settle it without dragging authors into it, hurting us,’ ” Preston told me.

In early July, after the letter was publicized, Amazon boldly proposed to give Hachette authors a hundred per cent of sales from e-books during its dispute with the company. (Hachette declined, and the authors appeared unmoved.) Russell Grandinetti, a high-level Amazon executive, called Preston a couple of times, Preston told me, to bring him around to Amazon’s point of view—or at least to get him to quiet down. As Preston remembers it, Grandinetti told him, “Our preference is to resolve these things amicably and quietly, but if you guys are going to keep challenging us, we have to go out in public and put the facts on the table.” (On Wednesday, Amazon declined to comment, and Hachette didn’t respond to requests for comment.)

The facts, as presented in Amazon’s letter, seem persuasive at first glance. Many e-books are priced at $14.99; some reach $19.99. These prices are “unjustifiably high,” Amazon’s letter argues, because e-books don’t come with the expenses—printing, warehousing, transportation—that are required to get physical books into readers’ hands. Moreover, the company claims, e-books are “highly price-elastic”—that is, if the price of an e-book goes up, fewer people are willing to buy it. Amazon even takes the unusual step—for any company, let alone one known for its secrecy—of offering some internal figures to back up this statement:

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 upshot is a revenue increase of sixteen per cent for this hypothetical e-book—more money for the retailer, the publisher, and the author. Even authors who care less about money than about audience should be happy, because the number of books sold rises by seventy-four per cent.

Along with its proposal to take a thirty-per-cent cut of e-book sales—a lower percentage than people had believed it was seeking—Amazon suggested that Hachette give authors a thirty-five-per-cent share and keep thirty-five per cent for itself. This, too, looks good for authors: their share of e-book sales varies depending on several factors, but they traditionally get no more than twenty-five per cent of the amount left after the retailer has taken its share.

Given all this, it might seem surprising that authors have been generally unimpressed by Amazon’s announcement. On Wednesday, I called Brian DeFiore, a literary agent who has criticized publishers for giving authors relatively little money for each e-book sold; I thought he might find something to like in Amazon’s proposal. But he was not persuaded, and he explained why.

For one thing, he said, Amazon doesn’t actually get to decide what share of revenue publishers pay authors, a fact that the company is aware of. Its call for a thirty-five-per-cent share sounds nice, DeFiore said, but it means little.

As for e-book pricing, he said, Amazon hadn’t provided enough information to be persuasive. Its calculation compared books priced at $14.99 with those priced at $9.99, but many e-books sell for $12.99 or $13.99. What is the predicted change in revenue and number of readers if those books are re-priced at $9.99?

DeFiore also pointed out that Amazon doesn’t quantify what lower e-book prices would mean for sales of physical copies of the same books. Authors who work with traditional publishers like Hachette tend to make more, per copy, from hardcover sales than from e-books. If cheaper e-books draw people away from hardcovers, that could hurt these authors financially. Plus, DeFiore said, Amazon has a huge share of the e-book business, through its Kindle e-reader—even more than it does with physical books. If lower e-book prices were to eventually destroy the market for physical books entirely—or even shrink it enough so that it wouldn’t make financial sense for traditional booksellers to publish them—that would help Amazon consolidate its power, which would ultimately be dangerous for authors. “What happens if, and when, there’s one retailer for e-books left, and they just decide, ‘You know what? We want to price books at four-ninety-nine.’ That’s what people are worried about,” he told me.

This worry is not unreasonable. Jeff Bezos, the C.E.O. and founder of Amazon, used to work at a hedge fund, and he has a mind for numbers. He has built one of the biggest companies in the world by selling and shipping stuff cheaply, and he has done this, in large part, by demanding that suppliers lower their prices or make other changes that reduce Amazon’s costs. In “The Everything Store: Jeff Bezos and the Age of Amazon,” the journalist Brad Stone writes that Bezos once suggested that the company should approach small publishers—among the most vulnerable of the company’s suppliers—“the way a cheetah would pursue a sickly gazelle.” Amazon is able to pursue this strategy because it is responsible for the sale of forty per cent of all new books and sixty-four per cent of e-books in the United States, according to the Codex Group, a research firm. The more powerful Amazon becomes, the greater becomes its ability to make demands of its suppliers—in this case, publishers and authors.

For all these reasons, Amazon’s effort to win over authors might be doomed. But if Bezos and company want to try, they might do better to emphasize the idea that lowering prices will increase the audience for books—a minor point in Tuesday’s post. “The assumption from Amazon seems to be that authors are primarily motivated financially, but that’s crazy,” Preston told me. “No one becomes an author to make money—not even James Patterson became an author to make money, and I certainly didn’t.” While Preston was wary of Amazon’s financial argument, he was guardedly compelled by the notion that lower e-book prices could bring his books to a wider audience.

Still, he wouldn’t say whether he thinks Amazon’s proposal is a good idea or a bad one—in fact, he didn’t particularly care. “Do I think that’s a good way of going? You know, honestly, I don’t know,” he said. “I really don’t have enough of a business background or financial background to know whether that’s a viable model.” What Preston wants, he says, is to see Hachette books selling on Amazon, as usual, while the companies continue to fight over terms.

As Preston and I spoke, we got around to talking about some of the ways that Amazon has been innovative in changing how books are packaged and sold to readers. Preston was particularly impressed with the Kindle Singles program, which publishes fiction and nonfiction in e-book format, priced at a couple of dollars at most; we talked for a while about the Singles that Preston has written or co-written, about the Amanda Knox murder trial. When I said that I’d like to read one of them, Preston said he’d send it my way as a gift. Then he paused and took his offer back. At ninety-nine cents a download, we decided, it would be easy enough for me just to buy it.