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Authors may be long-term losers in Hachette-Amazon deal

Aaron Pressman
Authors may be long-term losers in Hachette-Amazon deal

Amazon (AMZN) and book publisher Hachette on Thursday announced an end to their long-running, public feud, while revealing just a few details of the terms of their settlement. Both sides claimed to be pleased with the result, but it may be book authors who lost over the long term.

Hachette said starting next year it would regain the power to set ebook prices for Amazon customers, a power it and other big publishers lost after settling a price-fixing lawsuit with the Justice Department two years ago. Amazon had used its control over pricing to discount ebooks and stimulate sales, but Hachette and other publishers feared the online giant was getting too powerful and crushing competing retailers with low prices.

Amazon, which had argued for lower ebook prices, revealed only that the new deal had “specific financial incentives” for Hachette to set lower prices. Amazon said it would end delays on shipping Hachette books and resume taking pre-orders for upcoming titles, tactics that had depressed sales and outraged some authors.

Hachette CEO Michael Pietsch, in a letter to authors, added that the publisher held the line on the percent of revenue Amazon got to keep on each ebook sale. Some unconfirmed reports said the online retail giant was pressing to increase its 30% share.

“Importantly, the percent of revenue on which Hachette authors’ ebook royalties are based will not decrease under this agreement,” Pietsch wrote.

Just as important is what Pietsch didn’t say – with new incentives to lower ebook prices, author royalties could stay at the same percentage rate but decline in actual dollars paid. Publishers have steadfastly refused to raise author royalty rates on ebooks, even though the digital sales carry a much higher profit margin than sales of print books. If ebook prices go down, so will royalty payments.

The final outcome would depend on whether Hachette lowered prices enough to stimulate more sales. Amazon has said an average ebook priced at $9.99 sells 1.74 time more copies than an ebook priced at $14.99, resulting in greater total revenue and royalties. But publishers have generally set ebook prices  higher and some on the publishing side disputed Amazon's math if lost print book sales are also included. 

Amazon declined to comment and Hachette didn’t respond to a request for comment.

Thursday’s announcement ends a loud and bitter dispute that broke into public view in March, after Amazon stopped taking pre-orders and stocking Hachette titles in its own warehouses, leading to major shipping delays.

Such tactics are common in the world of retailing – Barnes & Noble (BKS) did much the same to Simon & Schuster last year – but Amazon's move drew a host of angry and, often, inaccurate complaints from publishers, reporters and some leading authors. After the New York Times quoted science fiction author Ursula K. Le Guin charging that Amazon was engaged in censorship, public editor Margaret Sullivan had to admonish her paper to cut down on the one-sided bashing.

Hachette, owned by French media conglomerate Lagardère Group, was the first of the major book publishers to negotiate a new deal with Amazon after the price fixing settlements. CBS’s (CBS) Simon & Schuster unit was able to reach a new deal last month without the public fireworks. Random House Penguin, the largest publisher in the world, and News Corp's (NWSA) Harper Collins unit will likely be up next.

All the crazy Amazon domination and end-of-literature-as-we-know-it talk looks more than a little silly now that the settlements have been struck largely on publisher-friendly terms. But that shouldn't surprise anyone who was paying attention. From the beginning, publishers had all the leverage. Whether publishers can steer their industry intelligently through the increasingly digital future, and support the best interests of readers, remains to be seen. 

Update on November 14 -- That was fast. Authors groups that loudly backed Hachette are already asking publishers to increase ebook royalties. "It is our hope that Hachette, in light of the loyalty its authors have shown throughout this debacle, takes this opportunity to revisit its standard e-book royalty rate of 25 percent of the publisher's net profits," Roxana Robinson, president of the Authors Guild, says in a statement.