Analyzing Amazon's Hachette E-Book Response

Are you persuaded?

July 30, 2014

Amazon (finally) posted a cogent and persuasive defense of their hardball Hachette tactics.

How does Amazon’s argument stand up?

Amazon is basically saying that Hachette (and maybe the entire world of publishing) doesn’t really understand the basics of supply and demand.  According to Amazon’s data (which is of course vast), setting a lower price for a Kindle book results in higher sales and profits.   An e-book priced at $9.99 will sell 1.74 copies compared to the same e-book priced at $14.99.   The example Amazon gives is an e-book that sells 100,000 copies at the higher price will have revenues of $1,499,000, where at the lower price the same book sells 174,000 copies and has revenues of $1,738,000.

This price-elasticity argument for e-books is probably irrefutable as far as it goes.  What Amazon does not talk abou is total revenues per book across all platforms.  I wonder how much the $9.99 Kindle book cannibalizes hardcover sales?  Lower Kindle book prices may mean more e-book sales, but what about total revenues?  Amazon should share the data on this question.

The second issue that Amazon does not address is how book revenues play out across a range of titles.  The average book may be better off with a lower e-book price, but we know that averages can deceive as much as they enlighten.  Maybe some books return higher overall revenues with a higher e-book price, and others return higher revenues with a much lower e-book price.   I have no doubt that a uniform $9.99 price Kindle price increases overall sales of Kindle books, but I’m not convinced that this price maximizes total revenues for individual titles (or even specific publishers).  Again, Amazon has the data to answer this question. 

Where Amazon (I wish a real person was writing for Amazon, not the faceless “Amazon Books Team" makes a very good point is when they say that:

“...books don’t compete against books.  Books compete against mobile games, television, movies, Facebook, blogs, free news sites and more.”

They could have added that books compete against MOOCs.

Where I think that Amazon may be on shakier ground is when they push the argument to say that:

"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.”

I’m not convinced that what is better for readers in the short-run is also better for readers in the long-run. If lower book prices today mean less people writing and publishing books because book writing and publishing is less economically viable (still a question), then we are not better off.  

What Amazon needs to show is that using powerful position as a market maker in book selling to set a uniform e-book price is indeed a net positive for the larger book creating industry.  A positive for authors and editors and those companies that take a financial risk to find and provide advances (a dwindling practice) to unknown writers.

What do you think of Amazon’s e-book response?

How have your book buying and book reading habits changed as book technology has evolved?


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