History Repeats Itself: Amazon Versus Hatchette

0404_opartmortsellThe Internet dramatically changes everything it touches.

From travel agents to music to your brain itself, the landscape of our world is rapidly changing. Dissemination and sharing of information, ideas and media now takes mere moments instead of minutes, hours, days, or even months. Homemade videos can go viral, reaching millions of people in the space of a few days. Even the way we consume information is changing.

I watched this change affect the movie rental industry for about six months. I was working at a Blockbuster; it was a fairly small store located in an affluent part of town. We were near the ritzy hotels and saw a decent amount of repeat business (I even met Will Ferrell and Gary Coleman). But the fact that we were surrounded by money didn’t matter—the store was beginning to flounder.

I watched as the company tried to adapt to the changes that were sweeping the movie rental business. Netflix had gotten into the Internet movie rental game first and established themselves. Redbox was damaging our brick and mortar store’s profits. They tried to counter Netflix by offering free in-store rentals in exchange for dropping off your Blockbuster Online rentals at the store. The stores were re-merchandised with candy, movie memorabilia and other throwaway merchandise. They copied other successful ideas that took advantage of the changing landscape around their business, but each time they were too slow or unfocused.

I came to the realization that Blockbuster was a dinosaur. It was a hulking behemoth of a beast that moved slowly and was not quick to adapt. As a result, Blockbuster experienced a gross decline in business and now only exists in form of a few remaining franchised stores, an online rental service, and a DISH network channel. For all intents and purposes, the company is a shade of the movie rental megalith it once was.

The same kinds of changes are hitting the publishing industry. Please don’t take this to mean that I’m saying that the big five publishers are going to go the way of Blockbuster, because I doubt they will, but change is happening.

This change is very clearly illustrated by the current tensions between Amazon and Hatchette.  When boiled down, the argument centers around a single point: pricing. Amazon feels that no e-book should cost more than $9.99 (excluding special cases), while Hachette wants to charge up to to $14.99 for an e-book.

There are several possible reasons I see for this disagreement.

The first is that Hachette wants e-book prices higher for profit reasons. Ebooks are significantly cheaper to produce than real books. There is no paper, no ink, no printing presses involved, no binding involved, just strings of ones and zeros arranged in such a way that they produce a book in digital text format. Because of this, a higher price on e-books means that there’s a higher profit margin. Ultimately though, this doesn’t make much sense. As Amazon pointed out in the letter they released regarding the situation, lower e-book prices lead to more sales roughly two times more). More sales at lower prices results in more revenue for the author, the retailer, and the publisher. Under this practice everyone wins; the customer pays less and the the other parties involved make more money.

The second, and in my opinion, more likely, reason Hachette wants to win this confrontation is to regain control of pricing and discounting over Amazon book prices. I know this sounds quite similar to the previous point, but as David Gaughran points out, the effects of higher prices are more likely the goal here. Publishers have been fighting the transition to digital since it began. By removing Amazon’s ability to set prices and toy with discounts, they effectively slow the transition from physical books to digital books. In achieving this, Hachette buys themselves more time to figure out exactly what this crazy thing called the Internet is, and how they should deal with it.

Personally, as both a reader and a writer, I’m a fan of books being priced lower. I sell my short story, Mercury, Sulfur, & Salt for just $0.99. I do this because I feel like it will encourage people to buy the book and possibly take an interest in my work. I also do it because I believe in what Hugh Howey calls pricing below the regret threshold. There is also the case of paperback book, and present day companies failing to learn from history’s mistakes. (I do feel it is worth noting that Amazon seems to have taken Orwell’s quote out of context.) But ultimately, I’m in this to create something, not for the money. Don’t get me wrong though, I’m not allergic to money.

What are you thoughts on the subject? Should e-books be priced cheaper than their physical counterparts? Are they a threat that could destroy book reading culture, as Hachette says they are? Either way I’m fairly confident in my belief that they are here to stay. Share your thoughts below, I’d love to hear from you.



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