Amazon’s Battle With Hachette Reflects The Growing Pressure For The Retailer To Show Profits




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BY GRAHAM RUDDICK

The battle between Amazon, the online retailing giant, and Hachette, the international publishing group, has the makings of a plot for a legal thriller by John Grisham. A plucky young upstart eventually finds success, only to fall to the dark side and turn its back on the values it initially pledged to hold dear. The only problem is that in this battle it is not clear which side takes the role of fallen angel.

Amazon wants you to believe that the villain is Hachette, which began life as a bookshop in France in 1826 but is now one of the biggest book publishers in the world and part of Lagardère, a £6 billion media empire. Amazon claims that Hachette is colluding on prices with rival publishers and preventing the public from getting cheaper books.

On the other side, Hachette, with the support of hundreds of authors including Grisham, James Patterson and Stephen King, claims it is Amazon, the world’s biggest online retailer, that deserves the opprobrium. It says that Amazon, created by Jeff Bezos in 1995, has evolved from a business that pledged to offer consumers access to cheaper books and entertainment into a corporate machine damaging the well-being of writers and high streets around the world.

The two sides have exchanged open letters. A group of 900 writers calling themselves Authors United paid for a full-page advert in The New York Times at the weekend, pleading with Amazon to be left out of its fight with Hachette. This was prompted by Amazon reducing its stock of Hachette titles and blocking pre-orders, which are vital to secure early sales and nudge a book up the charts.

“By inconveniencing and misleading its own customers with unfair pricing and delayed delivery, Amazon is contradicting its own written promise to be ‘Earth’s most customer-centric company’,” the writers claimed. “Many of us have supported Amazon since it was a struggling start-up. This is no way to treat a business partner. Nor is it the right way to treat your friends.”

The row has come to a head because Amazon and Hachette have failed to agree new terms under which the online retailer can sell the publisher’s books, which include classics such as To Kill a Mockingbird and modern bestsellers such as The Silkworm by Robert Galbraith, the pseudonym of JK Rowling.

Amazon claims the price of a new ebook should be $9.99 (£6), compared with $12.99 to $19.99 at present. It also wants to restructure the way revenues are split between the publisher, author and itself. The retailer responded to Authors United by using the name Readers United. It accused Hachette of stonewalling in negotiations, colluding with other publishers on prices, and compared dismay at the rise of ebooks to the reluctance of publishers to accept paperbacks after the Second World War. “They believed low-cost paperbacks would destroy literary culture and harm the industry (not to mention their own bank account),” Amazon wrote.

In its letter, Amazon provided the email address for Michael Pietsch, the chief executive of Hachette, and encouraged the public to email him with concerns. Those who do email Pietsch find that he is responding. “This dispute started because Amazon is seeking a lot more profit and even more market share, at the expense of authors, bricks-and-mortar bookstores, and ourselves,” he says.

It is not the first time this type of complaint has been made against Amazon. Indeed, at the heart of the row is the dramatic change that the internet has brought to the entertainment industries, and the key question of whether the growth of Amazon is a good thing.

In the UK, the company has been criticized for hastening the demise of local high streets, for poor working conditions in its warehouses, and for not paying its fair share of corporation tax. Amazon enjoyed sales of £4.3 billion in 2013, but accounts for Amazon.co.uk Limited show it paid just £4.2 million in corporation tax. Amazon also had a row with Warner Bros earlier in the year and has now blocked pre-orders on new Disney films such as Captain America: The Winter Soldier and Maleficent.

Publishers, film studios and record labels are cautious about the growth of Amazon. Not only does it want to sell products for a lower price than they do, but there are concerns that Amazon will not allow a film studio or record label to promote its product in the same way that a high street store will. This is why HMV has re-emerged on the high street in Britain, despite falling into administration last year. The film studios and record labels want HMV to survive. They are offering it exclusive products – such as special-edition CDs and DVDs and greater access to back catalogues – to take on Amazon. As a result, although HMV has half as many stores as when it fell into administration, sales in the shops that did survive are up 10 per cent, year on year.