Amazon Is NOT the 'Putin' of Books!

The online powerhouse is being compared to thugs because it wants you to pay less for ebooks.

This article ran at The Daily Beast on June 5, 2014.

Can you believe those…those…those…sons of bitches at Amazon? After launching almost 20 years ago and making virtually every book—new, used, dead-tree, electronic, audio, and I'm guessing any day now, olfactory—available to everyone in America at good-to-great prices, the company's true character now stands revealed. It's not pretty, folks. Despite a huge market share, Amazon apparentlystill wants books, especially the e-books that everyone agrees are the future of the medium, to be cheaper than what publishers and big-name authors want you to pay for them.

Just who the hell does Amazon think it is? Maybe a bare-chested tyrant who used to work for the KGB? Amazon is "like Vladimir Putin mobilizing his troops along the Ukrainian border," a proprietor of an "e-book discovery site" tells The New York Times. "A bully," offers Richard Russo, the novelist and president of the Authors Guild (which knows exactly how to bully mere "writers"). Amazon, says author James Patterson, who published 13 detective books last year, is waging "war" and doing unspeakable things for which "the quality of American literature will suffer." No, wait. That's all wrong. Amazon isn't like a Russian despot waging a war, says Dennis Loy, proprietor of the small publisher Melville House. It's more like "the Mafia."

What Loy calls Amazon's "extortion" racket is its decision to make it annoying as hell to buy books published by Hachette, a French-based conglomerate whose imprints include Grand Central, Little Brown, Hyperion, and others. If you try to order new Hachette books, including titles from James Patterson and other best-selling authors such as Malcolm Gladwell (who likens Amazon to the biblical Goliath in this interview), the odds are high that Amazon will actually charge the publisher's cover price and tell you it won't arrive for several weeks. Even the electronic Kindle version! In other words, kind of what buying books used to be like 30 years ago.

It may even recommend you buy a totally different book before you head over to the websites for Barnes & Noble, Hachette, or even Wal-Mart. Yes, that's exactlyhow the mob works (well, except for the Gold Box Deals and that original miniseries featuring John Goodman as a congressman).

Both Amazon and Hachette have signed confidentiality agreements, so the exact nature of the negotiations between the two companies is anybody's guess. But it's clear that they are duking it out over the future price of e-books (a market that Amazon, more than any other single company, made viable with its cheap, user-friendly Kindle devices and cross-platform apps). "Inside the publishing world," reports The New York Times, "the consensus is that Amazon wants to offer deep discounts on Hachette's electronic books, and that the negotiations are not going well."

Hachette is the first major publisher to be engaged in this sort of wrangling, but it won't be the last. If you had heard of Hachette before this latest brouhaha, you are either an author with a very good agent or you followed that fascinating federal lawsuit settled a few years ago. You know, the one about how five of the six biggest publishers on the planet conspired with Apple and Steve Jobs to fix e-book prices when the iPad was first coming to market in 2010.

Jobs wooed publishers who hated Amazon's devotion to selling virtually all new e-books at what one executive called "the wretched $9.99 price point." They were leaving money on the table, kind of like how iTunes does by selling hit songs for the same price as songs that nobody wants. It just didn't make sense, the publishers figured, especially since Amazon was often losing money on each sale.

Traditionally, a bookseller such as Amazon would buy a paper-and-glue title at around half the publisher's suggested retail price. The seller's per-unit profit varied according to whatever price she set and how many copies she moved; that was also the basic formula for many commercial e-books, so Amazon could be underpricing itself just like it did when it steeply discounted its sales price for certain books. Retailers cut margins on sales all the time for all sorts of reasons: to build market share, to reduce inventory, to stave off competition, and more. By keeping prices low, Amazon was hurting everyone but the reader.

Because Amazon has emerged as the single-largest seller of traditional and e-books, its policies are hugely influential in setting industry-wide prices and practices. Which incidentally are far from what most people, and certainly most economists, would consider monopoly levels. Currently, Amazon accounts for about 41 percent of all new books sold, and two-thirds of new e-books.

Unlike Putin annexing Crimea or the Mafia muscling in on, say, the bar and restaurant business, Amazon didn't get that big by threatening violence or "scorched earth" (as one critic puts it). It got that way by relentlessly improving and diversifying its product offerings, customer service, and ability to sniff out what you might be interested in buying or accessing (the company's uncanny success at this has freaked the shit out of its competitors since the company's earliest days). Like every other legitimate business that must woo customers on a daily basis, it will wither and die the minute it stops giving us what we want at a price we're willing to pay (does anyone still remember A&P supermarkets, which controlled its market like Walmart on steroids?)

Publishers and independent bookstores have a long history of being against booksellers discounting prices. In the 1920s and '30s, the American Booksellers Association sued Macy's for selling books cheaply, and Franklin Roosevelt's National Recovery Act included anti-discounting provisions that were ultimately ruled unconstitutional. In the 1990s, the same ABA filed suit against Barnes & Noble and Borders for similar practices. So Hachette and the other publishers were all ears when Steve Jobs came a-calling with a surefire way to jack up e-book prices.

As The Wall Street Journal reported when the price-rigging case was settled in 2012, "The five publishers and Apple hatched an arrangement that lifted the price of many best-selling e-books to $12.99 or $14.99, according to the suit. The publishers then banded together to impose that model on Amazon, the government alleged."

On behalf of authors and publishers, Jobs unveiled what he called his "aikido move," which would not only change price points but shift to an "agency model," where the seller gets a commission on each unit sold rather than buying a certain number of units at a fixed price. "We'll go to the agency model," Jobs explained, "where you set the price, and we get our 30 percent [commission], and yes, the customer pays a little more, but that's what you want anyway."

That's an interesting line that doesn't seem to make it into all the love being showered on Hachette by its public champions: Yes, the customer pays a little more, but that's what you want anyway.

As the author of a well-reviewed but not great-selling book that came out in hardcover in 2011 and paperback in 2012 (here's a Wikipedia link), I understand the totally legitimate desire of authors and publishers to squeeze every goddamn dime out of you, the reading public, whom we love so much.

As a libertarian, I am against the sort of lawsuit that the Department of Justice brought against Apple and Hachette et al., and I certainly don't want to see Eric Holder's minions figuring out the "true market value" of the next 13 James Patterson novels (word to the wise: as the recently deceased leftist historian Gabriel Kolko grokked, government intervention is mostly a way of fixing markets to the benefit of big corporations, not consumers; see also "Antitrust's Greatest Hits").

Mostly, though, as a reader, I want to pay the lowest prices for the widest range of books in whatever format. This fight between self-evidently evil Amazon and kind-hearted, literature-loving Hachette isn't about the future of civilization itself (indeed, with the possible exception of Melville House's Loy, heads of small presses seem to appreciate how Amazon has brought their titles to potentially global audiences). It's really about how much readers are going to be asked to pay for titles coming out of big publishing companies. Amazon's track record on that score is pretty damn great: It always wants the price to be lower. That sucks for publishers and authors, and maybe even for Amazon's bottom line. But it's worked pretty nicely for readers so far.

To be sure, in this current dispute, Amazon may end pissing off customers so much that we end up scurrying to actual real-world bookstores and other online sellers. That might be bad for Amazon. To the extent that it's good for Hachette and other publishers who want us to "pay a little more," that'll suck too.

I trust the market to figure out the details of this. The publishers, after all, are constrained somewhat by Amazon's market advantage. And Amazon is constrained by the publishers' control over their titles. Both are constrained by the willingness of readers to shell out money for books that may or may not be worth buying. Given the number of sites—such as BN.com and Walmart.com—that are already "slashing prices" to take advantage of the Amazon-Hachette fight, I'm confident that the Republic of Letters will not only survive, but flourish to the benefit of readers, who are ultimately what it's all about.

Disclosure: The founder of Amazon, Jeff Bezos, is a supporter of Reason Foundation, the nonprofit that publishes Reason magazine, Reason.com, and Reason TV, where I write and edit. I have never had any contact with him or anyone at Amazon except as a customer. Although I greatly admire Amazon as a company and, as a part-time resident of a small town in Ohio, benefit greatly from its services, I am not uncritical of it, either.

This article ran at The Daily Beast on June 5, 2014.