How Amazon's New Deals Affect Readers Like You

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Amazon Letter
Mark Lennihan/APVisitors walk through the Hachette Book Group's exhibition at BookExpo America, the annual industry convention in New York.
Literary types typically aren't confrontational or argumentative. But that wasn't quite the case last year when (AMZN) engaged in a nasty spat with a publisher.

In the latest development in a saga that saw the retailer go several rounds with Big Publishing, it recently renewed its existing, comprehensive deal with HarperCollins. The latter company, a unit of sprawling News Corp. (NWS), agreed to a key point that had previously been a bone of contention between Amazon and one of HarperCollins' peers.

Hachette Job

That peer is Hachette, owned by France's Lagardere. A fight between it and Amazon started last year when its hard-copy and e-book selling contract with the retailer came up for renewal. For reasons we'll dip into shortly, Amazon insisted on the publisher agreeing to a retail price ceiling of $9.99 for its e-books.

Hachette took umbrage at this, claiming among other things that it would badly affect the revenues for itself and its authors. The resulting battle lasted for months, until the two sides nailed down a compromise last November.

The publisher would be allowed to continue to set its own prices for e-books, but Amazon would offer it financial incentives to keep the costs low (although we're not sure of the particulars; neither nor Hachette made details of the new contract public).

Determined to Discount

Why was Amazon so stuck on the price of e-books?

According to an official company blog post, keeping the price low actually increases sales, and thus brings in more revenue for all parties involved -- retailer, publisher, and author. Also, says the retailer, it's almost impossible to justify e-book prices that match or approach that of their hardcover cousins.

"With an e-book, there's no printing, no over-printing ... no lost sales due to out-of-stock, no warehousing costs, no transportation costs," the company wrote.

That argument aside, the natural gravitational pull of the e-book market is down toward modest prices. A great many self-published writers -- who often issue their work through Amazon's dedicated self-publishing platform -- set prices very low, in order to drum up interest for their work and make it readily available.

The Biggest Store in Town

After a few months of fighting, though, it appears Hachette realized that it had to bend at least a little bit to the retailer's wishes.

Amazon is, after all, still a bookselling behemoth. According to recent estimates, the company is responsible for 40 percent of all new books sold, and a commanding 65 percent of the e-book retail space. Digging in too much against the company, then, can really hurt a publisher's results.

Tellingly, according to a report in Business Insider, Amazon apparently managed to coax higher co-op fees (the monies it's paid by publishers to specially feature their books on its website) from Hachette in their renewed pact.

The other "big five" publishers seem to have tacitly accepted Amazon's power in the marketplace. Mere weeks before the Hachette compromise, CBS' (CBS) Simon & Schuster renewed its deal with the retailer. In December, Macmillan followed suit, as did HarperCollins this past March, and Penguin Random House last month.

Meanwhile, a quick glance at the retail prices of several recent e-books issued by the four publishers indicates that only the occasional title seems to be priced significantly higher than $9.99.

During their dispute, Hachette scoffed at suggestions that it charged too much for its e-books, claiming that over 80 percent of its e-titles retailed at that price or lower. Amazon, meanwhile, alleged that "[m]any e-books are being released at $14.99 and even $19.99."

Regardless of which side is painting the truer picture of the past, current reality seems to suggest that the retailer's preferred ceiling is becoming the standard.

A Boon for Bookworms

So Amazon has sewn things up with all five major publishers. With that, the landscape of the book-selling world has shifted toward a model wherein the retailer dictates pricing conventions, rather than the publisher. And if said conventions include $9.99 e-books, who's going to continue paying around $20 for a hardcover version?

Not the consumer, that seems certain. Amazon and the publishers drew some blood and left some scars in their fight; luckily for us readers, we escaped from the scuffle largely unharmed, and are now saving money and will likely continue doing so because of it. Happy reading!

Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Try any of our Foolish newsletter services free for 30 days. Check out The Motley Fool's one great stock to buy for 2015 and beyond.
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