Amazon.com, Inc.’s (AMZN) dominance in the book retail industry has long been the target of criticism, which has now converged into a flurry of dissent from a number of publishers and authors who depend on the online retailer to drive sales of their book titles.
Last week, Amazon reportedly stopped pre-order sales of upcoming titles published by Hachette Book Group on its online store, causing a widespread call for curtailing the online retailer’s influence over the industry. New York City-based Hachette, which owns publishing brands including Grand Central Publishing, Mullholland Books, and Little, Brown and Company, is alleging that Amazon was deliberately delaying shipments of its physical books.
Amazon is demanding a greater cut of the profits for giving deeper discounts on titles for which it pays publishers in order to bump up its own profitability. Hachette has accused the retail giant of using predatory tactics to curb sales of its books, including slashing discounts on its physical titles, increasing shipping times, and even discouraging customers from buying the book by manipulating recommendations.
Hachette’s book under contention is J.K. Rowling’s upcoming mystery title, “The Silkworm,” written under the pseudonym Robert Galbraith. The book is expected to reach bestseller status by the time it is released on June 19, with pre-orders already going through the roof. But Amazon’s website currently says the book is unavailable for pre-ordering due to a tussle with Hachette over pricing.
The latest round of heavy-handedness has also affected Germany’s Bonnier Media Group, which said Amazon had stopped sales of its books by delaying shipments to customers.
The move has drawn immense criticism from publishers, editors, and authors including the Authors Guild, which says that Amazon is punishing them for not abiding by its demands and has broken anti-trust laws by blackmailing publishers.
The current issue is related to the pricing of not just physical books, but also e-books, which typically have higher margins because they do not involve costs related to printing, storing, and shipping. Amazon sees the pairing of e-books with its Kindle devices as a major catalyst for increasing margins in its books segment.
The online retailer has long dealt with miniscule margins as it struggles to show profitability. In its first-quarter earnings results announced last month, the company said its net income margin came in at only 0.55% with almost $19.7 billion in revenues, which grew 23% over the same quarter last year.
Amazon stock is down over 20% year-to-date, as the retailer has failed to deliver expected growth in margins. But despite the expected backlash from its battle with publishers, the stock rose 2.4% on Friday as news of Amazon’s advance into robots for use in logistics made headlines.
Amazon: A Powerful Influence on the Industry
There is an entire ecosystem of authors and small publishers who rely on Amazon’s platform for a large portion of their sales, and they are getting increasingly worried at Amazon’s growing influence. The Seattle-based online retailer’s sales make up around 30-50% of total book sales in the US, while its share in the e-book market is even higher.
Publishers feel helpless in the situation against a behemoth and feel they cannot take it on alone. This is not the first time Amazon has dealt with a publisher with a heavy hand. In 2010, the company was embroiled in a similar dispute with London-based publisher Macmillan, which wanted higher prices for its e-books on Amazon.
The 2010 battle had, for a while, seen Amazon stopping sales of Macmillan’s books from its online store. But eventually, the two worked out an agreement and one of the reasons for a mutually agreed upon deal was the upcoming prospect of Apple Inc.’s (AAPL) iBook store, which was at the time seen as a serious rival to Amazon’s reign at the helm of the book retailing industry.
But Amazon still remains the undisputed leader when it comes to book distribution, be it physical titles or e-books, and many small publishers see no way out but to seek help from the government. The publishers being victimized could join hands and launch a class action against Amazon, calling on lawmakers to change the regulatory dynamics of the industry to prevent such an episode from happening again.
In the near-term, Amazon may very well face a backlash in the form of legal proceedings. The increasing threat of alternatives could also worry investors with publishers looking for other options if Amazon does not stop its relentless drive to make more money by stifling them. Of course, Amazon itself can also move to prevent its reputation from being tarnished by the media, and it is likely that a deal with Hachette would be hashed out soon in order to stop the negative publicity.
For now, customers who want to place pre-orders of Hachette’s books, being released in the summer, can do it through smaller independent book retailers and Barnes & Noble, Inc.’s (BKS) online store.
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