Amazon, e-books & The State of Publishing Today – Daniel Formby

Dan Formby is a fiction writer, magazine editor and begrudging critical theorist. His fiction can be found on Amazon and editorial and curative work can be found in Avis Magazine.

Amazon, e-books & The State of Publishing Today

There was a time in the late 90s and early 2000s when Amazon Inc., the giant online retail store, was hailed as the saviour of the publishing industry. The founder, Jeff Bezos, was named Time Magazine’s Person of the Year in 1999 for his services to establishing the foundations of online retail[1]. Amazon was lauded for its accessibility and economical pricing. However, over the course of two decades, public opinion of the company has shifted, and the perception of Amazon’s hero status within the industry has now widely been accepted as one much more villainous. In December 2014, Vanity Fair published an article titled ‘The War of the Words: How Did Amazon End up as Literary Enemy No. 1?’[2] during the ongoing disagreement between Amazon and Hachette over e-book pricing, and stated that the argument had earned Amazon a ‘black eye’ in the media, with numerous public  figures criticising Amazon’s position.

 
The reasons for these shifts in perception are multiple and complex. To fully explore these reasons we must first take a look at the publishing industry before Amazon came to exist and why there was a gap in the market for Amazon to exploit.
Previous to the inception of Amazon, book-sales were globally falling. Poor management and a refusal to be pro-active in modernising business models meant that, as the Information Age began to take hold, publishing houses were not prepared for the expansion into new marketing territories they needed to stay afloat. Amazon offered the opportunity to change that.

 
Effectively working as a distributor, Amazon was set up in 1995 when Jeff Bezos read a report that projected there was room for around 2,300% growth in the online market and decided that he wanted to take advantage of this prediction. After originally listing a number of possible markets, he decided on books due to their low price point, high availability and already existing audience.[3] Amazon’s business model worked on the idea that they would be able to offer a much larger selection of products due to not being limited by the capacity of a single book-store. It is a model that in 2016 we are all familiar with – and of course, exploded in the twenty years since 1995, with Amazon perfectly positioned to lead that growth, even when other industry factors such as the dot-com bubble warned that they would eventually decline. Although the industry did eventually lose some standing in publicly traded markets in the year 2000, Amazon survived and continued to thrive because of Bezos’ decision to grow profit margins over a longer period of time than was usual for internet retailers. Bezos is reported to have said in 2013 “The long-term approach is rare enough that it means you’re not competing against very many companies because most companies want to see a return on investment in, you know, one, two, three years… I’m willing for it to be five, six, seven years. So just that change in timeline can be a very big competitive advantage.”[4]

 
In short, Amazon achieved two crucial things – the first was to be one of the first to explore a new marketplace, and the second was to ensure its own survival through a careful building of its financial foundations. As Mark Johnson stated in his article in Businessweek, “Amazon survived the dot-com bust because it had a viable and innovative business model built around a market-changing customer value proposition and a radical profit formula.”[5]

 
Strange as it may sound to us now, in the beginning the publishing industry was more than happy to work alongside Amazon. The online retailer offered access to a new market that traditional booksellers had yet to make any inroads into – and a larger market meant higher sales. Amazon also offered the ability to customers to pre-order their favourite new releases, giving publishing houses specific numbers of the amount of copies they can expect to sell of any given publication upon release, a boon for the finance departments of publishing houses, who were now able to more effect manage costly printing budgets . Although traditional booksellers were unhappy with Amazon and their ability to undercut their pricing, it was hard to argue that Amazon’s success was not advantageous to the consumer. Amazon quickly expanded into other areas as well and now sells an extensive range of products.

 
In the UK market, for example, Amazon’s emergence was a huge cause for concern for the biggest high-street retailers. WH Smith, whose business model is predicated on the idea that their stores stock the books that publishers pay them extra to stock, lost huge ground to Amazon, who could stock an effectively infinite amount of products that were rated and reviewed by the consumer – taking the control of the market away from WH Smiths and the publishing houses and, handing control to readers. This democratisation fed the positive aura Amazon first garnered during its relative infancy. Part of Amazon’s mission statement is to maintain that customer-centric attitude, with Bezos stating in an interview “I would define Amazon by our big ideas, which are customer centricity, putting the customer at the centre of everything we do, invention. We like to pioneer, we like to explore, we like to go down dark alleys and see what’s on the other side.”[6]

 
Since then, Amazon has grown in many different areas and now represents a large portion of multiple arms of retail and e-commerce, as well as being a key player in significant changes to the landscape of technological advancements based around the needs of a given customer. It is the merging of these technological advancements with the bookselling market that have sparked the greatest protests between Amazon and the rest of the industry.

 
In 2004, Bezos tasked his company with building the world’s best e-reader before anybody else did; in 2007, the first version of the Amazon Kindle was born.[7] The e-reader allowed the owner to download an electronic version of a book, or e-book, directly from the internet – bypassing the material publishing altogether. With this foresight, Bezos positioned the Kindle to be at the height of the e-reader market just as the popularity of e-readers was beginning to grow. The emergence of this new technology meant that traditional book sales declined sharply. It was widely reported at the time that the birth of the e-book meant the death of the printing press, and for some time, figures dictated that this may be an accurate assumption: 240,000 Kindle units were sold in the first year and it is estimated that the Kindle and associated e-books raised over $100,000,000 by the time the Kindle celebrated its first birthday.[8] By 2010 Amazon announced that e-book sales had overtaken paperback sales for the first time.[9]

 
The money raised by Kindle and e-book sales for Amazon was and is taking sales directly away from traditional markets. In the same way Apple’s iTunes meant the death of many high street CD retailers, high street bookstores feared that Amazon’s newest product could sound the death-knell for print publishing. The knock-on effect this had is that traditional publishers and bookstores have had to become much more savvy within the bookselling market to assure their own survival, favouring popular genres more and gambling on new authors less. The financial crash of 2008 heralded yet another crisis: Amazon’s position as one of the biggest retailers in the world meant that it largely escaped unscathed, but many traditional retailers were not so lucky.

 
But there is another party to consider: the author. In theory, if there is no print or distribution to pay for, both the price of the product for the consumer should be reflective of this and the amount of money received by the author of the book should also rise. In the summer of 2015, The Author’s Guild announced that they felt that ‘half of the net proceeds’ from e-book sales should go directly to the author.[10] Perhaps surprisingly however, The Author’s Guild didn’t approach Amazon with the proposed arrangement, but the publishers themselves. An author should expect a 50% return of traditionally published book sales, they maintained, and that there was no reason for this to lower because of the conversion from analogue to digital. They presented evidence that with e-book sales now occupying around 30% of the market, the 25/75 split that was being offered by publishers on e-book sales was completely unjustified and was negatively impacting on the viability of new and emerging authors. The Author’s Guild also insisted that, due to the consolidation of many of the larger publishing houses after the 2008 financial crash, there was less competition between publishers to offer an author a publishing deal, thus allowing them to offer lower profit splits in the assumption that they were unlikely to find a better deal anywhere else.

 
Although the prices of e-books are traditionally lower than their printed counterparts, Amazon’s prices have been criticised for fluctuating to encourage Kindle sales. In 2010, five of the biggest publishing companies in the world signed a deal with Apple, who were about to release the iPad and begin to directly challenge Amazon’s domination of the market, selling their bestsellers on the iBookstore platform at higher prices, forcing Amazon to also raise their prices or be removed as a retailer for those five publishers.[11]

 
The argument between Amazon and publishers stems from the fact that publishers have always been reserved about entering new markets – there is an assumed, underlying logic that books will always sell and even if the market for book sales begins to fall, it will always exist in some capacity. However, the traditional model favoured the publisher’s profit margins, whereas the digital model spearheaded by Amazon favouring online retailers and, to a lesser extent, the consumer, since prices fell rapidly. It was for this reason that, despite Amazon’s headlong leap into the digital market, publishers held out for a better deal from their business rivals, such as Google or Apple. Piracy was another concern – after seeing the amount of music piracy created by the emergence of digital music sales, publishers did not want to rush into digital markets until they felt they were sufficiently protected.

 
This consumer-centric model meant a sharp decrease in both the authors’ and the publisher’s profit margins. Amazon effectively tries to sell for the cheapest price possible, keeping its profit stream low on an individual product basis but huge on the scale of amount of products they sell – essentially, they make less money more often. When Amazon pushed prices lower and lower, publishers reacted by lowering the percentage they were offering authors lower as well.

 
In recent times there have been some reported cracks in the attempts made by the publishing industry to expand their profit margins – with some 50-50 splits on e-book sales agreed between authors and publisher. However indications are that authors have been forced to sign non-disclosure agreements to ensure that it does not become common knowledge. Other alternative offers have been to lower the amount of advanced payment offered by publishers in lieu of a higher percentage of e-book revenue, or to offer an increase to 50% of the net profit if a certain threshold of sales is met – usually this threshold is higher than the amount of e-books an author could realistically expect to sell.

 
Another criticism of Amazon is the effect that its emergence has had on independent bookstores. The low cost of Amazon’s stock is something that smaller, independent bookstores have no real way of competing with, and competition with Amazon has been a major reason bookstores themselves have given as to why they have had to close. In recent months Amazon have announced that they plan to expand their enterprise into the high street and are set to open their first ever non-digital bookstore in Seattle. This move has been met with a lot of trepidation from the traditional bookselling industry due to the fear of Amazon’s massive buying power.[12]

 
Amazon’s rapid growth into one of the biggest companies in the world has changed the way the industry works in many ways. Much of these changes have been met with open criticism, but from a consumer basis, Amazon’s existence allows for a wider range of products than the likes of WH Smiths, the biggest retailer at the time of Amazon’s creation, were offering to the customer. Author profits are still lower than they arguably should be, however there is growing support to change this and the problem lies more in the relationship between the author and the publisher than it does with Amazon, though of course, Amazon has radically altered that dynamic. Most publishers would agree that Amazon’s ability to undercut independent booksellers is damaging, yet the discussion around Amazon and the ethics of its practices therefore leads us to something of a stalemate. Whilst it is good for the customer to be able to buy books at more affordable prices, and it is surely a good thing that more books are in circulation, the rise of online retailing and e-book publishing undoubtedly harms the industry if there is not enough competition from publishers to offer authors their fair share, with most publishers blaming Amazon’s grip on the industry as the reason as to why they cannot offer a fair deal. At the same time, it is because of Amazon that the existence of the new digital market of publishing exists in the first place. In the coming years this argument between publishers and Amazon over fair prices looks set to rage on unabated, and unless the voices of those disgruntled authors gain some audience, it is unlikely that any new precedents will be set by publishers until Amazon raises its prices.

 

With consumers offered rock-bottom pricing, and publishers refusing to budge on their margins for fear of being choked by online retailers, as it stands it is the ultimately  author who is getting the worst part of the deal, and if authors cannot survive, the whole industry will go down with them.

 

 

[1] Wired, Man Of The Year, 1999: Jeff Bezos <http://www.wired.com/1999/12/man-of-the-year-jeff-bezos/&gt; [accessed 10/4/2016]

[2] Keith Gessen, The War of the Words: How Did Amazon End Up As Literary Enemy No. 1? <http://www.vanityfair.com/news/business/2014/12/amazon-hachette-ebook-publishing&gt; [accessed 10/4/2016]

[3] Tina Grant, International Directory of Company Histories Vol. 56 (New York: St. James Press 2004)

[4] Rick Dagley, eWeek At 30: How Amazon Survived The Dot Com Crash To Rule The Cloud <http://www.eweek.com/cloud/eweek-at-30-how-amazon-survived-the-dot-com-crash-to-rule-the-cloud.html&gt; [accessed 10/4/2016] p. 1

[5] Mark W. Johnson, Amazon’s Smart Innovation Strategy  <http://www.businessweek.com/innovate/content/apr2010/id20100412_520351.htm&gt; [accessed 10/4/2016]

[6] Rick Dagley, eWeek At 30: How Amazon Survived The Dot Com Crash To Rule The Cloud <http://www.eweek.com/cloud/eweek-at-30-how-amazon-survived-the-dot-com-crash-to-rule-the-cloud.html&gt; [accessed 10/4/2016] p. 1

[7] Keith Gessen, The War of the Words: How Did Amazon End Up As Literary Enemy No. 1? <http://www.vanityfair.com/news/business/2014/12/amazon-hachette-ebook-publishing&gt; [accessed 10/4/2016]

[8] Eric Schonfeld, We Know How Many Kindles Amazon Has Sold: 240,000 <www.Techcrunch.com/2008/08/01/we-know-how-many-kindles-amazon-has-sold-240000/> [accessed 10/4/2016]

[9] BBC, Amazon Kindle e-book downloads outsell paperbacks. BBC News. January 28, 2011. <http://www.bbc.co.uk/news/business-12305015&gt; [accessed 10/4/2016]

[10] Author’s Guild, Half of Net Proceeds Is the Fair Royalty Rate for E-Books <https://www.authorsguild.org/industry-advocacy/half-of-net-proceeds-is-the-fair-royalty-rate-for-e-books/&gt; [accessed 10/4/2016]

[11] Richard Wray, Old media wins battle in ebook war as Amazon raises prices to match Apple <http://www.theguardian.com/books/2010/feb/01/amazon-macmillan-ebooks-apple&gt; [accessed 10/4/2016]

[12] Lisa Campbell and Katherine Cowdrey, Booksellers’ ‘horror’ at Amazon bookshop <http://www.thebookseller.com/news/booksellers-horror-at-amazon-bookshop-315674&gt; [accessed 10/4/2016]

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s