Law Thirty-Six

You gotta go with what works

If the wind changes, your face will stick like that

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My last post tried to put the case for e-Readers. I aimed for an argument in favour of e-Readers in general rather than Kindles specifically, but it’s hard to separate the two. An August 2013 survey by the Book Industry Study Group suggested that over 60% of people who read e-books own a Kindle or Kindle Fire; just over 30% own an iPad or iPad mini; those owning a Barnes & Noble Nook or Nook tablet make up around 15%.

The Kindle is a great piece of hardware. I’ll admit that I’ve not spent any time at all investigating the Kindle Fire, but the ‘e-Reader only’ Kindle versions do their job very well: clear, legible screen; good battery life; and contract-free 3G was a great option to add to the device. When you combine that with seamless integration with Amazon’s e-book sales system, both on the device itself and online, you have a killer proposition. It’s the same achievement that Apple had when they coupled the iPod with iTunes (horrible software, but great concept) for music, and then again with iDevices and the App Store.

Today, the players in the e-Reader field are Amazon, Apple, Barnes & Noble, Kobo, and Sony, although the last of these seems to be shrinking rapidly out of the market. But the way that these devices are tightly coupled to book sales platforms and to proprietary e-Book formats isn’t helpful for consumers. This is not like buying a DVD player today, where if your hardware fails you have a free choice of brands and models from the marketplace, knowing that your existing DVDs will work with whichever player you choose. If you drop your Kindle in the bath, you are tied in to getting another Kindle if you want access to your existing library of books. Whatever competition there was between the first companies to bring DVD players to market, they realised that the end point had to be accepted standards and compatibility between players. The e-Reader market doesn’t work like that.

e-Reader devices should be cheap and interchangeable. You should be able to sign up to a range of online retailers’ services, buying books from whichever retail gives the best deal that day. You should be able to swap your e-Books seamlessly and easily between devices. We’re not there yet.

The position we’re in today is that we have a dominant product in the market place – the Kindle – backed by a dominant player in a number of markets – Amazon. In the year to September 2013, Amazon.com Inc’s revenue was a staggering $17.09 billion (although it made a loss of $41 million). With that kind of size comes the potential to abuse that market dominance at the cost of its suppliers.

Last month, Amazon’s contract negotiations with the publisher Hachette spilled out into the press. The details of the disagreement between the two companies have not been made public, but it’s thought to surround the percentage that Amazon takes from the cover price of e-Books, with the whole system of pricing for e-Books having been the subject of a US Department of Justice investigation recently. Amazon chose to fight back by stopping pre-orders for Hachette’s books. Since the Hachette group includes the publisher Little Brown, this will impact the June release of Robert Galbraith’s new novel – and you’ll remember that Robert Galbraith is the pseudonym of a somewhat famous bestselling author. I don’t know if Amazon were going for the publicity of having top titles disappear from Amazon searches, or whether pre-orders are a publisher’s weak spot: the whole concept of pre-ordering something that will be readily available on its release date makes no sense to me, but I can see why it helps a book publisher enormously. Hachette are also suffering shipment delays when their titles are bought through Amazon, because although Amazon’s systems are tuned to have stock in place in anticipation of the customer’s order, they’ve switched to a more reactive model for Hachette.

With Amazon inviting the public to buy Hachette books from other sources in their press release, Hachette has turned this into a battle between independent booksellers and the multi-national retailer, taking the PR angle. Another of Hachette’s authors is US satirist Stephen Colbert, and that’s not helping Amazon to stay on the right side of public opinion.

Today we learn that Amazon is trying the same thing with Warner Home Video in the US. Amazon’s pre-orders have ceased for the June release of The Lego Movie and other Warner titles. I for one will be buying my copy of that film from our local HMV, since we’re one of the few places that still has one.

Ultimately, I am not overly concerned about Hachette or Warner Home Video – these are big companies that can look after themselves. But one of the other things that has come out of the e-Reader revolution has been the opening up of new ways for authors to get published. Perhaps more so that independent print on demand companies like Lulu, Amazon’s Kindle Direct Publishing service has provided authors with a rapid route to get their books to their audience. At present, authors receive a high percentage of royalties from these sales. This is not just a way that authors (not all of whom are E.L. James) can find their way to a traditional publisher and agent. It is also a significant way of ‘being’ a published author in its own right, and a way that some can make six figures per month or more (although half of those taking this route will bring in less than $500 per year). But even the highest earners in this field are nothing when stacked up against Amazon. What if Amazon chose to alter the deal and adjust the royalties paid by Kindle Direct Publishing to something substantially more in its own favour?

Amazon may be overly complacent of its dominant position and too ready to ignore the potential of a public backlash against them. Starbucks found themselves in a similar position after it was highlighted that they paid minimal tax in the UK. Bad publicity and boycotts may well have played a part in the £14 million drop in revenue for the year to April 2014, after 16 years of consistent growth. This came even after Starbucks had agreed voluntarily to increase their UK tax contributions and to move their European headquarters from the Netherlands to London.

Maybe we won’t all stop buying everything under the sun from Amazon, but if public opinion turns against them, it could develop into something they notice in their balance sheet.

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