With the escalating feud between online retailer Amazon and publisher Hachette ongoing, the real reason may have seemed like a mystery to some. Of course, it has to be about money and who is getting what. It turns out that it is all about ebook sales and who gets how much of the profit from them.
The feud went public earlier this month, when Hachette first accused Amazon of deliberately delaying shipment of its books. It got worse this week when Hachette said Friday that Amazon has begun to make it impossible for readers to pre-order their books.
As the Wall Street Journal notes, pre-orders are a big part of the publishing business, since that will influence how many physical copies Amason orders in the first place.
“By concentrating the orders of several weeks or months into a single day when the book hits, preorders propel books onto the best seller lists,” Mike Shatzkin of consulting company Idea Logical Co. explained to the WSJ. “Publishers want to maximize their sales during the first few days, and preorders at Amazon are a very big part of that.”
However, the concern for Amazon - which has yet to make a public statement on the situation - is its profit margin from ebook sales. Publishers are now able to set the price of ebooks after their antitrust settlement with the government. At that point, retailers are allowed to make discounts. Amazon receives a 30 percent cut of the profits based on the retail price, no matter what their discount is. The discount then affects what the publishers take in.
A source for the WSJ says that Amazon is looking for a bigger cut from Hachette’s take and they have not reached a new agreement. But, Hachette essentially needs to make more from ebooks, which are cheaper to produce, in order to make up for the risk that is required to make physical copies of books.
Hachette Chief Executive Michael Pietsch did send a letter out to the company’s authors, assuring them that they are doing what they can to resolve the situation.