Amazon and Hachette settle their dispute – now what?

It was announced earlier this month that Hachette and Amazon have reached an agreement. The deal allows Hachette to set ebook prices, which means the deal is an agency deal.

In the latest edition of The Global Indie Author, I speculated that Hachette and others would likely return to the distributor discount model. This deal proves me wrong. But what is interesting about the deal is that it hints at an outcome I didn’t see coming: Amazon accepting a lower commission.

What came out in the United States vs Apple et al lawsuit was that the publishers always felt the 30% commission demanded by Apple was much too high, but the publishers reluctantly accepted it because of the perceived benefits of forming an alliance with a player large enough to give Amazon a run for their money. The publishers then forced the same agency deal on Amazon. Still, the deal was, financially speaking, a losing proposition for the publishers. So when Amazon began renegotiating with Hachette earlier this year and Amazon were again demanding lower ebook prices — yet wanting to keep the 30% commission that had proved astonishingly lucrative — a showdown became inevitable.

Now, with the fight over, what is most telling in the press release put out by Hachette is this:

“We are pleased with this new agreement as it includes specific financial incentives for Hachette to deliver lower prices, which we believe will be a great win for readers and authors alike,” said David Naggar, Vice President, Kindle.

The new ebook terms will take effect early in 2015. Hachette will have responsibility for setting consumer prices of its ebooks, and will also benefit from better terms when it delivers lower prices for readers. Amazon and Hachette will immediately resume normal trading, and Hachette books will be prominently featured in promotions.

The only financial incentive/better terms I can think of that Amazon could offer is a lower cut.

(The court ruling forbids Hachette from publicly disclosing the details of any contract they sign, so we have to read between the lines.) Just as KDP authors are paid a higher royalty for pricing our ebooks as Amazon want us to (in the $2.99 to $9.99 price band), it appears that Amazon will take a lower percentage of sales on Hachette titles priced where Amazon want them to be. It will be interesting to see how this affects the market in general — especially rival Apple’s pricing and revenue structure — whether this results in higher earnings for Hachette, and whether those higher revenues, if any, will be passed on to Hachette authors.

What might also be read between the lines is that Amazon will compensate Hachette and their authors for the earlier boycott by providing Hachette titles with prominent placement in future Amazon promotions. Normally publishers pay dearly for these promotions, yet the press release hints that Amazon are providing said prominence free of charge (or at a discount), much like one would pay damages in a lawsuit.

I read into this deal an overall win for Hachette: they might have compromised over ebook prices in a way that makes Amazon happy, but Hachette clearly refused to tolerate lower revenues that lower ebook prices and a simultaneous 30% commission would have resulted in.

What will this mean for us? Will Amazon begin paying indie authors more than 70%? Fat chance. We’re not the Big Five. But at least the worst of my predictions may now be averted, that of Amazon demanding a higher cut from us.

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