Man Bites Dog: A Small Publisher Speaks Up on Amazon's Behalf

By James Fallows

I've long been wary of Amazon, for reasons that have come to a head with its highly publicized struggle with Hachette. This recent Atlantic item by Jeremy Greenfield lays out the stakes well. To summarize:

In the short run, Amazon can argue that it's working purely "in the customer's best interest" by squeezing publishers to agree to its terms. In the longer run, the result will be a further destructive "de-bundling" of the book market and book industry, skewing the supply even more heavily to lower-risk blockbuster books.

How is publishing "bundled"? One example: Over the past few years, the Random House empire has regularly praised heaven for the existence of E.L. James's Fifty Shades saga, which has underwritten a lot of other projects the house has supported. (Say, like this one.) The Amazon-vs.-publishers struggle is a version of the arguments about Wal-Mart's effects—"better" for customers day by day, much worse for traditional downtowns—or about lower-cost, mass-produced fast food. These big questions of measurable efficiency, versus other unmeasurable or longer-term components of social well-being, have been with our country from the start. (I went into them a lot in More Like Us.)

But on the other side, here is a pro-Amazon note from a publisher. The author says that Amazon's radically more efficient business practices have been a boon to him, in his role as a small publisher (of DVDs), compared with traditional retailers or distributors. He writes:

I am seeing the Amazon-ire over Hachette gathering steam in some quarters, and certain I share concerns (Oh wait, I was concerned about this years ago!)

What I am not seeing is anyone talking about the actual dollars and cents, and offer the below as hard data on what our experience is with Amazon and other retailers and distributors....
 
Like many, perhaps the majority of products on Amazon, our DVDs are sold under Amazon's consignment program. They are branded as Sold by Amazon, but as a matter of how the money actually changes hands, it's a consignment arrangement.

As needed, Amazon sends us a stock up request for various numbers of our various titles. We pay shipping, but we do not pay storage in Amzon's warehouse.

We set the MSRP [Manufacturer's Suggested Retail Price], but Amazon sets the discount. Paradoxically(?) the faster a title is selling, the deeper Amazon discounts. My presumption is this is done algorithmically. We've seen our titles discounted anywhere from 0% to ~35%.

Regardless of Amazon's discounting at the end of each month Amazon pays us 45% of MSRP. This is done automatically and a full accounting of sales, monies owed and paid is available online through our consignment retailer interface, which also gives us complete control over the product description and some (but sadly not sufficient) control over the product metadata.

If our DVDs sat on Amazon's warehouse shelves too long Amazon would send them back to us at our cost, but this has never happened. We can also make stock-up requests if we think our inventory at Amazon's warehouse is insufficient to meet upcoming demand.

By comparison, if we were to do business with Baker & Taylor or other "traditional" middlemen they would pay us no more than 40% MSRP, pay invoices in 90-180 days, over order titles and then back-charge us for returns.

In short, Amazon is the best deal going for a small publisher: a better price and better reach than any other options. I make no presumption that Amazon is 'the bad guy" in their dispute with Hachette, or even that there is a bad guy. If Hachette has a better deal somewhere else, they should take it.

I assume that Hachette's retort would be: When certain players become dominant enough, it is cutesy rather than realistic to say "If you don't like our terms, go find a better deal somewhere else." No one else is in a position to offer comparable deals. Of course the history of technology is of "impregnably" dominant figures suddenly being disrupted. Anything anyone says about Amazon was said with 100 times more rancor about Microsoft a mere 15 years ago. This era too will presumably pass; the question is what gets disrupted or eliminated in the meantime.

For now, I'll thank the reader for this side of the story. And I'll note that whenever possible I've been buying and ordering books from independent sellers; ordering electronic versions in the B&N Nook version or another ePub format rather than Amazon Kindle (each sluices into my iPad); and directing book-related links to the author's site, or the publisher's, or some local retailer's, rather than to the Amazon listing. All tiny gestures toward keeping the book-producing infrastructure diverse. 

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Update A reader writes in with a different experience and interpretation:

Amazon is indeed a wonder and a terror. Our general merchandise (but mostly pool accessories and costumes) business has come to depend on Amazon for approximately 70% of our revenue. Not only has this driven prices (and profits) the rock-bottom, it can become devastating when they change their rules. Several times they have updated the data requirements for product listings without providing enough time for us to comply. The results have been hundreds or thousands of products "hidden" from their marketplace as we put other projects on hold to update these old listings.

There's a lot of money to be made there. But in my experience they have very little regard for their merchants. Their domination of online retail feels very precarious, for them and merchants. But, hey, I guess consumers are able to buy products at 5% over wholesale.

This article available online at:

http://www.theatlantic.com/business/archive/2014/05/man-bites-dog-a-small-publisher-speaks-up-on-amazons-behalf/371831/