Hachette Bends But Doesn’t Break in Face of Amazon ‘Punitive Action’

Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.

In its first half numbers, which came out today, French media conglomerate Lagardere reported that Hachette Books Group, its U.S. division, generated 5.6% more revenue in the first half of 2014 than it did in the prior year. This, the report stated, despite a drop in ebook sales “reflecting market trend, fewer movie tie-ins vs. 2013, and Amazon punitive action.”

UPDATE: One of our readers points out that Hachette also attributes its positive results to the integration of its acquisition of Hyperion, which we mention in our earnings report.

As Publishers Lunch points out, the company claimed in its report that its dispute with Amazon had a “limited impact” on its results.

I’m not sure I buy this.

Yes, the company did grow versus 2013 when it was not fighting openly with Amazon but how much more would it have grown if things were different with its No. 1 trading partner?

Amazon ended pre-orders on upcoming Hachette titles for much of the first half. This move was among the more devastating for a company like Hachette, which relies on best-sellers to make or break its financials.

It just so happened that one of its big titles, The Silkworm by Robert Galbraith (aka, J.K. Rowling), was due out in the first half. Pre-orders are hugely important in the best-seller business (explanation of why here). Doing some simple analysis, we showed how The Silkworm‘s No. 30 debut on the DBW Ebook Best-Seller list would have likely been something closer to No. 6 had Amazon been allowing pre-orders on the title.

Perhaps the title would have hit No. 1 on the all-important New York Times list had Amazon and Hachette not been in conflict (it debuted at No. 2 on both the NYT hardcover list and the NYT combined print and ebook list). While it may seem small, hitting No. 1 in those first few weeks can make a huge amount of difference in overall sales.

It doesn’t end with The Silkworm. James Patterson’s Invisible debuted at the end of the first half and did not start at No. 1 as so many Patterson titles have. I think it’s fair to assume at the very least that both those books would have done better if they had the benefit of pre-orders on Amazon.

Another of Amazon’s tactics in its negotiations with Hachette was limited discounting on ebooks compared to what the publisher normally enjoyed from Amazon. This move would likely limit sales across the board, rather than having a large impact on one or two big titles. Because any discounts Amazon offers come out of its own discounting pool, the effect of lost sales due to higher prices would mostly be felt by Hachette (that is, Hachette doesn’t somehow make more money when ebooks are discounted less). In fact, Amazon even spelled out how disastrous this policy could be in a recent note on the negotiations between the two companies:

We’ve quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000.

While the numbers are surely different for ebooks priced at $11.99 versus $8.74, for instance, or other comparisons, the principle is still the same: Less discounting equals fewer sales.

In its half-year report, Lagardere looks at its own numbers and notes that the U.S. ebook market is stagnant in the first half and that as a result the proportion of its sales that come from ebooks has dropped:

lagardere hachette ebooks

Early numbers from the Association of American publishers don’t exactly jibe with this view. Ebook sales were up about 5% in the first quarter versus the same period a year ago. Sales of other formats were up slightly more, but assuming Hachette’s numbers were in line with the industry’s, this would result in a flat ebook growth curve and not a negative one.

To be sure, there were mitigating factors that helped Hachette weather the Amazon “punitive action.”

Hachette had a surprise hit from literary author Edan Lepucki when Stephen Colbert decided to feature her latest title on his show in an attempt to out-sell Amazon while it prevented readers from pre-ordering her book from its website. And many of Amazon’s competitors have used the dispute to try to gain market share on the retailer — at least when it comes to Hachette titles. This could also lift Hachette sales.

While it’s impossible to know what might have been, my guess is that Hachette would have had a spectacular first half had it not been for its dispute with Amazon.

I’ve contacted the company for comments and responses to this post and a spokeperson declined to comment past today’s public releases.

 

One thought on “Hachette Bends But Doesn’t Break in Face of Amazon ‘Punitive Action’

  1. Bill Gleason

    I agree wholeheartedly with Amazon’s analysis of price elasticity on ebooks. While the technology for ebooks is wonderful, they are still not BOOKS:

    — You can’t give them to someone else to read, easily, even your spouse, partner, or kid
    — They certainly don’t look very good on a shelf
    — You can’t donate them
    — Despite claims by the purveyors, try reading one in bright sunlight

    $ 14.99 for a best selling new trade cloth release ebook is simply proving Amazon’s point. After retail discounting, these best sellers are available for $ 18, 19, or under $ 20 in their print editions.

    Why pay $ 15 or $ 16 for the ebook version?

    In Hachette’s case, they have let the fox into the henhouse (overpricing their ebooks) and then reporting that egg production is “flat” due to the market.

    Sorry guys, it’s the fox, not the market. Price your ebooks right and watch the sale of best sellers soar.

    Watching the Big 5 and certain eRetailer overprice ebooks is the strongest, most compelling argument for Amazon’s business model. Without Amazon – I have no doubt we would be looking at new ebook releases selling for $ 17.99 and up…

    And buyers would be scarce…

    Reply

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