Leave Negotiations To Accountants And Everybody Loses

Michael Hedges June 2, 2014 Follow on Twitter

Supply and distribution disputes, however ugly, are common and, largely, the usual means by which companies align and realign their relationships. Negotiations can either be strategic or tactical, gain an advantage or apply pain. The biggest or most powerful aren’t always the victors. The smartest are.

Big book publisher Hachette and big online retailer Amazon are in the midst of a row about terms. Amazon’s accountants want to raise the commission it takes from e-book and hard-cover sales, say a variety of tech and book sources, and Hachette’s accountants don’t want to pay it. The relationship between publishers and retailers has long been arduous. Amazon has imposed similar pain on Bonnier Media Deutschland.

“Despite much work from both sides, we have been unable to reach mutually acceptable agreement on terms,” said a brief statement on the Amazon corporate website (May 27). Amazon removed upcoming Hachette book titles from its online catalogue and rolled-back discounts, reported the New York Times (May 23), causing the dispute to go quite public. The hard negotiating punch, including shipping delays, has been explained simply by Amazon watchers: they need the money.

“Please know that we are doing everything in our power to find a solution,” said Hachette Book Group USA CEO Michael Pietsch in a note to impatient authors, quoted by USA Today (May 28). “I know this is not a comfortable situation for most of you.” Last week Hachette “opened” a catalogue page on the US bookseller Books-A-Million website, selling new titles, allowing pre-orders and offering discounts.

The digital dividend, indeed, has benefited both. Amazon is the world’s biggest online retailer by revenue, now threatened – almost - by China’s Alibaba, which is readying a US IPO float. Amazon sells everything, ships anywhere, and is barely profitable after two decades in business. It launched e-book reader Kindle in 2007. The company is widely considered one of the most transformational of the digital era.

Hachette Book Group is a subsidiary of Hachette Livre, owned by the French media giant Lagardère. Hachette Livre acquitted Time Warner Book Group (TWBG) in 2006 as book publishing consolidation grew apace. In 2010 it began selling e-books exclusively through third-party agents. Lagardère Group is a publisher, broadcaster, retailer, ad sales agent and sports agent active in 30 countries. It also holds a 7% stake in French defense contractor EADS.

There is a strong sense among minders of e-commerce and book publishing that this battle is one Amazon CEO Jeff Bezos must win and publishers Hachette, Bonnier and anyone else can’t. Pricing in the digital age is very much the domain of the online retailer. The music industry discovered this in negotiations for shelf-space, so to speak, with Apple’s iTunes. This business model is taken as a given in the US, not so in Europe where book publishers set prices.

And Europe will likely be where the larger battle is waged, if only because legal frameworks in the common block are – generally – adopted throughout the world. US-based media-tech companies are a generation ahead in product development. The gap is narrowing, as it will, but investment and venture funding will continue to pour into companies on the leading edge and markets that support them. European politicians will continue to rail about Google, Apple, Microsoft, Amazon, Facebook and Netflix.

French Culture Minister Aurélie Filippetti gave the politically correct French view of the Amazon-Hachette dispute, calling Amazon’s removal of Hachette listings “blackmail” in a press statement (May 28). “These practices are a further illustration of the risk posed by abuse of dominant position by Amazon… The aggressive commercial practices are value destructive for the entire (publishing) industry.” Minister Filippetti asked the “European Commission to exercise its vigilance,” not altogether likely in the near-term as it reorganizes following recent European Parliament elections.

Hachette – and others embroiled in disputes with the biggest of the big – may have a few cards to play if cultural issues can be overcome. “Hachette doesn’t want to lose access to customers who shop at Amazon,” offered Harvard Business School associate professor Ben Edelman in an hbr.org blog post (May 31). “Amazon would be equally alarmed to lose the ability to sell JK Rowling’s popular books. If Rowling isn’t available on Amazon, customers will need to try another online bookstore. Maybe Amazon isn’t quite as powerful as it thinks.” He also suggests Hachette create an “alternative platform” to “deal with customers more directly.”

“Facing an adversary as sophisticated as Amazon or Google, it’s easy to be despondent,” he concluded.

See also in ftm Knowledge

Media Business Models Emerging

After a rough transition media business models are emerging. Challenges remain. There are Web models, mobile models, free models, pay models and a few newer models. It makes for exciting times. This ftm Knowledge file examines emerging business models and the speed-of-light changes. 137 pages PDF (January 2013)

Order here