The Role of the Publisher in New Business Models

One might think that the ongoing commercial warfare between Amazon and the publisher Hachette is just about the value of ebooks (and implicitly, the value of rights under copyright in the digital marketplace). That is indeed an important component of it. But it appears to me that the implications of this dispute extend even further. They may well affect the role of publishers in the production and dissemination of books more generally.

For those readers, who are unfamiliar with the Amazon/Hachette conflict, here is a brief summary of the facts. In negotiations over new terms and conditions for the online sale of books and the pricing of ebooks, the multinational conglomerate Hachette and the retail giant Amazon were unable to reach an agreement. The matters in dispute (summarised and analysed in a highly recommendable article by the Society of Authors’ (SoA) Autumn issue of The Author) include Amazon’s requirement of higher discounts, publisher-paid services, format parity as well as the online retailer’s print-on-demand service and lowest price control.

As a result of their falling-out in May this year, Amazon employed what in turn became widely criticised tactics, such as removing the pre-order button for Hachette titles, reducing the discounts that it offered on the publisher’s books and significantly delaying delivery times for some Hachette titles. On the 27th of May Amazon even suggested in an announcement covering the Hachette/Amazon Business Interruption that its customers should turn to its competitors if they needed any of the affected titles.

Many people still prefer the experience of browsing through physical books Image available under CC BY-NC-SA 2.0 by Peta Andersen

This dispute has shaken the publishing world and polarised both authors and readers, which is why I was particularly interested in the more sober analysis of the issues at hand, which the Society of Authors undertook in their article. Taking each of the contested points into consideration, the piece begins by questioning Amazon’s request for higher discounts from publishers. Unlike traditional brick and mortar bookstores, who take on a commercial risk in holding and displaying only a limited number of titles at any given time, online retailers do not face this problem. On the other hand, they too incur costs related to the storage and distribution of print books. Still, they are not exposed to the burden of paying high-street rents. In the case of Amazon, the retailer also has additional revenue streams by acting as a middleman for numerous second-hand booksellers. The SoA therefore concludes that Amazon’s request for higher discounts from publishers is unjustified.

The next substantive point of contention is the pricing of ebooks. Amazon asserts that it is acting in the interests of consumers by driving down the prices for such books. Under the controversial URL their Books Team posted a message arguing that Hachette is resisting the changing times. The message makes a case for lowering the prices of ebooks because their production costs are significantly lower compared to those of print books. Taken at face value, this, of course, is true. It costs almost nothing to produce and distribute an ebook. But is that all that publishers do? And, perhaps more importantly, is that all that readers and authors want publishers to do?

Publishers strive to produce a variety of formats, including hardcovers, paperbacks, large print, audio- and ebooks in order to meet different needs. In his response to readers’ e-mails, Hachette’s CEO Michael Pietsch explained in a letter that Hachette recoups production costs for these various formats, along with associated costs of editing, design, marketing, warehousing, piracy protection, etc, from the sale of all book formats, including ebooks. To me this seems like a fair arrangement – publishers need to factor into their pricing the effect that ebook sales will have on other book formats – after all, at least at present the idea that all readers will decide to give up on the physical book seems rather far-fetched.

If publishers rely on ebook sales to recuperate costs necessary for the production and dissemination of print books, then the question cannot just be about the pricing of these ebooks – it should be a more general question about whether or not the book industry needs publishers at all.


Publishing has certainly come a long way… Image in the public domain via Wikimedia Commons

Publishers invest in individual authors and their works, they make advance payments to authors and bear the risk of insufficient returns from sales. There are many people who believe that Amazon is doing the world a favour by crushing book publishers. Yet, for a significant number of consumers, a publisher’s name on a book cover serves as a seal of approval for the quality of the work, like a well-known trademark speaks for the quality of the good or service that it designates. In a world where the number and variety of books ‘out there’ exceeds the limits of our imagination, many readers also rely on a publisher’s name as a way of navigating through the myriad of books on offer. Whether or not they should do so, is a different question.

Still, this doesn’t mean that the general public and, in particular, authors should not hold their publishers accountable for what they do – or don’t do. This brings me to what I consider one of the most controversial issues around Amazon’s business ideas. The SoA article reports that one of the online retailer’s terms is that if a book is out of stock from the publisher, Amazon should be entitled to supply copies to its customers through its own print-on-demand (POD) service. It is suggested that because the commercial risk for a publisher to keep a book fully in print would be too high, a publisher may well decide to allow Amazon to produce such POD copies. However, as the article explains, this would mean that publishers continue to hold on to the authors’ rights, when in return they would simply be allowing Amazon to run its POD service. But why should that be the case if POD is a service that authors themselves could directly make use of, excluding publishers from the process and holding on to their share of the profits?

How might contractual terms between authors and their publishers need to change in order to prevent such cases where publishers would be doing less to support authors’ works while still holding on to the larger share of the profits? Could the answer lie in carefully drafted rights reversion clauses? This is hardly a matter which individual authors could bargain for with their publishers. But that is what their organisations are for. That and to remind us of the often neglected ‘production’ costs incurred by authors – in terms of the time and energy, the research and creativity which all go into the creation of a book…