Hachette Banished to Amazon’s Woodshed

Hachette — whose stable of best-selling authors includes J.K. Rowling and James Patterson — remains at loggerheads with Amazon over renewal of a book distribution deal between the two. The stalemate has slowed the flow of books from the publisher to the online retailer to a crawl.

Negotiations have been going on for more than a month, but it’s only in recent days that the snag between the companies has come to light. The first signs of trouble were slow restocking times at Amazon.

“We are satisfying all Amazon’s orders promptly and notifying them constantly of forthcoming publicity events and of out-of-stock situations on their website,” Hachette said in a statement earlier this month. “Amazon is holding minimal stock and restocking some of HBG’s books slowly, causing ‘available 2-4 weeks’ messages, for reasons of their own.”

Two weeks later, things got worse. “Amazon has now taken preorder capabilities away from Hachette Book Group publications. Forthcoming books now bear a notice ‘currently unavailable’ and a note inviting customers to ask for an email when it becomes available. There is no preorder button, and some not-yet-published books lack a Kindle page entirely,” the publisher claimed.

“We are determined to protect the value of our authors’ books and our own work in editing, distributing, and marketing them,” Hachette added. “We hope this difficult situation will not last a long time, but we are sparing no effort and exploring all options.”

No Settlement in Sight

Amazon’s response to Hachette’s statements was silence, until last week when booksellers gathered in New York for an annual bookselling show.

“Unfortunately, despite much work from both sides, we have been unable to reach mutually acceptable agreement on terms,” Amazon said in a statement.

“Hachette has operated in good faith and we admire the company and its executives,” it continued. “Nevertheless, the two companies have so far failed to find a solution.

“Even more unfortunate, though we remain hopeful and are working hard to come to a resolution as soon as possible, we are not optimistic that this will be resolved soon,” Amazon added.

Although it has been cast as a retail bully in some reports on its dealings with Hachette, Amazon emphasized in its statement that any deal it strikes with a supplier — even one like Hachette, which is part of a US$10 billion conglomerate — is designed to benefit consumers.

“When we negotiate with suppliers, we are doing so on behalf of customers,” it said. “Negotiating for acceptable terms is an essential business practice that is critical to keeping service and value high for customers in the medium and long term.”

Then, in a move that might be considered anathema to a retailer, Amazon made this recommendation to its customers: “If you do need one of the affected titles quickly, we regret the inconvenience and encourage you to purchase a new or used version from one of our third-party sellers or from one of our competitors.”

Enter Walmazon

Amazon made another interesting suggestion. It recommended a pool of money be created to compensate authors for any damages they may suffer from the impasse in the Amazon-Hachette negotiations. Amazon offered to split the cost of the pool 50-50 with Hachette and allow the publisher to administer payments from it.

For Hachette, though, any talk about authors’ pools was premature.

“Once we have reached such an agreement, we will be happy to discuss with Amazon its ideas about compensating authors for the damage its demand for improved terms may have done them, and to pass along any payments it considers appropriate,” it said in a statement.

Although many consumers distinguish Amazon in their minds from its brick-and-mortar competitors, its hardball dealings with Hachette show that distinction is artificial at best.

“This is a classic Walmart story,” Kathryn Winsted, associate professor of marketing at the Lubin School of Business at Pace University, told the E-Commerce Times.

“Walmart demands incredibly low margins from manufacturers. They practically want you to sell at cost. Everybody does it, because you can sell at Walmart 100 times the volume you can sell anywhere else,” she explained.

“When a retailer gets that kind of power, you’re stuck playing by their rules,” Winsted added.

Dangerous but Legal

“The interesting thing about this case,” Winsted continued, “is that this publisher says it doesn’t want to play by Amazon’s rules. That is very, very risky for that publisher.”

To some publishers, Amazon’s muscle flexing with Hachette was predictable. That’s one of the reasons several of them, including Hachette, struck an e-book price fixing deal with Apple that cost the companies millions of dollars in damages.

Such muscle flexing, though, isn’t likely to bring the U.S. Department of Justice knocking on Amazon’s doors.

“Amazon hasn’t done anything wrong under U.S. law,” Christopher L. Sagers, a law professor at Cleveland State University, told the E-Commerce Times.

“Every seller and every buyer has a strong right to choose with whom they deal,” he said.

“If anyone tried to sue Amazon in this case, a court is very likely to say Amazon hasn’t done anything but refuse to deal with a supplier that doesn’t like the terms that Amazon prefers,” Sagers explained.

“I think Amazon is dangerous and deserves caution,” he added, “but even if all publishers went bankrupt and Amazon accomplished that with nothing more than aggressive pricing, it’s very hard to show that that’s illegal.”

John Mello is a freelance technology writer and contributor to Chief Security Officer magazine. You can connect with him on Google+.

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