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Thursday, April 26, 2012

Amazon aims to wring deep discounts from publishers

EDITOR’S NOTE: This is the second in a three-part series examining the business practices of Amazon.com.

SEATTLE – The bad news came to McFarland & Co. in an email from Amazon.com Inc. The world’s largest Internet retailer wanted better wholesale terms for the small publisher’s books. Starting Jan. 1, 2012 – then only 19 days away – Amazon would buy the publisher’s books at 45 percent off the cover price, roughly double its current price break.

For McFarland, an independent publisher of scholarly books situated in the mountains of North Carolina, Amazon’s email presented a money-losing proposition.

“It was the apocalypse,” said Karl-Heinz Roseman, director of sales and marketing at McFarland, which has a long track record of giving all its retail partners the same discount.

McFarland and Amazon have shared a mutually beneficial relationship for more than a decade. A well-regarded source of books on baseball and chess, McFarland helped Amazon fulfill its mission of offering “Earth’s biggest selection.” And Amazon – in contrast to traditional bookstores – listed all of McFarland’s titles.

Last year, Amazon generated nearly 70 percent of McFarland’s retail sales and 15 percent of its entire business.

“If we made a change for Amazon, we’d have to do it for everyone, and that would jeopardize our business,” Roseman said. “We couldn’t exist like that.”

Now, McFarland and others in the book world worry that Amazon will use its pricing pressure to crush publishers. They say Amazon’s demands for deeper discounts threaten already-thin profit margins, and some warn of a coming Amazon monopoly.

Amazon, which declined to answer questions or discuss its relations with publishers for this report, dominates the U.S. market for print books sold online and also leads the market for electronic books. At the same time, it’s working to become a big-name publisher in its own right.

Although publishers rarely criticize companies they do business with, some say they’re speaking out against Amazon partly because they’re offended by its tactics. They describe Amazon’s demands – made in email, with no personal-contact information provided – as overly aggressive and leaving almost no room for discussion.

“The thing that has really aggravated me is the one-sided nature and anonymity of their business negotiations,” said Karen Christensen, CEO of Berkshire Publishing Group, a Massachusetts-based independent publisher of professional and academic books. “They’re trying to dictate terms to their suppliers without seeing it as something where there are two parties involved.”

Amazon, which buys her books at 40 percent off the cover price, emailed her in December to demand an even bigger discount. She refused, and Amazon stopped placing orders, affecting 10 percent of her business.

To some, Amazon’s hardball tactics are reminiscent of its much-publicized pricing row two years ago with Macmillan, one of the nation’s largest publishers.

In early 2010, Amazon removed the “buy” buttons from Macmillan’s titles after the publisher sought to take pricing control of e-books away from the retailer. Amazon soon relented, saying it had no other choice but to cede control because Macmillan “has a monopoly over their own titles.”

This February, Amazon again asserted its influence when it pulled nearly 5,000 titles by distributor Independent Publishers Group from its Kindle e-book store. Amazon wanted better terms, and IPG said “no.”

Other online retailers, including Barnes & Noble and Apple, continue to sell digital versions of IPG’s titles, enabling the distributor to resist Amazon’s demands.

“They want more margin than what is reasonable to give,” IPG President Mark Suchomel said. “At some point, enough is enough. What we and our publishers do to bring a book to market is so much riskier than what Amazon does to bring it to the reader.”

In the past, Amazon executives have downplayed the threat to traditional publishers.

“What we’re building is more like an in-house laboratory where authors and editors and marketers can test new ideas,” Jeff Belle, vice president of Amazon Publishing, said in a recent Businessweek article. “Success to us means working with authors who want to find new ways to connect with more readers.”

Distributed by MCT Information Services.