Amazon Binds With Penguin Random House, Last of the Big 5 Publishers to Do Such a Deal

NEW YORK (MainStreet) — Early last year, war broke out between e-retailing giant Amazon (AMZN) and Hachette, the global Paris-based book seller that acquired Time Warner's (TWX) book division. The two sides jumped ugly when Amazon kept customers from pre-ordering Hachette books, reduced discounts and held back the shipment of titles for as long as a month. That resulted in a siege mentality that reigned at the 2014 BookExpo America that took place at New York’s Javits Center.

Now there's a deal, but as workers struck down the display booths at the 2015 confab last month, mum was essentially the word among the principals.

Sophie Cottrell, New York-based senior vice president of corporate communications for the Hachette Book Group, who was working the floor at the show, said, "I'm not able to comment on the Hachette Amazon dispute or its impact on the industry."

Brittany Turner, Seattle-based PR manager for Amazon was at the company's booth, where the Amazon brand took second billing to the Kindle Direct Logo. “We really have nothing to discuss beyond what has already been publicly stated,” she said. She referred to public statements made in November when the contracts were signed, which she said involved "a multi-year deal," but claimed not to know the specific number of years. She added, "We don’t publicly discuss the terms of our contracts."

"It was a two year deal." said Jim Milliot, editorial director of Publisher's Weekly, referring to the Amazon-Hachette accord. It's also believed that Hachette has some control over e-book pricing, a key sticking point.


While the Hachette ruckus was happening, Simon & Shuster quietly reached an agreement with Amazon in October that, with some exceptions, gave Simon & Shuster control of e-book pricing. It's not entirely clear that the deal Simon & Shuster took didn't look a lot like the one Hachette had been rejecting—and has now accepted. Macmillan signed with Amazon a month after Hachette.

HarperCollins also made peace with Amazon. The publisher, a subsidiary of Rupert Murdoch's News Corp. (NWSA), said in an April 13 statement, "Harper Collins has reached an agreement with Amazon and our books will be available on the Amazon print and digital platforms." Terms were not disclosed.

Now Penguin Random House, the last of the Big Five, is in the Amazon fold, having reached an agreement last week, also believed to be two years, for print and e-books. Shortly before last month's BookExpo America, sources said that the Penguin Random House UK subsidiary was locked in a stalemate with Amazon that seemed to channel the Hachette-Amazon dust-up.

Those two years can go by quickly. And since the Amazon-Hachette deal was signed in November, it now has less than a year and a half to run. Will they go to the mattresses again when two years are up? Big Five spokespersons declined to dish.

Beyond the deal, what's really changed? Have things improved for self-published authors who can't score in the words-on-paper book business and for whom the web is their only resort? What about the mid-list Big 5 author who can't sell enough books to earn back an advance? These issues often seemed buried as the industry pumped brand-name authors and occasionally their less buzzy counterparts.

"Publishers won't say anything that will get Amazon riled up," said Milliot. "Amazon doesn't really care what they think. But I also don't think Amazon is spoiling for a fight, either." Milliot pointed out that “publishers are just as reluctant to talk about similar deals—those with Barnes & Noble, for example--because of the Department of Justice lawsuit." In 2011, the DOJ filed a civil anti-trust lawsuit against Apple and the Big 5 (Penguin and Random House merged in 2013) for conspiring to fix prices on their e-books in response to deep discounts available on Amazon. Among the fallout: book publishers won't band together and create an Amazon-like alternative.

Because Amazon is a purveyor of e-reading devices, digital products and e-commerce, Amazon benefits from moving product out of its warehouses at high speed and lower prices. In theory, there are savings to be passed on to book publishers--unless e-books cut into the hardcover book market.

The gap between the two business models remains significant, as does the gap in costs. If a words-on-paper book costs $24.95, should the same book in a digital format cost $24.95 also if there is no physical product and when the cost to manufacture, warehouse and ship is nearly zero?

If hard covers have higher royalties, authors might welcome higher e-book prices to encourage readers to buy bound books. But if discounted e-books are becoming the pricing standard, they could lower the price of what all books cost across the board. The old school book business was defined by upfront and back-end costs that were taken for granted. Publishers paid for publicity. Author advances were made against royalties before the first print run was on the presses.  Publishers paid to warehouse copies even before a title went to the back list.

But a funny thing happened on the way to Amazon's global take-over of the book business. Despite its triple-digit share price, Amazon has had difficulty turning a profit and has a negative earnings-per-share of 88 cents. While Amazon does account for about half of all book sales and store-based book selling may be fraught, many publishers, the kind Amazon was supposed to put out of business, are making money hand over fist.

Literary agents are well-positioned to know how much money the industry is making, but they still haven't stopped the decline in the incomes of rank-and-file authors. A veteran agent who did not want to be identified said advances are getting smaller and houses are more reluctant to invest in publicity. Increasingly, book promotion at traditional publishers is on the author as it is in the web-based self-publishing space.

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