Is Amazon Pushing Publishers to Brink On Terms, Co-op?

Is Amazon Pushing Publishers to Brink On Terms, Co-op?
By Rachel Deahl and Jim Milliot
Dec 15, 2011
| Reader Comments 14

Last week Amazon caused a furor in the bookselling world, with its reveal of a price check app consumers could use in bricks-and-mortar stores to get discounts at the retailer. Although the app did not include books, its announcement offered many a chance to slam Amazon as a ruthless corporation out to destroy the community bookstore and, as Richard Russo claimed in the New York Times, literary culture along with it. Although the price check app is what continues to be discussed in the media, what has publishers riled, behind the scenes, is aggressive moves the retailer is making in its demands on co-op and discounts. A number of sources in the industry, all of whom spoke to PW on the condition of anonymity, said the retailer is, in certain cases, threatening to stop selling titles from companies who won't pay up.

Many sources said Amazon has been asking for a steeper wholesale discount on books. (Although e-books are sold on the agency model, print books continue to be sold on the wholesale model, in which retailers purchase titles at a certain percentage off the list price.) Co-op requests from Amazon have also escalated, according to a number of insiders. Although publishers and distributors regularly have discussions with Amazon about these issues--negotiating the terms on these matters is a standard aspect of doing business--the retailer's requests, in recent weeks, have sent shocks through many in the industry, some of whom are worried about what will happen to their books if they cannot meet the demands.

Publishers and distributors have called the latest negotiations with Amazon the most adversarial to date, and many have noted that, for the first time, the retailer is outlining co-op costs for digital, as well as print. Amazon has, as some sources explained, long been pressuring publishers to provide ancillary content on the pages where their books are sold, from videos and q&a's to links to similar books. That content has always been something publishers have had to both pay for and provide. In the latest negotiations with Amazon, sources told PW, the price of providing that content has jumped to what sources say are astronomical percentages (but those sources would not provide specific numbers).

Many publishers and distributors said they have not, and cannot, cave to this newest set of demands from Amazon. The fear, though, is that the retailer could take punitive action. Recalling the most infamous instance of what can happen to a publisher that refuses Amazon's terms, many cite the showdown between Macmillan and Amazon when, in February 2010, the retailer removed the buy buttons to all Macmillan titles after the publisher said it would sell its e-books to the retailer on agency terms, as opposed to wholesale terms.

Although publishers fear seeing their titles disappear from Amazon--for many in the industry the retailer accounts for 20% to 25% of their business--some say the demands the retailer is making are impossible to meet and would nearly wipe out all of their profits there anyway. Furthermore, as some have noted, changing wholesale terms with Amazon, could present a legal issue. Although co-op deals can be varied and private, publishers are prevented by the Robinson-Patman Act from favoring one account over another with notably different wholesale terms. (It was the broad discrepancy in discount terms among accounts that led the ABA to sue Barnes & Noble and Borders in the 1990s.)

The demands regarding co-op have some particularly on edge. Not only are many publishers frustrated about being asked to pay more money for content they are providing, but the whole notion of co-op at the online retailer is unsettling. While the case can be made that co-op in a bricks-and -mortar store is a worthwhile investment--money is spent on getting books to physical areas of the store, such as front tables, where consumers will see those books first--it's much less logical on a Web site. Does having a video or an author Q&A on a book's page on Amazon really encourage a customer who has already clicked on that book to make a purchase?

More problematically, for many in the industry, the latest talks with Amazon are being described as less of a dialogue than a dictation of terms. As one source explained, the talks have boiled down to "what publishers can do for Amazon, and not what Amazon can do for publishers." Most ironically, the new terms would allow Amazon to continue to gain market share as it always has: driving book prices down. As one source put it: "If Amazon wants to improve its margins, it should cut back on the discounting."