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Hachette proposes new terms with Amazon. Can other publishers be far behind?

February 5, 2010 |  5:12 pm

Economics Textbooks

A collection of economics textbooks, including one published by Macmillan. Credit: genericface via Flickr.

When Macmillan went up against Amazon last week, challenging the way the Seattle online retailer sold digital books, most industry watchers assumed the other major publishers weren't far behind.

They were correct. Today, word leaked that Hachette Book Group is also taking Amazon to task.

The publishers' beef with the world's largest bookseller is this: Amazon's insistence on pricing new releases and bestsellers at $9.99 a copy. That price has the potential to significantly erode the lucrative hardcover market, where retailers sell these same titles at $25 or more.

One could argue that publishers aren't affected by Amazon's pricing. They continue to receive 50% of the cover price for each digital copy Amazon sells, the same as physical books sold at a local bookshop. (Astute observers will correctly point out that Amazon is actually losing money on bestsellers under this arrangement.)

What irks publishers is a concern that Amazon is conditioning readers to believe that digital books are worth less, about 60% less, than the physical copy. Such a steep price cut could have a dramatic impact on the book business in the future, when digital sales become a bigger portion of overall industry revenue. (They currently account for less than 5% of retail book sales.)

Because of the way publishers sell books to Amazon, they are powerless to dictate how much Amazon charges its customers. This is what Macmillan, and now Hachette, want to change. Instead of receiving 50% of the cover price, the publishers want to set the final retail price for their books, with Amazon taking a percentage of the sale. A source familiar with the negotiations confirmed the discussions.

Just a few weeks ago, this was unthinkable. Macmillan and Hachette are the two smallest of the big six trade book publishers, according to Subtext. Taking on Amazon would have been quixotic. Not anymore, it seems. Amazon at first stopped selling Macmillan's books when the publisher demanded control of digital book prices. But the online merchant relented days later, much to the surprise of many in the book industry (though details have yet to be worked out).

What tipped the scales? In a word, Apple. The Cupertino, Calif., company offered publishers an option to publish their books on its online offshoot of its popular iTunes store, called iBooks. Publishers could set the price, and Apple would take a cut of the sale, presumably the same 30% it collects for selling music, apps and TV shows on iTunes.

With Macmillan and Hachette throwing down the gauntlet, can Random House, Penguin, HarperCollins and Simon & Schuster be far behind?

-- Alex Pham

Follow my random thoughts on games, gear and technology on Twitter @AlexPham.

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