June 12, 2014
Amazon is now fighting a three-front war against Hachette, Bonnier, and Warner Home Video
by Alex Shephard
Over the past several months—no one’s exactly sure how long—Amazon and Hachette have been playing chicken with each other while negotiating a new contract. Of course, “playing chicken” isn’t an entirely accurate analogy, as Amazon has nearly all the leverage and the power—they dominate the book market and have responded forcefully and aggressively, by delaying shipments, raising prices, and removing buy buttons on Hachette books. That strategy hasn’t won them very many friends—in fact, it’s fair to call the response a PR disaster for the image-obsessed company—but it may very well be a winning one, even if Malcolm Gladwell and Stephen Colbert won’t be coming ’round for dinner any time soon.
Shortly after The New York Times‘ David Streitfeld first reported that Amazon and Hachette just couldn’t agree on new terms, it came out that Amazon was also feuding with the Swedish publishing conglomerate Bonnier. As The Digital Reader‘s Nate Hoffelder wrote at the time, the dispute with Bonnier was eerily similar to the dispute with Hachette:
According to FAZ, Amazon is reducing the number of copies of Bonnier titles they carry in their warehouses, adding long shipping delays to newly ordered books.
Sources say that Amazon is seeking not just new terms for their book contract with Bonnier but also new terms for their ebook contract. The retailer is reportedly pressuring Bonnier into offering a steeper discount on ebooks. Rather than pay Bonnier the accepted industry standard 70%, Amazon wants to reduce that to only 50% to 60%.
Yesterday, Streitfeld reported that Amazon is at it again—despite the fact that they’re still tussling with Hachette and Bonnier, with no end in sight. The retailer is now taking its extortionary tactics outside of the book world and is going head-to-head with Warner Home Video. First, they went after books; now they’re going after film—the art world better watch its back. According to Streitfeld’s report:
Amazon customers who want to order forthcoming Warner Home Video features, including The Lego Movie, 300: Rise of an Empire, Winter’s Tale and Transcendence, are finding it impossible to do so.
The retailer’s refusal to sell the movies is part of its effort to gain leverage in yet another major confrontation with a supplier to become public in recent weeks.
Streitfeld—who tied Amazon’s dispute with Hachette to recent investor-unease in his initial report—explained why this isn’t your typical supplier/distributor dispute:
Disputes between retailers and vendors happen every day. What is unusual here is not Amazon’s relentless desire to gain margin from its suppliers, but the suppliers’ growing resolve to hold the line. If other suppliers adopt the same attitude, that might have significant implications for Amazon’s pell-mell growth.
The confrontations indicate that Amazon’s long-stated desire to sell everything to everybody might be taking a back seat. The biggest book release in the middle of June is the new J. K. Rowling novel from Hachette; the biggest movie is Lego. Amazon is basically telling its customers to go elsewhere for them, which is a very un-Amazon thing to do.
Amazon has always had a tense relationship with publishers (see: U.S. v. Apple) and suppliers, but the company’s strategy seems to have shifted recently. Amazon has never been profitable, but it’s always satisfied anxious investors by growing rapidly—and hey, it turns out growth comes easy when you pay next to nothing in taxes and rely on loss-leader pricing. But, as a few observers noted back in April—you can read our full report here—that growth appears to be slowing down:
“With Amazon you’ve had a cult investor group that believed that all that matters is revenue growth,” Mr. [Eric J.] Sheridan said. “The problem is, in the last year and a half, the growth rate has started to slow quickly. It was 40 percent two years ago and now it’s close to 20 percent.” He said there were plenty of other Internet companies growing in the midteens to 20 percent, including Google, Priceline and eBay, and they’re much cheaper. “Reality is starting to settle in,” he said.
And Professor [Bruce] Greenwald noted that product sales — the core of Amazon’s business — grew by only 18 percent in the quarter, and the projections for the next quarter also suggested slower revenue growth. “And profits were a disaster,” he added.
Up until this point, Amazon has been able to succeed because its long-term interest—staggering growth with no profit—were in line with its customers short-term interests: getting goods that were delivered quickly at low, low prices. As Meaghan O’Connell wrote in a comment on The Billfold, “putting the customer first” is not really something they’re doing out of the goodness of their hearts, and only so far as it aligns with the best interests of their business. I think it would be more accurate to say, ‘their best interests happen to line up with the customer, since their business model is predicated on selling many of their products at a loss, creating a monopoly, and exploiting warehouse employees.’ It is very convenient for the customer, and works out brilliantly for them.” But now, with growth slowing, Amazon’s interests are beginning to diverge from its customers for the first time in its 20 year history. Unsurprisingly, the company is choosing its investors over its customers.
It’s somewhat more surprising that Amazon has chosen to take on so many suppliers at once. Amazon can take the hit, of course, in ways Hachette, Bonnier, and Warner can’t—it is, after all, an almost incomprehensibly large company that generates a staggering amount of revenue. But in the past it’s always seemed to take on one supplier at a time—it was just Amazon vs. MacMillan in 2010, for instance. Now, perhaps desperate for better margins and greater profits, the company is fighting a three-front war. Two-front wars are notoriously difficult—as Napoleon, Kaiser Wilhelm II, and Hitler will testify—but three-front wars? There’s not even a Wikipedia entry about three-front wars.
Alex Shephard is the director of digital media for Melville House, and a former bookseller.