May 26, 2015

Negotiations between Amazon and Penguin Random House UK are getting tense


(image via Wikipedia)

(image via Wikipedia)

Last year during BEA, the ongoing, increasingly bitter dispute between Amazon and Hachette was the talk of the conference—that is, when people had time to talk between stuffing suitcases and tote bags full of galleys and complimentary tote bags. This year, it seems Amazon may be the talk of BEA again, as multiple outlets are reporting that its contract negotiations with Penguin Random House have escalated: according to The Guardian, “Amazon, which sells around 90% of all books online, and Penguin Random House are in dispute over the terms of a new contract for online sales that could grow into a full-blown row.”

Got that? Not quite a “full-blown row,” but no longer a simple “negotiation.” We may not be in “dispute” territory just yet, but there’s something happening here. Call it an impasse.

According to reports, the contract between Amazon and Penguin Random House UK expires at the end of this month. The contract under negotiation is the first contract since Penguin and Random House announced their merger in October of 2012. That merger was completed in July of 2013, though it is still ongoing in many ways. Penguin Random House is the last of the “Big 5” publishers to renegotiate its contract with Amazon. Hachette, HarperCollins, Macmillan, and Simon & Schuster have all signed new contracts; the general feeling within the industry is that these contracts are very similar to one another—all involve the return of agency pricing, for instance.

Both Amazon and Penguin Random House have been keen to downplay the situation. Per Re/Code, which I believe first reported the story:

Penguin Random House spokeswoman Claire Von Schilling declined to comment on the timing of the expiration of the contracts. In an email, she said, “We are in continuous conversation with Amazon with whom we have an ongoing business relationship. We have no intention whatsoever of ceasing to sell our print or digital titles on Amazon. We want our books to be accessible and available everywhere.”

Amazon spokesman Tarek El-Hawary declined in an email to comment on the contract deadline, but said, “I can say that we have long-term deals in place already with the other four major publishers and we would accept any similar deal with Penguin Random House U.K.”

This is, more or less, what’s to be expected. Amazon declines to comment (Amazon always declines to comment), aside from a passive aggressive remark, while Penguin Random House plays it safe.

There are conflicting reports as to what exactly is going on and what exactly is being threatened. According to The Bookseller’s Philip Jones, who is reporter I turn to for UK publishing news,

“The terms negotiations relate to the revised agency deals put in place after a European Commission investigation four years ago: these deals with a number of big UK publishers are due to run out this year. The negotiations are thought to be with the UK end of the PRH business and do not include the American arm whose revised agency deal with Amazon in the States does not run out till later this year.”

Jones also reports that Penguin Random House “says it has no intention of pulling sales from Amazon (if that was possible anyway).”

According to the Guardian, however, Penguin Random House is considering blocking its sales on Amazon. The Guardian report also suggests that the opposite would be possible—that Amazon could pull a Hachette and block pre-orders of PRH titles. That tactic may have been effective against Hachette—it certainly cut into the company’s bottom-line, though it doesn’t seem to have cowed them, or brought them any closer to Amazon—but it also backfired and caused a tremendous backlash led by Stephen Colbert and Authors United. Whether Amazon, as brand conscious as corporations get, would risk another PR hit is an open question.

Whether Penguin Random House has the ability to block sales on Amazon is another open question, and one that Jones is right to raise. Regardless of the consequences of that decision, there would be a number of practical issues involved; thus far, I haven’t seen anyone report how PRH could pull sales, though perhaps it’s a possibility should its contract with Amazon run out.

On the other hand, if the report that PRH is, in fact, considering blocking sales and Amazon is, in fact, considering blocking pre-orders is to be believed, then this has the look of a game of chicken between the world’s largest publishing house and the world’s largest retailer. Both companies undoubtedly have the resources to weather the storm—though Amazon still has the advantage, considering its online sales hegemony and substantial size—but it would be a remarkably risky move for both parties.

Amazon has been the villain for the publishing industry for most of this millennium, but it became the villain for a much wider swathe of the U.S. population during its dispute with Hachette last year, though it didn’t seem to suffer much economic damage. Penguin Random House would risk a similar backlash if it were to block sales, however, especially from authors and agents—it’s one thing when a retailer refuses to sell a book, but it’s quite another when a publisher refuses to sell a book on the online marketplace that controls roughly 90% of online book orders.

Nevertheless, while Amazon has indicated that it would like a “similar deal” to the one that it got with Penguin Random House’s Big 5 bretherin, PRH does have considerably more leverage than its peers when it comes to Amazon. Penguin Random House as considerably more market share than any one of its peers, and that’s nothing to sneeze it. Amazon has been pretty nihilistic when its come to pricing disputes in the past, but refusing to sell between 25-50% of all books published in the U.K. would be a remarkable development. Books aren’t as important to Amazon’s revenue as they were in the late ’90s and early ’00s, but they’re still incredibly important to both the company’s bottom line and its image.

The Penguin Random House merger was all about trying to figure out a sustainable corporate publishing model in the age of Amazon, but that doesn’t mean that one should expect anything bold or risky from the publisher. PRH has been assertive over the past two years, but it’s hardly been radical, and it’s shown little interest in confrontation. Random House, the company that drove the merger, has always had a fairly cozy relationship with the retailer, at least when compared to its peers—it was the only Big 6 publisher to avoid an antitrust suit after Amazon alerted the Department of Justice to industry-wide collusion with Apple.

Nevertheless, the company’s heft shouldn’t be overlooked, as it gives it considerable leverage. And, while this story is U.K.-centric for now, it will undoubtedly have repercussions when PRH’s American division opens negotiations with Amazon later this year. We’ll post more about this story as it develops. 

(Full disclosure: Melville House is distributed, both in the U.S. an internationally, by Penguin Random House.)


Alex Shephard is the director of digital media for Melville House, and a former bookseller.