Price Wars Amazon Battles Traditional German Publishers
Amazon is delaying deliveries in Germany in a bid to raise its share of e-book earnings. A number of the country's biggest publishers say the strategy amounts to blackmail and are refusing to cave in. But their refusal to compromise could cost them their future.
"A place in the sun. Real friends. Pleasant surprises" reads the slogan gracing the facade of Amazon's headquarters in Schwabing, a district in Munich. Perfectly set off against a matt surface, the silver lettering does indeed shimmer in the July sun. "Fertile ideas. No nonsense." Given the conflict raging this summer between the company and the German book industry, the words reaching across two storeys of the building could be construed as somewhat mocking.
Amazon's adversary in the conflict is the Swedish Bonnier Group. The Swedish media conglomerate's Germany imprints include famous names in the country's publishing industry like Piper, Carlsen and Ullstein. Whenever Amazon sells a Bonnier e-book, it collects 30 percent of the retail price. But now Amazon wants its share hiked to 50 percent. So far, Bonnier is refusing to budge. "Amazon is undermining our ability to survive," says Christian Schumacher-Gebler, CEO for Bonnier Media Deutschland.
"Negotiating is daily bread for us retailers," says Ralf Kleber, CEO of Amazon Deutschland.
Kleber recently returned from Seattle, home to the Amazon mother ship. He seems to have brought back with him some of corporate America's upbeat and uncomplicated attitude. The door to his office is open, but no framed family photographs, shelves of CDs or actual books are anywhere to be seen. The 48-year-old sports a pale blue shirt and jeans, with his Amazon ID on a yellow lanyard standing in for a tie. The "Ralf" in his name appears on the ID in big, bold letters. His surname is barely visible.
Gaining access to Amazon is no easy task. There are plenty of book publishers in Germany Kleber has never even met. In response to SPIEGEL's request for an interview, the company's press spokeswoman first quoted Jeff Bezos, Amazon's founder: "We are willing to be misunderstood for long periods of time." But now, Kleber is keen to set the record straight: In his opinion, too much wrong information is being reported.
And perhaps Amazon has realized that its dispute with the book industry could potentially damage its image. In order to ratchet up the pressure on the Swedish media group, Amazon is delaying delivery in Germany of printed Bonnier books, which include the Harry Potter series. While orders used to arrive within a maximum of 48 hours, they're now taking up to 10 days. In the US, where Amazon is engaged in a similar stand-off with the Hachette Book Group, writers, retailers and customers are livid, with the latter even downloading stickers that say "I Didn't Buy It On Amazon" from the Internet. In June, Amazon stopped taking re-orders of the box-office smash "The Lego Movie" because of a pricing disagreement with Warner Bros.
Changing People's Lives
As far as customers are concerned, Amazon's strengths are its range of products, its speediness and its reliability. They might well be put off by headlines portraying the company as greedy and insatiable.
Amazon is a digital warehouse that stocks everything from washing machines to rocking horses and chainsaws. But it's also a world power hell-bent on changing people's lives, from the way they shop and work to the way they watch TV and read.
But the company started out selling books. With even major bookstores stocking only a limited number of books in print, Amazon -- which today stocks a total of 15 million titles -- was instantly ahead of the game. But these days, barely 10 percent of the company's turnover comes from books, be they printed or electronic, even though the segment still earns Amazon more than any other.
Books are not any old product. They're not like washing machines and chainsaws. They're products with soul, made with skill and intellectual effort. They cannot be made by robots. Many writers receive advances from their publishers to work on their books, regardless of whether or not the sum is recouped. Once a manuscript is finished -- often long after the deadline is passed -- the publishers' editors, publicity and rights departments get to work.
It's a lengthy process illustrating why books are cultural assets and not just common-or-garden merchandise. Which is why there's more at stake in the dispute than a retail price. At the end of the day, it's about establishing a balance of power within the book market in the digital future.
Two world views are colliding. For Amazon, a book has value only once it's written. The online retailer isn't interested in its evolution, or in how much effort a publisher has invested in it. But lower profits for the publisher inevitably affect authors and therefore books themselves. But to Amazon executives, the value of a book is reflected not in its quality but in its sales figures.
"We have thousands of suppliers with whom we are in constant contact and with whom we continually adjust our financial terms," says Kleber. But he is at pains to hide the fact that he clearly feels that the constant harping on about books as cultural assets is just publishers' excuse for their own conservatism. "What the publishers are now up against is the future," he says.
Setting a Precedent
The battle for the future being fought between the book industry and Amazon began last fall. Every year, after the Frankfurt Book Fair, publishers sit down with the main retailers, such as Thalia and Hugendubel and, of course, Amazon, to discuss new titles, orders and conditions.
Last year, Alexander Lorbeer was appointed CEO of Ullstein, which, like Piper and Carlsen, belongs to the Bonnier Group, and whose authors include the likes of Nele Neuhaus and Jo Nesbø. Until two years ago, Lorbeer worked in the book department at Amazon in Munich. He can only guess as to Amazon's reasons for taking on Bonnier as its opponent in the tussle over e-book prices in Germany. "We're big enough for it to have repercussions for the whole industry but not so big that Amazon will shoot itself in the foot by delaying deliveries of our books," he surmises.
Amazon is not only demanding that Bonnier switch to more favorable terms, such as discounts of up to 50 percent. It has also confronted publicly traded publisher Bastei Lübbe and dtv in Munich. The Ganske Group, whose imprints include Hoffmann und Campe, has also been negotiating with Amazon since last fall -- so far, with no resolution in sight. For the time being, however, Amazon is still delivering their orders on time. But "the entire industry is looking to see how long Bonnier will keep digging in its heels," says Frank Häger, director of books at the Ganske Group.
Ahead of the Bonnier publishers' first meeting with Amazon in December, Lorbeer and his colleagues received an email from the company's headquarters in Munich. It informed them that this year, Amazon not only wanted to talk about print discounts, but also about terms in the e-book segment. In response to further enquires, Amazon revealed that it was planning to point a way forward for standardized discounts. It became rapidly apparent that in the next one to two years, Amazon would like to be collecting not 30 percent of e-book sales but 50 percent, the same amount it collects with printed books.
In this, Amazon is adopting a clear strategy. At first glance, its demand does not seem altogether unreasonable: Why shouldn't discounts on books published without printing costs be the same as with analog books? But from the point of view of the publishers, the situation is more complex. They have to fight for every cent because they pay their authors from their share of e-book sales. And so far, they receive a higher share for a digital book than they do for a print version. The expense is made up for with lower budgets earmarked for print and logistics. Amazon's assumption that publishers earn more from e-books is therefore off the mark.
Moreover, the publishers are taking the longer view and are unwilling to agree to a deal they see as blackmail. "Every percentage conceded by publishers inexorably takes us a step closer to the 50 percent share that Amazon is demanding," says Häger from the Ganske Group. For years, publishers have been feeling bullied by Amazon. They're worried that it will finally achieve a monopoly.
As far as its own costs are concerned, the online retailer still earns more from costly printed books than it does from e-books. According to experts, packaging and dispatch only accounts for about 20 percent of costs. Digital books retail at cheaper prices, earnings in the e-book market are lower and require greater investments in technology. In this respect, Amazon also has its back against the wall. The more the lucrative print segment wobbles and the more the e-book segment grows, the more its margins fall.
- Part 1: Amazon Battles Traditional German Publishers
- Part 2: No More Loopholes