Obama will speak today to deliver one of his ‘Better Bargain’ speeches at Amazon’s distribution center in Tennessee. I am not typically very interested in politics but I am interested in the book industry and the choice of location seemed very important to me. Mostly, I was surprised to see that Amazon’s distribution center was the location chosen given the amount of press circulating about Amazon this year. If you haven’t necessarily been following, I’ll try to catch you up to speed:
Agency Pricing, “The Big Six”, and a big win for Amazon –
Back in 2010, each of the “Big Six” publishing companies — Hatchette, Macmillan, Penguin Group, HarperCollins, Random House, and Simon & Schuster — was prompted by Apple to adopt what’s considered an ‘Agency model’ in regards to Ebook pricing and distribution. Agency pricing, is essentially a fix in pricing across retailers. The publishing company (in this case companies) would decide the price that an Ebook would sell for and then retailers such as Amazon, Apple, Overstock.com etc. would take a cut (I would assume the amount was negotiated with the publishers and perhaps not the same for each retailer).
What an agency model means for readers, is higher prices. Publishers defended the move saying that the higher price was justified because of the level of quality that ‘traditional’ publishing companies were able to give their content. Readers believed that because there was not a physical object which the company must produce, then the cost should be lower. However, large companies continued to price their Ebooks at similar costs to the printed versions because they felt that the backend procedures (marketing, editing, formatting, artwork etc.) gave a significant cost to the publisher, and they were attempting to recoup some of that cost at point of sale. John Scalzi, a fairly popular Science Fiction writer, has a great post (from back in 2010) which is very comical and pretty much sums up the work that goes into a producing a quality book. I feel he probably agrees with the higher prices associated with his work.
Amazon fiercely defended what is called a whole sale model. It means that retailers would decide the price of the item and sell it at whichever price they felt would make the sale (again I’m assuming that the publisher would then make a percentage of the sale). A whole sale model would allow Amazon to sell books at a loss (selling the book for less than it’s worth) and train buyers to expect lower prices for Ebooks. Considering Amazon is pretty much the only retailer of it’s type, there really isn’t any consequence for them should they do this. When some of the ‘Big Six’ publishers threatened to withhold their products should Amazon continue the practice, Amazon turned off the buy buttons on many books. They were called to testify in U.S. vs Apple et al. They argued for the conspiracy and because of the judge’s ruling, will continue to price Ebooks at whichever price they deem necessary for sale (i.e. way lower than the books are worth).
***Here are some good sites that explain everything pretty easily if you’re interested:
Everything you need to know about the e-book lawsuit in one post (a little dated but still pretty good)
Tax Evasion –
Interestingly enough, Amazon has had some of its own legal trouble as well. In May 2013, Fortune Magazine released a story called “Amazon’s (not so secret) War on Taxes”. Fortune reports that Amazon has been evading something like 11.4 billion dollars a year in taxes through a loophole in internet tax law. The company argued that since they are an internet based company and don’t have physical stores (such as Barnes & Nobles or Books-A-Million) they shouldn’t pay sales tax to the state government where the products are sold. This has given them a crucial leg up on the competition (not just in the book industry but in other industries as well). It sounds like domestically, the loophole has been closed, but abroad, the U.S. is actually fighting for Amazon to ease proposed restrictions.
Amazon Acquires Goodreads –
Amazon purchased one of the largest social reading sites on the net. As reported on their blog last week, Goodreads has now reached 20 million readers on the site. On paper, Amazon seems to have made the acquisition to help readers and build the community surrounding the site. Goodreads founder Otis Chandler stated: “Partnering with Amazon will help us focus on making Goodreads an even better place for readers.” (via Goodreads). While Amazon will undoubtedly continue to invest in Goodreads and develop the site, many are worried that Amazon may not be using data retrieved from the site in an ethical manner.
Reported Losses –
Despite all of this maneuvering, Amazon posted a loss this July in its review of the 2nd quarter. Investors don’t seem all that worried, and there was not a huge rush to sell as might be anticipated. The company is known for having slim profit margins and investors seem to hold on to hope that eventually Amazon will be the only fish in the pond, and when it is, they can make as much money as they want.
So what does this have to do with Obama and middle class Americans?
When I first heard about the speech, I hadn’t the slightest. The only thing I could come up with was:
A) Amazon seems poised and in position to expand their business over seas where Ebook readership is much less stable. Perhaps Obama would speak to something about making America a great exporter. Other companies should not hesitate but perhaps look to Amazon and their “Head West” mentality (although I guess really they’d probably be heading east).
B) The publishing industry is quickly changing. Everyday there are seemingly drastic changes in the way people access material, sell it, distribute it, discover it etc. It’s certainly a hot bed of innovation, and greatly rewards innovators. There are a lot of small presses, and independent companies which are competing each day but it is important to recognize that they have the opportunity and space to compete. From a certain perspective, the Kindle, and Amazon’s Kindle Direct Publishing have busted the industry wide open allowing for small business owners to enter the industry in a way that was heretofore impossible.
However, based on everything I’ve written above (the tax evasion, data mining, a convenient lawsuit, and posted loss) I was still surprised by the choice. I don’t feel like authors, publishers, and perhaps even readers, don’t really think Amazon is a great company. I was certainly very interested to see how Obama would use this, or if he would. Maybe he would just deliver his message and ignore the location completely. But he still chose it and there had to have been a reason.
So what did he end up talking about?
I’m not sure. Couldn’t find any record of what time Obama is supposed to begin and it doesn’t appear the speech will be broadcast. I’m sure I’ll eat those words about ten minutes after this post goes up but it’s all I know for now.
Was able to find two more interesting links which I think make the picture a little clearer:
The first is a press release explaining that Amazon is looking to hire 5,000 new employees for Fulfillment Jobs across America.
The second is from Shelf Awareness. It takes into account the release from Amazon and also has some good quotes about how Independent book sellers or Small Business Owners are taking the news. Interesting stuff.
I suppose that’s all for now. I’ll post anything else I feel is relevant.