Amazon explains, to customers, its negotiation focus with Hachette and other publishers. Judge Cote approves Apple's settlement plan for the states' class-action suits. Is the Kindle Unlimited subscription program a factor in the negotiations?

Amazon explains to customers its concerns and focus during the ongoing negotiations with Hachette

After all that's been written lately about the continuing, apparently bitter, struggle between Amazon and Hachette, Amazon has decided to explain its own perspective on this to customers, who aren't able to pre-order books of interest from Hachette nor expect to order and be shipped quickly a bestseller from that publishing company.

Amazon's bold offer to authors (and Hachette) during the interim
  On July 9, Amazon made an offer that was favorable to the authors while talks continue.  From NPR:

' . . . On Tuesday, the retailer wrote directly to a handful of Hachette authors, asking for thoughts on a proposal that would give 100 percent of digital profits to authors while the fight continues.

  Amazon's vice president of Kindle content and independent publishing, David Naggar, wrote in a letter that the move "would motivate both Hachette and Amazon to work faster to resolve the situation."
  . . .
  . . . Hachette initially called the suggestions laid out in the letter "suicidal." After news of the letter to authors broke, Amazon sent the offer directly to Hachette, which rejected it, saying, "We believe that the best outcome for the writers we publish is a contract with Amazon that brings genuine marketing benefits and whose terms allow Hachette to continue to invest in writers, marketing, and innovation."

  Amazon, responding to the "suicidal" comment, said, "We call baloney. Hachette is part of a $10 billion global conglomerate. It wouldn't be 'suicide.' They can afford it. What they're really making clear is that they absolutely want their authors caught in the middle of this negotiation because they believe it increases their leverage. ... Our offer is sincere. They should take us up on it." '

Well, that went nowhere.  It might have given some authors pause about the situation though.

So now, Amazon's explaining, at the Kindle Forum, their side of the dispute to customers and detailing the math involved in pricing and net revenue for different scenarios.  It also answers the conjecture that Amazon has demanded 50%.
  Here, for convenience, is the full text of the public posting, bold-faced emphases mine:

' Initial post: Jul 29, 2014 1:29:59 PM PDT
The Amazon Books team says:
(AMAZON OFFICIAL)
With this update, we're providing specific information about Amazon's objectives.

A key objective is lower e-book prices. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there's no printing, no over-printing, no need to forecast, no returns, no lost sales due to out-of-stock, no warehousing costs, no transportation costs, and there is no secondary market -- e-books cannot be resold as used books. E-books can be and should be less expensive.

It's also important to understand that e-books are highly price-elastic. This means that when the price goes up, customers buy much less.  We've quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99.

  So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99.  Total revenue at $14.99 would be $1,499,000.  Total revenue at $9.99 is $1,738,000.

The important thing to note here is that at the lower price, total revenue increases 16%. This is good for all the parties involved:

* The customer is paying 33% less.

* The author is getting a royalty check 16% larger and being read by an audience that's 74% larger.  And that 74% increase in copies sold makes it much more likely that the title will make it onto the national bestseller lists. (Any author who's trying to get on one of the national bestseller lists should insist to their publisher that their e-book be priced at $9.99 or lower.)

* Likewise, the higher total revenue generated at $9.99 is also good for the publisher and the retailer.  At $9.99, even though the customer is paying less, the total pie is bigger and there is more to share amongst the parties.

Keep in mind that books don't just compete against books.  Books compete against mobile games, television, movies, Facebook, blogs, free news sites and more.  If we want a healthy reading culture, we have to work hard to be sure books actually are competitive against these other media types, and a big part of that is working hard to make books less expensive.

So, at $9.99, the total pie is bigger - how does Amazon propose to share that revenue pie?  We believe 35% should go to the author, 35% to the publisher and 30% to Amazon.  Is 30% reasonable?  Yes.  In fact, the 30% share of total revenue is what Hachette forced us to take in 2010 when they illegally colluded with their competitors to raise e-book prices.  We had no problem with the 30% -- we did have a big problem with the price increases.

Is it Amazon's position that all e-books should be $9.99 or less?  No, we accept that there will be legitimate reasons for a small number of specialized titles to be above $9.99.

One more note on our proposal for how the total revenue should be shared.  While we believe 35% should go to the author and 35% to Hachette, the way this would actually work is that we would send 70% of the total revenue to Hachette, and they would decide how much to share with the author.  We believe Hachette is sharing too small a portion with the author today, but ultimately that is not our call.

We hope this information on our objectives is helpful.

Thank you,

The Amazon Books Team '

Another possible stumbling block
While I haven't seen this suggested, it seems to me that another sticking point for publishers could be that Amazon probably (I don't know that this is true but I can't imagine Amazon not approaching the subject) wants the same rights to include certain books under their new Kindle Unlimited subscription plan when publishers have already given subscription rights for those books to competitors like Scribd and Oyster.

Other articles you might find interesting
  * A petition from some of the writers to Hachette
        David Gaughran is one of the supporters.  He wrote a much-admired analysis
        of the Amazon-Hachette situation.
  * In mid-July, talks began between Amazon and Simon & Schuster on
        new e-book pricing agreements.
  * Here's a NY Post article on that.
  * Apple gets court approval for a $450 million settlement over e-books price-fixing,
        and it involves lower penalties if the case is sent by an Appeals court back to Judge Cote,
        while there'd be a change or dismissal of the settlement if the appeals court comes down
        on Apple's side.

Some might be interested in this blog's History and Timeline of the e-book pricing wars.
  It includes a streamlined version of what the DoJ and Judge Cote would have seen and some insight into why she ruled as she did.

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