Amazon vs. Big Publishing: 800 lbs vs. 798 lbs.

Last week’s issue of Bloomberg’s Businessweek included an article titled Amazon’s Hitman. If you haven’t read it, you should. It is enlightening.

The gist of the article is that Amazon is gearing up to challenge the publishing world on its own turf: the signing of and creation of big-name authors who sell hundreds of thousands, if not millions, of books. And this assault worries the Big 6 publishers — Hachette, Macmillan, Simon & Schuster, Penguin, Random House, and Harper-Collins — with good reason: Amazon has more market value and disposable cash than they do combined.

The article discusses the history of the relationship between the Amazon and the publishers, along with what Businessweek thinks is Amazon’s thinking. But with all of their crying the blues, the Big 6 currently are in the driver’s seat; all they have to do is be willing to drive.

There is no reason why the Big 6 can’t offer exclusive deals to Kobo and B&N. Give them a 3-month exclusive selling period for expected ebook best-sellers and do away with the agency pricing during that period. After 3 months, make the ebooks available to everyone and reinstate agency pricing. This would boost competition and play against Amazon’s exclusivity program.

I suspect that this scenario won’t occur because the Big 6 simply do not have the spine. I don’t see any antitrust violation — if Amazon can do it each of the Big 6 can do it, too — but even if there were a possibility of antitrust violation, do it anyway and keep the program going while you hash out with the government the antitrust issues. That hashing out could take years, which would give Amazon’s competitors an opportunity to become real competitors. More importantly, it might well be an effective weapon in the crusade to keep competition in publishing alive.

Instead of wringing their hands and acting as if there is little to nothing they can do, publishers need to creatively fight Amazon’s onslaught while they are in a position to do so. Right now Amazon has no Stephen King-level authors in its stable. Amazon still needs the resources of the Big 6 to fill out its ebookstore. Remember that it was Amazon that caved in the dispute with Macmillan and brought agency pricing to ebooks. But the day isn’t far off when the advantage will shift to Amazon and the Big 6 will be able to spend their days writing their own obituaries.

The difference between Amazon and the publishers is that Amazon is willing to continue to lose money on its book operations for as long as it takes to control the field, relying on its other business to shore up its balance sheet. In contrast, the Big 6 are unwilling to lose money even for one day, even if it means their ultimate survival. Jeff Bezos is capable of thinking years ahead, like a great chess player who can think dozens of moves ahead; in contrast, the Big 6 CEOs are like the starting chess player, unable to think strategically even one move ahead, let alone several. Bezos has the spine to tell shareholders no payout this quarter or next; the Big 6 CEOs do not.

Yet the Big 6 have an opportunity to shakeup the ebook market and turn it, at least temporarily, until Bezos’ next countermove, in their favor while simultaneously shoring up Amazon’s biggest competitors, Barnes & Noble and Kobo.

Right now exclusivity is working a one-way street. Although the Big 6 declined to participate in Amazon’s current experiment, it is worth noting that Bezos had no compunction about asking them to do so. If the Big 6 won’t offer exclusivity to B&N and Kobo, perhaps B&N and Kobo should approach the Big 6. This is the one area in which Amazon is vulnerable. It is one thing to have exclusive rights to a self-published author’s books, but quite another to have them to a Stephen King’s writings.

The ball is now in the court of the Big 6. What will they do to counter Amazon? If I were a gambler, I’d say the odds were that all they will do is complain but do nothing substantive. There wasn’t much at stake in the agency pricing showdown on either side. An exclusivity arrangement with B&N and Kobo, however, puts a lot at stake. It will be interesting to see how this plays out.