In the Amazon/Hachette Fight, Wal-Mart and Barnes & Noble Could Be Winners

Wal-Mart  (NYSE: WMT  ) and Barnes & Noble (NYSE: BKS  ) have moved quickly to attempt to capitalize on a dispute between Amazon  (NASDAQ: AMZN  ) and publisher Hachette Book Group.

The disagreement over pricing and profit margins for e-books has led to long delivery times for some Hachette titles sold on Amazon. It has also led the online retailer to stop taking pre-orders for books from the publisher. Instead Amazon takes orders on the day the title is released. That's important because pre-orders typically arrive on release day, removing what could be an advantage for traditional brick and mortar retailers.

Both Wal-Mart and Barnes & Noble are offering special pricing on books published by Hachette -- which includes titles by popular authors including James Patterson and David Baldacci. Luring people in with cheaper prices on books that can't be purchased from Amazon with the company's normal two-day shipping deal might remind customers that other options for buying books exist. That's not a sure way to change behavior long-term, but it's something for two brands that have watched Amazon suck up a large percentage of the retail book business. 

What is the dispute?

Amazon wants better terms from Hachette on books -- specifically digitally delivered books. In general Amazon wants to force prices lower, which does not match up well with a publisher following a traditional model. Companies like Hachette pay authors advances, invest heavily in editing, and act as gatekeepers between authors and consumers. 

"Amazon indicates that it considers books to be like any other consumer good," Hachette said in a statement. "They are not."

Publishers have little leverage with Amazon as the company controls around 65% of the e-book market, according to Forbes. Basically Amazon has a way it wants to do business and that way does not really account for the cost of editors, marketing, and producing high-quality books.

"The issues at play are a matter of life and death for Hachette," Jeremy Greenfield, editorial director of Digital Book World, told The New York Times. "This is about controlling the future of book publishing."

"We are not optimistic that this will be resolved soon," Amazon said in its statement. 

Hachette said any resolution would have to "value appropriately" the publisher's role in editing, marketing, and distributing books.

Amazon may be the villain in this fight but it's a villain that can afford to be patient. Though many think of the online giant as a bookstore first because it started that way, only $5.25 billion of Amazon's annual revenue comes from book sales, according to an expansive look at the company's practices in The New Yorker. That's only about 7% of the company's $75 billion in annual revenue.

Being less available or unavailable on Amazon will likely cost Hachette sales and it will certainly hurt lesser authors. Not having Hachette titles won't harm Amazon in any noticeable way unless a backlash develops -- possible but unlikely. 

What are Barnes & Noble and Wal-Mart doing?

If any company has suffered due to Amazon's growth it's Barnes & Noble. In many ways the book store has become a giant catalog for its online rival. I know I'm guilty of browsing through my local Barnes & Noble taking pictures of books I later buy on Amazon. To add insult to injury my book store visit likely includes me reading a magazine for free and buying (at most) a cup of coffee. I still love the bookstore experience but as an avid reader it's hard to justify paying the much higher prices physical books demand. Instead I buy nearly everything on my Amazon Kindle, only picking up physical books when they are heavily discounted.

Seeing the dispute between Hachette and Amazon, Barnes & Noble elected to offer discounts on titles from the publisher. While the company could have kept prices flat and attempted to make a buck out of actually having the titles in stock, it chose to be more aggressive. The book chain is offering "buy two get one free" deals on some Hachette titles and has sales in its stores and online. The company has not commented on whether it has seen a sales spike, but if what's happening at Wal-Mart is any indication it likely has.

Wal-Mart has been offering nearly 400 Hachette titles for 40% off online with select discounts in its stores. On May 29, a statement from the company said sales of physical books (excluding e-books) were up 70% since Tuesday.

Amazon left the door open a crack and Wal-Mart and Barnes & Noble are attempting to throw it open. 

Will it work?

Books are not particularly important to Wal-Mart so offering these titles at a discount is just a way to grab some new registered customers online and drive some traffic to its stores. Those modest goals should be successful, but no more so than any other mildly publicized sale.

For Barnes & Noble the stakes are higher. Though the company has diversified its product line into toys a little, it's still primarily a bookstore. Discounting Hachette titles to win some short-term sales is one thing but the company should be thinking bigger than that. Barnes & Noble should position itself as the reader's champion -- a company that understands that good books take work, which costs money. If Amazon sees books as commodities then Barnes & Noble should serve the people who treasure them as art. That may not be enough to keep the company afloat against a competitor that offers lower prices, but it might create loyalty among people like me -- bookstore lovers who do most of our shopping on Amazon.

One dispute won't greatly hurt Amazon's book business no matter how long it lasts. It could however give Barnes & Noble another small step in its road toward finding a survival strategy.

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