Why Amazon’s Kindle Battle With IPG Matters

Amazon’s decision to yank almost 5,000 Kindle titles from distributor Independent Publishing Group after IPG refused to give the retailer better terms may be a harbinger of things to come.

A few thoughts:

Will Amazon (NSDQ: AMZN) try to grab distributors’ digital business for itself? Key sentence in IPG president Mark Suchomel’s letter to clients: “If anyone from Amazon calls you, please let them know that you are distributed by and contractually tied to IPG.” In other words, IPG believes Amazon may reach out to clients directly about selling their e-books.

Amazon’s e-book contracts for distributors are already a bit complicated. Jane Graf, the director of distributor International Publishers Marketing, told me in an e-mail:

The contract with Kindle is phrased in such a way, that as a distributor, you had to have documentation in hand that proved you had the rights to represent the e-book format — separately from the traditional book version — of each Kindle title.

As a result, after discussions with our clients that were doing e-books (and not all of them have books appropriate for the e-format), we opted to let each individual publisher establish their own Kindle account with Amazon, and post their own books to that account. To date it has worked smoothly for IPM and those of our clients with Kindle accounts.

Some of the small presses that work with distributors don’t sell many e-books. IPG president Mark Suchomel told Crain’s that e-books make up less than 10 percent of IPG revenues. And distributors whose client publishers focus on art, cooking and other nonfiction areas that e-books have yet to penetrate may not have much to worry about. But with the Kindle Fire, Amazon is making a push into publishing illustrated digital content, so as these e-book rights become more valuable Amazon may try harder to get those authors to sign up with it directly.

Will battles over terms spread beyond IPG? I’ve heard no reports of other distributors or publishers being affected yet, but as their contracts come up for renewal — usually every three to five years — there is no reason not to think that Amazon will demand better terms from them too. Publishers Weekly reported in December that Amazon is asking many publishers for bigger discounts.

These negotiations could eventually spread to self-published authors as well. Amazon currently pays authors who publish e-books through KDP a 70 percent royalty on each sale over $2.99 and keeps 30 percent for itself, but it has the power to demand a bigger cut and authors who are making most of their revenues through the Kindle Store will be in a tough spot.

Is this a sign that Amazon has it out for distributors? Distributors like IPG handle a variety of functions, from sales and marketing to distribution and digital services, for small and mid-sized publishers who can’t or don’t want to handle those things themselves. They are middlemen, and Amazon doesn’t like middlemen, right? Well, publishing consultant and former distributor and publisher Don Linn writes:

For a long time, Amazon has preferred to deal with aggregators (such as distributors) in dealing with smaller presses simply to avoid the aggravation of handling multiple vendors when one distributor can feed Amazon print and digital titles for a couple of hundred publishers. I remember well my days at Consortium when Amazon begged us to supply data feeds so they wouldn’t have to manage 125 accounts for each of our client publishers.

I suppose that with improved technology and the practice Amazon has had with the Kindle Direct and other self-publishing programs, they’re no longer intimidated…at least on the digital side…by the number of vendors. And of course that makes sense in the digital world. IPG and other distributors (and publishers) are just another intermediary in Amazon’s eyes and we know how they feel about intermediaries.