How Amazon's Ugly Fight With A Publisher Actually Started

In April, Amazon began using unusual tactics to punish one of its publishers, Hachette Book Group, after a contract dispute. After Hachette's contract expired in March, Amazon wanted to negotiate the terms to extend it. The new contract's main condition was that Hachette lower all of its e-book prices to $9.99, but Hachette, clearly unhappy with these terms, did not respond.

Instead of terminating Hachette's contract, Amazon extended the contract on its own but ensured that customers could no longer pre-order many Hachette books. Any book they did order would take several weeks to be delivered.

What began as a contract dispute between Amazon and Hachette soon escalated into all-out war between the $10 billion publisher and the $122 billion retailer.

Hachette's ebook sales have declined, but it remains determined to price its own e-books and loosen Amazon's grip on the market. This persistence has been romanticized and transformed into a cause for the little guy - a cause that has received overwhelming support from some well-known writers, many of whom do not even publish through Hachette. To be sure, some writers, including self-publishing authors who do quite well on Amazon, have come out against Hachette.

Since June, though, more than 900 authors have come together to form a coalition called Authors United, denouncing Amazon for purposefully hindering Hachette book sales and harming the livelihood of authors. Their newest tactic is calling on the Department of Justice (DOJ) to investigate Amazon for illegal monopoly tactics.

The DOJ's Lawsuit Against America's Top Publishers

The dispute can be traced back to 2012, when the DOJ filed an antitrust lawsuit against Hachette, Apple, and other publishers, accusing them of colluding to raise e-book prices. The DOJ alleged the CEOs of various publishing companies had in fact been meeting regularly at upscale Manhattan restaurants to talk about how they could prevent Amazon from pushing the prices of their e-books down to a maximum price of $9.99. The CEOs allegedly called this the "$9.99 problem" and, prior to the release of the new iPad, they allegedly worked with Apple to raise the prices of e-books and force Amazon to do the same.

The accused publishers allegedly switched to an agency model with Apple's help that forced consumers to pay millions more for e-books than they would have had the collusion not occurred.

Hachette decided to settle, stating that it could not afford to defend itself in court, while Apple chose to fight the allegations and ultimately lost. Macmillan, another large publishing group, also chose to fight instead of settle on the grounds that agreeing to the settlement terms dictated by the DOJ would have meant strengthening the alleged monopoly Amazon had already begun to build by lowering e-book prices in the first place. (Macmillan ended up settling the case later, though.)

Amazon Wants A Deal That Hachette Says Would Be 'Suicide'

The outcome of the price-fixing did indeed strengthen the book-selling giant, as it boosted Amazon's ability to keep e-book prices low - at least, until Hachette refused to acquiesce to Amazon's demands.

In June, Amazon made public a letter it wrote to a handful of Hachette authors suggesting the writers should be taken out of the crossfire by giving them 100% of e-book profits until the dispute was resolved. Amazon and Hachette would each lose a significant amount of money from this arrangement, theoretically encouraging both parties to come to an agreement more quickly.

Hachette rebuffed Amazon's proposal, stating to the Wall Street Journal that agreeing to these terms would be "suicide."

Why Amazon Wants To Sell Cheap E-Books

The reason for this back-and-forth is simple: Amazon wants to level the market and make all e-books the same low price, commodifying them so that they may better compete with other goods such as television, movies, and blogs.

Amazon also points out that e-books are cheaper to produce than physical books. "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," the Amazon Books Team stated in July blog post.

But Hachette wants to control its own prices and believes the only way to respect talent and guarantee the continued production of serious literature is by scaling the prices of e-books depending on many different factors such as author, release date, degree of success, etc.

How Famous Authors Joined The Anti-Amazon Crusade

The coalition calls itself Authors United, and it started kind of by accident. In late June, Douglas Preston, whose techno-thrillers and horror novels are published by Hachette, began circulating a letter for fellow authors to sign. The letter condemned Amazon's punitive behavior, and Preston hoped it would convince Amazon founder and CEO Jeff Bezos to find a new way to negotiate with Hachette that did not involve slashing authors' sales.

The number of authors to sign the letter exploded during the summer from 12 to over 900. Supporters of the campaign against Amazon include the likes of Philip Roth, Orhan Pamuk, and Malcolm Gladwell, The New York Times has reported. See a list of supporting authors here, which does not include more recent supporters like Roth and Pamuk.

In an interview with The New York Times, Gladwell seemed more disappointed in Amazon than angry, speaking as though the e-tailer were an old friend who had simply gone down the wrong path and was now lashing out at those who would not follow. Gladwell said he was "surprised and troubled" by Amazon's actions, which have cut sales of his books almost in half, and that it is "heartbreaking" when a partner chooses to turn on you as Amazon did.

James Patterson, another member of Authors United, has been much more outspoken about Amazon's mission to lower e-book prices: "This will ultimately have an effect on every grocery- and department-store chain, on every big-box store, and ultimately it will put thousands of Mom-and-Pop stores out of business ... Amazon also, as you know, wants to control book selling, book buying, and even book publishing, and that is a national tragedy."

Amazon declined to comment on this story, and Hachette did not immediately respond to our request for comment.

Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.