Amazon Battles Apple by Arm-Twisting Book Publishers

Amazon (AMZN) has bet heavily on its future in e-books and is running scared from Apple (AAPL). The latest sign is that Amazon has removed the velvet gloves to show the iron fist to book publishers seeking the same type of pricing model as they will get on the iPad. The message? Ask to control your e-book pricing and we'll cut all your books -- electronic and print -- from our site. The winners could actually turn out to be Google (GOOG) and Microsoft (MSFT).

The report comes from book publishing industry newsletter PublishersLunch (sorry, it's a subscriber-only publication). According to the story, Amazon (AMZN) has delivered ultimatums to a number of independent publishers that have sought the so-called agency model, in which the publisher set e-book prices and the e-tailer gets a percentage of the sale.

At least one independent publisher of scale was told categorically by Amazon in a recent phone call initiated by the etailer that Amazon would not negotiate agency selling terms with any other publishers outside of the five initial Apple partners. This publisher was told that if they switched to an agency model for ebooks, Amazon would stop selling their entire list, in print and digital form. In conversation, Amazon is said to have reiterated that as matter of policy they are declining to negotiate an agency model with any publisher outside of the five who have already announced agreements with Apple's iBookstore.Another sizable independent publisher we spoke to has not discussed an agency model with Amazon yet, but is resolved to work with Apple regardless. "We're committed to going forward with Apple," a senior executive told us, underscoring, "we don't see how we could allow one retailer, no matter what threats they make, to block our authors' works from being available at another retailer."

Over time, Amazon's volume has amassed enormous influence in the publishing industry. The company has shown its willingness to use take-it-or-leave-it negotiation tactics to get what it wants. For example, at one point, the company told independent publishers that if they wanted to use print-on-demand services to generate book copies as needed, they had to use Amazon's offering or risk having the buy button deactivated so customers could not purchase their titles.

Amazon has largely had publishers over a barrel, but a growing number appear concerned enough by the company's increasing control and draconian stance that they are looking to Apple as a way to balance Amazon's influence. Rumors have it that Amazon is still negotiating with the largest publishers as well, so it may be that no publisher has actually yet gained an agency model sales deal with the company.

Yet Apple reportedly also has some contractual demands that worry publishers, including a mandatory "most-favored-nation" clause. That means the terms and pricing that Apple gets must be at least as good as those given to other resellers. If publishers sign with Apple and then cave in to Amazon, they will have to turn around and give the same terms to Apple.

The strong-arm tactics by both Amazon and Apple could have the interesting repercussion of driving publishers to Google or Microsoft. Google is reputedly flexible on the agency model, and given the current environment, I could see Microsoft doing the same for its upcoming tablet as well as Windows Phone 7 because it has nothing to lose and everything to gain. If Microsoft and Google can siphon publisher support away from Apple and Amazon, it could leave the latter two potentially without a full complement of popular e-book titles and, as a result, in competitive danger.

Image: Flickr user Paolo Camera, CC 2.0.