Sunday, January 31, 2010

Selling Paper

Remember my last blog entry, where I talked about Ebook Piracy? During the Digital Book World conference, the president of Macmillan, a very large publisher, called for all publishers to fight piracy, citing some of the same tactics that were unsuccessful for the MPAA and RIAA.

Since then, Amazon has stopped selling Macmillan titles.

The reason seems to be that Macmillan wants Amazon to raise their ebook prices, and Amazon refuses to.

This is being discussed in more depth on the Amazon Forum.

As it currently stands, Amazon buys ebooks from the publisher at 50% of the hardcover price, then prices those ebooks at $9.99 or less.

In other words, Amazon is losing A LOT of money on every ebook sale.

As far as I know, Amazon hasn't come out and said why it has decided to take a loss for each ebook it sells. If I were to guess, I'd say there are several reasons for this. They want to get a large share of the growing ebook market. They want to sell Kindles. They want to price competitively, and charge what they feel their customers are willing to pay.

Personally, I think Amazon knows that $14.99 for an ebook is too much, especially considering it costs nothing to distribute and manufacture.

So, since the Kindle first appeared, Amazon has been losing a lot of money by selling ebooks.

Macmillan wants Amazon to operate like Apple, which offers publishers a way to set their own price.

But shouldn't Amazon be able to sell things for whatever they decide to sell them for?

The loss-lead has been a mainstay in retail since the beginning of retail. Black Friday doorbuster sales are a perfect example of that.

So Macmillan tried to tell Amazon what to do, and Amazon stopped selling their titles, and now the Macmillan authors are suffering.

But let's take a closer look at why Macmillan wants Amazon to charge higher prices for ebooks.

It would have really sucked to have been a buggy whip manufacturer when Henry Ford introduced the Model T. But technology changes things, and it isn't always fair.

As far as technology goes, print has had an incredible run. This single format has lasted hundreds of years. Contrast that to music. In my lifetime, I've seen reel to reel, 8 track, LP, cassette, digital audio tape, CD, mp3, and now a host of lossless formats like flac, ape, aac, wav, etc. Go back to my grandmother's time and there were 78s and Edison cylinders. Lots of format changes in just a hundred years. And during each change, there were those who lost and made money.

Print has reigned since Gutenberg. But now the times are changing.

Publishers need to figure out what it is they do. Is it ship and sell paper? If so, that costs money, and they need to price books at a high cost and pay the author a fraction of the retail price.

But if a publisher's job is to help storytellers reach a readership, through vetting, editing, formatting, cover creation, and distribution, that can now be done in a much cheaper way, digitally.

So let's look at what a publisher does, and some of the costs involved.

Print publishing has a lot of overhead, and a LOT of waste. A 50% sell through (the number of books printed vs. sold) is acceptable, and returns are acceptable (any book shipped can be returned for a full refund.)

What if Chevy only sold 1 car out of every 2 it produced? What if Costco could ship back any old bananas it couldn't sell and get a full refund from the banana grower?

This is a very bad business model, and it is what publishing uses.

Publishers acquire manuscripts, and spend a lot of time, money, and energy doing so, because acquiring and publishing a book is a big investment (an investment that often fails to earn a profit.)

In the current model, publishing is NOT about connecting storytellers and readers. It's about selling as much paper as possible. They print paper, ship paper, use paper to advertise their paper. Paper, paper, paper.

In an ebook world, there's no paper. No printing. No shipping. No catalogs. No ARCs. No print ads.

Editing, proofreading, cover art can be outsourced. How much would this reduce costs?

No expensive Manhattan offices. No editor expense accounts. No sales reps or marketing department. No employee benefits.

Print publishers see this future, and are trying to use the current system as a pricing structure for the future system, because they don't want to change.

That won't work. People don't want to pay $9.99 for a DRM restricted ebook that can only be read on a single device. That's why ebook piracy is on the rise.

Rather than figure out a strategy that will work, publishers are instead circling the wagons, making the same mistakes the RIAA and MPAA did.

Because publishers are in the business of selling paper, and they think a digital book is just another type of paper.

Why are they doing this?

One reason is because of history.

Historically, we were told what to read, watch, and listen to.

In the past, artists needed big companies behind them to manufacture and distribute their work.

When I was a child, there were three television networks. If I wanted to watch something at 7pm on Thursday, my choices were limited.

Radio and record companies decided what we listened to. Hollywood told us what to see in the theater. And publishers printed what they deemed fit for public consumption.

Gatekeepers (the few) chose what the masses (the many) got to experience.

Then along comes this internet thingy.

YouTube is one of the top ten most visited sites on the net. Why?

Because the viewer actually IS the gatekeeper.

We decide what we want to watch. We create videos ourselves.

It is an entire media empire built around the viewer. A video can get ten million views without any gatekeeper at all, because there is no cost and no risk.

Why not the same for ebooks? If the cream rises to the top on YouTube and goes viral, what is to stop an ebook from doing the same, if there was a forum for such a thing?

But instead of embracing the future, print publishers are going to try to fight to preserve the past. That's why they charge Amazon, Sony, and other retailers 50% of the price of a hardcover for an ebook. They don't want things to change. And they're inflating the price of ebooks to try and prevent that change.

That won't work. Formats change. New technology always comes out the winner. DVD beat VHS. CD beat cassettes. Cable TV beat network TV. Cell phones beat Ma Bell. And ebooks will someday beat print books.

But all isn't lost for publishers.

If I were a publisher, I'd start by acquiring out-of-print backlists. This is where Google and Amazon both dropped the ball. Google tried to scan copyrighted material without permission, and Amazon concentrated on public domain, rather than going after name authors and actually making some money off of ebooks, rather than losing money on each one sold.

There is a 4 billion dollar a year used book industry. The majority of everything ever published is out of print, and a good portion is still under copyright.

Acquire those rights (and not try to retroactively grab them like Random House did.)

A smart publisher or retailer with deep pockets could acquire thousands of books that have already been vetted and edited.

Once they did that, they'd be responsible for formatting and distribution, which is cheap and/or free. Pay fixed costs upfront, then earn forever.

But publishers can't think this way. That would mean they'd have to entirely restructure their business, and probably downsize dramatically.

Right now, rather than consider changing its business model, Macmillan wants things to stay how they are now. That makes sense. Why wouldn't they want things to stay the same?

But they're no longer the ones who decide what people must read. They don't have that control anymore in this new world. Now people have choices. One of the things that helps dictate choice is price.

Amazon understands this, and prices accordingly.

I feel terrible for Macmillan authors. Several of my close friends are being hurt by this. And I wonder if other publishers are going to desperately band together and attempt to do the same thing. I'd be deeply upset if Amazon stopped selling my Jack Daniels novels.

But then, I did figure out that I could earn more money than Hyperion is earning for me, if I had the rights to those titles back.

But that's because I figured out you can make more money selling cheap ebooks than selling expensive ebooks.

Here's a screen shot of my January sales on Amazon Kindle to emphasize my point (and it isn't fully accurate because it's only 10:40am and I'm thinking I'll make a few more sales by the end of the day.)

In June, my Amazon royalty rate will go from 35% to 70%.

So I'll be looking at 40k per year on these old titles that NY Publishing didn't want.

I'll earn almost as much on a $2.99 download than I earn on a $24.95 hardcover.

And why shouldn't I? I'm the writer.

I don't have any benefits. No heath insurance. No retirement fund. No 401k. No expense account for lunches. No holiday bonuses.

I live off of advances, and bi-annual royalty checks, and I'm one of the lucky ones. I actually am making a living at this, whereas the majority of my peers cannot.

And let me say, for the record, that I love paper books. And I've loved the publishers I've worked with, and think many of the folks in publishing are some of the smartest and coolest people I know.

But I believe publishers need to switch their focus from selling paper to connecting storytellers with readers.

Unlike the buggy whip, publishing isn't a niche market. It can change with the times. But it will be a painful change.

You can stack up sandbags against the tide. Or you can ride the wave.

C'mon, Big NY Publishing. Put down the sand, and grab your surfboards.

95 comments:

Zoe Winters said...

I for one hope NY pubs don't get smart about ebooks. The more they drool all over themselves, the easier it is for me as an indie. I couldn't imagine selling any rights to a publisher the way they're running business now.

As for vetting books, I'm not sure publishers really serve that purpose strongly enough for it to be one of their big selling points. With the Internet, readers are the vetters and not only that, but sites like indiereader.com are popping up to work as a type of curating system for those who can't brave the wilds of "ZOMG what books are good? How do I know?"

It's really not that hard. Most readers have already been doing it: look at the cover, is it nice? Look at the back copy, does it draw you in? Look at a few pages, do you like it? Look at reviews, do those who read the whole thing like it? Not hard.

I don't think paper books are going to die, but I do believe within the next ten years ebooks will be the primary delivery method and the Internet will ultimately become primary in marketing and distribution. Publishers don't have much pull there.

If they were smarter, they would start their own online bookstores. Macmillan would become a "book brand" like Gap is a clothing brand. But they aren't doing that. They're trying to get people to buy $15 ebooks. I feel like that pricing strategy is in an effort to hold onto paper. After all if they have a mass market title for $7.99 and their ebook version is $15 in THEIR minds, the reader obviously will just go ahead and buy the print.

But that's not how readers are. Many readers are switching fully over to Ebooks and that number will increase. Even *I* am considering it, and considering my former "you can take my paper from my cold dead hands" attitude, that's like book apocalypse. Once I find the sexy, sporty little ereader that can seduce me away from my paper, it's on.

I'll buy everything in E (AFFORDABLE E) and then what I REALLY love, I'll buy in print for my shelf.

If publishers REALLY want to sell paper, they should open online brand stores and sell the print and give the e-version away for free WITH the sale of print. Then everybody can be happy. Ereaders can keep it on their shelf if they really love it, or give the print version as a gift.

I see a future where physical bookmaking can become a true art again, where hardback books will exist as works of art and collector's editions. I want to buy some of those books and I'd LOVE to produce some of those books for my own work, should I build up the following necessary for it.

I know I'd have to do an offset print run, but in 5 years or so I think I could stand to do that. Maybe limited edition of each book. I don't know, but if I did it, I would definitely make something worth showcasing on a shelf.

Anyway I'm excited about the future of publishing! And that makes me more verbose, LOL.

Natasha said...

Thank you thank you thank you for this post!

Julie Hennrikus said...

Thanks for this thoughtful post. Your buggy whip analogy is a good one. It is hard to keep up with what is going on, and how it will shake out. But the paradigm is shifting with this digital age. I suspect it will be an interesting ride.

Kay said...

Wow ... One of the best summaries of how e-publishing is working I've seen. I'm not published, but I can see how getting published is getting more difficult by the week. Month? Whatever. Publishing is a changing.

Whitney said...

I'm glad you're earning more, because I think you're an amazing author who deserves every penny you earn.

I'm personally not ready to go completely over to the digital book world. I love holding a book, the tactile experience of turning the pages and being able to quickly go back and reread passages. It's comforting to me. (Plus, it's hard to read a Kindle in a bubble bath.)

I have your ebooks downloaded on my iPhone and read them. I also have quite a few public domain ebooks on my Stanza app. I enjoy them, but I still prefer the old ink-and-paper method.

It's difficult in these changing times to find a happy medium: keeping the audience who prefers paper books happy, while improving the digital book market for that audience. So far the publishing houses haven't gotten it. There definitely needs to be more collaboration and communication between the publishers, authors, and booksellers.

Stacey Cochran said...

As a Macmillan author and Kindle bestseller, here's my blog response to all this.

Christopher said...

Thank you for this post. I have been cruising around reading different people's takes on this. (Here's mine http://tinyurl.com/yl3l5cz). I agree with you. Changes are coming, whoever gets behind them first is going to come out the winner.

Joe Konrath said...

@Zoe - Several months (years?)ago I suggested the same thing, that publishers need to sell ebooks cheaply on their own websites and keep a bigger piece of the profit.

Steve Anderson said...

You nailed it. Paper will still be great, like LPs are now great. The missing piece for us indie writers has been the new forum you wrote about -- the new gatekeepers. When that comes, watch out. Plus, that Amazon DTP of yours really inspires me!

L.J. Sellers said...

I feel bad for the Macmillan authors too. But in the long run, cheaper and easier distribution (e-books) should expand the market for all talented writers.

Zoe Winters said...

Ha! Joe, and that's why I love you. Why can't smart guys like you be running NY publishing? Nevermind. If smart guys like you were running NY publishing I might not be selling nearly as well as I am in the Kindle store right now! (Finally broke the 1,000 mark and am in the 3 digits in sales rank. woo hoo!)

Zoe Winters said...

@ Steve, I know my post was spork-your-eyeballs-out long, but I mentioned that's already starting to happen. Indiereader.com is just one example of a vetting system for indie authors set up completely independent of the traditional publishing model.

author Scott Nicholson said...

Absolutely, Joe. You are one of the few authors positioned to thrive either way. And right now I am rounding up some published authors with backlist to handle their ebook (formatting and cover). And I take 15 percent. Author gets 85 percent. So that makes me a "publisher," I guess, on a fair model.

My own backlisted Kindle title is outselling my NY Kindle title by at least 6 to 1, maybe more like 12 to 1. And I am caught right now in wanting to buy back my digital rights on OOP titles from my NY publisher or getting back the rights once a year and losing thousands of dollars. If I try to buy them, they may think they're worth something. Kensington is not in bed with the Big 6 but they grabbed up e-rights, too, with no idea what to do with them. I'd be happy to take the 50 percent in the contract if they would only make them available (if they would spend the hour per book required to format for Kindle).

I am positive right now Amazon could easily create its own James Patterson or Stephanie Meyer.

All of my unpublished titles are on submission somewhere, but now I wonder whether the risk and wait is worth it in every case. I get so tired of hearing "it's not a BIG BOOK." Maybe some medium-sized books need to get out there, and small books. I imagine agents and publishers getting crushed during their Four Seasons lunch by a massive BIG BOOK falling out of the sky like a piano.

Joe, your blog inspired me to really jump into this. I only sold 62 copies of The Red Church in January, but for a book that was dead for years, getting a chance to connect with even one new reader with a story I care about is more important to me than any corporate war.

Scott Nicholson
THE RED CHURCH

Steve Anderson said...

@Zoe Thanks for pointing that out. Great comment and operation you got -- it's exactly what I'm talking about. I don't want the following to happen, but I'm afraid one such forum/gatekeeper will have to rise of the level of those old three/four network channels JA wrote about. This might be the only way to force a shift in the general consensus, much in the way iTunes forced a shift in music. Maybe it will be Indiereader ; ) Also, I feel bad for those Macmillan authors -- talk about getting shafted.

Zoe Winters said...

@Steve, I agree the Macmillan authors are the ones getting hurt in all this. As per the other comment, I think there really is a slow cultural shift taking place. Part of it is in the growing number of self-published authors taking enough pride about what they're doing to start referring to themselves as indies. Indie filmmakers, indie musicians, indie authors. Same principles. DIY ethic. Something to be proud of, not ashamed of.

There are crappy indie films and crappy indie bands but no one paints them all with the same brush. As people come to understand there are good books produced by indie authors, books, like music and film will be judged on a case-by-case basis based upon the methods consumers have already been using to pick NY published books that are right for them. I mean how do they wade through THAT mess? There's plenty of NY crap out there and plenty that isn't crap but isn't right for the particular reader.

They already have a method in place for judging a good book, they just need to apply that technique to indie books as well instead of acting like it requires a whole other mystical judgment process. (And I think readers are smart enough, they're already starting to do this.)

But I think things like youtube and itunes are conditioning people to not "need" curated entertainment. They're learning to trust their own judgment. As Martha Stewart would say, "That's a good thing."

Bob said...

It sounds like a few people are really getting it. Authors have more control than ever.
For years I've been trying to get traditional publishers the advantage of breaking out an author with an extensive backlist whose rights were available. The silence from NY was deafening.

For the past year, I've been trying to get agents and editors to see that authors need formal training in the world of publishing. The silence has been equally deafening.

Like Scott, I am tracking down authors with backlists and publishing them. The key thing is finding a niche. I am focusing on military fiction and non-fiction. Having a niche allows the marketing for the brand to be focused.

If publishers were smart, they would understand this niche concept, but like dinosaurs in the tar pits, they bellow and cry.

April L. Hamilton said...

Totally agree, Joe. Times and technologies change. Just ask anyone who invested heavily in Laserdisc media.

Anonymous said...

In an earlier post, you said you were on the verge of a deal for another Jack book. Are you going to put your money where your mouth is and go it indie, or are you still going to hitch yourself to the traditional world?

Joe Konrath said...

@Anon - You're gonna have to wait for that particular announcement. But a hypocrite I ain't. And you'll see why.

Anonymous said...

Did you see the fine print of the Amazon terms that give you a higher percentage when you self-publish?

From Charlie Stross' blog:

"the devil is in the small print; to get the 30% rate, you have to agree that Amazon is a publisher, license your rights to Amazon to publish through the Kindle platform, guarantee that you will not allow other ebook editions to sell for less than the Kindle price, and let Amazon set that price, with a ceiling of $9.99. In other words, Amazon choose how much to pay you, while using your books to undercut any possible rivals (including the paper editions you still sell). http://www.antipope.org/charlie/blog-static/2010/01/amazon-macmillan-an-outsiders.html

Joe Konrath said...

and let Amazon set that price, with a ceiling of $9.99.

Amazon will always maintain their right to set the price, just as any publisher does. But I'm not sure where you got this info. What I read, to be eligible for the 70% royalty, those who use DTP have to price their books between $2.99 and $9.99.

It still allows self-pubbers to have a say in their pricing. Does Amazon have the right to override this? Yes. But they haven't done it to me, or any other current dtp author, that I'm aware of.

Could they do this in the future? Sure.

But if you've ever looked at a regular print contract, Amazon's demands are well within reason, and their royalty rate is incredibly generous.

Joe Konrath said...

Yeah, I was correct on the 2.99 - 9.99 thing.

http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1376977&highlight=

Peter said...
This comment has been removed by the author.
Zoe Winters said...

To Anon, I don't think there is anything wrong or hypocritical about Joe leveraging both self-publishing and trad publishing models is a mixture of the two work best for him. What is in Joe's best interest as an author financially is what Joe should be doing. He doesn't have to be Moses here.

John McFetridge said...

First of all, I'm one of those Macmillan authors everyone's worrying about. My first book from Macmillian (Thomas Dunne) comes out on February 16th.

To make things even funnier, my previous book was with Harcourt and came out at the time they were merging with Houghton Miflin and I got caught in that, too.

So, I think the best possible protest we could mount would be to buy Macmillan books from some other seller!

(okay, I'm sure you all saw through that, sorry ;)

But I do want to say that while Amazon could probably, as someone said, create the new James Patterson or Stephanie Meyer they'd have a lot of trouble creating the next Michael Chabon or Ken Bruen. Or any kind of writer tat may take a little nurturing and a few books to break through.

The main reason I keep going back to these big publishers is, for one thing, they'll have me, and for the editors. The most frustatrating thing for me in all this is exactly what Joe says, the publishers think their job is to sell paper.

Also, I just want to say, don't like the term "gatekeeper" because my experience as a writer and a reader has been that good editors (and good publishers) spend a huge amount of their time trying to get people to read more books by more authors. Every time I'm at some lit event some editor is telling me about this fantastic writer they've just signed or want to sign.

Losing the infrastructure those people work in will be bad, but most of the editors I know will manage somehow - getting the most out of writers and then getting those writers to the most people they can is really what they do.

Peter said...

Well thought out, well-written post (I shall have to check out your fiction).

What really leapt off the page at me was the January sales figures. Not the figures themselves, but the return rates - I make the worst to be a whopping 3%, with most of the rest being under 1%. I know people who'd happily trade both kidneys, their mother's grave, and an option on any future children for return rates on their paper books below 15%...

Zoe Winters said...

And I meant to say "if" a mixture of the two, not "is" a mixture of the two.

Zoe Winters said...

@John, when talking about the next Michael Chabon or Ken Bruen, I think it has to be understood that some authors will have to stop relying on a publisher to "nurture" them. (That doesn't happen as often as it used to anyway from what I hear from many trad published authors.) Authors need to be a little more self-nurturing, or be able to find those that can help nurture them.

It's not like an indie can't get an editor, (lots of good freelance editors out there) or that that relationship can't be in some way nurturing. I would think that authors that take longer to break out are MORE nurtured by the indie author model of things because they can take as long as they need to take to build their audience without any pressure of losing a contract, and they can keep their entire backlist in print.

I'm not sure how a low-midlist author is ever supposed to gain any traction if only 2-3 of their books are 'in print' at any given time. Though if everything goes mostly digital that argument may become a non-issue anyway.

John McFetridge said...

Yes, Zoe, I agree with you. Like I said, I have had two editors at two different publishers and they've both been terrific.

There's also a more vague, personal, psychological aspect to "nurturing." Being picked up first by Harcourt and then Thomas Dunne did great things for my confidence and, I think, my writing. But then I'm a guy who prefers to be part of a team rather than out on my own (maybe it's my Canadianness ;). I may have to adjust, that's all.

Oh yeah, there's also the fantastic job the publishers did designing the covers, designing the whole book. Sure, I could hire a designer, or try and do it myself.

I do want to be clear, change isn't a bad thing. The paper publishing model of purchased co-oop space, returns and high advances likely won't last.

Also, e-books shoul dbe priced at two or three bucks.

It'll happen, no matter how hard people fight it.

I guess sometimes I just want to say there are some very good people working for big publishers.

Caitie F said...

I have to disagree with you 100% on this post. First of all, it does cost money to manufacture. They have to pay companies to put files into all of the correct formats. Second, Macmillan is doing the right thing. Why does Amazon get to decide the magic price point? Authors work is only worth $9.99 in that format? That is absolutely ridiculous when it sells for $20-$30 in paper format. You still need editors, marketing, and art departments to work on an ebook. You need everything but paper, so it shouldn't be 1/3 of the price just because people decided to buy some fancy device that is way overpriced.

The people who make the eReaders should not be pricing the books. They make a lot of the readers, so if they make less on the books, they don't care. There are so many people that rely on just the books...like authors. More publishers need to pressure Amazon. So what if Amazon doesn't sell their books? If everyone does it, Amazon will have no books to sell other than the self-published books and people aren't buying those. Once they have no books to sell on their precious Kindle, no one will want a Kindle and they will need the publishers. Thank God publishers are finally fighting that site that feels like they have a hold on everything.

Thank you Apple for treating authors and publishers more fairly!

Valerie Geary said...

Thanks for your perspective on all this!

author Scott Nicholson said...

Amazon is already "nurturing" writers--by giving them a place to publish their work.

And Amazon's terms are incredibly generous when compared to traditional publishers that a) tell you what they are going to pay you so that basically the ceiling is set long before the book hits the press; b) tell you how long, in years and decades, they are "licensing" your work (though they consider it ownership of your work); and c) take your books off the shelf when the next batch rolls off the printer. Now, if a publisher compensates fairly for those rights, so be it.

It's quite possible Amazon will pick and choose authors at some point, but have no reason to do so, because it's as easy a revenue stream for Amazon as it is authors. The way I look at it, they just gave me a raise, because I was happy selling my book at $1.99.

Scott Nicholson
THE RED CHURCH

Zoe Winters said...

@John this brings up the point that ultimately it isn't going to be "indie authorship" vs. "trad publishing," it's going to be about temperament. Some people's temperaments are more suited to trad publishing, and some are more suited to going indie. I'm excited people have options.

All the crap I'm doing makes some people tired, but it invigorates me and makes me excited to get out of bed in the morning. By the same token, the traditional model would make me feel like a hamster in a wheel. It's all about perception.

And if "Canadianness" isn't a word, I nominate it! (who do we go to to get that sucker in the dictionary?)

Zoe Winters said...

Scott,

I don't think Amazon is really the publisher of self-pub authors on the Kindle. *I* am the publisher of my stuff on the Kindle. Amazon Kindle is just a distribution point. Sure if a self-pub author doesn't have their own little publishing business (not that hard to set up), then it's going to say: "Published by Amazon Digital Services." But mine for example is "published by" my publishing company and "sold by" Amazon Digital Services.

It would be silly for Amazon to start picking and choosing since they have unlimited shelf space and it more manpower and becomes clunky to "vet" everyone. They already have a system in place to "vet" things called the Amazon Review System.

I think the only extent to which they'll get into picking and choosing is with things like the Encore program where they actually have to invest money in the author. Other than that I think it'll be like book-Google.

Joe Konrath said...

I have to disagree with you 100% on this post.

Good. I love it when people disagree. :)

First of all, it does cost money to manufacture. They have to pay companies to put files into all of the correct formats.

The only money I spent on my self-published Kindle titles was for cover art, and that was cheap. I could have paid to have it formatted for Kindle, but that's also cheap, and it's a fixed cost, not an ongoing cost like printing and shipping.

Second, Macmillan is doing the right thing. Why does Amazon get to decide the magic price point?

Macmillan decides on the price to sell their books to retailers. The retailer then decides what to sell the product for.

Suggested retail price is simply that; a suggestion.

There are exceptions. With video game consoles, the big three won't deal with any retailers that don't agree to sell their console at a certain price. That's why, everywhere you go, the Wii is always $199 and doesn't go on sale.

But retailers can still use it as a loss lead, by selling the Wii in a bundle with other discounted merchandise (games and peripherals.)

Bottom line, the retailer sets the retail price. If the manufacturer doesn't like that price, they don't have to deal with the retailer.

Authors work is only worth $9.99 in that format? That is absolutely ridiculous when it sells for $20-$30 in paper format.

People don't want to pay $9.99. That's why piracy on the rise. They don't equate a download, which has no physical form, with a tangible product like a hardcover. The download has a perceived worth of much less.

You still need editors, marketing, and art departments to work on an ebook.

All fixed prices, and all negotiable.

The people who make the eReaders should not be pricing the books.

If you create an ebook reader, or a videogame console, or a technology like BluRay, you license third parties to create content for that device. In the case of Amazon, they are both the manufacturer and the retailer. So yes, they can set whatever price they want to for content.

They make a lot of the readers, so if they make less on the books, they don't care.

Amazon LOSES money on ebooks. Are they profiting enough on Kindle devices to make up for the difference? I don't know. Maybe. Maybe not.

There are so many people that rely on just the books...like authors.

Authors are making money on the Kindle. They're making more money self-pubbing on the Kindle than through their print publishers on the Kindle, and not because Amazon sets that price. The publisher decides how much the author gets, not Amazon.

More publishers need to pressure Amazon. So what if Amazon doesn't sell their books? If everyone does it, Amazon will have no books to sell other than the self-published books and people aren't buying those.

Did you look at that big graphic of my January sales?

Once they have no books to sell on their precious Kindle, no one will want a Kindle and they will need the publishers.

I predict Amazon will allow for open format reading on the Kindle, which means they'll still sell Kindles even if every publisher pulls out (which I don't see happening.)

Thank God publishers are finally fighting that site that feels like they have a hold on everything.

The publishers are the ones that should have invested in ebook technology. Amazon exists and makes money because it's where people want to shop.

Thank you Apple for treating authors and publishers more fairly!

You need to do a bit more research on Apple if you think they're always fair to their developers.

Besides, Amazon is offering the same deal to authors as Apple, 70% royalties.

But Amazon won't let a publisher dictate retail price. If a publisher wants to dictate retail price, they should become a retailer. Or create their own ereader. Or both.

Anonymous said...

You know why I totally discount any argument that fighting Amazon will help authors make a living?

Because authors aren't making a living.

That's the real secret that most people don't know about the traditional publishing model: that virtually no authors make a living off of royalties. The overwhelming majority of authors - even the "successful" ones - don't make a living off of royalties. They have real jobs. They may claim that their profession is "author", but that's really their second job...or their hobby.

Why devote your time to trying to make it over the wall into traditional publishing when you won't make a living at it anyway? If you self-publish both using ebooks and using the CreateSpace or Lulu model, you will probably make a few dollars that you can use to supplement your real income stream, and you'll get a few readers. And that's all that traditionally published authors are getting - other than the chance to smile and say, "I have a new novel coming out at [insert imprint name here] in the spring," at cocktail parties.

Joe Konrath said...

Why devote your time to trying to make it over the wall into traditional publishing when you won't make a living at it anyway?

Because if you do become successful at traditional publishing, you can make more than a living. You can become very rich.

Print publishing has a big advantage over ebook publishing in this case. It has bestsellers that make the authors millionaires.

Looking hard at an ebook dominated future, I don't see millionaires. I see more authors making a living (or supplementing their living) but fewer making a killing.

Making a killing is what we all dream of. And the only way to do it, at this point, is through print.

Jude Hardin said...

The problem with loss leaders is they change the perception of value. A novel has no inherent value. It's only "worth" what people are willing to pay for it. If the price goes too low, the entire industry will be lost.

And advertising isn't going to save it.

Why would companies pay to have their products advertised in a sea of free (or at least under-priced), unvetted crap? What's the target market? The demographic? People who want to read books without paying for them? Doesn't seem like much of a market to me. How many major sponsors do you see lining up at yard sales? Same principle. Nobody wants their product to be associated with junk.

Publishers and e-tailers need to work together to establish what will be perceived as a fair price
for ebooks. $14.99 for a book from a major publisher seems reasonable to be. It's way less than the current price for new hardcovers, and a price that will probably allow the industry to survive and continue to offer quality product.

If the pirates win, and the perceived value of a novel becomes $0, then everyone will lose.

Joe Konrath said...

Nobody wants their product to be associated with junk.

Youtube is monetized, and the public decides what's junk and what's worth watching.

But if you really wanted to see my grand plan for the future of publishing, you'd have to sign a NDA and become an investor. :)

Pablo Gully said...

"Several months (years?)ago I suggested the same thing, that publishers need to sell ebooks cheaply on their own websites and keep a bigger piece of the profit."

Like Baen do. And have been doing for a LONG time. Ten years I think.

I'm just a consumer, but I find this fascinating and I've spent a big chunk of today reading various opinions about it. This has to have been the one that most closely aligns with my own views and was an extremely well-presented study besides. Thanks for a great read.

Joe Konrath said...

I like this guy:

http://gravitationalpull.net/wp/?p=1243

Anonymous said...

Jude,

The problem is that you can't stop it.

It wasn't just piracy that transformed the music industry. It was the fact that the introduction of the mp3 format swamped the music customer in a tsunami of content.

I can carry a small object into my car containing thousands of songs. Poof! There goes radio.

Cassettes would wear out and I would buy new music. CD's would scratch and I would buy new music. My mp3's are never going to wear out. Ever. The size of my mp3 collection only goes one way - up. But since my appetite for music is finite, that means that every tick of the clock makes it harder to sell me new content. It can still be done, sure, because everyone wants new music - if the price is right, and if you sell it to me in the right way.

The book publishers are screwed because of all the content they don't control. All the public domain content. All the out of print content with reverted copyrights. And yes, all the independent content. Even if the publishers have a quality advantage [and in ebooks they often don't, since they seem happy to release badly-formatted crap with huge conversion issues for the Kindle in a lot of cases] over time that won't matter, because gaining visibility for your "superior" material in that tsunami of content will only become more difficult over time. Think of the traditionally published content as one manuscript sitting in the middle of the world's biggest slush pile. How will it get seen? Branding and name recognition will work for a while - but when the current generation[s] of high name recognition authors dies out, how do you "grow" new ones?

Anne Rice showed up and participated in a discussion on the Amazon boards where she lamented the fact that when anyone can get published, getting published loses its meaning and literature becomes a folk art. Whether we lament that fact or not, either way her observation is probably correct.

Joe Konrath said...

Branding and name recognition will work for a while - but when the current generation[s] of high name recognition authors dies out, how do you "grow" new ones?

You let the readers decide.

Already blogs, message boards, and Yahoo groups have sprung up where readers tell each other what to read.

Word-of-mouth becomes the gatekeeper, telling us what to read. Review sites like Goodreads and Shelfari, where consumers are the reviewers.

When ebooks truly become big, there will be sites dedicated to separating the wheat from the chaff. That's just human nature, and a essential component to the user-aggregated content that have made the Internet grow so big so fast.

Zoe Winters said...

Anon,

I think the goal should stop being about "getting published" a dream that will die out probably sooner rather than later as the industry changes, but should rather be to tell stories to an audience. Writers CLAIM that's what they want, but they still stand in line waiting for permission to publish in a world where having readers already would be a boon to their ability to keep a contract. It doesn't make sense from any business angle. It's all about the validation of "being vetted."

Who cares? Let readers do the vetting. They know what they want.

I do not get that mentality. Put it out there, find your readers. If you do, "getting published" won't be a problem, should the writer still want that. I'm finding that I don't. I like being indie, and despite the people who will resist it tooth and nail, being an indie author will be cool within ten years, and I'll be able to say I was doing it before it got that way.

John McFetridge said...

I can carry a small object into my car containing thousands of songs. Poof! There goes radio.

Well, yes and no. I still like to listen to radio because I like the local personalities, the local news and the choices of songs the radio station picks and the order they put them in, that kind of thing.

But I get your point. The thing is, as Zoe points, now we both get what we want. That's ideal.

The radio stations I listen to have found a way to keep me listening, they're more than just song libraries.

So, publishers aren't necessarily screwed, they'll just have to find a way to keep me as a customer because, as anonymous says, they can't stop the changes coming.

Zoe Winters said...

@John, also radio exposes you to music you might not otherwise hear. This is especially true for me with Internet radio stations like Breakthru Radio that plays a lot of cool indie music I wouldn't hear otherwise.

I think where publishers have screwed themselves ultimately is that people don't buy publishers, they buy authors. I don't really care who publishes a book. If Macmillan for example gets money from me it's only because they happen to publish an author I like. Same with other publishers, but I don't really know who publishes what. I don't keep up with that.

Richard Herley said...

Great post!

I see digital self-publication as the future for mass-market fiction, maybe other genres too. What's needed is some sort of authoritative online review system which can point readers in the right direction. All the rest is already in place, including the proliferation of suitable e-reading devices.

eBookNoir said...

Joe,

If you could have those rights back would you stick with just amazon or would you go the route of selling it on your own site in ePub format or even all formats? Since you would garner a larger audience by opening it up to all possible readers, don't you think amazon also hinders your sales some because of it being limited to just the one eReader vs an open format used more extensively?

Erik

Steve said...

I just wanted to take a moment and thank you for your well thought out commentary on the situation. As you point out, publishers are hard at work trying to follow every failed play from the RIAA/MPAA playbook. They are actively working to keep things the same, even if that means lower revenues and profits for both the publisher and the authors.

I am not familiar with your works, and can't say I've ever heard your name before today. However, I can garauntee you'll see a couple more sales before the end of the day today. If you can write such an excellent blog post as this, your books are certainly worth checking into.

(And, the pricing definitely helps!)

Joe Konrath said...

Looks like Amazon is backing down.

http://www.amazon.com/tag/kindle/forum/ref=cm_cd_tfp_ef_tft_tp?_encoding=UTF8&cdForum=Fx1D7SY3BVSESG&cdThread=Tx2MEGQWTNGIMHV&displayType=tagsDetail

They're basically saying they'll allow Macmillan to set their prices between $12.99 and $14.99.

Does Macmillan think that Kindle owners will willingly accept this price? After the $9.99 boycott Kindlers successfully staged?

I predict consumers speaking with their dollars.

Joe Konrath said...

If you could have those rights back would you stick with just amazon or would you go the route of selling it on your own site in ePub format or even all formats?

99.5% of the money I've made on ebooks has been on the Kindle, even though they're available in other formats.

Most of my ebooks are free on my website, and I still get more Kindle downloads than I give away freebies, by a wide margin.

Zoe Winters said...

Hey Joe have you put your books in the Sony Ebooks store and the Barnes and Noble store?

Joe Konrath said...

My ebooks were on BN for about a week through Smashwords, who then screwed up and they got deleted. They should be back on B&N and on Sony eventually.

JD Rhoades said...

Joe, I agree that e-books should be cheaper. What I don't agree is that Amazon should dictate prices.

But shouldn't Amazon be able to sell things for whatever they decide to sell them for?

They can. They're perfectly within their rights to keep doing what they've been doing. What they were trying to do was tell Macmillan, "sell to us at the price we want, or we won't sell ANY of your titles, print OR e-book." Macmillan said "fine." And Amazon's already said, as of tonight, "well, you're the only place we can get Macmillan titles, so we have to capitulate." It was a really dumb move on Amazon's part, especially the week a new e-reader came on the market.

Allowing a single retailer to have the power to dictate prices for the market is a bad idea. You're making money on your exclusive e-books, but YOU set the price, based on what YOU think the market will bear. That's a great thing, and the way I hope it'll end up working eventually.

Joe Konrath said...

What they were trying to do was tell Macmillan, "sell to us at the price we want, or we won't sell ANY of your titles, print OR e-book."

No, Dusty. Macmillan was telling what price Amazon had to buy at, and what price Amazon had to sell at.

In other words, Macmillan doesn't want Amazon to use their books as a loss lead. Amazon was paying 50% of the hardcover price, then selling those books for $9.99. All retailers have the right to do that, just as all companies have a choice of which retailers to work with.

From what I understand, Macmillan said "Raise the price of our ebooks, or you can't have the ebook until seven months after the hardcover some out."

You believe Macmillan (or any company that creates a product) should have the right to tell the retailer what to sell that product for?

JD Rhoades said...

Does Macmillan think that Kindle owners will willingly accept this price? After the $9.99 boycott Kindlers successfully staged?

I predict consumers speaking with their dollars.


Which is fine. If the prices come down for that reason, then so be it. But Amazon was trying to pull a WalMart. And there are a lot of vendors out there who'll tell you how badly WalMart starts fucking its suppliers...once they have them locked in. Problem with Amazon's stance was, unlike the WalMart vendors, Macmillan still had someplace else to go.

Steve said...

@JD Rhoades -- It sounds like you've misunderstood the situation. MacMillan is the one who stepped in and said "We won't sell you(amazon) our books unless you charge the price we set".

That's been a recent tactic of lots of big companies lately, and most have failed. For example, movie studios have refused to sell DVD's to netflix, redbox, blockbuster, and others. In virtually every case, the rental companies were able to acquire DVD's through other channels, and continue to rent movies. If this were only about physical books, amazon could go around the publisher like the rental companies have, by buying physical books from other sellers (i.e. WalMart, Borders, or large Wholesalers) rather than direct from MacMillan. Unfortunately, with the current state of Ebooks, the buyer doesn't have rights like they do with physical books. First and foremost, the right of first sale. Such licensing restrictions have been overturned on software, and DRM has been proven a failure on Music, Movies, and other formats. It just seems that book sellers want to follow in the failures of those who went before them, rather than learning from others' mistakes.

Anonymous said...

Now that Amazon's waived the white flag, it will be interesting to see if the other publishers follow Macmillan and raise their prices.

The future of ebooks may have just changed.

Steve said...

@anonymous -- The Future of Ebooks is probably going to go the same way as it has in music. Unreasonable policies by the labels have pushed consumers to piracy, and pushed artists to bypass labels altogether and connect with their fans directly.

Zoe Winters said...

Anon, the future of ebooks won't change from this because most people won't buy $15 ebooks and it doesnt' stop me or Joe from setting our ebooks at sane prices that readers will buy. It only opens the doors of opportunity up for us wider. It would be one thing if all ebooks everywhere were 15.99 but all THAT would do is increase piracy.

JD Rhoades said...

From what I understand, from several sources including the NYT, is that McMillan's proposal was just that: a proposal while they were negotiating the prices. Amazon decided to play hard ball, and they dropped the ball.

As for your question,

You believe Macmillan (or any company that creates a product) should have the right to tell the retailer what to sell that product for?

If undercutting the price of one product was damaging sales of another, yes. If a Ford dealer was selling Focuses at a loss with the apparent intention of driving the Mustang off the market, Ford would have something to say about it (And so would I, cuz I love my 'stang).

As I understand it, Macmillan felt that 9.99 e-books risked cannibalizing sales of paper books. Unlike the buggy whip, people still like and buy paper books. Check out most blogs where the subject of e-books comes up. Usually within five comments, people are speaking up and saying they like the paper book better. What Amazon seems to be trying to do is use their marketing power to force the paper book business out altogether in favor of an e-book market which they control the lion's share of, due to the fact that they make the only way to read the e-books they sell.

That attempt to centralize market power in one company is what you should really be worried about. Because then, what's to stop them from telling you how much to sell your stories for? What's to stop them from demanding that you only sell for Kindle and not in any other format, and then saying "no, you can only sell for .25 not 1.99"?

Zoe Winters said...

oh and I agree with Steve. I may have just been saying basically the same thing. This *may* pave the way for indie authorship becoming more attractive, so in that way it could change everything.

JD Rhoades said...

Unreasonable policies by the labels have pushed consumers to piracy, and pushed artists to bypass labels altogether and connect with their fans directly.

And yet, the record companies aren't out of business, despite losing market share. Direct connection has become another channel, not the only one. And indie bands still look for a record deal if they can get it.

Likewise, direct sales of e-books have become another way to reach readers, but it seems to be working best for those, like Our Joe, who've also established an audience though "traditional" publishing.

You're also seeing companies like Samhain, who publishes erotic romance in e-book first, then in print later. And they seem to be doing all right.

What I'm getting at here is that alternatives for delivery need to expand, not contract. What Amazon was trying to do would eventually lead to a contraction, with way too much power in their hands.

Steve said...

You keep missing the point though JD-- the power grab was Macmillan telling amazon "You sell our books at the price we set, or not at all.".

I am only disappointed that amazon backed down from the "not at all" option.

JD Rhoades said...

Steve, did you miss my post at 6:39?

Zoe Winters said...

Steve: If Macmillan walked away, other publishers might do the same. Would hurt Amazon. Amazon plays the "benevolent card" and makes Macmillan the bully now. Macmillan won't sell at that price cause people won't buy it, and ultimately they'll have to reduce their prices anyway. Amazon still wins.

JD Rhoades said...

Let's try another, and maybe better, analogy. Budweiser makes beer in cans and bottles. A local beer distributor has the lion's share of the market in a particular area, and they sell beer from various makers. One day, the distributor acquires the company that makes beer bottles. They decide they want to make the bottle the primary method of drinking beer, so they start pricing bottled beer at a loss, thinking that once they drive the canned stuff off the market, they can charge whatever they want for bottled. Does Budweiser have the right to get upset that someone's trying to hurt sales of one product to benefit another? Sure they do, and they're going to tell the distributor, "cut it out." The distributor's within their rights, of course, to say "fine, we won't sell Bud at all anymore," but they're not going to last long with that position. Some people like it in cans, some in bottles, and a company that tries to drive out one to concentrate its own market power's not helping the market be any freer.

Steve said...

JD -- I didn't miss the post, but I gather a different picture of things. From what I have read, macmillans stance was that amazon had to choose between selling at Macmillan prices, or having no access to sell the books for at least 7 months after release. There was no option for amazon to sell continue selling New Macmillan books at amazon prices.

JD Rhoades said...

Steve: the actual proposal (from the NYT story):

Macmillan offered Amazon the opportunity to buy Kindle editions on the same “agency” model as it will sell e-books to Apple for the iPad. Under this model, the publisher sets the consumer book price and takes 70 percent of each sale, leaving 30 percent to the retailer.

Macmillan said Amazon could continue to buy e-books under its current wholesale model, paying the publisher 50 percent of the hardcover list price while pricing the e-book at any level Amazon chooses, but that Macmillan would delay those e-book editions by seven months after hardcover release.


Amazon was given an option which way to go: take the same deal as Apple, or another option, but one where they couldn't undercut sales to Apple or sales of hardcovers. If they chose the second option, it was only the e-books that would be delayed. So they could still sell Macmillan books, just not e-books at a price that drove customers to their proprietary reader.

Amazon wanted the option to cut not only Apple's throat, but Macmillan's. I don't see them as any kind of crusaders for the free market here, despite the whiny tone of their statement backing down. My friend Bill Cameron said it best: Emo isn't becoming as a pose taken by a megaloid multinational corporation.

John McFetridge said...

Macmillan won't sell at that price cause people won't buy it, and ultimately they'll have to reduce their prices anyway. Amazon still wins.

Maybe, maybe not. The question isn't will people buy any, it's will people buy "enough?"

Not many people buy hardcovers now at $25-45, but enough do that the publishers keep offering them at that price.

Conda V. Douglas said...

Excellent, informative post, Joe. Every time I read about this stuff, I cringe. Why? Adapt or die. The world HAS changed. Sure, there'll still be print books, but e-books are a whole 'nother animal. And a young, healthy one.

Joe Konrath said...

If a Ford dealer was selling Focuses at a loss with the apparent intention of driving the Mustang off the market, Ford would have something to say about it (And so would I, cuz I love my 'stang).

Then you stop selling that dealer Focuses.

But why should they? They're making a tidy profit off those Focuses.

I see what you're saying, Dusty. But I don't see an Amazon-dominated ebook future as dangerous, any more than I see iTunes-dominated music as dangerous.

Which begs the obvious: this is all very good for Apple. If Amazon takes the same deal, they're competing head to head with the iPad, and Apple is known to make a good product. But they're not competing in a supply and demand way, where price plays a point. They'd be letting the publishers artificially inflate the price. I think that's scarier--and will mean less sales--than the way Amazon currently approaches their contracts.

Connie said...

Thanks. Food for thought.

Christopher said...

Again Thank You for this post. I posted another round of thoughts on my blog (http://tinyurl.com/yhctsh9)

Emma Michaels said...

Great post and I think it is a great change for authors at least!

Sofie Bird said...

I think you've fallen for the classic "digital information costs nothing to produce" nonsense.

The cost of printing is only about 10-15% of the retail, and switching to electronic format still has similar formatting and typesetting costs. The costs of making a book don't magically go away just because they're no longer printed on paper. Amazon is selling each book at a loss to prop up that 9.99 price point, which damages the industry in the long run by devaluing the novel in the public's eye. Why should the author and publisher take a profit cut for Amazon's benefit?

Editing, proofreading, cover art can be outsourced. How much would this reduce costs?

No expensive Manhattan offices. No editor expense accounts. No sales reps or marketing department. No employee benefits.


Outsourcing does not magically make overhead go away - all it does is shift it to another book-keeping column. Outsourcing everything can actually increase your costs, as you have to ensure multiple parties are working within your house style and guidelines, and if your preferred contractors are unavailable, you have to spend time (and money) vetting new ones.

Not to mention that outsourced editing isn't automatically cheaper - an in-house editor can work on multiple books at once, keeping to house style, for their (very low) fixed salary. WIth full-outsourcing, you need to have someone vetting everything those contractors do (at least, you do if you care anything for quality), and someone managing the projects and schedules.

You suggest outsourcing all editing and illustration and cutting marketing and sales entirely, and selling online. Your model reduces the publisher to dust: they provide nothing that an author cannot acquire or do themselves, yet still want a cut for their non-work - why would authors sign over X% of the profit?

While I have nothing against authors eschewing publishers altogether and selling online, your proposed future business model for publishers just isn't viable from the publisher's point of view.

Joe Konrath said...

Outsourcing does not magically make overhead go away - all it does is shift it to another book-keeping column.

Publishers love this argument, and have yet to prove it.

We're not just talking about printing costs. We're talking about end to end costs. How much does it cost, including overhead, to get the book from the writer to the consumer? What are all the steps and all the employees involved in the process, and how many steps and employees are eliminated with an all digital model?

This goes way beyond the 10% printing costs.

A hardcover sells for $24.95, but printing one costs around two bucks. The majority of the mark-ups along the way are directly associated with print.

your proposed future business model for publishers just isn't viable from the publisher's point of view.

Not with their current business model. But they can adapt. Writers don't want to have to deal with cover design and uploading and formatting. Writers still need editors. Marketing can still play a part.

But publishers would rather charge 15 bucks for an ebook, in a futile attempt to stave off the digital publishing future, instead of figuring out how to be viable in this new climate.

Business--any business--has to keep the needs of the consumer in mind. If the consumer wants $4 ebooks, the business that supplies them needs to figure out how to make that work.

To say it's impossible is BS. I'm one guy, working on a home computer, making 24k a year self publishing on a single platform; Kindle. I predict that income will double when Amazon's royalty rates hit 70%, and continue to climb as other etailers take root and I put more ebooks online and ereaders become widespread.

If you truly believe that digital content costs almost the same as print content, walk me through the steps. Show me how that's the case. Explain to me the fixed costs of getting a book to a customer, including overhead and mark-up.

Also explain to me why publishers aren't trying what I've been preaching for years, releasing out of print books as ebooks and supplementing costs with advertising.

These are things that a large company with deep pockets could be doing, instead of trying to protect the past by charging ridiculous amounts for ebooks, which only serves to keep print alive for a while longer.

Joe Konrath said...

Okay, this made me spit coffee from laughing.

Apparently, one of my Kindle books, ORIGIN, won a Golden Cup award.

http://fr33sp33k.h33t.com/index.php?topic=15815.30

A Golden Cup is awarded to a pirate who created the best torrent of the week. In other words, someone illegally uploaded and shared one of my ebooks, and got kudos from their peers.

I'm tickled that the ORIGIN torrent was chosen. I'm especially tickled because the ebook is available for free on my website.

I hope the pirates dig the book.

Piracy will always exist. Some people simply like sharing digital content, regardless of price.

But price and popularity do factor into how many times a property gets shared online.

The internet was created to share information. It's human nature to share. No one can stop it.

But it can be fought with cost and convenience.

If you belong to a members-only file sharing site, where pirates make it quick and easy to download torrents, it is very convenient to do so.

But Amazon is also convenient. So is iTunes. They make money because they're convenient. Press as button, and you instantly have a product. And at lower price points, they make more money.

You want to hear something fascinating? Pirate sites make money through advertising revenue. In fact, often the torrents will contain advertising for the torrent website.

Here's something else that fascinates me. Pirates don't tend to change the content before they share it.

In other words, if they download the latest CD, and the ID3 tags are messed up, they share the upload without fixing the ID3 tags. They'll fix the tags on their own computer, but won't bother re-upping the fixed version. Too much trouble.

How do I know this? I downloaded a pirated Kindle version of ORIGIN, and it still has the three excerpts from Aston West, Donnie Light, and Bill Gagliani in the back matter. The same excerpts these writers paid me to include as part of one of my ebook experiments.

The pirate stole and shared the Kindle book, and left the paid ads inside.

So let's say free ebooks become funded by print ads. Based on the pirating behavior I've witnessed, I highly doubt pirates would cut out the ads before sharing the ebook. They'd just share the ebook with the ads in it.

In other words, the advertiser gets free impressions.

Win-win for author and advertiser.

Cheap sells. Free sells a lot better. And advertising funds the internet. Ads are why Google and YouTube and Facebook are billion dollar companies.

JD Rhoades said...

I don't see an Amazon-dominated ebook future as dangerous, any more than I see iTunes-dominated music as dangerous.

You can play mp3's on other devices (hell, even my phone can play them), and iTunes isn't the only game in town for buying mp3's (I'm a Rhapsody man myself, because of the streaming feature).

Amazon wants its Kindle to be the only device upon which to read Amazon-available e-books. Which is why it's probably going to fail. John Scalzi (who's no enemy of the e-book) sums up Amazon's failure pretty succinctly, here.

Steve said...

JD -- Your Beer analogy makes sense, but misses an important part of the picture. Budweiser could easily tell the distributor they have to sell at X price, or else they won't be able to buy from Budweiser anymore.

However, even when budweiser stops selling to the distributor, that distributor could still buy and sell budweiser products, they just have to find a new source. (Buy from the distributor in the next town, etc.)

Maybe they buy from another distributor at Wholesale Price + 5%. They can still sell the beer in stores at whatever price they choose. With physical merchandise, the manufacturer has no say in what is done with it after someone buys it from the manufacturer.

Unfortunately with ebooks, there is an artificial monopoly created by the licensing restrictions and DRM. While the right of first sale applies to physical products, ebooks currently carry restrictions that prevent a book owner from loaning, giving, or selling their copy of the book to someone else. That's sure to change, eventually.

Until it does, the beer analogy falls flat.

Kathy Kulig said...

Excellent post Joe. Hearing Amazon yank books off their virtual shelves made me cringe. Your explanation of the issue helped me understand this business better. Thanks. www.kathykulig.com

author Scott Nicholson said...

After reading hundreds of blog posts on this issue, here's how I summed up the situation on my blog at hauntedcomputer.blogspot.com (and, yes, I know there are unhappy people who will boycott higher prices, Amazon, or Macmillan, but this is generally good news for ebooks and readers).

Well, Amazon ceded the battle but the war was already over. Amazon, after pulling Macmillan titles for a couple of days over ebook prices, graciously relented and agreed to Macmillan's desired ebook prices of up to $14.99. I am surprised it was settled so quickly, but it actually makes sense. Amazon could certainly afford to hold out longer than Macmillan, but Amazon also risked its reputation as the world's top bookstore, a difficult claim to maintain when you don't carry one of the six major publishers in the United States. Macmillan risked almost everything, and I never believed the perceived threat of the Apple iPad carried much weight, because many consumers don't see it as a legitimate ebook reader. Instead, it's a computer you can read books on, just as you can your desktop.

Amazon wins by appearing gracious but it has already established the public perception of the value of an ebook, $9.99. No matter what happens from now on, the core foundation of ebook consumers has been presented the value of ebooks. Amazon gets to continue offering Macmillan products while making it clear they think the price is too high, but allowing consumers to make their own choice. Some consumers will pay the higher price for instant gratification. Others will wait for the ebook price to drop, as it inevitably will, in much the same way a paperback crowd bypasses a hardcover version.

Macmillan wins by getting its preferred price, though surely it is only temporary. When authors see they are getting only a tiny fraction of ebook royalties, and Amazon is waving a 70 percent royalty at them, it's clear that some authors will begin withholding their ebook rights unless the publisher is fairly compensating them overall (i.e., their paper sales are more than enough to offset this lost revenue.) Hopefully Macmillan will use the time it has bought to get a reasonable handle on ebooks and embrace the new market instead of trying to ignore the gorilla in the room.

Independent authors and small presses win because they have virtually no overhead and can offer their ebooks for a couple of bucks and compete for readers among value-minded consumers. True, they don't carry the name clout of major authors, but cumulatively they are a force that won't be ignored, because they have no stake in artificially high prices for ebooks.

Apple wins because it was all about promotion for its iPad. Apple and the publishing industry used the issue to get attention, and people who like Apple products will buy an iPad and all the assorted gimmicks, wireless plans, and other tethers that will keep them hooked to the Apple tree, and they will be happy. I don't think many of them will be reading books when they have so many other toys available. Either way, it expands the reality of ebooks.

And ebooks win, because this has been the single most-talked-about book news of the past few years, and brought ebooks to the mainstream. They undeniably exist now, and are important enough for corporations to war over. That is good news for readers everywhere, whether they go paper or plastic. More books, more diversity, more literacy, more stories, more education, and more joy.

Stacey Cochran said...

Dusty, Joe, et al.,

The way I understand it, the Consumer Goods Pricing Act of 1975 repealed previous law that enforced MSRP. Thus, from a legal standpoint, manufacturers may suggest a retail price, but have no legal grounds to enforce it.

Congress and the U.S. Supreme Court support the retailer (i.e., Amazon) in this scenario, not the manufacturer.

_____________________________

Stacey Cochran
Author of CLAWS for $1.00

Zoe Winters said...

Sofie,

Then why do mass market paperbacks cost $7.99? Am I to believe they weren't properly edited? No one typeset them? There was no cover design involved?

Further, why can much smaller publishers keep their costs so low for these things (They have to because their average book sales are 500-3000 copies.)?

NY pubs want readers to pay for their overhead. And that's just not going to fly in the digital age. Does this mean people will lose jobs and a lot of this stuff will go to freelance? Probably. Is that sad for those losing jobs? Yes. But when you can do something more effectively at a lower cost, it's not fair to make the readers pay just so you can keep up the status quo. IMO.

JD Rhoades said...

Hi Stacey: In 2007, the Supreme Court held that vertical price restraints (the fancy technical term for what we're talking about here) weren't per se illegal under the Antitrust Acts, but had to be judged by a "rule of reason". i.e, there had to be some evidence that the practice actually restrained trade in a particular case.

Litigators across the planet rejoiced.

Stacey Cochran said...

Thanks, Dusty. I treat all of this as a learning opportunity.

And sum up my thoughts here:

http://onlinebookreview.org

FP said...

I worked for a large nonfiction house, in-house first and then freelance. When my department switched over from using plates to doing manuscripts on disk from Step One till Step End, the publishing process went faster. It wasn't necessarily more accurate, but keeping formatting more uniform was easier.

"Not to mention that outsourced editing isn't automatically cheaper - an in-house editor can work on multiple books at once, keeping to house style, for their (very low) fixed salary."

--This wasn't my experience. Actually, I don't know what you're talking about there. I freelanced on multiple projects at once for that publisher, just like I did sometimes in-house. As a freelancer I had a few less manuscripts in front of me at a quarter-end, but I still sometimes had more than one to work on. My boss was in charge of both the in-house copy-editors and the freelance copy-editors. He rarely checked our work; we checked each other's work by always doing run-throughs with three separate people. That was especially the case in-house. Some days then I had almost no work and got paid for doing almost nothing. When I got paid for freelancing, I had to produce work FIRST.

EVERYONE had to know the house style manual, or people couldn't work for the place. While freelancing my boss sent me memos for any new changes. A significant number of copy-editors would start in-house and move to freelance, and the company seemed to like this. In-house I had benefits and a weekly salary; freelance I did not.

Moses said...

Zoe said: "What is in Joe's best interest as an author financially is what Joe should be doing. He doesn't have to be Moses here."

*raises hand*

Moses here :-)

First, thanks a ton for this post Joe. Your experience with Kindle sales are really inspiring to me. Have you ever blogged about how you'd try get started if you were a new writer in the current environment?

I'm torn between trad publishing and going ebook/indie rogue. Do you think a new writer could generate enough downloads of a free book for kindle to help him sell enough copies of a second or third book (I've thought of releasing a free and a $2.99 ebook to Kindle at the same time)? Or are you probably better off getting some more press with trad publishers first? In my case, it would probably be a couple of years before I had both books ready, and by then more people would be reading ebooks.

Joe said: "Looking hard at an ebook dominated future, I don't see millionaires. I see more authors making a living (or supplementing their living) but fewer making a killing."

Interesting. I'm curious why? I've been wondering if we'd see more author rock stars if and when ebooks become our overlords. Perhaps impulse ebook buying could lead to more "viral" books. Also, I'm wondering if good sales among certain ebooks could inspire some big publishing contracts.

"Oh, you've sold 20,000 copies of your ebook? Here, have a six-figure advance for letting us publish it in print."

What do you think? I don't know.

Your comment about piracy and ads in ebooks is also very interesting. Well, maybe we can sell some T-shirts and coffee mugs even if our books will be pirated LOL. Actually though, I think there's some great potential with being able to plug things in ebooks.

Thanks Joe! I just found your site yesterday, and I really appreciate all you've done here.

Moses said...

Joe, I just found your blog post from 12/8/09 where you answered this FAQ:

"Should I forsake finding an agent and a print deal and release my book as an ebook?"

So I can see your answer to that question, pretty much, is no. If there's anything else interesting you might add about how you would approach your career if you were starting out today wrt traditional publishing and ebooks, I'd be very grateful to hear it. But thanks for answering that already :-)

Big congrats on your recent successes, by the way.

Anonymous said...

Check out Scott Westerfield's blog here http://scottwesterfeld.com/blog/?p=2138 for a great breakdown of the whole situation.

Then you can look at Tobias Buckell who does a great job of explaining the cost of producing a book.
http://www.tobiasbuckell.com/2010/01/31/why-my-books-are-no-longer-for-sale-via-amazon/

Sean McCray said...

you are so correct about out of print books, but also books in print. I am finding that many classics, which are required reading in High school or college, are also unavailable in ebook format. I wanted to get James Baldwin in ebook, but cant find it.

Steve said...

@Sean McCray -- There really should be some simple option for books that aren't available in ebooks to be picked up by another publisher. Maybe even in the case of in print books that the publisher doesn't offer in ebook format, but particularly for out of print books or abandoned works.

I don't know if Joe Blow can contact the publisher of an out of print book and ask to buy the ebook rights?

Anonymous said...

This is an excellent article, but I wanted to point out one possible hole in your reasoning.

When you say that ebooks cost Amazon half the amount of hardbooks, you may well be correct--if you're talking about half of their cost.

In the bookstore industry, publishers normally charge bookstores (especially large bookstores like Amazon) anywhere between 50-60% of list price. That means the hardcover book that sells for $24.95 probably cost Amazon about $12.50 to buy. If Amazon is paying half price for ebooks, the are probably paying half of the $12.50, NOT half of the full list price.

By your argument, Amazon would be losing money if they were selling ebooks which cost $12.50 for $10. However, it's more likely that the ebooks cost half of $12.50, or $6.25 each, which enables Amazon to make a healthy profit.

Joe Konrath said...

However, it's more likely that the ebooks cost half of $12.50, or $6.25 each, which enables Amazon to make a healthy profit.

Nope, they're paying half the hardcover list price and losing money on each sale. I'm 100% sure of this.

Courtney Cantrell said...

Joe, I'm just now (06/27/11) reading this post, and I'm curious:

Is Amazon still losing money on ebook sales? Or has the boom in Kindle made up the difference for them in the meantime?

Thanks,
Courtney