Sunday, July 13, 2014

Amazon-Hachette: The Sounds of Silence - A Guest Post by William Ockham

Everybody's talking about Amazon's latest move in the Amazon-Hachette kerfuffle and the reactions have been pretty predictable. Lots of confirmation bias going around. While the public broadsides, grand offers, and nasty anonymous leaks are full of sound and fury, I'm fond of looking for the truth in the silence. What the companies aren't saying is as important to understanding the situation as what they are saying. I'm not sure if anyone has noticed, but neither side has denied any of the specific factual claims the other has made. In fact, if we read between the lines, we can cut through the noise and see what's really happening. I have learned* the best way to do that is to make a timeline. Our brains have a tendency to remember the order in which we learned a set of facts and it has a hard to reassembling the chronological order of how things actually happened. We should be continually re-evaluating our understanding of this situation based on new information. 

Recent statements from both sides have provided a lot more information about how this dispute got to this point. To avoid turning Joe's blog into an academic article, I'm not going to footnote all of these events. If you want the source for a particular claim, just ask in the comments. My primary sources are the most recent Amazon-Hachette exchange and Michael J. Sullivan's account of his interactions with Amazon and Hachette this year. If I have left off any significant events and gotten any of this wrong, please let me know if the comments. I'm far more interesting in getting this right than being right.

Early Jan 2014

Amazon makes the first move, sending an offer to Hachette. Based on Hachette leaks, we know that Amazon is offering a return to wholesale pricing.

7 Feb 2014

Amazon stops discounting Hachette titles.

9 Mar 2014

Amazon starts widespread reducing inventory of Hachette print titles. (Some folks noticed occasional short inventory of Hachette titles much earlier.)

Mar 2014

Amazon  extends the Hachette contract into April.

Mar-Apr 2014

Sullivan and his business manager are in frequent contact with Hachette and Amazon.  Neither Amazon or Hachette mention to Sullivan that they have no contract to sell his books on Amazon. 

Early April 2014
 
Hachette responds to Amazon with counter-offer. Amazon rejects offer sometime in April. 
 
 
Mid-Apr 2014
 
Hachette begins serious negotiations to buy the publishing arm of Perseus in a complex three-way deal with Ingram (which wanted the distribution half of Perseus). 
 
7 May 2014
 
Sullivan and his business manager start reaching out to other Hachette-published authors. 
 
8 May 2014
 
Hachette emails Sullivan's business manager about the contacts with other authors. 
 
New York Times writer and Hachette transcriber David Streitfeld publishes story quoting Hachette about the shipping delays, but no other details. 
 
9 May 2014
 
David Streitfeld "breaks the story". Here is what he wrote:


Amazon’s secret campaign to discourage customers from buying books by Hachette, one of the big New York publishers, burst into the open on Friday
.
May 2014 
 
Hachette makes another offer to Amazon. 

23 May 2014

Hachette finally reaches out to its authors with a letter from Michael Pietsch, CEO of Hachette Book Group (HBG).
 
 
27 May 2014
 
Amazon makes its first public statement about the dispute with a low-key posting buried in its forums. The Amazon statement includes an offer to join with Hachette to fund a hold-harmless pool of money for Hachette published authors. 
 
28 May 2014

Hachette's Investor Day publication reveals its strategic goal to gain control of its titles ebook prices. CEO Arnaud Nourry says the discounting of ebooks ends at the end of 2014. Nourry says he is traveling to the U.S. to negotiate the Amazon deal. 

4 Jun 2014

Stephen Colbert makes an issue of the dispute on his show. 

5 Jun 2014

Amazon counters Hachette's May offer. 

20 Jun 2014

More Hachette leaks to the NYT revealing Amazon's negotiating positions. 

I spoke to someone involved on the Hachette side of the negotiations, who is under orders not to discuss them and asked not to be named. This person said that Amazon has been demanding payments for a range of services, including the pre-order button, personalized recommendations and a dedicated employee at Amazon for Hachette books. This is similar to so-called co-op arrangements with traditional retailers, like paying Barnes & Noble for placing a book in the front of the store.

Amazon “is very inventive about what we’d call standard service,” this person said. “They’re teasing out all these layers and saying, ‘If you want that service, you’ll have to pay for it.’ In the end, it’s very hard to know what you’d be paying. Hachette has refused, and so bit by bit, they’ve been taking away these services, like the pre-order button, to teach Hachette a lesson.”


24 Jun 2014

Hachette closes Perseus deal. 

1 Jul 2014

The New York Public Library hosts a hastily put together public forum stacked with 5 Hachette shills balanced by the inestimable David Vandagriff (affectionately known as Passive Guy by his internet friends).

8 Jul 2014

Amazon's "100% of ebooks receipts offer" becomes public. 

What does the timeline tell us?

1. Hachette did not negotiate in good faith before the end of the contract. 


They didn't negotiate at all. Amazon and Hachette agree on this crucial point. The first Hachette offer was in April.  Amazon says the original contract ran out in March and Hachette hasn't denied it. In my view, the party that makes no attempt to negotiate during the term of the original contract is the instigator of the stand-off.

2. Hachette knew for months that their authors were being harmed and they did nothing. 

Sullivan noticed that the usual Amazon discounts on his titles were gone on February 7. He saw the inventory issues on March 9. He let Hachette know about both issues. At that point Hachette had let their contract expire without so much as a counter-offer. 

3. We can't know for sure, but it looks like Sullivan was the catalyst for the issues becoming public. 

Look closely at the timeline. 

4. Hachette was able to pull off a complex, multi-million dollar acquisition of a smaller publisher, but unwilling to fund either of Amazon's offers to help the affected authors. 

The publishing half of Perseus was estimated to have revenues in the $100 million range. That's a pretty big deal in the publishing world.

5. Since the dispute became public, Hachette has essentially abandoned the negotiations in favor of a concerted public relations campaign. 

Hachette's last offer was in May around the time the affair became public. Amazon sent them another offer on June 5. Hachette has orchestrated a high-profile publicity campaign with big name authors, a popular TV host, and the publishing industry press taking up Hachette's cause. Hachette has even enlisted the New York Times to play stenographer for them.

6. Hachette has a powerful incentive to drag this out.

To achieve its goal, Hachette needs to delay the final agreement until late 2014 or early 2015. That is the earliest time they will be able to conclude an agreement with Amazon that restricts Amazon's ability to discount ebooks. Moreover, developments in Apple's ongoing appeal could substantially impact Hachette's negotiating position. An Apple loss or settlement would make reaching an agency deal (with no discounting) almost impossible because Amazon is not going to agree to let Apple underprice them on ebooks.

*I learned to make timelines like this from Marcy Wheeler, who is so smart Barry Eisler named a character in his John Rain series after her.

Joe sez: All great points and conclusions, William. 

As per your call that the NYT has become Hachette's stenographer, what appears to be a level-headed post in the NYT today gets several things wrong. It mentions Amazon offers 35% e-royalties compared to legacy publishing's 25%, but doesn't mention that's gross, not net. It doesn't mention the letter signed by over 7000 people--authors and readers--supporting Amazon. It assumes this battle is about Amazon taking money from Hachette, but misses the whole point that Hachette wants to control ebook prices. And it ends on a note of paranoia.

There is fear here. It's somewhat odd, considering the record profits publishers are making and boasting about, but when you think about the long run the fear is warranted. Publishers once ruled the roost. They had the key to the gate, and control over price and distribution. Readers and writers were at their mercy.

And now, suddenly, we're not. 

Publishers and their pundits (I'm looking at you Mike Shatzkin and Digital Book Word) refuse to believe or even acknowledge the data on www.AuthorEarnings.com, and most of them believe that ebook sales are plateauing. In fact, they are continuing to grow at a rapid pace, because of indies. But no survey or data collection shows how big the self-pub shadow industry is, so the legacy world remains clueless as to many sales they are actually losing.

This is a slippery slope, because more and more authors are figuring it out.

Readers want ebooks, and they want to shop on Amazon. Most writers, even those who cling to their legacy masters with Stockholm Syndrome allegiance, know the royalty difference between what their publishers pays them and what they can get on their own. As bookstores close (hello Barnes & Noble) and the paper midlist becomes unsustainable, even those steadfast legacy authors are going to have to self-publish. Publishing will be relegated to managing backlists (at least until authors begin hiring lawyers) and their major bestsellers, who are eventually going to leave as paper sales become a niche market. 

No matter whose side you're on in this current dispute, the future is already written. Hachette and the Big 5 won't be able to sustain their business model; protecting their paper oligopoly. And the mistakes they're making right now are only bringing this future to bear even faster.

113 comments:

Bob said...

I always find the data quotes by many in the publishing industry interesting because no one has ever asked me for my numbers. And they aren't insignificant.

I like the concept of indie authors being a shadow industry.

Here's a key to this whole thing that needs to be understood-- in 20 years with four of the then Big 6 in NY, not once was I ever asked how we could work together to sell more books. In fact, selling books never seemed to be a priority. Print runs, distribution, etc. were key.

In my first year working with Amazon, one of the first things I was asked on the phone was "How can we help you sell more books?"

I find the difference between the two part of the core issue that is going on right now.

Liz said...

Amazon calls you, Bob? How do you make that happen? ;)

William Ockham said...

Bob,

I find your comment quite enlightening. I'm pretty far away from NYC publishing, but from where I sit (in Houston, Texas), Big Publishing looks a lot like Big Oil. ExxonMobil doesn't think about asking an oil rig how to sell gasoline. Just like it never occurred to your publishers to ask you to work together to sell more books. In NYC, the view seems to be that authors pump out the raw materials and the publisher refines, distributes, and markets the end product.

Joe Konrath said...

Amazon calls authors all the time, sometimes to ask for feedback.

That's right. They actually call us to ask how they're doing, and if we can help them improve.

Amazon also actually uses focus groups to try out covers and titles. That blew my mind, because I'd begged my previous publishers to do that, to no avail.

Liz said...

Joe, can you volunteer for these groups?

Jennifer Oberth said...

I would guess Amazon is more invested in helping authors to sell books because the only way they make money is if you sell a book. The traditional publishers have their deals with bookstores and whatever other systems they have in place. They can also wait to make money because they've got your for your life plus 70 years and they've been doing this for decades. Your new book doesn't have to sell yet for them to make money on a book that's been out for years, the income lining their pockets - and not the author's pockets.

I see it like the salesman that doesn't eat unless he sells, as opposed to one that gets paid a set salary whether he sells or not.

Traditional publishers aren't hungry. They're bloated and entitled.

A.G. Claymore said...

You know, with all the literary giants weighing in on this dispute, we haven't heard a peep out of Snooki...

Anonymous said...

With eight published books with a Big 6 publisher over a period of ten years, I have never received a phone call or email from anyone in marketing, sales or publicity. Not once (except I did get an email from publicity about one book notifying me--just notifying me--that a publication reviewed my book. Said publication had reviewed the book four months earlier and Google Alerts informed me the day it appeared).

After the third book, every email to my "editor" is answered by her assistant, who will "get back to me" and then doesn't. I've been through a parade of six or seven of them at this point.

That's some impressive career development.

Suzan Harden said...

William, I'd add one thing to your timeline: Mid-June when the Hatchette PR machine turned its attention to the indies with scare/plea tactics of how we should side with them in their non-contract dispute with Amazon.

To me, that was the ultimate in desperate moves.

Sue Trowbridge said...

There was an article in today's San Francisco Chronicle (may be paywalled) about the dispute. It does acknowledge that not all authors are anti-Amazon ("In recent weeks, hundreds of writers have signed petitions both for and against Amazon"), but also includes a quote from bookseller Elaine Petrocelli which is a bit over the top: "I think the average consumer should be alarmed. If Amazon can decide you can't read a book from Hachette, maybe next they will decide you can't read a political book they don't like. If they can do this, it says, 'We'll choose what you read.' " I love, love, love her store Book Passage, but that's one slippery slope there.

William Ockham said...

@Suzan Harden - I had to cut something. But you are correct that Hachette's surrogates really turned up the concern trolling the.

Jennifer Oberth said...

They said Amazon will choose what we read? How about traditional publishing having chosen what we read for decades?

I love when one party uses the same fear in their arguments that they themselves have been guilty of.

Alan Tucker said...

William, thank you for taking the time to put this together. I had considered undertaking something like this the other day but haven't had the time or wherewithal to make it happen.

People need to understand what's really going on here and we can't rely on the traditional media to paint an unbiased picture.

William Ockham said...

The NYT article that Joe linked to has a number of interesting bits. Here is one:

“This controversy shouldn’t be misinterpreted,” said Michael Pietsch, chief executive of the Hachette Book Group. “It’s all about Amazon trying to make more money.”

As you can see from my comments in the post, I think that is just a lie. Sure, Amazon is trying to make more money, but to say that the "controversy" is all about that strains credulity. And it directly contradicts what Pietsch's boss said just a few weeks ago.

I don't know why lying seems to be a requirement for American Big 5 execs, but it really seems to be. Carolyn Reidy (S&S) and John Sargent (MacMillan) both got called out by the federal judge for lying during the Apple trial. And a close reading of the Apple trial exhibits show that the public statements of their publishing co-conspirators were often at odds with their private actions.

On the other hand, Arnaud Nourry, the French boss of Hachette, has been saying the same thing in public and private for the last five years. We know that because those same trial exhibits show what he was saying in private in 2009. So, props to Nourry for being a stand-up guy, even if it is in pursuit of a wrong-headed goal.

Mark Edward Hall said...


Great article today in the Huffington Post: Are there five reasons to stick with major publishers? The author ends up giving five reasons why you should self publish instead.

Very interesting. Looks like the dominoes are beginning to fall.

http://www.huffingtonpost.com/michaellevin/are-there-5-reasons-to-st_b_5569189.html

enabity said...

Regarding Hachette's current actions bringing their future irrelevance forward faster, I would like to add some nuance. Hachette's current activity to keep ebook prices high will delay the awareness of ebooks as an efficient medium of exchange between author and reader. However, when the day of reckoning comes, they could be in a world of hurt because they will have poor market share in the medium.

William Ockham said...

@alan tucker You are most welcome.

Michael Ardenne said...

"agreement with Amazon that restricts Amazon's ability to discount ebooks"

How will their ability to discount e-books be restricted?

" It mentions Amazon offers 35% e-royalties compared to legacy publishing's 25%"

I thought royalties with Amazon were in the 70% range? Did they drop recently, or is this some different type of deal?

Matt said...

If the NYT doesn't realize that Amazon doesn't pay royalties then they're pretty stupid. So them fudging the percentages doesn't surprise me.

Amazon takes a retail cut and passes the rest to the publisher, be it a trad publisher or a self publisher. One more time for the dummies: IT IS NOT A ROYALTY.

Rob Gregory Browne said...

I assume they're talking about the Amazon imprint royalty, not KDP.

William Ockham said...

@Michael Adenne, Matt, Rob Gregory Browne

Rob is correct. The NYT article focuses on Amazon's publishing imprints because that suits their narrative.

As to how Hachette hopes to restrict Amazon's ability to discount Hachette's ebooks, they seek to institute retail price maintenance. That means retailers are prevented from discounting off the publisher's retail list price.

Hachette doesn't call it by that name, but that is exactly what it is.

Kevin Hallock said...

@Mark Edward Hall

What a great article; thanks!

Anonymous said...

I assume they're talking about the Amazon imprint royalty, not KDP.

Exactly.

"Mr. Zandri, an author of mystery and suspense tales, is published by Thomas & Mercer, one of Amazon Publishing’s many book imprints."

So yes, "royalties" would be the correct terminology.

It mentions Amazon offers 35% e-royalties compared to legacy publishing's 25%, but doesn't mention that's gross, not net.

Since Amazon doesn't have to discount to itself, Amazon imprints pay the author a percentage of the price the book actually sells for, which is still considered "net" for contract purposes, as opposed to "list," which is usually about twice as much.

For example, if an ebook the imprint "lists" for $9.99 actually sells for $4.99, the author receives a percentage of the whole $4.99, rather than a percentage of a percentage, as would be the case with an outside publisher.

In another words, assuming there's currently a 30% discount to Amazon on ebooks from outside publishers, said publishers would have to pay their authors 50% of net to equal the 35% of net Amazon imprints are, according to the article, paying their authors.

Steven Zacharius said...

A couple of questions and comments...First for Joe....what's the difference between 35% of Gross versus 35% of net receipts on ebooks? eBooks have a 100% sale so this would be the same thing.

How would waiting for the end of September help Hachette negotiate no discounting with Amazon? If they can't come to terms now, how will this help waiting?

Making a deal to buy Perseus has nothing to do with making a deal to negotiate terms with Amazon. One could have been a corporate decision from the parent company versus Hachette Book Group. And just because the revenue is $100,000,000 doesn't have anything to do with the price paid for Perseus. We don't know what their profit was, if any, for that matter. Maybe they bought it for $20,000,000 which would be less than their annual sales to Hachette.

Yes Mike Shazkin and others have criticized the author earnings report because there is no sound data provided from Amazon. Why is it that Amazon won't share unit sales and revenue on ebooks yet they do it on print books? They report their print sales to Bookscan but not their ebook sales....why is that? Without that information, it's all speculation on both sides.

You keep saying that publishing is on a slippery slope as authors wise up to what's going on but there is still not one ounce of proof that any major authors are leaving traditional publishing or that they're even thinking about it. I don't think we've had one negotiation for any substantial authors where this topic was even ever mentioned.

The advantage of agency versus wholesale model pricing is only advantageous in certain formats because of the dip being based on the print price. The real issues the big publishers were fighting wholesale is because they didn't want the valuation of their content being lowered.

Michael Ardenne said...

@ William Ockham, Rob

Thank you for clarifying (and in a mature manner). I'm very busy and don't have much time to catch up on all of the details of publishing with Amazon. Currently on the third (and hopefully final) draft of my first novel, so I probably should.

Anonymous said...

what's the difference between 35% of Gross versus 35% of net receipts on ebooks?

What he meant, I think, is that "net" from an Amazon imprint is different than "net" from an outside publisher, because Amazon doesn't have to discount to itself. Authors end up getting a percentage of the actual sale price instead of a percentage of what the publisher receives.

Terrence OBrien said...

You keep saying that publishing is on a slippery slope as authors wise up to what's going on but there is still not one ounce of proof that any major authors are leaving traditional publishing or that they're even thinking about it.

I'd say the slippery slope is due to loss of market share rather than loss of authors.

William Ockham said...

@Steven Zacharius

According to the terms of their settlement, they cannot negotiate a contract that prevents retailer discounting for two years (+ about 30 days) after their settlement with the DoJ. Since their declared corporate strategy is to achieve exactly that, it is in their interest to delay reaching an agreement until then.

I have a question for you. You may not be able to answer or you may not wish to answer, which is fine. Have you ever let your contract with Amazon expire without making an offer to them? I don't know the practices of the publishing industry, but in the industries I am familiar with, Hachette's actions would be unfathomable.

The point I was making by raising the Perseus deal is that doing a deal like that says something about Hachette's priorities. I know what goes into doing due diligence for a deal like that and how much capital it takes. Hachette is more concerned about getting bigger than protecting their authors from the impact of the fight that Hachette picked with Amazon. That may be perfectly rational, but it isn't the line they have been peddling.

The publishing industry pundits who have criticized the Author Earnings studies are simply ignorant or blinded by their own bias. They aren't perfect, but no statistical models are. It is fairly easy for me, with only one college-level stats course over 30 years ago, to judge how useful they are. They are really valuable.

Neither Joe or I can speak for Amazon, but I can tell you that if I were making the decisions for Amazon, i wouldn't release ebook data either. It is a competitive advantage. That being said, it isn't all speculation. The amount of sheer bullshittery from industry pundits in publishing is astounding. It is worse than the video game industry and I never thought I would say that about anything (except political punditry where real success is achieved by being the most wrong).

As for the major authors leaving, the industry decides that anyone who leaves is, by definition, not major. Barry Eisler, Bob Mayer, etc. etc. Shatzkin is fond of saying that self-pub is only good for genre books, but anyone can see that genre books pay the bills. I bet that is true at Kensington.

Jennifer Oberth said...

I'm unclear as to when Hatchette could negotiate the way they want to (September, October, next year) but why didn't they just wait a year? Why didn't they just negotiate a contract for another year and then in March, change the rules as they're allowed?

With my limited understanding of all of us (and we don't know what's going on behind closed doors), if I were Amazon and Hachette suddenly began negotiations after the DOJ deadline passed - I would end all talk and not carry any books or do any business with them. (But that's just me and my oversized sense of fair play.)

Hatchette needs Amazon more than Amazon needs Hatchette.

Laura Resnick said...

"Moreover, developments in Apple's ongoing appeal could substantially impact Hachette's negotiating position. An Apple loss or settlement would make reaching an agency deal (with no discounting) almost impossible because Amazon is not going to agree to let Apple underprice them on ebooks."



Can you explain? I don't understand what this segment says.

Terrence OBrien said...

The publishing industry pundits who have criticized the Author Earnings studies are simply ignorant or blinded by their own bias.

Or they recognize what the AE says as well as any of us, and their strategy is deny and discredit.

Anonymous said...

How come studies and statistics derived from poorly sampled and self-selecting, honor system surveys are "good sources" of information, but AuthorEarnings.com is "poorly researched" and "guessing"?

Anonymous said...

How come studies and statistics derived from poorly sampled and self-selecting, honor system surveys are "good sources" of information, but AuthorEarnings.com is "poorly researched" and "guessing"?

Because one set of data supports the narrative that publishers want writers to believe, and the other set of data doesn't.

Anonymous said...

@Steven Zacharius

By the way, Steven, I hope you didn't pay $300 for the DBW data as you said you planned to.

If so, we should talk.

My husband was the former Nigerian prime minister, and before he died we were able to hide $14.5 million in bearer bonds, but I can't get them out of the country without your help. If you advance me $500,000 to bribe the customs officials, I would be happy to split the $14.5 million with you.

P.S. - I will also need your bank wire info and passwords to verify the transactions.

Laura Resnick said...

Steve Zacharius wrote:

"there is still not one ounce of proof that any major authors are leaving traditional publishing or that they're even thinking about it. I don't think we've had one negotiation for any substantial authors where this topic was even ever mentioned. "


Bestseller Maggie Shayne announced in media this year that she has ended her longtime and very successful trad career to go indie full-time.

Bestseller Stephanie Laurens announced earlier this year she’s left her longtime traditional house and has made a deal with another house which will allow her to indie epublish some of the contracted print titles.

Bestseller and mystery Grand Master Lawrence Block self-published his most recent novel.

Bestseller Barbara Freethy left trad publishing to go indie full-time, where has has been hugely successful.

Indie author Holly Ward, with multiple books on last year's NYT list, has posted multiple times about why she won’t make a deal with a traditional publisher–they have nothing to offer her. Here’s one of those posts:
http://blog.demonkissed.com/?p=1387

Bestseller Barry Eisler left traditional publishing for self-publishing and an Amazon deal.

Hugh Howey became an indie bestseller, held out for an exceptional trad deal, and his experiences with traditional publishing have made him a highly vocal proponent of self-publishing—though his traditionally published novel made print bestseller lists and he is a bestseller with publishers in other countries.

The Passive Voice posted an article a couple of months ago about a successful fantasy writer who’s buying back his contract so he can go indie full-time rather than have more books released by his trad house, Tor Books.

Any number of writers report making more money self-publishing the digital and audio rights of old backlist than they’re making from their new traditional publishing deals. Many also report making more money now with those old titles than the books made when traditionally published as new releases. (Joe Konrath, Ann Voss Peterson, and Lee Goldberg are examples that immediately come to mind.)

I met recently with two writers who have each lately bought back under-contract books (one of them from Kensington) because their indie experiences have convinced that writing those books for a traditional house instead of self-publishing would be a bad business choice. (Since I know what they’re earning with their indie ventures, I believe they are correct.) The week before that, I got an email from another writer who was doing the same thing. The month before that, ditto.

I also know writers walking away from deals because publishers refuse to remove -or- fairly/narrowly -define- the non-compete clause. And because that clause is widespread, it’s yet another factor driving experienced writers into indie careers.

I also know quite a few traditionally published writers who do NOT publicly blog about or discuss their incomes and career choices, so they’re not on the radar in that sense, who are making six figures annually from their indie publishing. (Not blogging about it isn’t synonymous with not sharing figures frankly with colleagues). In some cases, they've quit traditional publishing altogether. In other cases, they're continuing traditional publishing—for now.

No, I have not named JK Rowling, James Patterson, Dan Brown, or Nora Roberts in any of the above. And I'm skeptical it would matter if I could. Because I suspect that anyone in the publishing world who dismisses or ignores the existing movement away from traditional publishing that's =already= happening will also choose to ignore or dismiss it when one writer or multiple writers of that commercial level switch to self-publishing, too.

Alan Tucker said...

@Steven

Regarding the net/gross confusion. Big 5 offers 25% of net, which amounts to 12.5% of gross, while Amazon is offering 35% of gross. Which is quite a bit more of a difference than the NYT article makes it out to be.

Someone please correct me if I've gotten this wrong.

Laura Resnick said...

P.S. Steve Zacharius wrote:

"there is still not one ounce of proof that any major authors are leaving traditional publishing or that they're even thinking about it."


And you're very unlikely to know that they're thinking about it. Because when a writer is thinking of turning down the next deal, or buying back a book or a contract, they seldom blog publicly that they're thinking it over, they probably never mention to the media that they're thinking about doing this, and they don't chat with their editors and publishers about whether they're thinking of doing it.

They talk to their families, their friends, writers whom they trust, their accounts, their lawyers, and their agents about it. And except for their agents (in my experience, agents tend to be shocking blabbermouths), they can count on all of those people NOT to talk go around talking about it or let it leak to the publisher.

I knew well before Kensington did that a friend of mine was going to buy back a Kensington contract. I knew well before Tor Books did that a friend of mine was going to buy back a Tor contract. I knew that a friend of mine would buy out a Penguin contract before Penguin knew. I currently know a friend who's decided to buy out a contract, but the publisher is very unlikely to know before the author's ducks are lined up to do this and the representative approaches the publisher.

Contemplating whether to terminate a business association is a decision you make in private with people you trust, not something you think over in public or where the other party can hear you weighing the pros and cons of dumping them.

Your not knowing that writers are thinking about leaving their publishers is not the same thing as writes not thinking about leaving their publishers--and not the same thing as writers not discussing candidly that they're thinking about leaving their pubhishers.

Similarly, I was shocked every time a publisher dumped me. Including Kensington. No publisher ever said to me, "We're not sure this is working out and are starting to think about terminating our association with you. What are your thoughts?" They did that thinking where I didn't know about it, and then told me their decision.

Anonymous said...

Regarding the net/gross confusion. Big 5 offers 25% of net, which amounts to 12.5% of gross, while Amazon is offering 35% of gross. Which is quite a bit more of a difference than the NYT article makes it out to be.

Someone please correct me if I've gotten this wrong.


In publishing, we generally discuss numbers in terms of list price vs net receipts. See my previous posts at 7:25 and 9:43.

Let's say an ebook costs $4.99. Assuming a 30% discount, a Big Five publisher will receive 70% of that $4.99 from Amazon ($3.49), and the author will be paid 25% of THAT ($.88). Which boils down to 17.5% of the sale price.

With an Amazon imprint, the author gets paid on the full $4.99, not 70% of $4.99. So, assuming the Amazon imprint is paying 35%, as stated in the NYT article Joe linked to, then the author would make $1.75 for every book sold.

$4.99 ebook:

Big Five = $.88 for the author.

Amazon imprint = $1.75 for the author.

So "gross" isn't really the right terminology. It's a matter of net receipts and percentages.

Laura said...

William wrote:

"As for the major authors leaving, the industry decides that anyone who leaves is, by definition, not major. "

Indeed. This is why I don't think the conversation, such as it is, will change if/when JK Rowling or Nora Roberts or Hilary Clinton self-publishes. There are so many writers with "NYT bestseller" on their resume who've -already- left, while talking heads keep saying that It Simply Isn't Happening or But No One Who -Matters- is leaving, it will be much easier for such people to define any mega-stars who leave as "not actually that important" than it will be to change their perspective on this.

Meanwhile, RE AuthorEarnings.com... I've read a lot of criticism of it, but very, very little of the criticism was valid. I only have a grad school level stats course, so this certainly isn't my field. But it seems to me that what AE has done is collect a very large and well-defined sample set of data (rather than opinion of self-selection) to analyze some narrow questions/parameters. I've seen a few cogent analyses (Courtney Cox comes to mind) that certainly indicate the data collection and the analysis both need adjustments and refining. But I've seen nothing that convincingly disecredits them, let alone alone disproving their conclusions. Whereas in a number of other surveys (those drawing very different conclusions from Author Earnings) there are glaring problems such as lopdsided collection of the poorly-defined sample sets and parameters that are vague and/or too broad for the analysis to mean anything.

Anonymous said...

@Steven Zacharius

Pottermore.

We can bloviate about how J. K. Rowling isn't *really* self-publishing those books... but if you look at who controls the I.P., she's self-publishing, even if her publishers desperately wish to portray it differently. She's just nice enough not to shove it in everyone's face.

William Ockham said...

@Laura Resnick

If Apple loses, part of the judgment is that they will be forbidden from entering into contracts which prevent Apple from discounting the Big 5 ebooks sold in the iBookstore for a period of time. The time periods are staggered so that the restrictions terminate every six months for a different publisher.

The judge very deliberately set up that structure to preclude future collusion. Not so coincidentally, Hachette will be the first publisher who will be free to negotiate RPM with Apple.

In theory, in September, Hachette can negotiate "agency" with all three major bookstores, but when Apple loses, Amazon and B&N would be at a disadvantage if their contracts preclude them from discounting. Everybody who thinks Amazon will agree to a deal that makes Hachette ebooks more expensive on Amazon.com than in the iBookstore raise your hand.

Laura Resnick said...

Ah. I see.

(And I see others have already wondered whether the court will see this long delay in the Amazon-Hachette negotiation, combined with Amazon's claim that Hachette has been stalling and unresponsive (and the Hachette statement which seems to confirm this), as an attempt to circumvent the court order, which will attract the judge's attention. It's certainly gotten so much media play, it would be odd if she weren't aware of these events following the settlement.)

Alan Spade said...

"@Steven Zacharius

Pottermore.

We can bloviate about how J. K. Rowling isn't *really* self-publishing those books... but if you look at who controls the I.P., she's self-publishing, even if her publishers desperately wish to portray it differently. She's just nice enough not to shove it in everyone's face."

Exactly. She is self-publishing with Pottermore. And she also wants to continue to be trad published, because for the moment, Big Publishing has not fallen apart altogether. Big Publishing has still a juicy, if shrinking, part of the market.

So you have to expect more and more big authors who are trad published to weigh paper against ebooks. You have to expect trad pub big authors trying to indie publish very discreetly if they want to keep doing business with Big Publishing. That's all part of the transition.

But I believe the transition to become more and more brutal, because, as Hugh Howey stated, Big publishers colluded to link every print deal with ebooks. There probably will be no more print only deals with the Big 5.

Big Publishing will bet on the big authors not having the courage to walk away. A big bet.

Merrill Heath said...

Michael Sullivan started out self-publishing and was very successful on his own. Then he signed a contract with Orbit, which was purchased by Hachette.

I wonder if he's regretting that decision now?

Katherine Hajer said...

That's an interesting stance from a bookseller. Here in Canada, it's been noted that one of the major chains does refuse to carry political books they don't agree with. They were quite proud of it. And when people complained, they said we could buy from another distributor... like Amazon.

matthew-iden.com said...

Does anyone else notice that the timeline reads a little like the chronology of LOTR in the back of Return of the King?

If you substitute "Gandalf" for Amazon, "Sauron" for Hachette, and "The One Ring" for contract, it reads quite nicely.

Dana Stabenow said...

Legacy publishers not only don't talk to authors, they don't talk to readers, either. When a reader notes an error in one of my e-books, my publishing partner writes back and thanks them, and when we correct the error we send them a copy of the new edition for free.

What struck me most was the readers telling us that it was the first time they'd ever heard back from a publisher. They were so astonished and so grateful even to be heard.

Amazon didn't flush legacy publishing down the toilet. Technology didn't flush themselves down the toilet. They flushed themselves.

Anonymous said...

This is my first comment, so here goes. I do agree that Hachette is playing the one who is being bullied, but the fact that it is part of a huge multinational conglomerate, has been making huge profits off ebooks and treats its authors badly makes me inclined to treat whatever they say with the utmost skepticism. However, I am also not a rabid Amazon supporter, mainly because they practice tax evasion scheme here in Britain which means while they do pay some tax, they only pay a pittance of what they should. While what they are doing is not illegal, it is immoral and does not show good business practice. Just some thought,s and feel free to shred me if you so wish.

Dan DeWitt said...

"While what they are doing is not illegal, it is immoral and does not show good business practice."

No. Just, no.

Dazrin said...

I would love to see Amazon put a not on all Hachette books that says "Hachette has been unwilling to renew or negotiate their contract with us and therefore we cannot accept pre-orders, provide discounts, or guarantee shipping dates for any Hachette titles." And include a button to send your feedback to Amazon/Hachette about the standoff. (Maybe even provide links for each of the three service faults to more detailed reasons behind why they can't do those things, although that may be more inflammatory than they want.)

Get that message in front of everyone who looks at a Hachette title on Amazon and see what the feedback becomes. Right now the message seems to be limited to those who have an interest in the publishing industry or who watch Colbert.

Andrew Rhomberg said...

Has anybody gone on record at any point in time that what Amazon put to Hachette in January was a new wholesale agreement or are we just ? After all the terms of the consent agreement are still in force as far as I know right now.

Jennifer Oberth said...

An interesting article about Garth Brooks and the music industry http://www.washingtonpost.com/news/morning-mix/wp/2014/07/11/garth-brooks-returns-with-new-music-and-a-new-tour-on-his-own-terms/.

I especially liked this quote (referring to Kid Rock): "How novel — an artist who cares more about fans seeing a show than gouging them."

(I hope Mr. Ockham doesn't mind my posting it here - I figured it was related.)

Joe Konrath said...

No. Just, no

Exactly. Who pays more taxes than the law requires?

Blame the tax laws.

Joe Konrath said...

All of your other questions were correctly addressed, Steve, so I'll tackle this one.

The real issues the big publishers were fighting wholesale is because they didn't want the valuation of their content being lowered.

I addressed this over 4 years ago.

http://jakonrath.blogspot.com/2010/03/value-of-ebooks.html

Publishers had been allowed to pick the value of their books because they had an oligopoly on the paper market. The controlled the supply that fed demand, like OPEC only releasing X number of barrels of oil. And like a cartel, they didn't compete on price.

What other industry prints the retail price on the thing it sells? And everyone in that industry sticks to similar pricing structures and releasing schedules (hardcover a year before paperback)?

But they didn't have a lock on price with ebooks and Amazon, and the fear became that ebooks adoption would surpass paper adoption. So they did what they could to slow the adoption of ebooks (high prices, windowing).

How I made my million was to look at what readers wanted--low priced ebooks--and as such my IP became more valuable when I lowered the price. IOW I sold more copies to make up for the drop in price, making the property more valuable. Since I wasn't worried about cannibalizing paper sales, I could price to what the market demanded, not according to the demands I put upon the market.

Indie authors are making a helluva lot of money that legacy publishers are unaware of. I call it a shadow industry because it is huge, and no one acknowledges it exists.

Publishers feared for their margins, made some awful decisions, and they left a lot of money just up for grabs. That money is still there, being grabbed by tens of thousands of authors.

Fearing for their margins, most major publishers are marginalizing themselves out of business. Don't be surprised when Kensington is acquired in the next few years. For some reason, big corporations believe mergers can increase market share, even when overall market share is declining. We've seen three big mergers in publishing with a year (Penguin, Harlequin, Hachette) and we'll see more.

Then we'll start seeing bankruptcies. As more authors self-pub, and B&N closes, there will be less and less a need for publishers.

If you have a chance to sell, sell now while the market can bear it.

William Ockham said...

@Andrew Rhomberg

If you look closely at Hachette's leaks about Amazon's negotiating position and strip out the emotion, they describe something indistinguishable from the status quo ante. Amazon hasn't denied those leaks, so I accept that they represent at least a partial truth about Amazon's position.

The consent agreement does not prohibit wholesale arrangements. It is possible that Amazon is willing to stick with the true "agency" part of the model. Agency really only defines who the owner of the goods are between the time they are delivered to the retailer and the time they are sold. This has important tax implications in the U.S.

The primary points of contention are who controls the retail price and how are the proceeds split.

Nirmala said...

An article in Forbes suggesting Amazon does not really avoid taxes in the UK:

http://www.forbes.com/sites/timworstall/2014/07/14/britains-leading-tax-expert-insists-that-amazon-is-not-avoiding-uk-tax/?partner=yahootix

Anonymous said...

Anonomous 10:36am said: " . . . I am also not a rabid Amazon supporter, mainly because they practice tax evasion scheme here in Britain which means while they do pay some tax, they only pay a pittance of what they should. While what they are doing is not illegal, it is immoral and does not show good business practice . . ."

So according to you Amazon is practising tax evasion (by definition illegal), but what the company is doing isn't illegal.
So which is it?
Care to pony up some evidence to support your assertions? Last time I saw a newspaper article in the UK on this topic it quoted the UK revenue figures and the USA profit percentage. Might possibly be because the UK profits were low enough to match the tax paid?
Your argument is like saying any company which doesn't pay a voluntary 50% VAT (instead of 20%) is immoral, and bad business practise. Or doesn't fund soup kitchens, or buy little girls unicorns . . .

Terrence OBrien said...

The real issues the big publishers were fighting wholesale is because they didn't want the valuation of their content being lowered.

Those who value their goods are free to sell them for a price that reflects that value. Publishers can offer their goods to retailers at whatever proce they choose.

Darren Sapp said...

The Books Editor of the Huffington Post seems confused by all this on her "Quit Amazon" rant(link below). She states: "How does one stop purchasing books, and also many other things, from a company that has been repeatedly accused of price fixing, and has gone so far as to remove all titles from a major publishing house from its electronic shelves?"

She provides a link that refutes the very thing she said. Correct me if I'm wrong, but I don't think Amazon has removed all electronic titles from any major publishing house.

http://www.huffingtonpost.com/2014/07/14/boycott-amazon_n_5574742.html

Hugh Howey said...

Merrill Heath said...

"Michael Sullivan started out self-publishing and was very successful on his own. Then he signed a contract with Orbit, which was purchased by Hachette.

I wonder if he's regretting that decision now?"

If he's not, he can't say anything. Or else he'll REALLY regret that.

Andrew Rhomberg said...

@William Ockham

O.K. so let me put it differently: where is the confirmation that the existing Amazon-Hachette distribution agreement has ended? I seem to have missed that.

There is so much fog in this whole debate and so much speculation, spin, etc. that it is sometimes good to try to check what is "fact" and what we are inferring...

I don't doubt for a second that Amazon prefers the freedom of a wholesale agreement as in pre-agency times and that Hachette has a deep fondness for the agency model and effective control of retail prices for "its" titles.

In fact, if the existing contract has expired, but Hachette cannot insist on a new "full monty" agency contract until later this year, then their feet dragging would make a lot of sense in a strictly games theory type of way...

William Ockham said...

@Andrew Rhomberg

In the letter Amazon sent to agents and others, they claimed that the contract ran out in March and they extended it into April. Hachette has not denied that.

Nirmala said...

"Correct me if I'm wrong, but I don't think Amazon has removed all electronic titles from any major publishing house."

You are correct, Amazon has not removed a single book from its website. It just has removed preorder buttons and slowed the delivery of books.

I commented on the Huff Post article explaining this.

AlexB said...

Anonymous 12:56 PM:
Tax *avoidance* is illegal. Tax *evasion* is not, and is specifically allowed in the laws of certain countries, including the UK (an in some cases, it's a legal obligation towards shareholders).

In the last couple of years, media and governments have started vilifying companies involved in this practice and tried to pressure them into paying more tax to shore up the government's coffers.

In the end, if they really want an end to tax evasion, they should just change the law, not make a media song and dance about it.

Anon 10:36 AM:
Amazon does not make much profit. It has a large turnover, yes, but it reinvests in expanding the company rather than paying investors. This means they do not pay much tax on profits.

Amazon bases its EU operation out of Luxembourg. Amazon sells to various EU countries but only needs one corporation in one EU country to do so, and only needs to pay corporation tax in that one country. Warehouses are legally not considered permanent establishments under Article 5, section 3 of the double taxation treaty between the UK and Luxembourg, so it doesn't have to pay corporation tax for its UK warehouses. (Under section 3(e) of the same act, their development centres and media group may also be exempt, but I might not be reading it correctly.)

This means that Amazon may not be liable for much UK corporation tax at all. This is not an immoral practice. This is smart and strategic business placement.

Sorry, Joe and William, for the off-topic nature of this comment.

Richard Fox said...

There's a bigger piece to the Amazon v.s. Hachette fight that we're missing: the rest of the Big 5.

The Big 5 operate as a cabal. Whatever deal Hachette finally makes with Amazon, the other Big 4 will demand eerily similar terms once it's time to renegotiate.

So, Hachette flops around like a soccer player with a skinned knee and pressure mounts for Amazon to cut a sweetheart deal.

It's collusion all over again. You'd think the DOJ ruling would have knocked some sens into them.

Hachette has the weaker hand here. They need Amazon to survive, Amazon doesn't need Hachette...at all. If Hachette is cut off from Amazon, all those Hachette authors will peel off for greener pastures. Wait and see how loyal a hungry dog really is. [I don't think Hachette authors are dogs, I just love the analogy. And because Joker.]

An interested reader said...

At what point, then, can you argue there's a breach of contract, and get your rights back?

Alan Tucker said...

I was going to offer another comment, but it became too long so I turned it into a blog post:

http://motherearthseries.wordpress.com/2014/07/14/what-is-amazon-supposed-to-do/

"What is Amazon supposed to do?"

Angry_Games said...

I'm waiting for Steve Z. to come back and tell everyone they are all wrong, know nothing, and what he says is the truth even if no one else believes it.

Also, Steve, if you want to know about authors quitting their day jobs and going self-pub full-time (sometime even well enough that author spouses can quit their jobs as well), you should read the comments here:

http://www.thepassivevoice.com/06/2014/indie-authors-quitting-their-day-jobs/

You might not see it as "big-name authors leaving trad pub." How you see it has nothing to do with how the world is moving on. All of these authors that have posted in the comments at TPV, do yourself a favor and contact each one (I'm sure TPG would help you reach out to as many as possible) and ask them: Would you ever sign with a traditional publisher?

My guess is right about 97.5% of them would say no. If you told them the truth, and asked "would you sign with a traditional publisher for 25% of net instead of staying with self-pub where you make 60-70% of gross?" you'd get 99.25% saying a resounding "hell no."

Again, I'm just guessing, but if believe my guess is wrong, do yourself a favor so you don't look quite so clueless, and ask them.

So, if all of these "nobodies" (and remember, nobodies who are making enough self-publishing to quit their normal jobs or quit their publisher) are self-publishing, traditional publishing's pool of potential stars is like a bucket with a couple of holes in the bottom. You still have some superstars, and those superstars will gladly go down with the ship, but do you really believe that there are so many authors out there sending manuscripts into traditional publishers as to keep the bucket at an even level (or are you in fantasy land and think there are so many authors that are clamoring to be trad-published that you might even overflow the bucket)?

The trend, right now, and for the last few years, and unless something weird happens, will continue on for the foreseeable future, is for authors to bypass trad pub completely.

What happens when they start doing well on their own? Ah, trad pub thinks they'll swoop in and sign that author? Thousands of authors have no read HM Ward's posts about how she's been offered seven-figure contracts and refuses to even consider it since none are offering her anything better than what she already has.

There is literally (and I hate that word but since this is about literature, it's a good fit) NOTHING that trad pub houses can do to get her to sign. There might be, but they haven't offered it yet. I'm guessing, again, that the trad pub houses can't, because if they agree to her demands, a whole shitload of other author contracts suddenly have a clause kick in that guarantees they'll be on an equal footing with her.

Right. So. Hugh Howey? Don't think so, and he's one of the hottest (giggity) authors around right now. Eisler? Hahahaha. Konrath? He'll probably burst one of the blood vessels in my brain with remote mind power just for even mentioning his name in this context. Lawrence Block? I have a feeling he's finding out just what the difference between his trad contracts and his self-pub success is, and you won't see him going back to trad much other than to fulfill any books left on his contract(s).

Nirmala said...

The other reason given to boycott Amazon on the HuffPost article is that Amazon "has been repeatedly accused of price fixing"

What???? I think the author really messed that one up also, as there were many stories a while back about how Amazon was returning the money its customers overpaid for ebooks due to the price fixing engaged in by Hachette and the other publishers. I could find no references in a google search to price fixing accusations against Amazon.

So in effect the HuffPost article is actually arguing that we should boycott Amazon because of the illegal actions of Hachette.

You can't make stuff like this up.

Nirmala said...

Here is the HuffPost article link again:
http://www.huffingtonpost.com/2014/07/14/boycott-amazon_n_5574742.html

Angry_Games said...

ugh, should be:

"Thousands of authors have NOW read HM Ward's posts"

Joe, really could use an 'edit' or preview function. I'll even pitch in a few bucks to pay your website person ;). Seriously.

Nirmala said...

To their credit, HuffPost did correct the misstatement about Amazon removing Hachette books from their electronic shelves after I pointed out it was not true in the comments.

Nirmala said...

"Joe, really could use an 'edit' or preview function. I'll even pitch in a few bucks to pay your website person ;). Seriously. "

I agree wholeheartedly. Please make it easier to correct our posts on here, and also while you are at it, it would be nice to be able to reply directly to an earlier post so we do not need to put quotes in our post to clarify what we are responding to.

Jim Self said...

@William Ockham

Great job as usual. I have to say that the developments just make me want to smile, kick back, and watch. Big Publishers want to continue high pricing and delay the ebook switchover? It's gonna be fun.

Laura Resnick said...

If much of this negotiation standoff is indeed about ebook pricing... I am still unable to get excited about it. Even though it is likely to affect me, since I'm traditionally published.

I think publishers should focus on LOWERING their ebook prices, not raising them (or even holding them at their current levels). I think that raising ebook prices, if that's the intention, will be a mistake.

But it's not like denying people water, education, clean water, or safe food.

This really is strictly a question of what the market will bear and how these companies' decisions will affect their bottom line.

If a James Patterson, Douglas Preston, or Nora Roberts ebook is priced too high (and most readers I know, even though with lots of disposable income, say that an ebook price over $10 is too high, and more than $12-$13 is price gouging)... Readers can choose to pay too much for a book they really want to read; they can choose to get it from the library rather than buying it; they can choose to wait until the price comes down and then buy it; they can choose to stop reading new books by that author; they can (and some will) choose to read a pirated copy.

This will also be true for writers (like me) who don't have years of bestseller wealth to fall back if/when sales drop due to over-pricing. And publishers will lower our advances, cancel our contracts, dump us, we won't be able to find new contracts, etc... But... WHAT IN THE BLUE WIDE WORLD does anyone think is ANY different about that future than the situation we've been in for years anyhow?

Similarly, if over-pricing leads to the closing of imprints and bankruptcy of some houses... How is that a CHANGE to be feared?

Any writers in traditional publishing who HASN'T been dumped by a publisher or had one fold under has either had an unusually fortunate career or just hasn't been around for long. (I've been around for 26 years, and I've by now lost count of how many publishers have dumped me or folded under me. It's definitely more than 6, but I stopped keeping track after that.)

If over-pricing is indede abad market plan, then publishers will recognize that after a while and adjust by lowering prices. Or they'll make a lot of additional mistakes RATHER THAN doing the one thing that would improve business (lowering prices), and they'll go under, get bought out, shut down, reorganize in bankruptcy, whatever.

That's bad for writers, but since most publishing most of the time has been bad for writers, I just don't see this as a new development or a future that's somehow different from the past...

Except for one key thing: Now, instead of needing publishers, any writers can continue generating earnings by self-publishing. No writer will ever again be in the position I was in MANY times wherein I couldn't pay my rent if I didn't get a contract with another publisher after a house dumped me, or closed my imprint and stopped taking my calls, or folded under me, or lowered advances, or disappeared from the radar along with my royalty earnings.

I recognie that Amazon has got a big stake in holding out on pricing negotiations, because reasonable pricing is a core element of their brand identity, so it's not surprising if they're emphatically resisting having thousands (or tens of thousands) of overpriced books in their stock.

It would be better for readers and writers, too, if publishers would focus on lowering prices--readers can buy more titles, more authors' titles can be bought, etc.

But if publishers raise them and, as many people (including me) think, that proves to b a mistake--readers and writers have options, after all. We can all work around that mistake if we have to, and see which publishers adjust intelligently to market forces and which do not.

Terrence OBrien said...

The publishers don't want to compete with each other. That is why they want prices held up. Forget all that stuff about the value of books. Follow the money.

This system worked just fine until Amazon and independent authors decided to compete using price.

venkyiyer58 said...

I loved the arguments and conclusions in this post. I would also love to read Hachette's point-by-point rebuttal. Pipe dream, I suppose.

Self-pub'ed and #1 on Amazon said...

RE: Regarding the net/gross confusion. Big 5 offers 25% of net, which amounts to 12.5% of gross, while Amazon is offering 35% of gross. Which is quite a bit more of a difference than the NYT article makes it out to be.

Someone please correct me if I've gotten this wrong.

. . . and . . .

In publishing, we generally discuss numbers in terms of list price vs net receipts. See my previous posts at 7:25 and 9:43.

. . . Let's say an ebook costs $4.99. Assuming a 30% discount, a Big Five publisher will receive 70% of that $4.99 from Amazon ($3.49), and the author will be paid 25% of THAT ($.88). Which boils down to 17.5% of the sale price.

If I may add my two centavos por favor:

Let's say that book is a PRINT book :-)

I quit my day job almost three years ago, making enough to pay the rent (and then some) "self-publishing through CreateSpace." I am no superstar. My book sells for around $20 on Amazon (depending on the small discount they offer). I write ONLY non-fiction books (which apparently do not count in some publisher's/guild's figures of profitable ventures for "selfies" -- yeah I just co-opted that term from KK :p )

I make right around $8.25 for every book sold (just above 35% from gross, or actual sale price). I sell a few thousand copies every year, and make $40-$50k per year on royalties alone.

That is a huge difference from any % I might get off of print, minus the agent's cut, and something no one else seems to talk about: returns. If we factored in the return fees--and reserves--the Big-5 (apologies to the sporting goods store by that name) charge THEIR authors, I am getting paid somewhere between 5 and 10 times what their mid-list authors could ever hope for. "Jinkies!" (copyright Hanna Barbera)

I owe ALL of this to BookSurge (R.I.P.), and I was decidely against C.S. merging with BookSurge until Amazon actually RAISED my royalty rates a few points after the merge. =-O

I just wanted to throw some real-life numbers into the mix, and make one last comment: ALL of my books are blacklisted by both indie bookstores and Barnes and Noble (and Borders--like I care that they are dead after destroying indie book stores all over the U.S.). Meanwhile my book is #1 in it's genre (in print!!) almost every day on Amazon in its category--not to boast--just to say that it *is* being done, despite the Big-5 refusing to take my calls (letters, emails), and despite the world's largest brick and mortar censor refusing to allow people to read my books.

Am I an Amazon shill? No, but I am am Amazon super-fan. We can talk about "What ifs" all day long that Amazon "may" someday put the screws to authors if Hachette loses (I love saying "Hatchet." It is so appropriate! :-)

So thanks for letting me vent after I have read each and every comment here. No one hears us little guys who are quietly growing (my monthly royalty check has grown 800% over the past two years), so I wanted to just say "we are out there Hachette." Here is my middle finger to show you that I can still draw my bow.

Andrew Rhomberg said...

@William Ockham

One of the issues I have with Amazon is their very selectice way of releasing information:

What contract expired (was it the ebook distribution contract, a marketing agremeent, etc.)?

Was the contract on auto-renewal (as is common) or not?

Amazon is a master at issuing press releases that *imply* things that are not necessarily the case.

Your interpretation makes sense, but when it comes to Amazon (and Hachette), I am painfully aware that we are not being told the whole story.

One of the nice things about the DOJ court case was how much information entered the public record without any form of editing.

One thing that doesn't get much mentioned is that Hachette's VP of Sales, Even Schnittman, has [in my humble opinion] one of the biggest egos in publishing. For me it's no surprise that Hachette has become the lighning rod and not one of the other publishers.

Alan Spade said...
This comment has been removed by the author.
Alan Spade said...

"But if publishers raise them and, as many people (including me) think, that proves to b a mistake--readers and writers have options, after all. We can all work around that mistake if we have to, and see which publishers adjust intelligently to market forces and which do not."

True, Laura, but you also have to take into account the paper books. Don't forget legacy publishers keep the ebook price high in order to protect the paper books.

That is especially true in foreign countries like France (in Europe), where you still have a network of bookstores tight enough to supply demand. To have many bookstores in France doesn't mean we have "diversity" in these bookstores, you know: there's always the same scarcity issue K. Rusch blogged about, and indies like me have a very limited access to these bookstores.

So, keeping ebook prices high have definitely big consequences in Europe for us indies. Today more than ever, with the anti-Amazon law which effectively prevents Amazon from discounting paperback books at the same level than bookstores (the initial law has been amended to allow that), Jeff Bezos' firm is at a disadvantage for paper books, and the price of ebooks in Europe is more than ever the heart of the matter. It is that which will allow us, indie authors, to really thrive or just survive like we are used to.

I'm not complaining, though.

William Ockham said...

@Andrew Rhomberg

I agree with you about Amazon. My impression that the facts they release are technically true, but designed to put themselves in the best light possible. Typical corporate PR. The Big 5, on the other hand, lie as a matter of policy. I have spent a great deal of quality time with the source documents from the trial. Most of what the colluders said in public was false and they knew it was false when they said it. John Sargent, in particular, is an inveterate liar.

On the issue of what sort of contract this is, look at Hachette's response. They say they are negotiating for terms for ebooks and print books. My assumption for what this negotiation is about is based what both sides have said and not said. There is a significant agreement between the two sides on this.

William Ockham said...

@Laura Resnick

I am no longer convinced that high ebook prices are bad for the Big 5. They have single-mindedly pursued that goal for more than 5 years. They knowingly broke the laws in their two biggest markets (US and EU) to achieve that goal. They are skating close to the edge of doing it again right under the nose of the DoJ.

They clearly believe that letting Amazon set retail ebook prices would be a disaster. And that is different from their attitude towards print, where they love Amazon discounting. How many producers complain about a retailer pricing their goods below cost when the retailer is eating the entire difference.

The reasons the Big 5 give for this attitude is transparently total BS. There must be something about their business model that we do not understand and it didn't really come out in the trial. That sounds pretty improbable, but I think it must be true.

Matt said...

@ William Ockham

"The reasons the Big 5 give for this attitude is transparently total BS. There must be something about their business model that we do not understand and it didn't really come out in the trial. That sounds pretty improbable, but I think it must be true."

I believe you're over-thinking this. This is a policy the Big 5(6?) put in place 5 years ago and they've stuck with it since. But the market 5 years ago was substantially different to what it is today. The percentage of ebooks sold was much, much lower and it's enjoyed a meteoric rise over those years. When the % was small it made sense for them to try and keep it down. This is simply a case of big corporations implementing a policy which quickly becomes obsolete, and they are too slow to change with the times or refuse to believe their special business model isn't what it once was.

You said it yourself, they've single-mindedly pursued higher ebook prices for 5 years. Well guess what, 5 years in the midst of a disruptive technology revolution is a long time. It's simply an old policy they are too stupid to change.

Andrew Rhomberg said...

@william Ockham

(1) Why are publisher's not so concerned about print? In print Amazon's marketshare was and still is a greta deal lower than it is in digital.

Here in the UK Amazon has reached 80% market share for ebooks injust 5 years. For print it might be as much as 25%, but after almost 20 years of market presence.

I think that is they key difference: Amazon's enormous market power in digital and the speed at which it happened.

P.S.: Amazon now controls 50% of publisher revenues in the UK (print books, audio books and ebooks).

Andrew Rhomberg said...

@William Ockham

It's also about control. The one thing in Amazon's proposed contract to publishers in the UK that caused the most outrage was that Amazon wanted the right to print any book on demand, if the publisher did not have the book in stock.

The debate wasn't about whether this was more customer friendly or more efficient, but about publishers becoming "puppets" of Amazon, noot even being able to decide on size of print runs and the like.

Chaneg is hard, especially sudden chnage.

Anonymous said...

This is why bestselling authors aren't walking away from the Big 5, and why the Big 5 will never run out of submissions from aspiring authors:

http://www.nytimes.com/2014/07/14/business/media/james-rollins-receives-a-15-million-multibook-deal.html?_r=1

William Ockham said...

@Andrew Rhomberg

To an outsider, the publishers objecting to the print on demand thing was totally bizarre. I could have understood an objection based on quality, i.e. claiming POD books are crap. But they really seemed to be objecting to the idea that a customer was getting a book that the publisher hadn't printed. Like artificial scarcity was their goal. Think about how that looks.

Matt said...

Anonymous at 5:10 PM said...
This is why bestselling authors aren't walking away from the Big 5, and why the Big 5 will never run out of submissions from aspiring authors:

http://www.nytimes.com/2014/07/14/business/media/james-rollins-receives-a-15-million-multibook-deal.html?_r=1,


There will always be writers who think the only true way to be published is through a publisher. I was one of those 12 months ago. Publishers will start running into problems as more and more information gets out there about how self publishing works and how those authors are actually making a living, and far more of them are than trad pubbed authors. More authors will take a chance on self publishing and the indie market share (which we've already seen shift away from publishers to the "shadow industry" of self publishing) will only increase. Smart debut mid-list authors will self publish, and currently trad pubbed mid list authors will try self publishing and find it to their liking.

A loss of market share will be what forces publishers to their knees, and they'll have to adapt or perish. From what I've seen so far they're having a hard time even recognizing they're in peril and they certainly aren't adapting in any way. It'll all be over in 10 years or less.

In the future the stigma will be reversed. If someone is traditionally published we'll be saying "oh, couldn't they make it as a self publisher?"

Anonymous said...

Smart debut mid-list authors will self publish, and currently trad pubbed mid list authors will try self publishing and find it to their liking.

Debut authors don't release that first book thinking they're going to be midlist. They all think they're going to be stars. Most of them end up disappointed, but then so do most self-published authors.

A loss of market share will be what forces publishers to their knees, and they'll have to adapt or perish. From what I've seen so far they're having a hard time even recognizing they're in peril and they certainly aren't adapting in any way.

They're enjoying record profits right now, and their pockets will always be deep enough to keep their ebooks on the virtual "front tables" and "end caps" of the big online retailers. I predict that in ten years they'll be bigger than ever.

Self-publishing has become a viable option for some, and that's great, but I don't think it's ever going to lead to the demise of big publishing. And why would anyone want it to? The more choices authors have, the better, IMO.

Terrence OBrien said...

am no longer convinced that high ebook prices are bad for the Big 5.

I think we have to contrast it against the alternative. I don't know how low prices would be good for them.

Anonymous said...

Anonymous said: Debut authors don't release that first book thinking they're going to be midlist. They all think they're going to be stars. Most of them end up disappointed...

If true, that's remarkably naive of them. Unless the publisher is ponying up a $250,000+ advance for a debut author, that author won't see much in the way of marketing, will end up with a small initial print run, and won't get the "front table" and "end cap" placement you think is so essential to success.

[Big Publishers are] enjoying record profits right now, and their pockets will always be deep enough to keep their ebooks on the virtual "front tables" and "end caps" of the big online retailers. I predict that in ten years they'll be bigger than ever.

I think your prediction is remarkably naive. Despite that vaunted online "front table" and "end cap" placement, Big Publishers have already managed to lose a third of the ebook market to indies.

Which also means that those online retailers have a huge incentive to open up those online "front table" and "end cap" programs to successful indies.

And hey, guess what? They are already starting to do so :)

Expect the erosion of Big Publishing market share to accelerate.

Anonymous said...

Anonymous said: I don't think it's ever going to lead to the demise of big publishing. And why would anyone want it to? The more choices authors have, the better, IMO.

Agreed about choices. Not everyone is capable of being their own publisher. Not everyone wants to be their own publisher. The folks rooting for Big Publishing's demise are usually coming from a history of negative experiences with it.

Most of the newer writers like me don't care one way or another whether Big Publishing survives.

We view Big Publishing as a quaint and archaic holdover which offers writers a business model that we had zero interest in from day one. So while we don't feel any particular animosity towards Big Publishing, we'll be happy to see their market share shrink to a small fraction of what it used to be. Not out of any malice. Just to level the playing field. Right now the Big Publishers are taking up too much space, and exerting a disproportionate amount of control over a part of the industry (print books) that is harder for us indies to access, and using that unfair advantage to monopolize the literary media and push mediocre books to the top of the charts.

Luckily, that temporary advantage won't last (and even despite it, we've already eaten a big chunk of the Big-5's lunch). Once further erosion of market share, or the erosion of print's relevance, or both have further leveled the playing field, we'll eat most of the rest.

Anonymous said...

Anonymous said: This is why bestselling authors aren't walking away from the Big 5, and why the Big 5 will never run out of submissions from aspiring authors:

http://www.nytimes.com/2014/07/14/business/media/james-rollins-receives-a-15-million-multibook-deal.html?_r=1


In the corporate world, when a company starts hitting the rocks and is worried about losing high-profile talent, it's a common practice to offer a small inner circle of "absolutely must retain" employees some fat bonuses, raises, and promotions if they agree to stay with the company a little longer. I've done it.

From the article:

The size of Mr. Rollins’s deal is especially unusual because there were not multiple bidders, and he was not jumping to another publishing house.

Sounds like they were worried instead that Rollins was about to start self-publishing.

kibileri said...

Anonymous 10:02
"Agreed about choices. Not everyone is capable of being their own publisher. Not everyone wants to be their own publisher. The folks rooting for Big Publishing's demise are usually coming from a history of negative experiences with it."

I'm one of those who doesn't want to self-publish. I'd rather have all my teeth extracted. I don't want to have to do all that work that isn't writing. I never wanted to be a publisher, and I won't start now.
However, this doesn't mean I want to go with Big Publishing. I had my run with them, and it wasn't good. I'm now with a small publisher. I get good royalties, and my rights back in 6 years, or when sales fall below a certain level. I have good sales, with virtual front tables and end caps, and the book out now sells itself on Amazon. I think I have found the best of both worlds. Please don't forget the very viable alternative of independent publishing -- where the word indie originally started! I'm pretty sure that there are a lot of writers like me who want that comfort of not having to think about the nuts and bolts of publishing, and yet get good returns.

Steven Zacharius said...

The reason publishers don't want the ebook prices to drop is because publishers don't want to see the price of content devalued. If they have to sell books at lower ebook prices there is a lot less revenue which means lower profits and lower royalties for authors. Keep in mind that with the traditional model that publishers are paying an advance, and the bigger that advance, the more the prices of ebooks have to be maintained at a higher level; otherwise how does the publisher recoup the advance. This is pretty basic. If the publisher were to drop the price to 4.99 versus 9.99, they are making a fraction of the revenue unless you want to try and make the argument that they're going to double or triple the amount of sales.

Steven Zacharius said...

Laura you haven't mentioned any of the publishing megastars leaving traditional publishing. Stephanie Laurens is still traditionally published but she's also doing some on her own....that's not the same as her being willing to give up her advance and the services she gets from traditional publishing. Why didn't she totally leave traditional publishing? And as for you last comment that we wouldn't admit if Patterson or other huge sellers were indeed leaving traditional publishing that there was indeed a shift; that's just foolish in my opinion.

Steven Zacharius said...

Dana I can't talk for other publishers but I can assure you that we talk to authors every day and I return emails from every reader that I receive. If a reader complains about a paperback binding falling apart, or not being able to find a book, or some typos; we always send them multiple free books for thanking them for taking the time to writing to us.

Steven Zacharius said...

Joe, Kensington has been a family business for 40 years now. My son now works with me too. It's the only publishing company that I know of that has had three generations. We've had numerous offers to buy the company at many times, but I've declined and will continue to do so. Even Amazon wanted to acquire us and I said no. I enjoy competing with the giants every single day.

Steven Zacharius said...

Darren, Amazon did indeed remove the buy buttons from St. Martin's when they had their dispute. It only lasted a week before they put them back up.

Steven Zacharius said...

Nirmala, you don't think that saying delivery of major bestsellers will take 1 to 2 months is the same as removing the buy buttons? Who wants to wait a month for anything when it's available in other places?

Steven Zacharius said...

Andrew, giving the ability to Amazon to print a book by POD because they don't order enough copies for their projected sales is a problem. The publisher then has to deduct from their sales the much higher cost, 4x the amount, for printing the book by POD. Why would they want to do this?

Steven Zacharius said...

Yes Angry...I do believe there are plenty of submissions to keep the publishing bucket full. Absolutely. We can't publish a fraction of the books that are submitted to us. We have loads of indie authors submitting manuscripts every week so clearly many of them still want to be traditionally published. Go to a writer's convention like RWA or ITW and you'll see loads of people who still want to be traditionally published as well. We have authors that are hybrid as well. I don't have any problem with that as long as we work together.

Steven Zacharius said...

William as I just replied to someone else, you are not understanding the objection to print on demand. It's not a quality issue for text books. It's simply a matter of economics. If the print book normally retails for 14.00 and it cost 1.00 to print.....the publisher is getting 6.00 for each sale.....at a 50% discount to Amaon. 14.00 * .50- 1.00=6.00.
That same book by print on demand could cost 4.00 to print so now the publisher is only making 3.00. Which would you choose?

Steven Zacharius said...

Anonymous......this figure of indie publishing being 1/3 of Amazon's business...where is this coming from? Is it 1/3 of the units sold, including all the books at $.99 which don't make any money for Amazon or is it 1/3 of Amazon's revenue which is what they report to their bottom-line and shareholders?

I'd like to understand your logic as to how the traditional publishers are going to lose their placement online versus indie authors gaining it. If a traditional publisher is doing $50,000,000 with Kindle and an indie author is selling 10,000 units at 3.99.......who do you think is going to get the better placement?

Angry_Games said...

"The reason publishers don't want the ebook prices to drop is because publishers don't want to see the price of content devalued. If they have to sell books at lower ebook prices there is a lot less revenue which means lower profits and lower royalties for authors."

Except there is no such thing as 'content devaluation' when it comes to books. There's what you want to charge, and what readers want to pay. There's also the well-known bit about lower prices = more sales, and if you did your math, you'd know that more sales at slightly lower prices = more money overall.

We learned this in junior high math, if I remember right. Let's take an example out of Joe's own website (though I won't quote him, he can come and pile on after me with links and such).

1,000 books @ $9.99 = $9,990
10,000 books @ 4.99 = 49,900

So, if authors are making 25% of even gross at $9.99 (example, plug in your own royalty rates at net or gross, it won't matter), their royalties would be:
1000 @ $9.99 = $2500.00
10000 @ $4.99 = $12,475.00

Now, before you go arguing about the value of books and all that nonsense, remember, the biggest complaint from readers is the high cost of ebooks. Ebooks have no production costs beyond the standard editing and formatting. There are no print editions to buy paper, ink, glue, and all that. There's the small cost of delivery, and the even smaller cost of storage. You only have to make ONE ebook and copy it infinitely, unlike print books, which have to be made individually.

Oh, are you still going to argue about the high cost of digital storage and delivery? I'm pretty sure you were told by everyone but yourself last time you raised that complaint that you were smoking really good grass, because those of us who came out of that industry know you had to have been higher than a satellite.

Steven Zacharius said...

Angry maybe if you keep reading and listening you'll learn something about the publishing business instead of just having insulting snarky replies that are uncalled for. I explained very clearly why publishers wouldn't want lower ebook prices. It means less revenue to the publisher. The traditional publisher's ebook sales have been very solid for the big authors. It contributes to earning out their advance which I know you don't care about. Those authors don't want to have less revenue coming in and lower royalty payments. You're taking arbitrary math examples to equate the the sales at the lower price. If I were you I would want publishers to keep the bestselling author's prices higher because if they were as low as the prices of your books the consumers would still be driven to the books by the big authors whose names they know. Then how do you compete?

Steven Zacharius said...

And ebooks do have a cost. It's called the advance. You don't understand how the traditional business model works at all. The difference from a mass market paperback at 40-50 cents to manufacture isn't all that dramatically different from the minuscule cost of an ebook. But once you add in the advance it's an entirely different ballgame. And yes, you and a few others who think they are digital warehouse experts have shown that you have no idea of what's involved in digital warehousing of books. Unless you've gotten competitive bids for digital warehousing you should stick to talking about something you might be more familiar with.

Andrew Rhomberg said...

@STeven Zacharius

We in fact @Jellybooks do warehouse 35,000 digital books and I know *exactly* what the marginal cost is (quite low). It is as of nothing, however, compared to developer manhours, but that's the same as with books, the advance the auhtor recieves, or the hours spent (without getting an adavnace), etc is a major upfront (opportunity) cost, but the cost of reproduction is minuscle.

There is also a big difference between (essentially) zero cost of reproduction and a cost of $0.30-0.40 and if you use a book (first in series etc) as a marketing tool (distributiing it for free) then that is a HUGE difference. Also, in essence Amazon is covering that cost for those KDP authors who manage to get the price of their books down to $0 on Amazon) throught the ususal "tricks".

Now back to the POD demand issue. I understand why the jaws of some UK publishers dropped. On the other hand to say Amaozn should just order more stock means to grossly misunderstand Amazon's business model.

You uargue that the publishes makes $3 less margin. On the other hand a sale lost for good is $6 margin lost (not $3), so POD has its place. Amazon wanting publishers to take all the inventory risk? Well its a typical supplier-retailer negotiation, typical for just about *every* industry.

I thought retailer demands were much, much worse when I worked in consumer electronics...

Darren Sapp said...

@Steven. "Amazon did indeed remove the buy buttons from St. Martin's when they had their dispute. It only lasted a week before they put them back up."

Point taken, but let's be clear. The author of that article was referring to recent action against Hachette as evidenced by the link she provided and her correction of the article. She inferred Amazon did that to Hachette which is not true.

Anonymous said...

@Steven Zacharius
"Angry maybe if you keep reading and listening you'll learn something about the publishing business instead of just having insulting snarky replies that are uncalled for. I explained very clearly why publishers wouldn't want lower ebook prices. It means less revenue to the publisher."

This, this right here tells me that no matter what else you say, you are full of shit. Everything else you say is suspect. Tell me the sky is blue and I will look outside to be sure because you cannot be trusted with anything.
Wholesale model:
Publisher says "HEY Amazon! We will sell you this ebook for $12.49! Cheers!"
Amazon says "HEY Publisher! That's GREAT! I'm going to sell that book for $9.99, even though I am giving you $12.49 for it!"

Guess what? It doesn't matter what Amazon sells that book for, if they pay the publisher $12.49, then they have lost ZERO revenue. Period. Exclamation point. Saying that they did/do/would is bullshit.

William Ockham said...

@Stephen Zacharius

Andrew Rhomberg made most of the points I would have in response to your comments. I would add that I have built systems that are functionally equivalent to a digital warehouse for ebooks and Andrew has it exactly right. I have also purchased/leased such systems (for different clients) and the range in pricing is astounding and disconnected from actual features.

I think you are correct about the misunderstanding of the business model and I think it goes both ways. That is, we don't understand your point of view and you don't understand ours. Let me try to bridge that gap.

I think you are saying that you view the advance as one of the input costs to bringing your product to market. Most of the folks here would completely reject that notion. I am not sure if either side has thought through the implications of their position.

When you treat the advance as a cost of production, you are implying that the product you sell is a book. You are probably thinking, of course, any fool can see that Kensington produces books. Well, this fool disagrees. As a reader, I am here to tell you that I don't buy books. I buy stories. That has important implications for your business. If I am buying stories, I am paying for the story. In my view, your role is to package the story in the most appealing way and distribute it to retail stores. The advances you pay aren't costs at all, but just a way of dividing up the price I pay. It is a strange business practice left over from the pre-Internet era.

With ebooks, this becomes very clear. The story writer gets part of the cut, the packager/distributor (that's you) gets part of the cut, and the retailer gets a cut. By paying an advance, you are essentially buying an interest in the future income stream from the writer's cut of the sales. That is a separate transaction from the income you derive from your role as packager/distributor.

Tasha Turner said...

@Steven I'm not supposed to be responding to you anywhere but a few points:

1. Hatchette books on Amazon show 1-3 week delays not months again it's hard to take you seriously when you can't get the basic facts straight

2. Several people that have argued data warehousing (including Andrew Rhomberg at Jellybooks) have pointed out that the infrastructure might cost upfront but the maintenance should be low - talk to Andrew privately about how to cut your warehousing cost and start saving your company $100,000+/year

3. Yes ebooks cost you more to produce than an indie but trying to set a price so "books will have value" makes no sense to me as a reader - I value the story inside

4. Your goal should be to maximize profit not protect the perceived value of books (start thinking stories not packaging)

I'm back to not conversing with you.