Saturday, November 15, 2014

The Authors Guild: Do More Than Hope

From Authors Guild Prez Roxana Robinson:

“In the meantime, it’s our hope that Hachette—in light of the loyalty its authors have shown throughout this debacle—takes this opportunity to revisit its standard e-book royalty rate of 25% of the publisher’s net profits.”

The Authors Guild has, many times in the past, voiced that ebook royalties should be raised.

So do something about it.

The AG, and Authors United, have been able to get beaucoup media attention during the Hachette/Amazon spat. They were squarely on the side of Hachette (even while proclaiming they weren't taking sides) and they waged a war for public opinion that did a decent propagandist job of demonizing Amazon.

Now the AG, and all of the bestselling authors who supported AU, need to show some backbone and integrity and use the same tactics to force the Big 5 to raise digital royalties.

Robinson is correct that many authors remained loyal to their publishers. And it makes sense that the loyalty should be rewarded. When a dog does a trick, it gets a treat.

Perhaps the treat will come, and Hachette, after suffering an 18% sales decline during the negotiations, will decide to give away even more profits by raising royalties.

If not, the days of politely waiting for this to happen, with occasional public nudges to do so, need to end, and real actions should take place.

Authors United has over 1000 signatories. If its next move was to demand authors get higher digital royalties, I'd sign on. If the AG went after the Big 5 in the media with the fervor if went after Amazon, I'd join.

We'll see if Hachette, and other publishers, realize how valuable the allegiance of their authors is by raising royalties.

If not, the AG and AU should wage a similar public campaign to the one they did against Amazon, and make the world aware that authors earning 1/3 of the digital royalties that publishers earn is lopsided, unfair, and will no lnger be tolerated.

Back in the day before they were called ebooks, and digital rights began to get mentioned in contracts, the Big 6 almost unilaterally came to the conclusion that 25% author royalties were fair.

Where was the AG and the AAR to push back? Not only were digital costs lower--no cost for production or distribution--but the distributor was essentially removed from the money chain. Rather than share this extra money with authors, publishers simply grabbed it.

I've done the math in the past. On a $25 hardcover, the author makes about $3.75, and the publisher around $5, after all production, delivery, and middleman costs (distributors and booksellers).

On a $25 ebook, an author makes $4.37, and the publisher $13.12.

How did this happen? Where was the outrage when this was slipped into all major publishing contracts?

Back in 2012 I wrote a post called The Agency Model Sucks. Here is the post again, since it is every bit as relevant.

If you're a regular reader of my blog, no doubt you've heard about the Department of Justice filing suit against five of the Big 6 publishers for collusion. If you haven't read the complaint, you should.

Personally, I don't care if their alleged collusion was illegal or not. I've been known to break laws on occasionmyself.

What I do care about is how authors are reacting to this news.

I won't point fingers, but a Google or Twitter search will show how many authors seem to think Amazon is bad, the agency model is good, and the poor Big 6 are getting the shaft.

Uh, no. That's just plain wrong.

I'm going to explain why the agency model in this particular case is indeed bad for authors. But first go read April L. Hamilton's terrific breakdown of arguments and statements erroneously defending the Big 6.

Before I begin, let's make sure we're all on the same page about what the agency model is. Here's a detailed explanation, but in a nutshell it is this: in a wholesale model, the one supplying the goods sells to a retailer at a predetermined price, then the retailer sells to consumers at whatever price they see fit.

In the agency model, the one supplying the goods gets to set the price for consumers, and then gives the retailer a set percentage (in this case 30%.)

It should be obvious that the one who sets the price has a great deal of power over the market.

The agency model by itself is not illegal. Retailers can choose to adopt any pricing structure with their suppliers as they see fit. And as I said before, I care less about the legality of this particular business relationship, and more about if it was good for authors.

And it wasn't, for this very big reason:

Under the Agency Model Authors Make Less Money

I've gone into this in detail before, but let me distill it.

Under the prior model, Amazon bought ebooks at a percentage of the recommended retail price. Then they priced them how they saw fit.

The wholesale price for ebooks was often about half of the hardcover price. So a $25 recommended retail price meant Amazon paid $12.50 for the ebook.

According to most contracts, the author made 25% of the net price the publisher received. So at the above numbers, an author would make $3.12 NO MATTER WHAT PRICE AMAZON SOLD THE EBOOK FOR.

In other words, if Amazon wanted to sell the ebook for $9.99, the author still makes $3.12.

Sell it for $5.99? Author makes $3.12.

Sell it for 99 cents? Author makes $3.12.

So what happens when the agency model comes into play?

First of all, Amazon no longer controls the price. We all know that this is BAD, because Amazon became the giant billion dollar company it is today by ruthlessly gouging customers, forcing them to pay high mark-ups at unreasonable prices.

Oh, wait a sec... Amazon doesn't do that. In fact, Amazon works its butt off trying to keep prices low. That's why so many people shop there.

Now, I've got reams of data that show lower priced ebooks outsell higher priced ebooks. My higher-priced legacy novels are underselling my lower-priced self-pub novels by 1 to 5 or worse.

In other words:

With the wholesale model, authors made more money per unit and sold more units.

If you are an author defending the Big 6 and the agency model, repeat that in your head until it sinks in.

With the wholesale model, authors made more money per unit and sold more units.

Funny thing is, publishers also made more money under the wholesale model. But instead the Big 6 decided they wanted an agency model.

Authors still get 25% of net. But net has gotten lower in almost all cases.

With the wholesale model, net was $12.50. With the agency model, net is 17.5% of the list price set by the publisher.

So the publisher sells it for $12.99, the author makes $2.27.

Sell it for $9.99? Author makes $1.74.

Sell it for $5.99? Author makes $1.04.

Sell it for 99 cents? Author makes 17 cents.

The Big 6 don't like low priced ebooks. It hurts their paper sales, and paper is the model they hold distribution power over. So once the agency model became adopted, the Big 6 kept ebook prices high.

In other words:

With the agency model, authors made less money per unit, and sold fewer units.

Is this sinking in yet? The wholesale model was better for authors. It was also better for customers, who benefited from lower prices.

So why are some authors defending the Big 6 for taking food directly out of their mouths?

Could be ignorance. Could be Stockholm Syndrome. Could be they feel the need to defend the industry that made them rich or successful (though not all authors defending the agency model are rich or successful.)

The point is, no author should be on the Big 6's side here. Even those who fear that Amazon will someday become a huge monopoly that will destroy the world by offering low prices, excellent customer service, and a platform for authors to directly reach those customers.

Q: But Joe, aren't you benefiting from the agency model? After all, isn't that what KDP is?

Joe sez: Absolutely. When I self-publish, I can set my own prices. I'm able to find that sweet spot in pricing to maximize profits. I love the agency model. It's terrific if you are the content creator.

But I don't want an archaic, inefficient industry controlling the prices of the books I've written to further their own Machiavellian agenda. It's absurd that I'm the one who wrote the book, and I get 17.5% of list price, while the company setting my list price is getting 52.5%. Even worse, that company setting this list price is NOT PRICING TO MAXIMIZE REVENUE. They are PRICING TO PROTECT THEIR STRANGLEHOLD ON THE INDUSTRY which is HURTING MY INCOME.

Q: But Joe, if the Big 6 are no longer allowed to use the agency model, Amazon might also take the agency model away from self-pubbed authors.

Joe sez: I'd be happy to go into a wholesale arrangement with Amazon. As you can see by the numbers above, a wholesale arrangement can also be beneficial to authors.

Q: But Joe, what if Amazon cuts author royalties and raises ebook prices?

Joe sez: Amazon has a clear history of trying to lower prices, not raise them. Right now the Big 6 legacy publishers are the ones who want high prices.

As for Amazon lowering my royalties, as long as there is competition I doubt that will happen.

Q: But Joe, if all the Big 6 ebooks are priced low, no one will buy yours anymore.

Joe sez: I disagree. I believe I'll sell even more ebooks and make more money than I am now if all prices drop.

First of all, lower ebook prices encourage buying across the board. Low prices fuel impulse buys. People are looser with their wallets and buy more then they normally would when prices are low.

Second of all, lower ebook prices allow the entire market to grow, as higher prices are a barrier to entry for many. When we have $49 ereaders and all NYT bestsellers are $2.99, more people will adopt the technology and buy the media.

Third, we're entering a global marketplace that will have an infinite, inexhaustible customer base. We'll never run out of readers to sell to.

Fourth, at low prices, there is no competition between ebooks. Instead of spending $19.99 on the new JK Rowling, if her latest was $3.99 a reader could buy that along with five of my titles.

In the comments, some keep insisting that once legacy ebook prices drop, indie sales will drop because of competition. Here's how I see it:

Ebooks aren't cars, where the buyer purchases one that will last for years. People who read books tend to read more than one.

If you read for pleasure, and ebooks become cheaper, I predict you'll buy more. This isn't about competing.

If a customer has a $25 book budget for the month and the choice is between my new hardcover and Patterson's, that's competing for dollars.

If we're both $3.99, the reader will get both. As a species we buy in bulk and hoard, even if we never use what we buy. That's how we're wired. And if prices came down unilaterally, I predict sales will go up unilaterally because the overall pie will get bigger--because more readers will enter the market--and those readers in the market will be able to buy more with their money.

Think about your own buying habits. Or think about what stores do. When you need toothpaste, and a tube is $4.99 or two for $5.99, which do you buy? Think about the bargain DVD section at Best Buy, where every movie is $2.99. If there is more than one you're interested in, do you get both? Contrast that to the new releases, which are $19.99. If there is more than one you want you have to think about it before buying both. At the lower price, you don't think.

Now think about going to the store to buy a refrigerator and expecting to pay $1000. You're thrilled to see a model you like for $399. Do you leave the store with $601 in your pocket, or do you keep shopping because you feel you saved money and can now spend some of it?

Lower prices will be better for everyone.

Q: But Joe, it isn't a question of money. It is a question of time. If people load up their Kindles on free or cheap ebooks, they'll never have time to read them all, which means they won't buy more.

Joe sez: People are already loading up their Kindles. That hasn't precluded buying more ebooks. Readers have always had To Be Read piles. But now they're cheaper to acquire, and portable.


Q: But Joe, Amazon is the devil and wants to eat my children.

Joe sez: I simply don't understand why authors are afraid of Amazon.

Amazon wants to lower ebook prices. The Big 6 want to raise them.

Amazon has given authors more opportunity than ever before in history, allowing them to make money. The Big 6 has "nurtured" thousands of my peers into depression and poverty.

Those who fear what will happen when Amazon rules the publishing world should instead fear the cartel that currently controls the publishing world: the Big 6. Forcing the agency model has hurt authors and consumers, and that's a damn poor business model and not one I want to align myself with.

You shouldn't worry about being eaten by a lion tomorrow when there is currently a pit viper biting you in the ass. And if you're defending the pit viper, you're an idiot.

Joe sez: I wrote that blog post in April of 2012. It still holds true today.

All of the authors who supported Hachette's insistence on keeping the agency model were also supporting earning smaller and fewer digital royalties.

So do something about it. Demand that Hachette raise royalties. Demand that all publishers raise royalties.

If publishers do, that will ensure Amazon keeps royalties high in order to compete.

Authors United, the Authors Guild, and the Association of Authors Representatives, if they pooled their efforts, could make just as big a media splash as they did when vilifying Amazon. 

Don't wag your tail and docilely hope for the treat. Bite them until they give it to you.

I'll support you any way I can.

47 comments:

Bridget McKenna said...

I'm pretty sure the Author's Guild isn't naive enough to think Hachette or any Big 5 company is going to raise royalties. The very fact that they're calling on Hachette to recognize loyalty as a reason to let go of some of that fat profit margin they got when their authors agreed to reduce their e-book share from 50% of gross to 25% of net suggests they're not even in the neighborhood of serious.

I think they're in the business of getting attention (and more memberships) while doing pretty much what they've done as long as I've been paying attention: Nothing. Zero, zip, nada, niente.

Alicia Butcher Ehrhardt said...

I'm more concerned with the fly in the ointment: the definition of the author's share as some percentage of NET.

Big corporations - such as the ones in the movie business - don't allow net earnings. Get all you want in a contract - and then have the NET redefined away? No, thanks.

Smart Debut Author said...

It would be wonderful to see the Apologist's Guild actually do something.

Their friends at Authors Entitled could lend some publicity.

If they want new authors to take them seriously, it's time for them to nut up or shut up.

No up & coming author I know has any use for the AG these days... what they are to us is a crusty old industry in-joke.

Terrence OBrien said...

The authors just showed they will do the tricks without a treat.

T. M. Bilderback said...

I'll have to back Joe on this one: If Doug Preston and the Authors United decide to focus media attention on raising tradition author royalties, I'll sign any of their petitions, and stand side-by-side with them until they get it.

We've made fun of Patterson, Preston, and everyone else involved in AU, but they ARE authors. They're RICH authors, but authors nonetheless, and all authors are deserving of fair pay for their creative work.

It shouldn't matter to us at all what happened in the spat between Amazon and AU. It's over now, and some of our fellow authors need help with enjoying more fruit from the very vine they planted.

I'll do what I can to help them, if they choose to take on the Big 5.

Michael

Alan Spade said...

How could the Authors Guild get a leverage over the big publishers?

As sad as it is too say, I believe that even we, indie authors, as weak as we may seem, have more power over Amazon than traditional authors over their publishers: we can unpublish at any time our work. Traditional published authors cannot.

The only thing they are able to do is to threaten not to renew their contract, or not to submit any other work.

If Doug Preston and James Patterson both made the threat, I think that Hachette would notice, because it takes time and money to create a brand. But Preston and Patterson are even more dependent upon the brand they have created with Hachette than the reverse. And a guy like Patterson is assured by contract to ever have the best possible deal, if another author negociate a better deal than his own.

So, they won't fight for midlist authors. The power is in the hands of these bestselling authors, not in the Authors Guild's hands. And these authors are like dragons, sitting on their money.

Jim Self said...

"Robinson is correct that many authors remained loyal to their publishers. And it makes sense that the loyalty should be rewarded. When a dog does a trick, it gets a treat."

EXACTLY my reaction. How shameful, to go so humbly to your master with your hand out, explaining how good you've been lately.

These people actually see the publisher as someone higher than themselves. Maybe they weren't so wrong with their stupid "religious war" comment.

The publisher is your business partner.

Amazon is also your business partner.

Which makes you more money? Gets you more attention? Puts your work in more hands?

Shameful.

Jim Self said...

@Alan Spade

I disagree about Patterson, et al needing their publishers. They have the money to start their own publishing companies and keep all of the profits. They don't because of, among other reasons, loyalty. King has said as much. You know airports and Walmart and so on will keep buying them. The math is in their favor. But they don't do it. Kinda sad.

Walter Knight said...

Will Barnes and Noble ever go out of business? How will leverage change then?

Anonymous said...

The clause on author/ pub split on 'electronic books' split goes back far far before 2012

The first one I saw n Big Pub contracts was right there in black and white in 1993. Authors had NO idea, and publishers had no idea, and writers' groups had no idea and agents had no idea where all this was going to go back then.

Many of us were witnesses to the early 1990s in Big PUb, and that's how where the first contracts were specific re what was called 'digital media' or electronic media.

It is now 21 long long years later. Much has gone done the pike without publicity. Ag did intervene in several completely egregious big pub author depletions, including bargainig for more than 17% in 'digital split' with pubs, and HC \'s insane attempt to force all authors with overdue ms to pay back full advances while being canceled-- and for many authors, HC wanting to hold onto their print and digital rights until pd back in full re advances. Ag won the latter to the great relief of 100s of authors who were being plowed under by HC. That's just a tiny part of the battles with pubs since 1993. There's much more, but again, little to no MSM publicity about them all.

But, all that aside. Having been a witness to the stirring of digi books and contract clauses and negotiations w authors in 1993 forward, I'd say that agents, pubs and authors gx and authors, all, thought electronic books would be 'extra' and sideline income.

Though at least one former mogul at-the-top brags now that he saw the 'ebook' revolution coming. He didnt. What he saw was the idea that multimedia would become big in the 90s because of gaming. Gaming became big, but multimedia went kerplop.

And ebooks began to rise up in some take note way re the entrance of the Kindle . Sony had a clunky ereader that existed for a long time before Kindle and some other cr--. But Sony's hardware sales were low low low c ompared to books sold in hb and pb, and there was little content in digi multimedia except for highly produced and expensive multimedia.

But the high priced Kindle sold into the demographic with expendable income-- not the poor or those already with so little access... And more and more content became avail for the ereader. The rest is history.

Broken Yogi said...

How about AG and AU demand that Hachette and Amazon compensate them for their losses during the impasse? Amazon's three offers are still on the table. And now that we see how unnecessary the whole thing was, in that S&S were able to come to a contract within three weeks of the start of negotiations, and months before their contract expired, isn't it clear that Hachette's authors were being screwed over by Hachette, and should be compensated?

That would be a great test of the loyalty of these "author" groups. Is it to authors, or to publishers like Hachette? It's one thing to have been loyal to one's publisher in the middle of the dispute. But once the dispute is over, and it's clear that Hachette was at least as much at fault as Amazon, shouldn't authors make it clear that they won't allow themselves to be used like that again, at least not without getting paid for the trouble. Let Amazon and Hachette pay damages to those authors so affected.

And then we can address the overall industry royalty rate for ebooks.

Alan Spade said...

Call me disenchanting and acerbic. I'm wondering if traditional published authors, by pursuing a dream were they would be offered a seven or eight figure contract aren't just putting themselves in the tiger cage to get bitten.

After all, some bestselling authors never earn out these kind of advances. So, if they don't earn out these advances, where does the money come from? From the publisher's pocket? Or from the midlist authors' pocket?

Who said "fool's bargain"?

SJArnott said...

JK said "As a species we buy in bulk and hoard, even if we never use what we buy. That's how we're wired.”

If you can’t use what you buy, why buy it in the first place? It’s not rational behaviour. Most people would save the money to go towards something that would be useful to them. People who acquire things they can’t use and squirrel them away in their house have TV shows made about them (and not in a good way).

JK said "When you need toothpaste, and a tube is $4.99 or two for $5.99, which do you buy?”

I’d buy the two-for-$5.99, but I’d buy it in the expectation that I’d eventually clean my teeth with it. What I wouldn’t do is continually buy cheap toothpaste knowing it was going to sit in a cupboard for the rest of my life. That would not be rational.

I have a Kindle with around seven unread titles on it. That's a strong disincentive for me to buy new books (or even browse), because If I continually added to my collection, I’d end up with a growing backlog of books I would never, ever have time to read. And what would be the point of that? To do otherwise would not be rational. And most people are rational, not OCD hoarders who sleep atop newspapers stacks in their bulging homes.

I’m sure there are people out there who have far more than seven unread books on their Kindle. Everyone will have their own cut-off point, but at some point you stop buying.

I do, however, agree with your broader point that more big name authors selling cheap ebooks would not necessarily be a bad thing. Because there’s not very many of them (relatively speaking) so the competition they offer is limited, and if their fans can be encouraged to take up e-reading, then that would be a significant expansion of the indie ebook authors’ potential market.

Terrence OBrien said...

Companies usually pay suppliers more because of competition. They have to increase what they pay because the suppliers will sell to the other guy if they don't.

The big publishers have comnpetition. Amazon is paying 70% of list price. That's lots more than the big publishers pay. So how come that comeptition hasn't forced the big pubs to pay more?

It's simple. Supply is so large, the comeptition for supply from Amazon hasn't affected the big publishers. This is normal economics. Publishers have no problem getting supply. They have no problem getting supply at 25% of net.

They will have no pronblem if AU takes out a NYT ad. They will have no problem is everybody Tweets and blogs about it. They will have no problem if Roxanna calls for higher payment.

The only time they will have a problem is wheh they can't fill their scheduled publishing slots because the authors have all gone to the other guy. Then they will increase what they pay.

Gramix Publishing said...

"...if they pooled their efforts, could make just as big a media splash as they did when vilifying Amazon. ..."

Sorry, Joe. While I agree with the rest of you comments, I can't agree with you on this. The incestuous relationships among the media companies and the publishers tells me you won't see nearly as many op-ed pieces attacking publishers as you saw attacking Amazon.

Joe Konrath said...

It’s not rational behaviour.

Rational or not, it's what people do. We all buy things that we never wind up using. When those things are digital and can be purchased with a mouse click, it's even easier.

I’m sure there are people out there who have far more than seven unread books on their Kindle

And cupboards with expired cans of peas, and milk that gets dumped because it goes bad, and restaurant leftovers that are thrown away rather than taken home, and pants bought on sale that end up donated to a thrift shop unworn, and DVDs rented and never watched, and so one.

Abundance breeds waste. I'd guess that a large percentage of ebooks I've sold aren't ever read. We know the definition of a bargain: something we don't need at a price we can't pass up.

Joe Konrath said...

The incestuous relationships among the media companies and the publishers tells me you won't see nearly as many op-ed pieces attacking publishers as you saw attacking Amazon.

I know. And they should all be ashamed.

Andrew Douglass said...

To me, the lesson of the Hachette-Amazon dispute is that Amazon has a lot of leverage. The weird passive-aggressive delays in shipping etc. clearly hurt Hachette, and Amazon can afford the losses to win its point. I don't care whether the publishers are "bad," rather whether the authors are Amazon's next target. Amazon with it's market share can take vary the KDP terms whenever it wants, and the relatively unorganized authors will have even less to fight back with than the publishers did to get their temporary reprieve. Amazon would love to say "all books for $3.95—we bring you low prices!" by, for example, lowering the cap on 70% royalties. Authors are going to be reluctant to lose the Kindle market, and Amazon can take a lot of losses in the short term if the authors vote with their feet. In short, even if Amazon is a currently a "good" thing, its concentration of market power—suppressing competition—is a bad thing. For now I'm shopping elsewhere.

Jill James said...

I've bought two ebooks at $9.99 but I really, really wanted those books. I've bought hundreds of free to $2.99 books. In my buying I rationalize buying an expensive book by big name author because the rest of my buying for the month has been a bargain. Think if they were all a bargain, how many more I could purchase.

Liz said...

Andrew, people have been saying what you're saying for years. People always fear what COULD happen. Some writers seem to like to sabotage themselves because of their own fears.

Andrew Douglass said...

Hi Liz, thanks for the response. That it hasn't happened doesn't mean it won't happen. We've never had a nuclear war but.... There is no reason to think Amazon cares about anything other than market share/profit—which is fine in itself, but the weakest players will eventually pay the price. Squeezing authors once the publishers are broken is the logical next step. I think authors will need to rely on the civic-mindedness of rich authors, or organize rather than negotiate as individuals, steps that raise some further questions. (BTW there's no self-sabotage here—I meant I'm leaving Amazon as a *customer* not a seller. I have no problem with taking their money. Why, it's patriotic! :)

Broken Yogi said...

Amazon would love to say "all books for $3.95—we bring you low prices!" by, for example, lowering the cap on 70% royalties.

A lot of people don't seem to understand what Amazon's push for lower prices represents. It's not an effort to make ebooks dirt cheap and to leave authors with no income. It's to maximize profits for ebooks, by pricing books at that "sweet spot" that creates more sales at a price that still creates more overall profit. If prices go too low, then profits also drop. It's a bell curve. If prices are too high, overall profits are low. If prices are too low, overall profits also dip. In the middle there, is the optimum price. Amazon wants ebooks priced optimally. That's it.

Now, maybe that price really is 3.99. So what? If authors are forced to sell books at 3.99 because that's where they can make the most money, what exactly is wrong with that? Some minor loss of self-esteem that books are somehow being "undervalued"? That might make sense, except it would mean that authors were making more money at that price. And what exactly is the tragedy in that?

I don't think Amazon is going to force self-published authors to price at 3.99, because the optimal price for a book varies on many factors, and they don't want to force authors to price at sub-optimal prices. They do make price recommendations for books based on their sales and marketing data, and it's often near to the 3.99-4.99 level. But not always. But you're right, they may get stricter with that, though again, it's in the direction of optimizing sales and profits for both themselves and the author.

The more threatening situation would come if Amazon lowers the 70% royalty. Again, not likely to happen soon, but it's always a possibility. Amazon wants to incentivize self-publishing, not punish it, to weaken the trad publishing world. That's going to take a fair amount of time, so it's not something to worry much about for now. And there are other potential sales outlets, including big boys like B&N, Apple, Google, etc. I tend to think Amazon would be content to remain the major self-publishing retailer well into the future, by building loyalty with its authors and keeping royalties generous. Maybe that's naive, but I think it's just sound business practice. And Amazon does seem very good on sound business practices.

William Ockham said...

@Andrew Douglass

I am baffled by your attitude. What Amazon did was neither weird nor passive-aggressive. Retailers do things like this all the time. Look at the stuff that Apple pulls with their app store.

You claim that Amazon would love to lower the cap on the KDP 70% level to $3.99, but you cite no evidence of that. In fact, the evidence suggests you are completely wrong. Amazon has tons of data that shows what prices allow Amazon to sell the most ebooks. Depending on the book and author, that varies between $2.99 and $9.99. We know that because they started sending suggestions to KDP authors on their profit/sales maximizing price.

Facts can be quite troublesome when you try to spread
fear, uncertainty, and doubt. You depend on the ignorance of indie authors to obscure the fact that your scenario is complete fiction. Folks need to carefully consider the unstated assumptions inherent in your argument. Your position depends on your assessment of Amazon's motives. To believe you, we would have to assume that Amazon is irrational, petty, and utterly incompetent as a retailer. I find that scenario less likely than nuclear war.

Silas Payton said...

"I have a Kindle with around seven unread titles on it. That's a strong disincentive for me to buy new books (or even browse), because If I continually added to my collection..."

I'd be embarrassed to admit to how many books I have. I have become more picky over the past few years. I rarely buy from traditionally published -- not worth the extra cost. Even with more books on my device than I could read in a year (or ten), I still buy more. I may have a problem, but my interests change, I see a new author I want to support...there are many reasons to buy ebooks. I don't see my habits changing.

I'm sure I'm not alone. So far, my buying habits are creating more wealth for self-pubs and I've been almost exclusively purchasing ebooks since 2010. There are still huge waves of people (here and in different parts of the world) that don't read ebooks yet.
I think we're still on the ground floor with this transformation to ebooks, in my opinion.

Anonymous said...

I disagree with the idea that we continually hoard. At first I downloaded a lot of free ebooks and purchased a lot of cheap ones, but after having several hundred books in my library I am much more careful about what I buy or download. I feel like it's clutter at this point.

It's the same with food. I might buy quite a few items on sale, but after my cupboard is full I am not going to continue to buy and stock my basement like a survivalist.

I can see the time when I only buy a handful of books each year because of Kindle Unlimited, Scribd, borrowing from libraries, etc. I already spend much less on books per year in the digital age than I did when all the books were in paper.

Anonymous said...

Curtis Manges said:

"—in light of the loyalty its authors have shown throughout this debacle—"

Excuse me, but when was contractual obligation redefined as loyalty?

Terrence OBrien said...

That it hasn't happened doesn't mean it won't happen.

For many things, that is correct. So, how should we approach the unknown?

One approach is to presume one of many alternatives will happen, and ignore all the other things that might happen. If many things can happen, acknowledge only one thing that can happen.

So, since Amazon hasn't raised royalties to 75% in the past, that doesn't mean it can't happen. Therefore, I suggest we all proceed on the assumption that 75% royalties are just around the corner.



Andrew Douglass said...

I didn't say it right before, so I'll take a last stab: what I think *will* happen is that Amazon will want to lower price and keep its cut the same, and will do it by cutting that 70% royalty rate. (Enough legacy published authors are already putting up with far, far less, and Amazon ominously already has that 35% rate for prices that displease it.) Their market share will give them the leverage to be dangerous. I think it's naive to think that an entity big enough to strongarm the publishers can do the same to many authors. There are for us potentially happy endings to this story, but not if Amazon chooses them.

Broken Yogi said...

I didn't say it right before, so I'll take a last stab: what I think *will* happen is that Amazon will want to lower price and keep its cut the same, and will do it by cutting that 70% royalty rate.

I'm not sure how you think this would actually work. First, Amazon can't force you to lower your price. You can always stop selling through them if you don't like their terms. And if enough people find their terms unacceptable, they're going to lose a lot of their self-publishing business to a competitor, like Apple or Google or B&N, all of whom would probably be happy to get it. In fact, it was Apple who first offered 70%, and Amazon matched them, because they didn't want to be undercut. So it's hard to imagine Amazon wanting to be undercut by Apple again, and lose the self-pubbing business to them and other competitors.

So I'm not sure what kind of pricing you think Amazon could institute to lower prices without also reducing their total profits, or losing their authors to a competitor? It seems unlikely to me that Amazon would put so much time and energy into developing KDP, only to ruin it by charging authors significantly more than their competitors do. Amazon seems determined not just to match retail pricing through discounts, but also to match self-pubbing rates throughout the ebook world.

But the biggest problem with your idea is the presumption that when you lower the price on your book from an overpriced, and thus sub-optimal level, to that lower optimal price, that Amazon loses money, and needs to make it back by raising their margins. You're still obviously not getting how the economics of price/demand/sales works. Profit per unit is not what is important, it is profit per unit times total sales that matters. That is called total net profit.

For example, if you price your book at 9.99, maybe you sell 100 copies, for total sales of $1,000 (rounded up), giving you a net of $700, and Amazon a net of $300. But if you price it at 2.99, you might sell 1,000 copies of it, giving you total sales of $2,990, and a net profit of $2,100, and Amazon a net of $900. That means a lower price actually made you (and Amazon) more money. Amazon doesn't need to raise their margin to make back what they lost by lowering the price, because the lower price led to more sales and actually increased their margin.

But maybe that 2.99 price was actually too low. Perhaps you find that if you raise the price to 3.99, sales only go down to 900, which results in total sales of $3,600, which means that your net profit is now $2,520, and Amazon's profit is now $1,080. They are even happier with that, even if it meant raising your unit price.

So you see, Amazon is NOT losing money when someone lowers (or raises) their book price to that optimal price point, even if they are not making as much money per unit sold. They are more than making that up by selling more books at that lower price. That's why they want lower prices in the first place. They want to maximize overall profits. So Amazon ends up making more money when you lower the price on your book to its optimal level, and they don't need to "make back" what they lose from lowering prices by taking anything away from the author's share, because they didn't lose anything, they gained profit.

That doesn't meant that Amazon wouldn't be tempted out of sheer greed to lower its royalty rates and take a bigger share of that net profit. And without competition, they very well might. But as long as their are other big corporations out there like Apple, it's highly unlikely that they will. Or even smaller companies that could become big ones fairly quickly if they could undercut Amazon and take away much of its self-publishing business. So I wouldn't sweat that one for a very long time, and probably never.

Andrew Douglass said...

@Yogi: Thanks for the thoroughness of your reply. Thing is, at the end of the day the pie must be cut. I mean the percentage of the net, regardless of how you got there with units sold or the price point. The publishers were up first. You can say, oh you can just go elsewhere if Amazon makes you mad—but why not say the same about Hachette? Amazon was in a position to make them lose money. Market power. The thing the publishers are losing and Amazon is gaining.

*Maybe* Amazon is right and everyone will make more money if they win the pricing war, which is certainly ideal. But does Amazon "care"? No, it's a business. I don't see any reason to trust them and do see emerging reasons to distrust them. Look how publishers have (mis)used their market power and ask why the retailers are not going to be similarly tempted. If I were an AMZN stockholder I would expect them not to leave any money on the table.

Now, there's no reason to choose sides or give the whole thing moral overtones. When I write "trust" I don't mean an emotional thing, rather that our interests are not always aligned. Much as Authors United *should* criticize Hachette, we should keep an eye on both sides.

This whole discussion here has been a terrific education for me. The one thing I am saying is that Amazon and the other big retailers need watching. I guarantee this stuff will be in court again, and the antitrust concerns are not over.

Mark Edward Hall said...

I'm seeing a lot of baseless fear on this thread about what Amazon might or might not do in the future. This seems totally useless to me. Why don't you guys write some books and stop worrying about the sky falling on your heads. Right now Amazon is treating us pretty damn good. We should worry about the future when it gets here.

terrence OBrien said...

I didn't say it right before, so I'll take a last stab: what I think *will* happen is that Amazon will want to lower price and keep its cut the same, and will do it by cutting that 70% royalty rate.

Bezos is quoted as saying, "Your margin is my oportunity."

If Amazon did as you suggest, it would be increasing the profit margin of its book business. That makes Amazon's margin an opportunity for competitors.

Can you tell us how Google, Apple, Walmart, and AliBaba will react to such a move?

Andrew Douglass said...

Can you tell us how Google, Apple, Walmart, and AliBaba will react to such a move?

No I can't. It depends. They can act competitively—the way the market is supposed to behave but doesn't always—or anticompetitively—as part of a oligarchy (compare how the publishers behave). As the recent court case proved, Apple for one is willing to break the law. This is not a place for complacency. The huge body of antitrust law is not based on obvious, pro-consumer answers to these questions.

Is 70% (if you price the way Amazon tells you to, and that could/will change) really a negotiated cut, or what Amazon is offering while it extends its market domination? If all authors sold directly to consumers, the margin would be greater. A file server plus a payment service and you're in business.

I don't dispute that Amazon offers a good deal. My ideal however would be an author-operated consortium with direct sales. Only then will the big retailers really have to negotiate. Amazon is not adding much value beyond a glorified file server plus payment processor, even less than the publishers so roundly criticized here. Granted, this is working very well for many people who thus like the status quo, but I don't see the authors aside from the very successful ones, who will tend to fight for their own interests first (with notable exceptions) as having much pull.

I'm not an expert in markets but have studied enough antitrust law to ask what is so different between Amazon playing hardball with publishers and with authors. We have characteristics in common, even while being partially adversarial too.

C'mon, it's at least at interesting Q. :) Do, as someone said, keep on writing.

Anonymous said...

"If all authors sold directly to consumers, the margin would be greater. A file server plus a payment service and you're in business."

Some authors do that.

I'm not on Amazon because of the 70%, I'm on Amazon because its search and sales algorithms put my work in front of more people than just my website could.

To me, that's worth 30%, and actually a bit more.

Andrew Douglass said...

To me, that's worth 30%, and actually a bit more.

Shhh! If I were Amazon, I'd be reading this blog. :)

If Amazon is appealing because they do a great job, terrific. If Amazon is inevitable because they end up with the majority of the market or are informally colluding with the other retailers, like the publishers were doing with each other over pricing control, watch out. Hachette couldn't do without Amazon (probably because they are still addicted to paper) while it simultaneously has had too much leverage for authors. So will the retailer be the next bully? 99¢ books? Is 70% just the teaser rate? I dunno. I do think ebooks are revolutionary. Thx all for the discussion. --Andrew

Broken Yogi said...

ANdrew,

You can say, oh you can just go elsewhere if Amazon makes you mad—but why not say the same about Hachette?

Hachette said just that to Amazon. They seemed to be perfectly willing to go without Amazon, despite Amazon's market power. From what I can see of the deal finally reached, it doesn't give Amazon much of anything they wanted. So much for Amazon's market power to crush publishers. The big publishers won this round. Amazon has given up on wholesale pricing, and is just hoping that market forces and their offer of even better margins at lower prices will be taken advantage of.

It's not like there's no competition for Amazon, and that's what they are concerned about. That's one of the big problems with agency pricing - it doesn't allow Amazon to undercut the competition. That they gave in to an agency pricing deal means that they won't be in as strong a position to outcompete on price. Not if the publishers are determined to use pricing as a tool to window their line and protect print.

As for trust, of course in business no one should just trust someone else to look after their interests. Everyone has to work hard to protect their interests, authors especially. The problem with authors is that they don't want to be businessmen. They really just want to write, and trust publishers, agents, editors, and so on, to do it all for them. Which is why they always end up getting screwed. So of course authors shouldn't just trust Amazon. But they shouldn't trust anyone else with a vested interest to protect either. Not only unless those people's interests coincide with theirs.

And that's the best that can be said for Amazon. Their interests coincide with authors to a highly significant degree. Whereas most authors' interests (apart from the big best-selling celebrity authors) are not being served by agency pricing or windowing or the concerted effort to keep ebook prices high to protect publisher's print distribution stranglehold. As Joe keeps saying like a mantra, there's simply no sense in fearing what Amazon might do in the future, when in the present it's publishers who are screwing authors over, and what Amazon is doing in the present aligns much more with authors' interests.

As for anti-trust issues, the government does not police future possibilities of violations, they police present violations. That's why they policed the publishers who colluded against Amazon. And it's why if we get action again, it's much more likely to go against the publishers than Amazon. Because in the present, it's publishers who represent a monopolistic and monopsonistic cartel, not Amazon. If in the future Amazon becomes either a monopoly or a monopsony (highly unlikely) and abuses that power, well then of course they are going to be open to anti-trust prosecution. And I'd be happy to see that happen. I don't own stock in Amazon. I just find their business model to be more in line with my and authors' interests than the big publishers. None of those people care about authors anyway, not in a way that makes a real difference.

Broken Yogi said...

Is 70% just the teaser rate?

Probably yes, if there were no competition out there. When Amazon first offered self-publishing, it only paid 35%. Then Apple jumped in and offered 70%, so Amazon matched it. As long as Apple is in business, and others are offering similar rates, I think we can "trust" that Amazon will keep that 70% royalty. Because they don't want to be undercut. If they did cut, self-publishing would quickly migrate to the iStore and other outlets. As would a fair amount of Amazon's business. You can "trust" that Amazon doesn't want that to happen. Because, you know, Apple is the largest cap company in the world, and they are someone Amazon truly fears.

Peter Spenser said...

@Broken Yogi (and others)

As long as Apple is in business, and others are offering similar rates…

It’s not just “similar rates” that Apple and others are offering; it’s actual competition for more books from authors. A lot of people here seem to be more Kindle oriented than Apple oriented, so I don’t know how many of you pay attention to what’s going on over at Apple, but with iOS 8 (the new operating system for iPhones and iPads) and OS X Mavericks and now Yosemite (the operating systems for all other Apple devices), every Apple customer, worldwide, now has the iBooks app (and its connected store) in their hands, staring them in the face, every day. They don’t have to be interested enough in e-books to go look for, and take the trouble to download, the app from the App Store; now it’s already included. My guess is that Apple sees a major potential market for e-books in their vast, and rapidly growing, customer base here, and in Europe, and in China and the rest of Asia (where the majority of mobile users are also mobile readers). If those people are going to be reading e-books, Apple (I’m sure) wants them to be reading e-books from Apple.

This means two things to KDP authors: one is that anyone not in KDP Select should start getting their KDP books made into EPUB books also (if they’re not doing so already) in order to tap into that market of (so far) fifty-one countries. The second is that the increased competition will make it even less likely that any of the scenarios spoken of so forcefully earlier by Andrew Douglass will come to pass. If Apple has started to take a more serious interest in e-books (and there are some indications that it has), and if it can tune its iBooks storefront to be better at some of those things that Amazon does so well (discovery, recommendation, and promotions), then Amazon might finally have a real competitor on its hands.

Terrence OBrien said...

No I can't. It depends. They can act competitively—the way the market is supposed to behave but doesn't always—or anticompetitively—as part of a oligarchy (compare how the publishers behave).

In that case, the analysis is very incomplete and there is no reason to accept it. It's just another speculative possibility. One among many.

Terrence OBrien said...

I'm not an expert in markets but have studied enough antitrust law to ask what is so different between Amazon playing hardball with publishers and with authors.

There is no difference. Neither has anything to do with antitrust.

Anonymous said...

"If Amazon did as you suggest, it would be increasing the profit margin of its book business. That makes Amazon's margin an opportunity for competitors.

Can you tell us how Google, Apple, Walmart, and AliBaba will react to such a move?"

So far they haven't reacted to Amazon's 70% royalty margin by offering more. I suspect that means Amazon could trim, not slash, royalties and they wouldn't do much.

Another thing Amazon could do is offer the 70% royalty option for Kindle exclusivity and offer a smaller royalty for authors who want to be on multiple platforms. That would be interesting.

Interesting times, I guess.

Terrence OBrien said...

So far they haven't reacted to Amazon's 70% royalty margin by offering more. I suspect that means Amazon could trim, not slash, royalties and they wouldn't do much.

Amazon's margin is 30%. Increasing it above 30% offers more opportunity for a competitor. High margin businesses are attractive to competitors. Low margin businesses don't offer much opportunity for profit, and are less attractive.

When we have a high margin business, competitors can take a lower margin, take market share, and make money.

This is overlooked by the folks who continually tell us how Amazon will dominate the business then squeeze everybody to pump up their own profits.

Alan Spade said...

I'm with William Okham when he says (in a comment from another post) that we won't know until January 2015 who has really won the negociations.

If the gap between the price of hardcovers and ebooks is more than $3 for Hachette bestsellers books on January 2015, Amazon has won. If the gap is $3 or less, Hachette and Big publishing has won.

Steven M. Moore said...

Joe,
All this kerfuffle about agency v. wholesale models seems like a moot intellectual exercise to an author like me who can't sell his ebooks at any price. I don't need to do that, but many do. The fundamental problem is that it's increasingly difficult for any writer to make a decent living writing anymore. I don't need to do that, but many do. Authors are like the industry's worker-bees. Authors' orgs should be like their unions, taking care of their workers and not selling out to either the publishers or retailers. That's not occurring now. One can argue that it never has. Depressing, to say the least.
r/Steve

Andrew Douglass said...

@Terrence: yes, a monopolist forcing suppliers to collude in vertical integration to offer lower prices very much has to do with antitrust. http://www.markhamlawfirm.com/amazon-become-antitrust/ It's a claim that would probably fail in court however, due to the way the law works, and I don't see disorganized authors hiring all those lawyers. (DOJ might.) Anyway, that leaves authors in the lurch. The great thing about ebooks is that authors can set up their own distribution channels pretty easily. Oh, assuming they're OK with losing the Kindle market Amazon has so brilliantly built up. It is possible for consumers to buy Kindle books elsewhere, but it's just not going to happen much. (I'm surprised how quiet the readers are in all this. Aside from criticizing overpriced ebooks, who, for example, is complaining about losing the right to sell, lend, or even give away used books?) I'll stop spinning out the argument. I'm just saying there is something to think about.

BTW if/when authors sell direct, they'll get 95% of the take, making the industry standard 70% (with price controls) look kind of mediocre. Amazon/Apple/BN/etc. are keeping a lot of money for processing payments and running a file server. The publishers have done them an enormous favor by offering such ridiculous terms—anything better looks great. How were publishers ever able to extract such terms? Well, now-dying market power. Authors in the lurch.

But I digress! The only message I really had was to keep an eye on the retailers as well as publishers. It's a business thing.

Andrew Douglass said...

Addendum: I meant to mention http://www.markhamlawfirm.com/amazon-become-antitrust/ . Not to say it's got a lot of merit. Just food for thought in the geeky set. I guess in the end I think the authors do the hard work and deserve the benefits.....

Terrence OBrien said...

yes, a monopolist forcing suppliers to collude in vertical integration to offer lower prices very much has to do with antitrust.

Amazon hasn't forced anyone to collude. Hence that notion does not support an anti-trust idea.