This was going to be a comment on Damien Walter’s blog post about Amazon’s recent statement on their row with Hachette, but it seems to have metastasised so now it’s a blog post. It’s a bit rough and ready because I am so behind on other work that I can’t devote as much time as I’d like, but here we go:
Damian writes:
It’s worth noting here that ebook prices now behave much more like the dynamics of crowd-funding than traditional book pricing. Your product is essentially unlimited so you price at the point that produces the highest volume.
No supplier should price anything in order to get highest volume, they should price to get the highest revenue. If you price at 99p and sell 10,000 that’s a revenue of £9,900. But if you price at 2.99 and sell 5,000, that’s £14,950. Books aren’t entirely fungible – whilst there’s superficial interchangeability between books, mostly people want a particular book either from a particular author or because they particularly like the look of it.
Amazon want to control prices, and they say of this dispute with Hachette:
A key objective is lower e-book prices. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there’s no printing, no over-printing, no need to forecast, no returns, no lost sales due to out-of-stock, no warehousing costs, no transportation costs, and there is no secondary market — e-books cannot be resold as used books. E-books can be and should be less expensive.
But because books aren’t fungible, pricing shouldn’t be capped, even for ebooks (because the price of ebooks is only nil if you wilfully ignore all the production costs associated with producing the content in the first place, and if you don’t pay anyone to create the file that is the ebook, and we all know how crap ebooks get when they are simply converted without human oversight). If there’s a keen but limited market of 1,000 that is willing to buy at £14.99 then the revenue of that price point is more than at £2.99 or 99p – it’s £14,990.
Amazon is being very disingenuous when it says:
It’s also important to understand that e-books are highly price-elastic. This means that when the price goes up, customers buy much less. We’ve quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000.
The may well be true in general, but it will not be true in all cases because demand for all books is not equal. It may be that some books have a market that is small, but willing and able to pay more. Forcing a pay cap on publishers means that they are no longer going to be able to service a small but affluent markets. This is going to be especially true for the sorts of books that get bought for business or development reasons, where the customer is much less price sensitive because either the money isn’t coming out of their own pocket and/or they are looking to make a return on their investment in some way, as opposed to books bought only for the pleasure they bring.
You simply cannot take statistics that apply to a population, in this case the population is all the books that Amazon sells, and then apply it to a specific book, because there will always be outliers, there will always be exceptions, and there has to be enough flexibility in any system to accommodate those exceptions. Capping the price of books artificially reduces publisher’s options and makes it less likely that they will consider serving niche markets where the audience is small.
Amazon do say that they believe that there “will be legitimate reasons for a small number of specialized titles to be above $9.99”, but who will get to decide which books are to be deemed specialised? Amazon doesn’t say, but the implications are that it will be Amazon’s call, as it is Amazon who are trying to dictate prices. That would be unacceptible.
Furthermore, even if publishers are overpricing ebooks, that is their right in a free market. We may disagree with how ebooks of novels are priced, we may think that they are often too expensive, that’s our prerogative. But it is the publisher’s prerogative to price high if they want, even if it’s a mistake. They have the right to fuck it up if they want to, and it is not Amazon’s place to stop them; it is our place to stop them by refusing to buy books that are too expensive.
It is a shame that publishers don’t seem to yet understand how to operate in a world of abundant content but scarce attention, but it is their choice. We can only try to help them understand, we cannot force or coerce them to behave in a way that we want.
And neither can or should Amazon.
Amazon goes on to describe how it thinks the revenue from any given book should be split up:
So, at $9.99, the total pie is bigger – how does Amazon propose to share that revenue pie? We believe 35% should go to the author, 35% to the publisher and 30% to Amazon. Is 30% reasonable? Yes. In fact, the 30% share of total revenue is what Hachette forced us to take in 2010 when they illegally colluded with their competitors to raise e-book prices. We had no problem with the 30% — we did have a big problem with the price increases.
It is no business of Amazon’s how publishers split their revenue with authors. There’s certainly a case for giving authors a bigger slice of the pie, of course, and I suspect there are a lot of authors out there who would agree with this. But it’s not Amazon’s argument to have. It’s not Amazon’s place to define the terms of the agreement between an author and their publisher. All Amazon is doing here is trying to appeal to authors, trying to turn them against publishers, which is also why it uses language such as “forced” and “illegally colluded” – it’s a way of framing the debate so that publishers look like evil overlords and Amazon look like knights on white chargers. It’s playing on author’s emotions as a way to distract from the inappropriate nature of its comments on author royalties.
Let me just say it again, though, to be absolutely clear: It is not for Amazon to dictate the terms of the contract between author and publisher.
Damien, perhaps spurred on by the above paragraph from Amazon, says:
This begs the question, if Amazon are fighting for higher author royalties and more profits overall, what are Hachette fighting for and why does anyone support them? It’s clear, Hachette are fighting for their existing and increasingly outmoded business model. They’re fighting for stasis in the face of inevitable change. Worst of all, they are fighting against changes that are vastly to the benefit of writers. I still say this is a fight authors do best not to take sides in. But if you are going to join the battle, you’re a fool not to see Amazon as your ally.
Amazon are not fighting for higher author royalties for any reason other than to turn authors against publishers. There is no altruism at work here, Amazon doesn’t give a flying fuck about authors, as born out by their unwillingness to deal with fake reviews on their site and bullying on Goodreads. They don’t ever care about self-published authors, as shown by their shitty tools, lack of customer service, and frankly sometimes bizarre behaviour that goes unexplained and without apology.
Amazon care about Amazon. That’s fine, but don’t believe that Amazon are anyone’s ally. Amazon will shoot authors in the back if it ever becomes profitable to do so.
Hachette are fighting for survival, but also for their own authors. If they get a smaller chunk of the pie from Amazon, then their income is squeezed and they’re going to have less money to spend on things like marketing, editing, advances, etc. for the authors that they already have on their books. Those authors will be in a worse position, as will any authors that Hachette might take on in future.
Whilst it is true that publishers are not perfect, and sometimes they act like total cockwombles, there are plenty of people who work for publishers who genuinely care about their authors, who genuinely want to put out great books that readers love, who want happy, well paid authors. It is a fallacy to believe that all publishers are evil, or that they are all corrupt, or all stupid, or working against their authors. As William Gibson so famously said, the future is already here, it’s just not evenly distributed yet, and that’s as true of publishing as anything else.
I do not believe that the changes Amazon wants are to the benefit of writers. I do not see Amazon as my ally. I see them for what they are: A self-interested corporation that wants to exert as much control over their suppliers as possible. That’s it. They aren’t saviours, they aren’t allies, they aren’t white knights. They want to control as much as possible in order to make as much money as possible, whilst not paying taxes and treating their workers like shit.
If I were Hachette, I’d be thinking about moving away from any sort of percentage-based deal with Amazon and towards a more sensible retail-wholesale agreement. “We sell you these many books at £x, and you can sell them at whatever price point you want.” Hachette would have income predictability, authors would know how much they’re getting, and Amazon could still discount as much as they like. It’d be no skin off Hachette’s nose if Amazon decided to take a bath on a popular title.
Whatever Hachette is thinking, one thing is very, very clear: Amazon are fighting a propaganda battle, working hard to alienate authors and demonise publishers. Taken with their other practices, this shows just how untrustworthy they are. So this is one occasion where I would strongly counsel those who loathe publishers that the enemy of your enemy is not your friend.
UPDATE 31 July: Interesting post from Mike Shatzkin on this.
UPDATE 2 & 3, 31 July: Steve Mosby examines the implications of Amazon’s claim that “For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99.” Well worth a read, as is John Scalzi’s post covering similar ground.
I think you left out a few things. It is Amazon’s right to determine whose goods they sell. This is, after all, a negotiation between a retailer and a supplier. Amazon is exercising its right to specify the terms and conditions under which it is willing to sell ebooks. Hachette has the right to walk away from those terms. If Hachette wants to sell its ebooks at higher prices than Amazon is willing to sell them for, Hachette could sell them somewhere else.
Do you realize that Amazon can use the language “illegally colluded” because that is exactly what happened? And Hachette did that precisely to get away from the retail-wholesale arrangement you suggest as a solution. That suggests to me that you are missing something important about this disagreement. It most definitely is “skin off Hachette’s nose” when Amazon has low prices on ebooks. Hachette was willing to break the law in the US and the EU to prevent that from happening. Hachette’s CEO has said publicly that their goal is still to prevent that (presumably through legal means this time). Amazon isn’t the only party fighting a propaganda war.
So, here’s the thing. While there may be individuals at a publisher that want nothing but the best for their authors, the company as a whole doesn’t give a shit about authors. They are a means to an end which is the same end that any other company has: profit. They see it as more profitable to keep ebook prices artificially high because they want to keep people buying physical books so that they can continue to sell to brick and mortar books stores in larger quantities.
If a publisher releases a hardcover and it is being sold for 17.99 and they ebook is 15.99 what are most people who have committed to buying a title going to do? Are they going to boycott the book entirely because of the ebook pricing? Probably not. They’ll just buy the hardcover for the perceived value.
Amazon is doing this price cap to encourage more digital sales which really is better for everyone concerned if the publishers weren’t so hell-bent on doing things the old way and keeping print copy sales artificially high. Does it earn Amazon more money? Of course. But that doesn’t mean that it can’t benefit everyone involved. Just because a few niche titles for the rich won’t be able to overcharge without Amazon approval, doesn’t mean that this is a bad idea altogether.
If somebody doesn’t stop the publishers from keeping their ebook prices high, they aren’t going to lower them due to dwindling sales as you suggest. They will keep them high and continue to live on their print sales as they would prefer because they already know how to run that racket.
William: Yes, of course it’s Amazon’s right to decide what to sell, and I haven’t seen anyone arguing otherwise. But whilst Amazon has the right to decide at what price it wishes to sell at, it does not have the right to dictate at what price Hachette should sell at.
Put it like this, if I, as a self-published author, want to sell my books at £49.99, that is my decision. As it is currently set up, Amazon would get 30% of any sale from me, were I to sell through KDP. Hachette should be able set their prices as they see fit; Amazon can choose to discount or add a margin.
Regards the language, I’m not arguing that the publishers were not found to have illegally colluded – that was Judge Cote’s decision, whether one agrees with it or not. I’m saying that language is being used not because it is relevant, but because it sets the frame of the discussion. It paints a very specific picture in which Amazon is the wronged party and Hachette the aggressor, which is not the case. They could have not mentioned it, but they chose to paint a very specific picture as a means to an end.
As for the retail-wholesale arrangement: There is nothing intrinsically wrong with it. The problem was that the publishers were found to be colluding to artificially raise prices. If Hachette got the same income no matter what Amazon sold at, then financially it doesn’t matter what Amazon sells at. There may be some fluffy talk about ‘perceived value’, but the income would remain the same. That’s my point in bringing that up.
The commission model Amazon wants would not only reduce the price, it would reduce Hachette’s take by (potentially) increasing the author’s. It’s no wonder Hachette is pushing back on this: It loses out both ways. And I don’t believe that such an agreement would be necessarily better for authors.
Also, and finally, Hachette has been mostly quiet on the details of these negotiations. That’s pretty shit propaganda, no matter how you look at it.
Robert: Publishers have more invested in their authors than Amazon does. Yes, they are businesses, but their business is built on authors, and whilst they don’t always act honourably, they do at least have a direct relationship with authors that they have to (learn to) value in order to have any sort of long-term business at all. I’m not saying, and haven’t said, that publishers are perfect: In fact, they can be utter cockwombles, but they need authors in a way Amazon doesn’t.
But more to the point, if they want to keep ebook prices high, that’s their funeral. It’s their business, if they believe that it’s better run in a certain way, they that’s their prerogative. It’s not for Amazon to tell them how to do business.
More digital sales is not necessarily better for everyone. It’s not better for people producing books that don’t translate well to digital. It’s not better for people who don’t have access to the technology required to enjoy ebooks. What’s better for people is to have a rich and vibrant industry that provides books in a variety of formats that meet the needs of different types of people.
But the thing is, Amazon’s argument about volume and price is predicated on the average book, not individual books. Some books just don’t have a big market, so they are never, ever going to make a good return based on volume. It’s not about “a few niche titles for the rich”, as you put it, it’s about understanding your market for a given book and pricing it accordingly. I will pay more for a book that helps me improve my business, because it provides a return on that investment. There is no good reason why publishers can’t take advantage of that, like every other industry does.
Finally, if publishers choose to keep prices high, and if that turns out to be as untenable as we all seem to think it is, that’s their problem. Other, leaner, smarter publishers will come and take their place. It is not Amazon’s job to control publishers. It’s up to us to decide with our wallets what we are willing to pay for, and what we aren’t.
It isn’t clear to me why it’s unacceptable for Amazon to refuse to sell books for publishers except under certain terms. The author/publisher relationship part I agree on — that’s just Amazon stirring the pot, attempting to incite dissent. But you say it’s okay for Amazon to negotiate for certain terms (“of course it’s Amazon’s right to decide what to sell”), then say it isn’t okay for Amazon to insist on certain prices — even though that’s exactly what the terms of agreements to sell books are, agreements on how prices and compensation will work, and they’ve always been negotiated directly and specifically with large sellers. Isn’t that “arguing otherwise” about Amazon’s right to decide what to sell?
Personally, I’m less concerned with the pricing of new major books and more with back catalog prices, where frequently (nearly to a rule, with most publishers) the ebook will be priced at or higher than new paperback retail. That isn’t remotely revenue maximizing, and it’s hurting publishers, authors, and readers. Luckily it will go down eventually (it isn’t just coincidence back catalog books act pretty much like market goods, with prices on shelves just over total marginal costs, and the same forces will move ebook prices over time). The reduced cost of making content available and visible online will make back catalog more important relative to new books than it is now.
Great article. One small counterargument might be this: When a consumer goes onto Amazon, and see’s an eBook for $27.99, their first thought is probably going to be how crappy Amazon’s prices are, instead of the publisher. “Why does Amazon have to make their books so expensive – I can buy the hardcover copy for that price!”
I completely agree that Amazon shouldn’t be setting caps, that it should be a free market for people to set their prices. But I also wonder if it’s a psychological warfare they are fighting – people haven’t quite made the leap that eBooks are natural, and figure that if they win on price, they win on psychology – meaning they then win on volume.
Russell: There’s a big difference between saying “We want X of your books at Y% discount” or “We want Z% commission on any sale”, and saying “We won’t let you sell your books for more than $9.99 except in special circumstances which we get to define.” The former two examples are fine, that’s how retail/wholesale works. The latter is not, because that’s imposing a restriction on the business decisions of the supplier.
I agree that back catalogue prices are stupid, but sadly, it’s a publisher’s right to be stupid.
Cory: Yes, I think it is in many ways psychological battle, and Amazon wants buyers to believe that they are the very best place to buy everything. Trouble is, Amazon is effectively a monopsony in books at least (a monopsony is a market where there is only one buyer), and the more control it gains now, the freer it is screw the consumer later.
I’m reminded of the argument supporting dodgy laws that often gets made: “We, the government, won’t abuse this dodgy law that technically allows us to do bad things, so just trust us.” Trouble is, governments change, and once a dodgy law is on the books, you can bet it’s going to get abused.
Amazon is like just such a government, saying “Hey, trust us, we’re battering the publishers into submission for the sake of readers and authors. Trust us, we’ll never abuse this position of power.” Except you can’t trust them, because once they have enough power, the temptation to abuse it will be strong because there will be no comeback.
I am not sure how you can say that Hachette has been quiet during the negotiations. They had a steady stream of leaks to friendly news outlets, followed by a public statement by their CEO, followed by a carefully orchestrated PR campaign via surrogates from James Patterson to Stephen Colbert. If that isn’t a propaganda campaign, the term has no meaning.
You seem to be ignoring or eliding the basic facts around this dispute. Hachette and the other Big 5 publishers are the ones who came up with the idea to dump wholesale pricing in favor of retail pricing. That is a fact that all parties to the dispute agree on. Hachette has said repeatedly that no-discount agency is what they are negotiating for. Hachette’s position is as clear as day. You can read that in their most recent Investor Day presentation back in May. They are demanding the right to set the retail price at which Amazon sells their books. In the US, that is called retail price maintenance. It is legal under certain circumstances. But a seller cannot be forced to sell under those terms. I have seen people arguing that Amazon should be forced to accept those terms. The only publishers who have an agency agreement with Amazon are the Big 5. Every other publisher sells to Amazon on a wholesale basis. The KDP terms are not technically agency agreements and they certainly do not include retail price maintenance.
Also, your understanding of the KDP terms is inaccurate. In the US, if you price your ebook outside of the $2.99 – $9.99 range, Amazon takes 65% and the author/publisher gets 35%. I am not sure about the exact terms in the UK, but I am sure you can find out.
We shouldn’t be naive about either party in this dispute. I won’t argue with your characterization of Amazon. Hachette is run by people who knowingly and willfully broke the law to achieve their business goals. In doing so, they illegally raised the prices of certain ebook titles and cost readers in the US millions of dollars. I am not inclined to look kindly on corporations who use their market power to rip off consumers.
William: Ok, my bad on Hachette’s noise levels. I can only say that I have spent the majority of the last three months moving continents, and my Twitter stream has been very quiet on the subject of Hachette’s input on this.
However, I find it interesting that you call the authors who have spoken up about this “surrogates”, as if they are being controlled or directed by Hachette. Do you not believe that they may actually have their own opinions on this matter? Or that Stephen Colbert, a man famous for excoriating President George W Bush and the media at an event where they were all sitting right in front of him, would allow his publisher to dictate his actions and opinions on any matter?
With regards to my penultimate para, that is the weakest in the piece, and I wish I hadn’t included it because it detracts from the rest of the argument. Positions I would consider, however, have no bearing at all on what Hachette is or isn’t considering. It’s just a provocation which appears to have, well, provoked a few people at least.
The bottom line is Hachette wants X, Amazon wants Y, and they can’t agree. In my opinion, if Hachette wants to overprice stuff, then fine, let them. They are allowed to make their own mistakes. Amazon doesn’t want to, because it wants to be seen as reliably cheaper than everyone else, though if Hachette are setting prices then so what, everywhere else will be more expensive too.
As for other publishers, well, take a look at this comment on Mike Shatzkin’s post:
“Here in small press land, we’re filing Amazon’s statement away for reference during our next vendor contract negotiation. We’re tickled pink that Amazon wants to offer us 70 percent in return for capping ebook prices at 9.99. That works just fine for our genre fiction list. We pay 40 percent net on ebook royalties, so we’re all set. Should be easy peazy to get 70-30 terms now that we know the parameters, right? Right?”
Doesn’t sound much like they’re selling on a wholesale basis…
Re KDP terms, when I was selling through KDP it was 70/30 for higher price points iirc, so the 65/35 split is new to me. I haven’t sold though KDP in a year and a half, though, so I may be out of date. Not that I think that makes any material difference.
I do agree with you wholeheartedly that we shouldn’t be naive about either party. I do feel for the authors who are stuck in the middle, watching sales tank or never take off, whose careers and income may suffer because they are caught in the wrong place at the wrong time.
“The price of ebooks is only nil if you wilfully ignore all the production costs associated with producing the content in the first place.”
Only if you’re dealing with a publisher who’s strictly putting out an ebook only. If you’re signed on with a publisher doing a hardcover or other print versions, you’re already paying for those production costs in the royalty rates for those print versions. They haven’t changed tangibly since ebooks became big business and they were designed and implemented specifically to cover those costs. Basically, Authors in this situation are giving up 75% of their ebook proceeds for the publisher to do little more than generate an epub and upload it. That’s why you see the profits rising like they are, publishers are double dipping, getting paid twice for the same set of expenses.
Dan, I’ve seen this argument discussed many times, and it’s a very skewed way of viewing the situation, conflating at least two issues.
Firstly, let’s just be clear: The definition of a fair royalty rate for an ebook sale is not the same discussion as whether ebooks have a cost. I would agree that royalty rates need to be looked at, but not on a format-by-format basis, publishers need to reassess their royalty rates across the board in order to remain competitive with self-publishing and attract the best talent. At the moment, it feels rather like royalties are begrudgingly given because the author expects them, rather than that they’re being used as a way to attract and retain talent. That does need to change.
But that has nothing to do with whether ebooks have a cost, or whether the cost of producing an ebook should be split out from the cost of producing the hardback and paperback.
The thing is, there are various cost centres involved with producing a book. There’s the advance, paid to acquire the rights to the content. Then there are editorial costs, which go towards the production of a final draft of the manuscript, getting it to a point where it’s ready to be turned into an actual book. Then there are typography and design costs, which will be repeated for each format. Hardbacks usually are a different size and have different covers and a dustjacket, work which is not always re-useable for the paperback. So the paperback also has its own design costs, and so does the ebook.
Contrary to popular belief, it’s not just a matter of “generating an epub”, there’s actually a decent amount of work involved in producing a quality ebook. For example, you need to make sure that the text works properly, eg hasn’t got words hyphenated that shouldn’t be, and content is appropriately ordered, eg an ebook shouldn’t necessarily have a bunch of reviews etc. at the front in the way that some paperbacks do, because that’s putting a barrier between the reader and the story. There might also need to be some significant jiggery pokery to ensure that it works in all ereaders — standards aren’t as standard as they should be. And you’ll be wanting a cover that works as well digitally as it does on a paperback, which may require changes to the design, as well as a good thumbnail, and that you’ve got to get cover ratios right for every ebook seller because they aren’t standard either.
You might think that a book is just words, so it should be easy, but in reality ebook standards are a little bit fucked, and many of the tools built to create them are rubbish. Exporting from InDesign to ebook, for example, produces a steaming turd of an ebook in my experience. Sadly, the industry has not taken ebook production quite as seriously as it should, and this is why you see readers complaining about formatting and such issues, because too many publishers think all you have to do is just hit a button and off you go.
So you have your content and editorial costs, which are the most basic costs of the book. Then you have per-edition costs which cover work that cannot be reused. Then you have further costs around marketing etc., though given that marketing tends to be staggered for each edition, these are often not shared costs either though there ought to be some overlap.
It takes people to create and market an ebook, people and time, and those things cost money. The cost of creating an ebook is not nil, no matter how you look at it.
But I would argue that seeing ebooks as some sort of free bonus format is a fundamentally damaging way to consider the book. An ebook should not be an add-on, a cheaply produced extra that publishers hope to wring as much cash out of as possible. That leads to shitty ebooks, poor experiences for readers, and frustration for authors.
Instead, we need to look at the book much more holistically, understand the budgetary relationships between different editions, and see all of them as equal partners in terms of earning out the author’s advance, and then earning enough that royalties become payable. Many authors never earn out their advance, so it’s no surprise that some publishers see ebooks as a way to claw back some of their investment, but viewing them that way (and viewing publishers as “double dipping”) is fundamentally flawed and leads to poor strategy not just in terms of book production, but also pricing, availability, territoriality, and royalties.
Ultimately, all formats need to produce revenue, not just to cover their own costs of production, but to cover shared costs as well and, hopefully, produce a profit. Sometimes, one format may sell so well it subsidises the others, but it has to be viewed as a part of a larger whole. Different formats of a book are siblings, and each has to clean its own bedroom as well as make sure that the chores are done in the kitchen. Otherwise, you just end up with a fucked-up family and a dirty kitchen.
I’m staying out of this. I got an email from Amazon asking me, as a KDP author, to weigh in to Hachette on Amazon’s side. I have the same problem I have with politicians: it’s nearly impossible to tell who’s telling the truth.
I know that self publishing is the future, and if Amazon were able to monopolize book selling and then decide to screw the authors, we would find some other way of selling. Amazon does not own the internet. I don’t expect Amazon to do that. They are not so short-sighted.
I also know that many excellent writers are turning to self-publishing and ebooks since traditional publishing is so hard to break into. I’ve been published both ways, and find indie publishing much easier and more under my control.
I’m sure Amazon and Hachette can work out their differences.
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