Amazon says it would be content with 30% of revenue if Hachette e-books were $9.99

Amazon has posted another update to its Kindle user forum, dispensing more information about the nature of the dispute between itself and Hachette. In fact, this is pretty much the clearest statement of what the actual argument covers that we have yet seen from either side, including those Hachette leakers. (And, interestingly enough, it doesn’t actually agree with some of the content of those leaks! Imagine that?)

I haven’t looked for any reactions yet, but I predict the same howls of outrage we got with Amazon’s last such announcement in May, from Hachette partisans complaining that Amazon didn’t have the decency to put it in a press release instead of putting it out on its forum. Like it’s not going to get reported to hell and gone either way.

Given that this is, effectively, a press release, no matter where or how it showed up, I’m going ahead and reproducing it in full:

With this update, we’re providing specific information about Amazon’s objectives.

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.

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 important thing to note here is that at the lower price, total revenue increases 16%. This is good for all the parties involved:

*    The customer is paying 33% less.

*    The author is getting a royalty check 16% larger and being read by an audience that’s 74% larger. And that 74% increase in copies sold makes it much more likely that the title will make it onto the national bestseller lists. (Any author who’s trying to get on one of the national bestseller lists should insist to their publisher that their e-book be priced at $9.99 or lower.)

*    Likewise, the higher total revenue generated at $9.99 is also good for the publisher and the retailer. At $9.99, even though the customer is paying less, the total pie is bigger and there is more to share amongst the parties.

Keep in mind that books don’t just compete against books. Books compete against mobile games, television, movies, Facebook, blogs, free news sites and more. If we want a healthy reading culture, we have to work hard to be sure books actually are competitive against these other media types, and a big part of that is working hard to make books less expensive.

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.

Is it Amazon’s position that all e-books should be $9.99 or less? No, we accept that there will be legitimate reasons for a small number of specialized titles to be above $9.99.

One more note on our proposal for how the total revenue should be shared. While we believe 35% should go to the author and 35% to Hachette, the way this would actually work is that we would send 70% of the total revenue to Hachette, and they would decide how much to share with the author. We believe Hachette is sharing too small a portion with the author today, but ultimately that is not our call.

We hope this information on our objectives is helpful.

Thank you,

The Amazon Books Team

So how about that? Some actual statistics, from Amazon of all people! Books sell 1.74 times as many copies at $9.99 as at $14.99. And this isn’t an Author Earnings interpolation that can be attacked as inconclusive or potentially inaccurate—this is straight from the horse’s mouth. If anyone would know how many copies e-books sell at what price rates, it would be the company responsible for selling the lion’s share of them—the company that has built its business on being a statistics monster.

Another interesting thing is that Amazon explicitly says it has no problem with taking the smaller 30% cut of revenue that the publishers put in place with agency pricing, which seems to fly in the face of the people (leakers?) who’ve been claiming Amazon wants to go back to a 50% share. What Amazon insists upon is that the prices be $9.99 or less. (Of course, if Amazon went back to a 50% share at publishers’ preferred MSRPs, it would effectively be taking that lesser share by dumping some of its margin to mark those MSRPs down, so to some extent it’s six of one and half a dozen of the other.)

And did you notice how they threw in a cute little jab at the royalty rates Hachette pays its authors at the end?

As Nate points out at The Digital Reader, this does gloss over many non-trade books (certain non-fiction titles, textbooks, etc.), which can have ample reason to be priced at over $9.99. There are a lot more than a “small number of specialized titles” in those categories. But on the other hand, this dispute with Hachette is largely about trade books, so I can forgive that omission in this case.

Amazon has once again set the cat among the pigeons, and I look forward to seeing the reactions. I predict more excited crowing from independent publishing partisans, and more moaning and hand-wringing from traditional publishing. Should make for some fun reading, don’t you think?

7 Comments on Amazon says it would be content with 30% of revenue if Hachette e-books were $9.99

  1. Cannot wait to see the contortions that Michael goes through to say that Amazon is a horrible company for wanting author’s to get a higher percentage from their Big 5 Dinosaur publisher.

  2. I don’t know what to make of what Amazon is saying.

    Quote: “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.”

    Are Amazon executives really this stupid about books? For many books, the costs they’ve mentioned are a minor factor. (For the really hot sellers, the main cost is that huge advance.) Textbooks and many professional books) have a limited market that isn’t increased by a lower cost. A specialized nursing textbook may have such limited circulation, it needs to earn $15 to $20 per sale just to recoup the costs of writing, editing it. There is no way to recoup a $20 cost with a $10 sale.

    Quote: “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.”

    No, no, no! The sales of some books are elastic. The sales of others are fixed in concrete. A nursing text on the care of children with a rare disability may sell only a few hundred copies max. No pricing cutting will change that. Ditto for many textbooks. Students only buy them when they have to take a course. The key reason digital textbooks are so expensive is the fact that Amazon pays only 35% royalties on most of them. Publisher have to double the price they could otherwise charge because Amazon is pocketing 65% of the retail price for doing nothing but process a credit card and download a file.

    Quote: “Keep in mind that books don’t just compete against books. Books compete against mobile games, television, movies, Facebook, blogs, free news sites and more.”

    No, no, no! Some books compete against other media. For many books the costs of developing other media is prohibitive. Readers of genre books often read far more of them than Hollywoood could ever turn out movies.

    Quote: “Is it Amazon’s position that all e-books should be $9.99 or less? No, we accept that there will be legitimate reasons for a small number of specialized titles to be above $9.99.”

    No, the numbers are not small. Besides, your royalty pricing does not take that into account. And it is NOT REPEAT NOT up to you to decide such things. No one has voted Amazon Mother Queen of All Publishing. Amazon is a retailer and should act like one.

    Quote: “Another interesting thing is that Amazon explicitly says it has no problem with taking the smaller 30% cut of revenue that the publishers put in place with agency pricing, which seems to fly in the face of the people (leakers?) who’ve been claiming Amazon wants to go back to a 50% share.”

    Actually, if I recall correctly, Amazon only paid 35% until Apple’s offer of 70% forced them to change. The 50% figure is one Amazon executives apparently mention to German officials. And Amazon is certainly capable of some nasty bait-and-switch tactics. Note how they recently slashed royalty payments for Audible’s audiobooks.

    Besides, Amazon doesn’t pay 70% now, even for ebooks inside the $2.99 to $9.99 price range. It charges a grossly inflated and inaccurately named download fee that, relative to costs, is the equivalent of a $400 hamburger. It’s real royalties, at best, are around 60% and authors are punished by download fee for including pictures in their ebooks, a fact that is hardly good for publishing.

    And Amazon is not paying that 70% on ebooks priced under $2.99. That alone puts “lie” to Amazon’s claim that it want’s lower prices. For less expensive ebooks, only pays a beggarly 35%. If Amazon is really all about lowering ebook prices, why is that so? Why doesn’t it pay 70% for the cheapest ebooks? If fact, why doesn’t it pay 80% for all ebooks $4.99 and under, where may independent authors are? The competition from those authors would force the larger publishers to cut prices.

    Quote: “We believe Hachette is sharing too small a portion with the author today, but ultimately that is not our call.”

    No, it’s not your call Amazon, because you seem utterly clueless about how books are sold. As an author, I’d be absolutely delighted if a large publisher paid me 35% or less if they had invested in refining the book and were spending large sums promoting it.

    I certainly can’t afford a million dollar ad campaign and I certainly can’t get myself in the media. If Hachette can do that, more power to them if that means that, when the royalties come out, I’m getting more at 20% that I would with self-promotion at 70%, I’d be quite happy. At any rate that’s between me and a publisher. Amazon should bug out, particularly since Amazon has a record over the years of treating independent authors rather shabbily. Remember, until Apple announced 70% royalties, Amazon was paying only 35% and providing none of the promotional benefits offered by publishers. The author did all the work and Amazon took a lion’s share (65%) of the income.

    While we at it, we might bring to mind Apple, the very company that Amazon stirred up the Obama administration’s DOJ to attack. From the start, Apple has paid 70% at all ebook prices from $0.99 to $199.99, the best ebook royalties among all the major retailers. And Apple doesn’t charge download fees or slash royalties outside a narrow price range. That raises an important question. What Apple is doing is good for authors. Why doesn’t Amazon simply behave like Apple?

    There’s another factor that’ll probably pass over the head of Amazon’s many fanboys but needs to be said. Above you’re read Amazon’s claims that lower prices mean enough more sales to generate higher profits. I don’t know to what extent that is true or not, but I do know that giant publishers are perfectly capable of figuring out the best pricing themselves without having to listen to lectures from Amazon. And remember, if what Amazon is claiming is true really is true, then there is no need for Amazon to badger or bully publishers.

    No, the market can decide and I might add that, but for the machinations of Amazon, ebook publishing is one of the freest markets in human history and one with virtually no barriers to entry. A lone author could publish an ebook tomorrow that goes viral and within weeks it could be selling hundreds of thousands of copies. Virtually no other product is like that. The market simply doesn’t need Amazon’s heavy hand, pretending to help competition but actually hindering it.

    Ultimately, I don’t think Amazon executives are this stupid. Their experience with published may be limited and distorted by their heavily retail role. But I’m sure those in publishing have said what I’ve said to them times beyond counting. Amazon is simply telling tales that the uninformed, particularly in the press) are likely to believe.

    For my part, I feel that if these are the best arguments that Amazon can advance for what it is actually doing, much less what it’s claiming to be doing, then Amazon’s case is quite weak. Hachette may be a greedy SOB of a publisher, but for its authors its their SOB and Hachette has no ability to inconvenience must less hurt the lives of non-Hachette authors. Amazon can and has imposed quite a bit of pain on authors.

    Amazon could, of course, make a ‘good faith’ effort to show it really means what it claims above. It could do what Apple does and pay 70% royalties at all price levels with no download fees. Apple has been making a profit doing that for music, apps and ebooks for years, so Amazon, with its greater economy of scale will make even more money. That’s help independent authors and smaller publishers better compete with the giants and perhaps bring prices of fiction books down. Fiction being almost the only genre Amazon seems to understand.

    Amazon can also provide authors and publishers with the detailed sales tools that they need to see what the best pricing is. That includes sales details at least down to the city and date level, so publishers can evaluate the success of advertising campaigns. If Amazon thinks the market needs lower prices, then it can make it possible for publishers and authors to see that. I should hoard that data for itself and say, “Well, if you knew what I know, you’d agree with me.”

    I might add that fussing over whether Amazon should pay a faux-70% over more than a narrow price range isn’t the real point. When I lived in Seattle, I heard on of Amazon’s top server-farm gurus brag about how fast the cost of providing online services was going down. Apple has been offering 70% royalties on online music-app-ebook sales since a little after the iPods came out long ago. We really shouldn’t be talking about 70% creator royalties. We should be talking about an 80/20% split.

    In fact, if I were at Apple, I’d announce just that and let the Scrooges at Amazon, who dream (I doubt not) of so dominating the market that they can grab at least 50% of ebook retail, stew in their own juices. With royalties like that, Apple would get the best content creators and it’d get them first.

    And contrary to Chris, I don’t think this dispute is “fun reading.” I happen to value books very highly. I have read constantly since the early grades of elementary school. I visit my local library two or three times a week.

    I don’t see any harm to publishing in what Hachette is doing. It’s just doing what it has always done, pursue high profits on successful books to cover its high cost of doing business and the risks it takes on books that bomb in the marketplace. There’s a need for just that sort of publisher.

    It’s Amazon whose “Our way or the Highway” attitude disturbs me. They’re not a cat among the pigeons. They’re more like a wolf in the hen house and it seems clear that as long as those Chicago-machine Democrats occupy the White House, we’re not going to get any federal investigation, much less action, despite Amazon 70% share of the ebook market and its long history of bullying publishers of all sizes.

    A few months back a Navy doctor I know told me I was a lot like Navy SEALs. I though he was crazy until he explained why. He knew SEALs well. He’d ran a clinic for them when he was stationed in San Diego. It wasn’t physical prowess that he was comparing. I’d never in a million years match that. It was sheer determination. They don’t back down, they don’t quit and neither do I.

    Amazon may be the 800-pound gorilla of publishing right now, but gorillas are clumsy creatures. It’s already made a giant mistake through its DOJ surrogates going after the Big Five publishers. Amazon’s in drizzly Seattle where no major news organization is headed. The Big Five are in Manhattan, where almost every new outlet on the planet is either headquartered or has offices.

    Long ago, someone said that it was foolish to start an argument with “someone who buys ink by the barrel”–meaning a newspaper magnate. It’s equally foolish to pick a fight with someone who lunches with news executives and has his kids in the same private schools as they. That’s the Big Five publishing executives. That’s leveled the playing field in a way that no bullying or underpaying of independent authors would ever have done.

    –Michael W. Perry, co-author of Lily’s Ride: Rescuing her Father from the Ku Klux Klan (about a most gutsy teen girl in 1870s NC)

  3. Response to Bob’s “Cannot wait to see the contortions that Michael goes through to say that Amazon is a horrible company for wanting author’s to get a higher percentage from their Big 5 Dinosaur publisher.”

    Check out this ebook I have on Amazon:

    http://www.amazon.com/Tolkien-Warriors–House-Wolfings-Inspired/dp/1587420783

    I did ever bit of the work to publish it, including proofing it word for word with a rare-book edition of the original and writing up the links between Tolkien and William Morris, and yet Amazon is grabbing 65% of that purchase price and only leaving me with but 35%.

    If a publisher pays only 35% to me despite the fact that is is editing, laying out, converting the formats, creating the cover and publicizing the book, then what does that make Amazon, which is doing none of that but still paying that miserly 35%. Amazon is pocketing 65 cents for every sale when that sale might cost it a nickel to process at most. If you do the math, that 5 cents v. 65 cents mark up is 1300% profit. Not shabby.

    So yes, Amazon is a “horrible company” by the very standards that Amazon sets for publishers–except that I doubt there’s a publisher in history that’s made the sort of markups Amazon makes on some ebooks.

    Personally, I think Amazon can be reformed. I know the Maine publisher who took on Amazon when it was yanking the Buy Buttons from independent POD publishers who wouldn’t place their titles with CreateSpace.

    She took them to federal court in Bangor, alleging among other things, illegal bundling. I read the original filings. Her lawyers were sharp. Amazon’s were clueless. Eventually Amazon settled out of court for some large but undisclosed sum.

    Since then CreateSpace has been as meek as a lamb, competing with LightningSource in legitimate ways: paying better and selling short order copies cheaper. In fact, just yesterday someone with CreateSpace’s Executive Customer Relations contacted me via email and today I responded, telling her I was happy with CreateSpace but for how they handle book covers. Those took too much work for too little quality.

    Check out the upper levels and Amazon and you’ll discover a lot of lawyers. I did that about a year ago and was surprised. As a group, lawyers aren’t very big on ethics. But put the fear of legal action into their hearts and they become most well behaved. That’s what I think needs to be done with Amazon. This media fuss is only a prelude to that.

    Now Amazon is a giant negative, but subject to the right pressures, it could become a positive force. In a nutshell, it needs to get over its obsession with controlling everything. It needs to play the role of a retailer and nothing more.

    Nor do I think the Big Five publishers are dinosaurs. There’s still a role for companies that know how to promote and distribute books, in print and digitally, in huge quantities.

    They’ve moved far more slowly than they ought as technology has changed. But keep in mind that there’s been no real change in book publishing technology since steam-driven printing presses came along in the mid-1800s. Few areas of business have been that unchanging for that long. To the extent that they’re like Tolkien’s Smaug, they’ve been sleeping. But, having awakened, they could become fearsome again.

    That’s why I’m happy to find that, for the most part, they and I are on the same side in this dispute.

  4. One more comment. I’m currently editing a book that’s a followup to this NY Times bestseller from HarperOne:

    http://www.amazon.com/Darwins-Doubt-Explosive-Origin-Intelligent/dp/0062071483

    The new book is coming from a much smaller publisher and will have the author, Stephen Meyer, and others answering the book’s critics. Since I know how to do scholarly books, the publisher has me handling some of the editing.

    Keep in mind that this book is much shorter and not intended to be as scholarly or complex as the one from HarperOne. It’s not looking at the science of the Cambrian Explosion. It’s responding the book’s critics, a remarkably easy task given that the critics are themselves refuted by some of the top paleontologists on the planet.

    That said, what I am doing has left me extremely impressed with the care HarperOne bestowed on their book. The endnotes themselves are 42 pages of very small type. The bibliography, also in small type, runs another 30 pages. Having done a fraction of that labor for this followup book, I understand just how much effort HarperOne put into that book.

    And into that world blunders the Village Idiot of Publishing, Amazon, which thinks–or at least claims to think–that a mechanical 35%-35%-30% split can serve in every case for the author-publisher-Amazon split.

    Sorry, but in the real world, authors may sometimes deserve more and in other cases the publishers may deserve more. I’ve done editing where I’ve put more labor to cleaning up a text than the author did in writing it. I’ve worked with other writers so talented, they left me amazed.

    But I have trouble imagining how, given all the labor that HarperOne book’s author and publisher put into it, that Amazon deserves much more that 5-10% of retail for its almost trivial labors. Yet Amazon is insisting on grabbing 30% of its Kindle price. Sorry, but in a fair world that’s way too much.

    Amazon’s inabilities to understand those sorts of complexities, along with its tendency to see books in mechanical, almost Asperger’s syndrome like terms, is one of the things that bother me most. Mayo Clinic describes those with Asperger’s have “Appearing not to understand, empathize with or be sensitive to others’ feelings.” At times Amazon seems afflicted with corporate Asperger’s. It doesn’t understand publishers or authors.

    I leave it to others to point out Amazon’s nasty attempts to drive a wedge between authors and their publishers. Again, Amazon is stepping outside its role and forgetting that it’s a book retailer not the National Writers Union:

    https://www.nwu.org

    This from the top of the NWU home page: “Now, more than ever, with the consolidation of power into the hands of ever-larger corporate entities and with the advent of technologies that facilitate the exploitation of a writer’s work, writers need an organization with the clout and know-how to protect our interests. One that will forge new rules for a new era.”

    The latter is where you go if you’ve got grievances against a publisher or employer and need a lawyer.

    It’s getting late and I want to read more in The Mockingbird Next Door before I sleep. I grew up only about a 45 minute drive from Harper Lee in another small Southern town. Her world was very much my world growing up.

    –Michael W. Perry, My Night with Leukemia: Caring for Children with Cancer
    (About my earlier life working on the Hem-Onc unit at one of the country’s top ten children’s hospital)

  5. I liked Amazon’s jab about Hachette’s illegal colluding to raise prices and force Amazon to accept 30%

  6. What I found interesting was that Amazon seems to be saying the 70/30 split is the right one for books priced under $9.99. The doomsayers have been predicting Amazon would reduce the split to self-published authors. This implies they aren’t thinking that since self-published authors are both publishers and authors and would get the entire 70%.

  7. @ BOB- Chris specifically said this should be fun reading. Contortions are not fun reading. At least not for me.

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