The Shatzkin Files


Amazon and Hachette have settled so there will be no big bang change in the publishing business model


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It looks like Big Publishing will maintain its grip, which the most zealous of the indie author militia refer to as a “cartel”, on major authors and big books for another several years. What looked from the outside (where we all are if we’re not involved in the negotiations) to have been an attempt by Amazon to largely reset the terms of trade between publishers and the world’s dominant book retailer appears to have been postponed for a few years.

We don’t know — or certainly I don’t know — precisely what Amazon wanted from Hachette in the negotiations that became a public spat last Spring. All we know is that whatever they asked for (or demanded) was sufficiently onerous to make Hachette take an enormous amount of pain to resist it. The standoff held for six months.

The standoff wasn’t pain-free for Amazon either, although it certainly didn’t have nearly an equivalent commercial impact. Amazon could have expected when the dispute started that Hachette authors would pressure their publisher to settle. They could also have expected public attention to focus on Amazon “fighting for lower prices”. Neither of these things happened and, in fact, Amazon was demonized for their tactics by some pretty high-profile writers. And, although it was almost certainly unrelated to the impact of the Hachette fight, Amazon themselves had some tough financial reporting to weather during this period.

In any case, there was no way Amazon could use the same set of tactics they used on Hachette with another publisher at the same time, and it would appear they didn’t try. Simon & Schuster and Amazon came to a deal last month which both sides suggest they’re pleased with. When that deal was announced, it seemed likely to me that anything S&S would accept, Hachette probably would too (and would have at any point). With the announcement yesterday that Hachette and Amazon have now come to terms, and with the wording of the deal announcement being so similar (but not precisely the same) to what was said when the S&S deal was announced, it would appear that surmise has been justified.

Where the announcements diverge is that it was suggested that S&S has ceded Amazon some limited rights to “discount” from the publisher-set pricing but that suggestion was absent from the Hachette announcement. The more limited the discounting allowed, of course, the more the new arrangement constitutes “agency as it was intended to be”. But forbidding discounting is a double-edged sword. It “protects” print-in-bookstores from price competition from ebooks, but it also potentially disadvantages those price-protected books in the ebook market against other ebooks.

(Of course, an agency publisher can lower prices themselves, but if they do it that way, they reduce their share and the retailer’s share proportionately. If they “allow” discounting, the retailer does it entirely out of their part of the sale price.)

I would now expect that Macmillan, which is about the same size as Hachette and Simon & Schuster, will be offered and will accept a similar deal and probably so will HarperCollins, although they are more than twice the size of these others. How each of these houses will view “strict” agency versus “looser” agency is an open question.

But Penguin Random House is in a different position. Now that it has been demonstrated that Amazon’s most muscular tactics didn’t bring Hachette to heel, why wouldn’t PRH, which is several times the size of Hachette, look for a contract that gives them some real separation from the rest of the pack either in terms of their margins or to get more aggressive with discounting through publishers’ biggest account? Let’s remember that Random House originally outflanked the others tactically in 2010 by sticking with wholesale when everybody else went to agency, putting their ebooks in a price-advantaged position and scoring millions in extra sales as a result.

The overall direction of the book market continues to tilt toward Amazon. Although the dual shifts to ebooks from print and to purchasing of print online rather than in bookstores have slowed down sharply in the past couple of years, the chances are those trends have not yet run their course. It is not a guarantee that those shifts will continue to grow Amazon’s market share but they certainly favor them. It would seem somewhat more likely that Kindle will suffer some competitive erosion as multi-function devices gain more of the ebook share than the online bookstore will, but the chances are that both will continue to grow their share. And, at the same time, the self-published share of the market will continue to grow, mostly to Amazon’s advantage, and so will the impact of other Amazon initiatives including their lending library and subscription service.

The reset ambitions that might have been somewhat premature in 2014 may be achievable in 2018.

But a lot can happen between now and then. Four years is a long time. Four years ago, Random House was still gaming the agency system and Nook was gaining market share by leaps and bounds. Four years before that, there was really no ebook business at all.

Assuming that Macmillan and HarperCollins make a deal similar to what Hachette and S&S have done, the big publishers have little to fear from their biggest trading partner for the next few years. But how they’ll cope with their biggest competitor, particularly if PRH gains either additional margin or greater flexibility around discounting compared to the others, might move to the top of their list of concerns.

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  • Did you see loyal authors who stuck by Hachette have immediately pivoted to seek higher ebook royalty rate? https://finance.yahoo.com/news/amazon-hachette-dispute-ends-authors-003755201.html

    • InklingBooks

      Good for them. I wanted to see the publisher share of the retail price stay high, so authors who did could pressure their publishers for more. If Amazon’s share had grown, could they pressure it? No. If Amazon wins this disputes with publishers, you can guarantee that their authors will lose.

    • rickchapman

      Smart move!

      I think the publishers are going to have to move to a pay for performance model in the future.

      Rick Chapman
      http://www.softletter.com
      http://www.saasuniversity.com
      Ahttp://www.saasentrepreneur.c…
      Author “Rule-Set: A Novel of a Quantum Future.”

      • Actually, I’d say “mostly irrelevant”. And unfortunately considering the Authors Guild source, terribly uninformed.

        Most books with any serious commercial impact are bought by publishers with advances that don’t earn out. That’s the case of upwards of 80 percent of the books bought by publishers from agents. That’s intentional. Savvy agents don’t “let” their authors be concerned with actual royalty “rates”, because they negotiate a percentage of what they think the revenue will be that is substantially higher than those rates. Contracts that earn out also mean that the agent “failed”.

        So the 25 percent number is really notional more than real. Many big agents don’t push on that point because it isn’t actually affecting their clients’ income, and they don’t want to weaken the publishers’ ability to pay those big advances.

      • rickchapman

        Hmmm.

        Let me step through this. It’s very interesting.

        So, agents are basically trying to “bluff” the publishers on behalf of the clients to extract bigger advances based on a pitch that says this book is just so great that to not sign means you’re leaving money on the table?

        Decades ago (sigh, it’s kinda sad to have to admit that), I read about a movie script called “The Ticking Man.” I’m not exactly sure what the script was about, but I believe it involves a guy who…blows up. Think the story was in the WSJ.

        The agent had arranged a tour with the major studios saying something like “The Ticking Man is Coming to Your…Uh.. Studio.” Meant to build buzz. Link below:

        http://scriptshadow.blogspot.com/2010/03/ticking-man.html

        And it worked. Someone bought the script at some really high price. And, Hollywood being what it is, the movie was never made.

        So, this is the model in place for hot authors? And if the book goes in the black, the agent failed because he/she didn’t properly calculate its potential?

        rick

      • It’s not anybody fleecing anybody, it’s just how the business really works.
        Agents have routinely forced big publishers to pay more than longstanding contractual norms for many years. It works sorta this way. We figure this book will produce revenue of X, the author will get an advance of Y, which equals some percent (40, 50, 60, 70?) of the revenue we project. The notional contractual terms remain standard, nobody expects the advance to “earn out”, and none of the core contractual norms have been changed. So this 25 percent digital royalty, which has been applied universally to backlist contracts as well as new ones, doesn’t get changed except in how it affects the calculation of what percentage of the total revenue to go for. Two of the big publishers I know have author royalties of 38, 40 percent of revenue. That means that they managed to sell more than everybody anticipated when the deal was done. But it doesn’t mean those books “earned out” and paid additional royalties.

        Now, there are other parts of publishing, outside the big trade houses, that operate differently, with lower advances (less competition for the books) and the royalty rates really count. But in many of those cases — MOST of those cases — the standard royalties are LESS favorable than they are in the standard contracts offered by the major houses.

        What can be outside all of this are foreign rights.

        As one agent explained to me, “if the contract earns out, I didn’t do my job well in the first place.” Or, s/he might have added, “the publisher did one helluva job making it a bigger book than we expected.”

  • My own observation is that HarperCollins has been making more money than the other big publishers with trade books by lowering prices earlier on ebooks and reaping those incremental benefits. Without damaging the print biz. The big question is how many more readers are created with a book launch offering $.9.99 ebook pricing instead of playing the old hardcover first until it stops selling game? Why not let the new e-reading masses access the book knowing the majority will never pay $28 for a hardcover and quite possibly not $16 for the paperback? That old model works for some authors but not for all. I think the HarperC digital people who came from outside the industry might know something other publishers could learn from and that HarperC is possibly more in the Amazon court than others. Just an observational hunch on the various pricing from various publisher I have observed in recent times.

    • I haven’t been tracking this the way you obviously have, but we have interacted enough with HarperCollins to enable me to endorse the idea that they have some very smart digital people from outside the book industry and they are certainly very comfortable trying new things. Thanks for this.

  • GalleryP

    The vast majority of outsider comments on the S&S and (now) Hachette deals seem to assume that, on balance, the publishers “won” in this dispute. I’m an outsider as well, but given the clear evidence that Amazon was causing more economic harm to Hachette than vice versa, I’m a skeptic. Further, once Amazon made a deal with S&S, where could Hachette go? Would their authors continue to support them if they couldn’t make a deal but S&S could?
    Amazon plays a long game, which is always to their advantage in any negotiation.

  • Robotech_Master

    Seems you’re making a pretty big assumption that Hachette “won”. Judging by the press releases, it seemed to be a classic compromise: neither party completely happy, but neither completely unhappy either. Remember, Amazon said in one of its previous open letters that it would be just fine with agency as long as the publishers keep their prices low. Given Hachette has incentive to do that, it sounds like they got just what they want.

    I wouldn’t be surprised if Amazon offered S&S similar terms to the ones it offered Hachette in the first place.

    When you get right down to it, the only reason we even heard about this at all was a fundamental failure in the negotiating process. I have little doubt that hundreds or thousands of businesses have contract negotiations with suppliers or retailers every year, even contentious ones, without one word of it leaking to the public.

    If we assume that Amazon was right about Hachette basically ignoring their requests to discuss new terms until they started dropping discounts and reducing backstock—and given that Hachette never called them liars over it, it seems likely—well, I suspect the other four Big Five publishers learned their lesson from the dog and pony show that followed. Which is why we only heard about Simon & Schuster’s negotiation after it concluded successfully. And I suspect the other three will go the same way.

    • What would NOT surprise you would REALLY surprise me. People can decide for themselves whose uninformed opinion is more likely to be correct.

      But it is really and truly bullshit to say that the “only reason” we heard about this was a failure in the negotiating process. We *heard *about it because it was *obvious *that Hachette books were being treated differently than they were before or than others was on the Amazon site. That was in plain view of the world. Amazon’s chosen tactics — *whatever *the motivation — made this a public conversation.

      • Robotech_Master

        If Amazon’s actions were taken in response to Hachette’s failure to reply to repeated requests for contact even a month after their contract had expired, it’s hard to blame Amazon for that. That’s like blaming the auto company for repossessing your car after you stop making payments.

      • Well IF that were true, one would understand the motivation. But we don’t know that it is true. And I doubt that it is true.

        But one might question the tactics anyway. Both sides were hurt by the tactics.

        And it is those tactics that made the dispute public. THAT was my point.

      • rickchapman

        +++ If Amazon’s actions were taken in response to Hachette’s failure to reply to repeated requests for contact even a month after their contract had expired, it’s hard to blame Amazon for that. +++

        The above is something of a tautology. If I don’t get what I want, then I’ll do something to get what I want.

        Amazon’s actions were indeed taken in response to not reaching a contract with Hachette. Amazon wanted an end to agency pricing. Hachette didn’t

        When Amazon gave up its insistence on ending agency, the basic dispute in the industry ended.

        Rick Chapman
        http://www.softletter.com
        http://www.saasuniversity.com
        Ahttp://www.saasentrepreneur.c…
        Author “Rule-Set: A Novel of a Quantum Future.”

    • rickchapman

      +++ Seems you’re making a pretty big assumption that Hachette “won”. Judging by the press releases, it seemed to be a classic compromise: neither party completely happy, but neither completely unhappy either. +++

      Since the crux of the battle was whether the publishers would retain the right to agency price their books, I suppose you could say the publishers won. Of course, they agreed to pay better margins and more MDF, so I don’t think Jeff Bezos is miserable either.

      I’m not sure you understand why agency pricing is so contentious. This link will help bring you up to speed:

      http://www.rule-set.com/ricks-blog/what-hugh-howey-wont-talk-about-but-should-the-book-channel-part-v-of-several-parts-the-resellers-and-agency-vs-wholesale-pricing-and-mdf-oh-my

      If there where any losers, its the writers. The Hachette authors certainly took it in the shorts from Amazon. Also, moving forward (and I’m always amazed by how many writers don’t get this), more money for channels works its way down the food chain to less money for the content creators).

      +++ I wouldn’t be surprised if Amazon offered S&S similar terms to the ones it offered Hachette in the first place. +++

      I’m not sure about your level of astonishment, but you’d be wrong. Amazon attempted to end agency pricing and picked Hachette as its test case. When the froggies didn’t croak, Amazon backed off and did a template deal with S&S. The rest of the publishers will sign a similar deal.

      +++ If we assume that Amazon was right about Hachette basically ignoring their requests to discuss new terms until they started dropping discounts and reducing backstock +++

      Such an assumption would be stupid as it’s untrue.

      Amazon dropped backstock and played search engine and availability games with Hachette to pressure the company into dropping agency.

      We know this is true because it did the same thing with Macmillan in 2010. Hardball negotiating tactics.

      Rick Chapman
      http://www.softletter.com
      http://www.saasuniversity.com
      Ahttp://www.saasentrepreneur.c…
      Author “Rule-Set: A Novel of a Quantum Future.”

  • SLNH

    Media seems to be suggesting that Simon and Schuster accepted an offer from Amazon that Hachette would have accepted as well. I thought reports of the Amazon/Simon and Schuster deal said that the publisher made the original offer and Amazon accepted it with tweaks. What was to stop Hachette from making an offer like that?

    • For all we know they did. We have no idea. Only Hachette and Amazon know that. I think Hachette wanted pretty desperately to make a deal. They weren’t having a picnic during the dispute.

    • rickchapman

      What media is saying this? I don’t regard Hugh Howey and Konrath and the rest of that particular coterie as objective or dispassionate media.They advocate on behalf of Amazon. They’ve taken a side.

      Most reporters and periodicals reporting on the story have said that first S&S, then Hachette, came to a deal. And if you know what was happening here and why, all the other major publishers will come to very much the same deal.

      If Amazon hadn’t wanted to over throw the agency pricing model, AMZ and Hachette would have come to an agreement a long time ago.

      This is all this argument was ever about. When Hachette refused to crack under Amazon’s pressure and PR surrounding the fight became ugly, Amazon decided to give up its campaign against agency and do what channels always do, ask for more margin and MDF.

      It was going to be politically difficult to do the first deal with Hachette for obvious reasons, so they went to S&S

      If you want to read a more in depth analysis, read here:

      http://www.rule-set.com/ricks-blog/amazon-vs-hachette-its-over-and-what-really-happened-and-aaag-owes-indies-and-authors-an-apology

      Note the time stamp on the piece. Note what I said about Hachette. Note when the Hachette deal was announced.

      Rick Chapman
      http://www.softletter.com
      http://www.saasuniversity.com
      Ahttp://www.saasentrepreneur.com
      Author “Rule-Set: A Novel of a Quantum Future.”

      • SLNH

        What a bunch of bull. I am not going to pull a Joe K.on you because you just aren’t worth the effort. But there are a few points. This was a negotiation between two giants and no side was going to win or lose, they were just going to come to terms both could live with. Then the media got involved with its biased reporting on one side or the other and Indies and others got involved when facts weren’t completely laid out. As for Hachette authors being harmed, yes they were the big losers just as Simon and Schusters authors were during six months old negotiations with Barnes and Noble and Penguin authors were when they held back books for two months. Don’t forget Apple’s pulling a publishers titles out when they refused to stop a biography of Jobs. Authors are always in the crosshairs during these times. As for Hachette, they may feel they have one this battle, but if they keep their prices high, they will lose the war with readers like me who vote with their wallets. It should make for interesting times.

      • rickchapman

        +++ What a bunch of bull. +++

        Are you referring to AAAG? The Aggregated Amazon Ankle Grabbers?

        Yes, they are an interesting herd, aren’t they. But the information they provide often has an unhealthy odor.

        ++This was a negotiation between two giants ++

        No kidding. I’ve only said that on my site and others maybe a dozen times. But let me correct you. If Amazon had been able to break agency pricing, that would have been a substantial win for them. It would have passed control of the pricing model from the suppliers to a channel. Which sometimes happens in an industry.

        The difference is that unlike Howey, Konrath, Gauhgran and the rest of AAAG, I’ve played it straight down the middle and provided accurate information. Not Amazon propaganda a la AAAG and not publisher propaganda. As this article on the fight over agency demonstrates:

        http://www.rule-set.com/ricks-blog/what-hugh-howey-wont-talk-about-but-should-the-book-channel-part-v-of-several-parts-the-resellers-and-agency-vs-wholesale-pricing-and-mdf-oh-my

        +++ Then the media got involved with its biased reporting on one side or the other and Indies and others got involved when facts weren’t completely laid out. +++

        This is utterly incoherent. I suggest you stop pickling your brain in the junk that AAAG writes. What stake did indies EVER have in this? How have indies benefited? Has ANYTHING changed in regards to the margins indies receive on their books? Are they still stuck in the $7 roach motel? Has anyone explained why Amazon thinks it has a right to 65% of our international sales? Are they lowering those incredibly high transmission rates?

        No?

        What was the point of Hugh Howey asking indies to sign a ridiculous, misleading petition pressuring Hachette when the fight had nothing do with indies?

        How about he create a petition asking Amazon to let us freely price our books at points we think make sense and stop using indies as pawns in its fights with publishers. I want to price my book at $100, my business. Amazon gets its $30. If my price is wrong, let the market spank me, not some unaccountable billionaire in Seattle who doesn’t know my market and readers.

        And let me correct you. If you knew ANYTHING about how channels work, you always knew what this fight was about and how it would end. Check the time stamps on my posts and check the outcome. AAAG knew that much of what they were spewing was false and misleading. Collectively, they should be ashamed of themselves. Blathering on about the “royalties” Amazon pays indies. Bellowing on about “capitalism” when you ask why 65%, then whining when Hachette goes “capitalism” back at Amazon.

        Such hypocrisy.

        +++ As for Hachette authors being harmed, yes they were the big losers just as Simon and Schusters authors were during six months old negotiations with Barnes and Noble and Penguin authors were when they held back books for two months. +++

        That’s fine. Then that’s what AAAG should have said. Amazon has a perfect right to screw you authors until it gets what it wants. Tough beans that you’re being held hostage by a $75 retail giant. Thems the breaks, buddy. And screw you too, Paul Ryan. We don’t care if no one can’t find your book.

        But that doesn’t sound very nice, does it. So, instead of honesty, we had to listen to endless blather from them repeating nonsense like $9.99 is optimal pricing for books, and how awful agency pricing was and how this was all about helping indies even though no one explained how.

        Feh.

        +++ As for Hachette, they may feel they have one this battle, but if they keep their prices high, they will lose the war with readers like me who vote with their wallets. +++

        No one cares about you. Here’s what the publishers cared about. Their hottest authors can demand higher prices when their new books are introduced. That’s when they maximize revenue. After X period of time, they drop pricing back to wholesale. That what companies do in thousands of industries. Nothing new. I know Konrath didn’t want to address it, but let me remind you how Apple deals with pricing on iPhones:

        +++By the way Jeff, before you start sniffling about the unfairness of it all, we note you buy those iPhones from Apple at “agency” pricing and don’t even mention the word “wholesale” where Tim Cook can hear, lest he make you fly down to Cupertino, wear a wetsuit, sit on a chair in his office, balance a colored rubber ball on your nose, and go “arf, arf, arf” while clapping your hands together. +++

        And that’s why the publishers fought for agency. Lets them control pricing on their core assets.

        And not one AAAG member ever had the integrity to point that out.

        +++It should make for interesting times. +++

        The industry is indeed being disrupted by technology. I’ve been through this several times in software and high tech. I strongly feel the publishers will have to radically change the way they think, market, and price. I think the old royalty structure is going to change substantially.

        But while I think those things, I don’t simultaneously see the need to flack for Amazon nor overlook that their pricing and MDF policies aren’t very amazing for indies.

        Rick Chapman
        http://www.softletter.com
        http://www.saasuniversity.com
        Ahttp://www.saasentrepreneur.c…
        Author “Rule-Set: A Novel of a Quantum Future.”

      • SLNH

        “Are you referring to AAAG? The Aggregated Amazon Ankle Grabbers?”
        You know I am referring to you. It may surprise you to learn that the Indies agenda is not my agenda. The Battle for pricing does matter to me because I am a purchaser of the end product. And you may be right that you and the publishers don’t care about me but I and others like me are your customers and vote with my hard earned cash. Luckily for you, I wouldn’t be your customer anyway because your attitude is a definite turnoff. As for prices Amazon charges you for international sales, you are a customer of theirs and have the same right to vote with your wallet. If the sales they generate for you aren’t worth it, don’t use them. And yes Apple does use agency. Fine for them but before they forced the publishers to move all retailers to agency, wholesale had been in place for decades letting the final seller set the price. And Indies have thrived because of that decision.

      • rickchapman

        +++ You know I am referring to you. +++

        Can’t be. You see, I write accurate things and don’t play favorites. I don’t continually make false statements such as Amazons pays royalties. I ask solid business questions like “What am I getting in return for my money?” What justification is Amazon offering for a 65% margin grab on international sales?” “Why are Amazon transmission costs so high?” “When will Amazon stop using indies as club to pressure publishers with that ridiculous and mathematically moronic claim that:

        +++ 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. +++?

        Anyone who’s spent time with a spreadsheet, a database, or a pivot table understand how idiotic that is. I won’t explain it you. You’ll have to teach yourself why a median stew like that is absolutely useless. That’s the number 42 of book publishing.

        You are not my customer. I don’t care about you. For my business books, I know my customers and they are happy with my prices because they understand specialty books on particular topics won’t be published unless they are priced appropriately.

        +++ Luckily for you, I wouldn’t be your customer anyway because your attitude is a definite turnoff. +++

        Again, who cares. My business book customers are focused on business and don’t care about my attitude. They like my attitude because it leads me to write specialized stuff that saves them time and money.

        You are utterly irrelevant in that equation.

        +++ Fine for them but before they forced the publishers to move all retailers to agency, +++

        They were handing over a ridiculous 65% to a downloading service. Everyday indies should be saying a little prayer of thanks to Apple and all the publishers. They owe them so much.

        +++ And Indies have thrived because of that decision. +++

        Indies thrived because technology laid down the digital pipes and developed E-book technology that matched the reading experience of paper. Financially, indies have the change to thrive because the wonders of agency pricing forced Amazon to compete.

        And a good thing too, because no one thrives when you hand over 65 points to a channel for a downloading service.

        Rick Chapman
        http://www.softletter.com
        http://www.saasuniversity.com
        Ahttp://www.saasentrepreneur.c…
        Author “Rule-Set: A Novel of a Quantum Future.”

      • SLNH

        For my business books, I know my customers and they are happy with my prices because they understand specialty books on particular topics won’t be published unless they are priced appropriately.”
        You are right about non fiction books. I will pay a higher price for them once I can investigate their credentials and am unlikely to purchase self published works and hopefully your customers know you because nothing in your bio convinces me I should choose your books over other material.

      • rickchapman

        +++ You are right about non fiction books. I will pay a higher price for them once I can investigate their credentials and am unlikely to purchase self published works and hopefully your customers know you because nothing in your bio convinces me I should choose your books over other material. +++

        Who cares? I’ve been self publishing two business books for about twenty years over six different editions. Your opinion is of no interest to me.

        I was self publishing before Hugh Howey had even started to learn how to misstate what a royalty was!

        Really, do you have anything of relevance to say about writing and publishing? Otherwise, the last word is yours.

        Rick Chapman
        http://www.softletter.com
        http://www.saasuniversity.com
        http://www.saasentrepreneur.c
        Author “Rule-Set: A Novel of a Quantum Future.”

      • SLNH

        So Hugh Howdy is misstating the issue when he writes “So the fear mongers want us to be terrified of a profit split that is nearly identical to the profit split that bookstores have used for decades. The reason is that they confuse a wholesale price for a retail good offered for a royalty. My 70% pay isn’t a royalty. When I hand Amazon a book to sell, I’m telling them they can have it for 30% off my retail price. A price that I get to set.”
        As for this being a closed blog the internet is open to viewpoints and while I am neither a publisher or author, I have had over 10 years experience on the retail side of books so I am not a neophyte in this and am interested in all points of view but when you keep stating the same argument over and over, I will tune you out.

      • I only want to jump into this conversation (which feels like a dangerous place to be) to say that comparing ebook splits with retail splits is mixing apples and eggs. Bookstores *invest *in inventory and shelf space and *take a risk* with every book they carry. They front cash to have a business. Ebook retailers post that something is available at no risk and, one they’re in business, all inventory transactions are cash-flow positive. Perhaps the single biggest mistake publishers have made in the history of ebooks was to equate them and offer discounts at the beginning that made it look like the ebook business resembled the print book business. In commercial terms, there is hardly any similarity at all. If 40-50 percent off list is “right” for print, the only thing we know for sure is that it is much too high for digital.

      • SLNH

        Brave man 🙂
        Much of what you say may be right but there is risk involved for the retailer who does have overhead and can lose business if choked off of inventory. Just ask the small retailers who lost inventory for several months while waiting for the big 5 to get around to writing new contracts for them and subsequently went out of business.

      • Your point there is well taken but the choice of words is not. They didn’t have *inventory*. What they had was a business dependent on supply that was cut off. I agree that it was both a tragedy and a travesty that indie retailers were squeezed so badly by the move by big publishers to agency. The publishers felt they “had no choice” because proper agency required contractual relationships that had to be negotiated and requirements, such as sales tax being paid by the publishers, that were complex to work out. But some indie ebook retailers were crippled (and some died) because it cut off their supply of ebooks.

        But that doesn’t change the reality that the economics of print and digital are totally different and what are necessary margins to make print work are exorbitant for digital.

      • SLNH

        Point taken on inventory but I am likely to still make the mistake in terminology in the future. As for the publishers feeling they had no choice, since they were decrying the lack of competition I on, they could have come up with the means to expedite the situation for the smaller customers. It might have cost more initially but it would have been beneficial in the end. Of course, now I am looking at it with 20/20 hindsight.
        You have discussed this before but I do not see why higher margins are good for print but not digital when, if the publisher provides both, the author earn less in digital and the publishers profit is much higher. Also, I look at the digital prices of some books that were published decades ago and never out of print yet the digital price is as high as the original price may have been. I also feel that if the publisher wants to preserve print, they should consider bundling more often as an alternative. O’Reilly seems to be inventive in their approach to publishing for one.

      • Higher margins are *necessary *for print, and not for digital. The reason publishers provide margin is to enable retailers to exist because they need retailers. Digital retailing does not require the margins print does. In fact, print would also require less margin if publishers went to a true VMI-with-consignment model, but that’s a different question.

        Right, parity-or-near-parity with print prices was the convention with ebooks for years before Kindle. And models that make sense for O’Reilly, who publish to a tech specialist market with material that mostly goes out of date very quickly AND who does an extraordinary amount of direct business don’t apply to general trade publishers, who have an entirely different marketing process and problem. They’re not really in the same business.

      • rickchapman

        +++ So the fear mongers want us to be terrified of a profit split that is nearly identical to the profit split that bookstores have used for decades. The reason is that they confuse a wholesale price for a retail good offered for a royalty. My 70% pay isn’t a royalty. +++

        As Michael has pointed out, you are comparing the earthworm to the T-Rex.

        But, amazingly enough, you seem completely unable to process the basic fact that this is a nonsensical statement:

        +++ My 70% pay isn’t a royalty. +++

        Your 70% “pay” does not exist. 70% is what’s left over after you’ve paid a 30% operating expense on top of your transmission costs. Or 65%, that delightful margin grab you get to experience in the Amazonian indie paradise.

        The person who “paid” you was the person who bought your book. And they bought it after you paid for all the S&PR&M costs and handed over a fat 30 points (at least) for a download service.

        +++ When I hand Amazon a book to sell, I’m telling them they can have it for 30% off my retail price. +++

        You are doing no such thing. You have no publishing arrangement with Amazon. All you are doing is paying for a download service.

        +++ I have had over 10 years experience on the retail side of books so I am not a neophyte in this and am interested in all points of view but when you keep stating the same argument over and over, I will tune you out. +++

        This blog focuses on business issues in publishing. It’s not my problem if I discuss issues that remain to be resolved and you don’t find that interesting. Tune out whomever you wish. Who you listen to is not my concern.

        As for Hugh Howey, he’s where accurate information and analysis on Amazon vs Hachette went to die. I no longer regard him as credible source on publishing, no matter what aspect of the model you’re looking at.

        Rick Chapman
        http://www.softletter.com
        http://www.saasuniversity.com
        http://www.saasentrepreneur.c
        Author “Rule-Set: A Novel of a Quantum Future.”

      • SLNH

        Hugh Howdy may not be part of your reality as you are not part of his but he is experienced in several areas of publishing including traditional and international and when media looks to spokesmen, Mike is often consulted as is Howey. Your name and experience however does not.

      • rickchapman

        +++ Hugh Howdy may not be part of your reality +++

        I have no idea what this means. It’s the kind of thing people said in the 70s when they were tripping.

        +++ but he is experienced in several areas of publishing including traditional and international and when media looks to spokesmen, Mike is often consulted as is Howey. Your name and experience however does not. +++

        When I consult and am quoted, it’s in high tech and software. Which, of course, is irrelevant. Howey is the Gruber of publishing. He is constantly making misstatements and ridiculous statements, as I richly document on my blog.

        Rick Chapman
        http://www.softletter.com
        http://www.saasuniversity.com
        http://www.saasentrepreneur.c
        Author “Rule-Set: A Novel of a Quantum Future.”

  • InklingBooks

    A lot will hinge on whether major publishers take advantage of this breathing spell to build up a counter to Amazon. One obvious move that could be made, perhaps in cooperation with Google, would be to bypass Amazon’s ability to squeeze publishers by restricting availability.

    The obvious counter to that is a one-stop website that tells readers where to find the quickest availability and best price on every book from every author or publisher. Then Amazon would become only one source among many rather than what it is today—the default purchase site for many readers. And if B&N would be willing to contribute it to the cause, the website could be named the easily remembered Books.com.

    ——-

    To understand Amazon, you must look as carefully at the dynamics of price and availability as Amazon’s bean counters do. Then what the company is doing makes sense.

    For print books, Amazon’s price advantage is small. Shipping and handling costs roughly balance out the cost of running a store. And as Amazon builds more distribution centers to make delivery quicker, it’ll be forced to collect sales tax in more states.

    Digital is where the advantage lies with Amazon. There’s not only no shipping costs, the inflated “download charges” (15 cents per megabyte) that it levies on authors and publishers means it’s making profits that are at least several hundred percent for ebooks priced from $2.99 to $9.99. That’s a hidden profit center for Amazon that, if the company wasn’t constrained by agency pricing, would enable it to sell for less and still make the same profit.

    Also, bestsellers are where most of the money is and it’s the bestseller print market where Amazon is the weakest. Why buy a print version from Amazon that won’t arrive for one to several days when you can almost always pick up a copy from any bookstore on your way home from work? Bestseller almost always means widely available.

    That, and not concern for the consumers, is why Amazon wants the gap between print and ebooks to grow. Quite a few people still buy print books because, when the price difference is moderate, the more permanent and loanable print book is a better deal. Widen the gap between the two, and sales will shift to ebooks, where Amazon’s advantage lies.

    We also get hints of Amazon’s schemes in its efforts to lower the royalties paid authors and publishers from the current Apple-established 70% to 50% or less. (50% is what Amazon plans to pay authors in its new crowdsource, pittance of an advance scheme.) The greater the gap between retail and wholesale, the more room there is for Amazon to use its economy of scale and undercut other ebook retailers. That is, if they’re able to eliminate agency pricing.

    —–

    In a sense what Amazon is doing is no different from what Amazon and Walmart have been doing with most consumer goods—squeeze the profit margins of suppliers so tightly, that companies are forced to manufacture in countries that pay the lowest wages despite the complexities that introduces. (Those complexities are one reason why Asia automakers have factories here.)

    But with books there’s a major difference. Books are cultural and language based. My iPad isn’t any different for being made in China rather than Texas. But I have read enough instruction manuals to know that I never want to read English-language books that are written, selected and edited in China.

    Book publishing simply can’t migrate to where the labor is cheapest and still be viable. That’s something Jeff Bezos and his fellow bean counters apparently fail to understand. It needs profit margins that encourage risk-taking in new authors, that pay Western wages, and that keep the quality of books high.

    And I might add that this is not only true for major publishers, it’s equally important for independent authors. If Amazon is able force author/publisher royalties into the 35-50% range, as it clearly intends, then most authors won’t be able to afford the assistance of editors, cover designers and others who could bring more expertise to their books. Unfortunate authors will be stuck with doing everything simply because they can’t hire expertise. Rather that do what the do well (hopefully write), they’ll have to spend time doing what they do poorly, such as cover design.

    And if that’s the case, both authors and readers will lose out to Amazon ambition to dominate and control.

    • Your idea about the “one-stop website” is similar to the point I’ve made about driving Google to the “top of the funnel”.

      But that alone won’t do it. What your analysis leaves out is that there are a LOT of customers who are highly loyal to Amazon. They WANT to shop there. Sometimes that doesn’t primarly have to do with books. How much of an advantage it is for a consumer to just “stop by” a store and pick up a bestseller as opposed to ordering it for delivery depends very much on the particulars of the case. It is a long way from universal and it is getting to be fewer and fewer people every day.

    • rickchapman

      Inkling, the above is really good stuff! You understand a lot of things indies and writers just don’t understand.

      +++ We also get hints of Amazon’s schemes in its efforts to lower the royalties paid authors and publishers from the current Apple-established 70% to 50% or less. (50% is what Amazon plans to pay authors in its new crowdsource, +++

      I’ve got to look into this more. I’ve been focused on the 65% margin grab on international sales and the $7 dollar pricing box. An additional 20% MDF slurp on this new system is interesting. And, of course, that’s what channels always do. Increase margins via MDF programs.

      But I have to correct you on one point. Amazon isn’t paying royalties to indies and never does. All it does is charge a service fee for its downloading system.

      It’s amazing how much power that misuse of the word has.

      Rick Chapman
      http://www.softletter.com
      http://www.saasuniversity.com
      Ahttp://www.saasentrepreneur.c…
      Author “Rule-Set: A Novel of a Quantum Future.”

      • SLNH

        “All it does is charge a service fee for its downloading system.”
        So this is the latest knock on Amazon? Do you consider the 30 to 50 % discounts bookstores receive a service fee for displaying the books?

      • rickchapman

        +++”All it does is charge a service fee for its downloading system.”

        +++So this is the latest knock on Amazon? +++

        What’s so new about it?

        +++ Do you consider the 30 to 50 % discounts bookstores receive a service fee for displaying the books? +++

        Of course I do. Don’t you know ANYTHING about MDF? Channels? Buying books via wholesale?

        Unfortunately, that very high 30% (and btw, did you know that AMZ charged 65%!!! before Apple came into the picture) download fee includes zero exposure or marketing on their site. You’re just another record among millions. No one will see your book unless they look for it. As opposed to a bookstore where someone actually has a chance to see your book.

        And feel good about those transmission fees you pay as well.

        +++ The file itself is under their suggested 50MB cap Amazon says to keep it under at 18.1MB. The book contains upwards of 50 pictures and the one file for Kindle needs to be able to be read on their smallest displays in black and white and their full color large screen Mac app). I’m confused. Amazon stores a ton of the Internet on S3/EC2, they should have the storage and delivery down. If I stored that file on S3/EC2 it would cost me $.01 PER FIVE DOWNLOADS. Hat tip to Robby for that one. Use Amazon to run your website: .01 to download a file. Use amazon to sell your book: $2.58 per download + 30% of whatever you sell.

        Amazon’s markup of digital delivery to indie authors is ~129,000% +++

        http://boingboing.net/2012/06/12/indie-author-gets-sticker-shoc.html

        Of course, if you price your book above $9.99, you are charged a ruinous 65% download fee for receiving exactly the same amount of nothing you currently receive. And let’s not forget that charming margin grab on your international sales.

        Of course, we can always hope we can gain access to Amazomium Codexorum and get out of the $7 roach motel. I DO wish Jeff would hurry up and tell us when the Codex is up and running.

        http://www.rule-set.com/ricks-blog/october-06th-2014

        Ahh, yes, Amazon. What an indie paradise!

        Rick Chapman
        Author “SaaS Entrepreneur: The Definitive Guide to Success in Your Cloud Application Business”
        Read Excerpts from all 10 chapters at http://www.saasentrepreneur.com
        Author “Rule-Set: A Novel of a Quantum Future.”
        More info at http://www.rule-set.com

      • SLNH

        Yes, I did know that Apple’s rates caused Amazon to drop theirs and yes Amazon’s international fees are higher which may be no bargain since they don’t control as much of the market there but that is your choice to agree to those fees or not. And yes AWS fees are much more economical and they have the volume to allow for that. Do the number of your sales make it worth their while to offer you those prices. As for finding you on Amazon, with the proper key words such as computing and cloud or SaaS, you probably have as good a chance as being found in a bookstore but with the material your book appears to be about, I doubt many but the largest stores would even stock it and as such, would need to be special ordered anyway.

      • rickchapman

        +++ Yes, I did know that Apple’s rates caused Amazon to drop theirs +++

        I’m glad you do. And, of course, AAAG has covered this fact extensively while going on about how awful collusion was when the fact was that collusion HELPED indies?

        Yep, Joe Konrath, in that junk article on agency he just re-released on his website in the sad belief it makes him look authoritative, made sure to mention that, right? How wonderful Apple’s advocacy of agency was for indies?

        No, he did not.

        And, of course, I bet sharp, stellar lights like Hugh Howey have explained how wonderful Apple and the whole agency fight was for indies because giving 65 points to a channel and receiving nothing in return except for downloading is insane?

        I seem to have missed that.

        I mean, just imagine. Everyone’s moaning and whining about the current 25%/75% split (in theory) between writers and the publishers on E-books, but imagine handing over 65% to a retailer in return for downloading! Actually, I don’t have to imagine. It happens on my international sales of my novel.

        Leaving you with 35 cents on the dollar to do all the PR and marketing and sales on your book out YOUR pocket!

        By contrast, 25% looks positively golden.

        I mean, seriously. When I read some of the posts up on AAAG sites about how great Amazon is, I think there may be something to the Zombie Apocalypse because some of the financial stuff that’s written could only be composed by people who’ve had their frontal lobes devoured by the living dead.

        +++ yes AWS fees are much more economical and they have the volume to allow for that. +++

        The markup remains incredible. Nice float AMZ takes on your money, too.

        +++ As for finding you on Amazon, with the proper key words such as computing and cloud or SaaS +++

        That’s nice. I’m glad Amazon has a search engine. So does Google. Google doesn’t charge me 30% points when it finds the material I’ve spent time and money optimizing for SEO.

        +++ with the material your book appears to be about, I doubt many but the largest stores would even stock it +++

        This is a topic on which you know nothing. My business books could have indeed been put into print and picked by a publisher. I chose not to do it for strictly financial reasons.

        Of course, I won’t be using Amazon for some of my books because it’s financially insane. Unless I can get on Amazonium Codexorum.

        Rick Chapman
        http://www.softletter.com
        http://www.saasuniversity.com
        Ahttp://www.saasentrepreneur.c…
        Author “Rule-Set: A Novel of a Quantum Future.”

      • SLNH

        So, even though I have told you that the indie agenda is not miss n e, you still want to rant about Joe and Hugh. Fine go ahead and rant but you are talking out both sides of your mouth when you say it’s easier to find a book (especially a technical book which your new one appears to be) than in Amazon yet you choose not to sell it in a bookstore and then acknowledge that key words help and search and by gosh Google has a search engine too. Yup, they do and you can buy ebooks there as well as at Apple and Barnes and Noble and many others many of which offer the same or better prices than Amazon so there is competition out there for readers and author’s. I choose what experience is best for me. I suggest you do the same and if you have viewpoints different than Howey or Konrath address it with them They are your peers. I am not.

      • rickchapman

        +++ So, even though I have told you that the indie agenda is not miss n e, +++

        I’m sorry, but you DO understand that this is a place where writers and people in the publishing business hang out and argue, vent and otherwise interact?

        If the topics discussed aren’t of interest, why are you here?

        +++ I suggest you do the same and if you have viewpoints different than
        Howey or Konrath address it with them They are your peers. I am not. +++

        I’m sorry, but did someone put a gun to your head and make you post to a forum dominated by writers and people in publishing? If so, please indicate this through some means and we’ll send someone to your rescue.

        Otherwise, if you don’t like the posts and discussion, can’t help you. You don’t have to participate here.

        Rick Chapman
        http://www.softletter.com
        http://www.saasuniversity.com
        Ahttp://www.saasentrepreneur.c…
        Author “Rule-Set: A Novel of a Quantum Future.”

  • Well. my ebook titles are not on Amazon at all. I read the contract over, and after 4 years of patiently waiting for an improvement in sales, realized that there was no traction to be gained for me and I finally got tired of the runaround. During that time, I made more money from Nook sales and those of other retailers and realized that the contract was not really fair. I got out in 2013, when a series of “glitches” cause my sales to plummet to practically nothing. It does not matter to me what happened with Hachette and the major publishers. It matters to to me that I carefully vetted my sales and my pricing, and found Amazon wanting. I typically price my ebooks at half to one third the price of the print books, yet that was never low enough for Amazon. And the markets that it sold to insisted on a payout of 35%, not 70% as was promised. This two-tier treatment was only one of the reasons why I left. Another was that Amazon often offered my books for free as an incentive to buy a Kindle, instead of selling them at their list or discounted price. When I am in the market to sell my works to others, I don’t gain when Amazon does that. I become the loser in the deal. So if I was not going to make any money why should I stay? It is a scenario which is being played over and over right now with other authors and small publishers. So I lose nothing by not playing ball with Amazon.

    • Theresa, I’ve never read anything from anybody else like what you’re saying here. I am no Amazon cheerleader, but I think the number of authors for whom they’re not the most powerful ebook outlet is very small. I would guess your book is non-fiction and intended for a niche audience that you know how to market to, but, even so, I am really surprised that Amazon has done so poorly for you. I thank you for posting the comment. I learned a lot from it.

      • rickchapman

        It’s simply a matter of numbers. 30% for downloading is painful, but doable.

        65 points, and THEN factor in the downloading fees is simply ruinous. There are thousands of authors addressing specialty markets for whom AMZ is simply a money suck.

        Did publishers ever hand over 65 points to B&N for shipping?

        Of course not.

        Rick Chapman
        http://www.softletter.com
        http://www.saasuniversity.com
        Ahttp://www.saasentrepreneur.c…
        Author “Rule-Set: A Novel of a Quantum Future.”

    • rickchapman

      +++ It does not matter to me what happened with Hachette and the major publishers. +++

      That’s a point I’ve made repeatedly. Despite all the carrying on, the whole AMZ vs. Hachette battle had nothing to do with indies. We had no stake in the battle.

      +++ And the markets that it sold to insisted on a payout of 35%, not 70% as was promised.+++

      I can sympathize. I’m about to release a second edition of one of my business books and it makes no sense to hand over 65 points to Amazon for a downloading service.

      +++ It is a scenario which is being played over and over right now with other authors and small publishers. So I lose nothing by not playing ball with Amazon. +++

      Yep. But don’t try to point that out to the Amazon ankle grabbers.

      “What, your book isn’t about Zombie Love?”

      “No.”

      “Bondage with Billionaires?”

      “Uh, uh.”

      “Dating Vampires?”

      “No!”

      “What IS it about.”

      “SaaS.”

      “What’s that?”

      “Please go away.”

      Rick Chapman
      http://www.softletter.com
      http://www.saasuniversity.com
      Ahttp://www.saasentrepreneur.c…
      Author “Rule-Set: A Novel of a Quantum Future.”