The Shatzkin Files

Now Kings of ebook subscription, what will impede the ebook share growth for Amazon?

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With the news this morning that Scribd has thrown in the towel on unlimited ebook subscriptions, Amazon is the last player standing with an “all-you-can-eat” ebook subscription offer for a general audience. The juxtaposition of the publishers’ insistence on being paid full price for ebooks being lent once and the late Oyster’s and the now thrice-hobbled Scribd’s (they did a reduction of their romance offering last summer and then cut back on audiobooks to stem prior waves of over-consumption) pursuit of customers with an unlimited-use offer was always doomed. The only hope for the subscription services was that they would grow so fast that publishers wouldn’t be able to live without their eyeballs and would relent on the sale price.

That didn’t happen.

When Digital Reader reported the Scribd news this morning (the first place I learned of it, although I learned a lot more when I saw the Pub Lunch account an hour or two later), they also linked back to a story I’d missed in October explaining that Amazon was fiddling with what they put in their own unlimited sub offer, Kindle Unlimited.

Because Amazon couldn’t get cooperation from agency publishers (which, at a prohibitive and ultimately suicidal price, Oyster and Scribd did), they exploited their ability to deliver ebooks from the non-agency publishers to the max. Or, they did that at first. What Nate Hoffelder of Digital Reader uncovered last Fall was that Amazon was selectively removing those titles as they saw fit, which lowered their costs. (The information that led to this discovery was originally posted as a comment by Kensington’s CEO Steve Zacharius on this blog.)

A lot, if not most, of what Kindle Unlimited “lends” are ebooks compensated for by a “pool” of cash Amazon puts in each month. The size of that pool is solely determined by them and the per-page compensation for those books has inched downwards. Nonetheless, in the aggregate it amounts to a lot of money that is available only to ebook “publishers” (usually indie authors) who give Amazon an exclusive ebook license for the title. The publisher can sell print and audio elewhere, but if they want to share in the KU pool their ebook has to be Kindle only.

The disruptive news that I had missed last October is that a handful of smaller publishers — not just indie authors — are now seeing it as financially beneficial to be Kindle-only for ebooks.

This next bit is reporting what is still a rumor. But I have just been told by somebody who would know that Barnes & Noble will be withdrawing Nook from the UK market. That news is unrelated to the subscription business, but it is additional good news for Amazon.

For anybody concerned about a diverse ebook marketplace, these are ominous developments. With both the biggest ecosystem and the deepest pockets, Amazon can afford to continue to reward ebook copyright owners with increased compensation for exclusivity. As their share grows, it will be increasingly tempting for ebook publishers, be they indie authors or something a bit larger, to take the higher rewards for cutting out the other ebook vendors. And so Kindle progressively builds a better catalog than any of its ebook competitors. Which leads to more market share.

Etcetera. Or, in the modern parlance, “rinse and repeat”.

With Kindle Unlimited now the only “unlimited” ebook subscription play left (although Scribd can still claim a better selection of titles, at least for a while longer), presumably its market share will also continue to grow. As that happens, even big publishers may start to see financial benefits in putting some titles from their backlist into it. (Who knows? Authors, working on a percentage of the ebook revenues, might start insisting on it!) If and when that starts, the challenge for iBooks, Nook, Kobo, and Google to maintain a competitive ebook title offering will escalate.

Presumably, there is some percentage of the ebook market that Kindle could control that would lead to anti-trust concerns. Their share has been growing almost inexorably since the Department of Justice and Judge Cote put their thumbs on the scale a few years ago to punish the publishers and Apple for what they saw as price-fixing.

We will look for enlightenment on this subject from anti-trust attorney Jonathan Kanter at Digital Book World. Is there any percentage of the ebook market that if one entity controlled it would constitute a prima facie monopoly that calls for government action? Or even of the total book market, including print?

Even before we get to whether they plan 100 or 400 bookstores beyond the one they’ve got and the one more they are apparently planning, it is hard to see what will impede the growth of Amazon’s ebook market share. Inexorable growth by Amazon? That’s a topic we’ve been thinking about for years.

I was kicking this post around with Pete McCarthy before publishing it. I’m really struck by a point he made to me. Pete points out that buying and owning units of content has become anachronistic behavior for music and video. Kids today don’t stuff their own iTunes repository. They eventually move from streaming YouTube to subscribing to Spotify. (And that’s why Apple started Apple Music.) Nobody buys videos anymore; we just subscribe to Netflix or take temporary custody of content through an “on demand” service.

So book publishers are probably fighting a rearguard action trying to perpetuate the “own-this-content” model, particularly at relatively higher prices than they could command last year or five years ago.

Of course, that’s what Scribd and Oyster were thinking about when they built their repositories and committed themselves to invest to build a user base. Oyster ran out of time. Scribd has had to trim their sails. Subscriptions seemed like a natural business for Google, but they haven’t gotten into it. (Although they hired much of the Oyster staff, so perhaps that’s a chapter not yet written.)

But Amazon continues with Kindle Unlimited, able to shift their economics without disrupting their business. And, if Pete McCarthy’s insight about the direction of consumer behavior must inevitably extend to books — and renting access to a repository becomes the dominant model replacing owning-your-content — that’s another way they’re better positioned than anybody else to dominate the last mile of book distribution in the years to come. Publishers should always be aware that it’s a risky business to have a business model that contradicts the trends in consumer behavior.

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  • Mike, based on my conversations with publishing folks, most are completely unaware how KU is the tip of a sword meant to eviscerate their single copy sales. Hopefully your post here will open some eyes. Publishers that enroll in KU are only feeding the beast that will one day eat them. More here –

    • Most business decisions are based on short-term considerations, not strategic ones.

  • EricWelch

    I fail to understand the rationale of the legacy publishers. First by raising prices they surely cut into their sales promoting indie and heavily discounted titles, and, by insisting on full price from services like Scribd (full disclosure I subscribe to both Scribd and KU) they may be hurting Scribd in the long run thereby empowering Amazon (full disclosure I love the Kindle ecosystem) even more in the long run. I haven’t decided yet if it’s just being short-sighted, or they wish to destroy e-books, or they are just being obtuse.

    • The logic isn’t hard to understand. Print sales are going up. Bookstore sales are going up.. Part of the point to “controlling” ebook distribution is to avoid having cheap or low-margin ebook sales cannibalize print. From the POV of the big publishers, that aspect of the strategy is working. The single thing that big publishers can deliver that others can’t is the most possible print book sales.

      • EricWelch

        But don’t they actually make more money from an ebook sale? Or is the idea to make sure they amortize the existing infrastructure.

      • Yes, they make money on ebook sales. And yes they have to “amortize the existing infrastructure”. But it is more existential than that. The “value-add” for publishers that makes them absolutely necessary to achieve anything like the full sales potential of any book is their ability to get print sales, and *particularly *store sales. The reason that self-publishing has become so lucrative in the past ten years is that any writer of narrative books can reach a substantial percentage of his/her potential audience online, without inventory investment, without a sales force, without an organization. You still have to *write *the book; you still have to do some marketing. But lots of people can do that.

        Books in stores are also important for marketing. Books get “discovered” that way. Everybody in a value chain has a place to the extent that they add value. The biggest and most unique part of the publishers’ value-add is what they are needed to do for print books.

        By the way, in the macro, Amazon’s corporate interests are precisely the opposite.

      • pixiedust8

        Print sales are going up because (most) ebooks are overpriced. It’s not a smart strategy.

      • Not a smart strategy unless that’s exactly what you’re trying to do!

      • pixiedust8

        Which is NOT A SMART STRATEGY, period.

      • Looks like you have a really hard time seeing things from somebody else’s point of view. Sometimes what doesn’t look “smart” is just something you don’t get.

      • pixiedust8

        You’re totally right. Thanks so much for educating me with evidence.

      • pixiedust8

        You’re totally right. Thanks so much for educating me with evidence.

  • JMD

    Just a small correction. Please note that being a monopoly is not illegal. A company can happily have whatever market share they can muster. What is illegal is to use this position to carry anti-competitive actions.

    • Thanks for that. This is not my area of expertise. I trust another reader will push back on you if that is warranted.

    • No, he’s pretty much dead on. Monopolies get monitored – Amazon has already been investigated twice by the DOJ in the past five years, but so far they have been found innocent of wrongdoing.

      What they are looking for primarily is any case where a monopoly or monopsomy makes changes which results in higher prices for consumers. That’s primarily what was going on in the publishers & Apple case: agency pricing was creating higher prices for consumers, which got the DOJ involved because there was a question over whether the publishers used their monosomy to achieve agency pricing. In contrast, the current version of agency pricing is fine with the DOJ, since it was very clear each publisher was negotiating for it individually (even if the eventual deals are virtually identical, the separate negotiations are the important part).

      If Amazon takes actions which result in increased prices to consumers – say they demand a higher share of KDP profit sharing and indies respond en masse by raising prices to compensate – then they will fall back under investigation again, and potentially be prosecuted. Incidentally, that’s probably the ONLY reason KDP is still paying out 70%…

      • I don’t know anti-trust law. But if “lower prices for consumers” is the key test of whether conduct is acceptable or not, the anti-Amazons should just pack up and go home now. Low pricing is a key component of their business model and brand promise. They have crippled their book retailing competition because they can live with less margin than anybody else in the book business (because they are in lots more than the book business!)

      • Precisely. This is the primary issue any competitor with Amazon in bookselling faces. It’s why the only real competition they face (and it’s marginal) is from Apple, who makes more in PROFITS each year than Amazon makes in SALES. Apple could in theory make all their books free – lose $15 billion a year in the giveaway – and afford it, although their stockholders would scream murder. 😉

        (Except Apple can’t because of agency pricing, but hey, it would ding Amazon if they could.)

        Amazon competition is either going to come from a massive player – Apple, Google, Facebook, or similar. Or it’s going to come from thousands of little micro-businesses selling ebooks from their own sites to specialized niches, each selling at close to cost and making enough to keep the sole proprietor’s paid to continue running it. The tech for the latter is not quite there, but Ingram is working on it.

      • It is really easy to see specifically why Apple, Facebook, and Google won’t seriously compete with Amazon for book sales. None of them is inclined to do anything about print, for one thing, so they’re eliminated as competitors before they begin.

        I also have hopes for the new Ingram initiative powered by their acquisition of And the plethora of sites they will enable might have a wide variety of pricing tactics but command a lot of aggregated consumer loyalty. Even so, overcoming the installed bases of Prime and Kindle is a massive challenge.

  • Steven Zacharius

    Kensington has recently switched to agency pricing but we’ve kept our list prices very competitively priced. When you see comments that suggest people will never pay more than $10.00 for a book from small groups of people; others reading these comments might start to think that all of the readers are like this and that’s certainly not the case. Most of these comments come from indie authors who have a vested interest in keeping their prices lower than traditionally published ebooks from well known and previously published authors.
    When we had our books in KU we had many successes that also translated over to traditional Kindle sales. There were many titles that performed really well in KU and equally as well in full-priced Kindle sales. I don’t think there is anybody in the publishing business that ever thought the subscription model was a long-term viable model if the services had to pay publishers the full royalty due. However, I personally believe that there is a place for these services to continue. We’ve been actively supporting Scribd and did so with Oyster and KU as well.
    There’s a very fine balancing act that publishers are trying to figure out, which is at what price they should price the ebook to make sure they don’t devalue the content of their authors. With only a handful of large book accounts left in this business shelf space has been decreased dramatically. Publishers cannot afford to lower their ebook prices to ridiculously low levels because they still have to cover their overhead and most importantly, the advances that they’re paying for these books. There’s going to be a lot of testing of prices moving forward until we all figure out what works best for each company.
    We are looking at putting some books back into KU if we can work out terms that are acceptable to us and our authors and that will help build that author’s visibility. Being in KU and Scribd definitely helps get eyes on the books and there is a real value to that.

  • It’s disturbing. I’d prefer a more robust and varied marketplace. But Amazon is growing, and subscriptions are becoming the norm. Right now KU represents about 14% of Amazon’s ebook “sales” by unit – and Kindle represents over 75% (maybe as much as 80%) of US ebook sales. And ebooks represent over 50% of trade books (by unit – crucial difference, as ebooks are cheaper than print, but UNITS are a crucial measurement of reader shift).

    So about 5.6% of all trade books being read in the US are read under the subscription model.

    If THAT doesn’t make people sit up and take notice, I don’t know what can. It’s a serious change in the way books are being read. KU is the Spotify/Apple Music for books, and *may do to our industry what those services have done to music*.

    • Kevin, these industry aggregate numbers actually understate the case. There are lots of books — kids books, art books, illustrated how-to — which sell hardly at all in digital form. So the share of the total units for ebooks of narrative writing (fiction or non-fiction) is even higher than you state. Furthermore, the units sold through KU almost totally exclude the biggest books from the biggest publishers, which would suggest they are a lot bigger percentage of the unit sales for the indie and small press books that are in the program. There is an invisible squeeze being put on publishing here as millions of readers are being “trained” to buy from the considerable pile of titles not published by the big houses. The loss of audience might develop, as Hemingway once characterized another situation, “gradually, then suddenly”.

      • I agree completely. And in some slices of fiction, it’s huge. Self published ebooks now account for over 50% of ebook unit sales in the US – and virtually all of the KU “sales” as well.

        While I am not *complaining* about that (being mostly into the indie end of things myself these days, although I do still submit work to publishers on occasion), a more robust and versatile publishing ecology is best for everyone.

        That invisible squeeze you’re talking about is going to become very apparent. Likely “all at once”, and fairly soon I think.

        And then who is Amazon going to squeeze next? They’re already hitting the indie writer via lower KU payments per page (down about 1/3 since the new payment system went into effect). From an enlightened self interest point of view, the Amazon monopoly should concern all suppliers of books.

      • Here’s one hint about who might be next. I was told recently that Amazon isn’t allowing some very big (but not Big Five) publishers to go from wholesale terms to agency.