Amazon v. Macmillan: Authors, Are You Backing The Right Horse?

Herewith, I present an updated and amended cross-posting of my blog post on the Amazon v. Macmillan affair. Let me state up front, I do not agree with Amazon’s strongarm tactics, and it is not my intention to defend those actions in this post. Rather, I’m puzzled by authors’ nearly universal lack of criticism for Macmillan’s part in the matter. I can’t help wondering, if Amazon had quietly agreed to Macmillan’s requested terms, thereby depriving authors of an easy target and distraction, might they have reacted differently to Macmillan’s move?

Today, Amazon announced it will cave to Macmillan’s demand that it sell Macmillan Kindle books at up to $14.99 instead of the $9.99 pricetag that’s become standard for Kindle bestsellers. Per a report on Booksquare, Macmillan may have plans to price their Kindle books across a range, anywhere from $4.99-$14.99, and author royalties on those books may be based on an ‘agency model’ calculation which computes author royalty as a percentage of net, not a percentage of list price. See the linked Booksquare post for more information.

Macmillan authors are rejoicing, and I’m shaking my head. Would musicians cheer a decision on the part of their labels to raise the price of their music on iTunes by up to 43%? I think not. Yet despite the fact that their books may cost up to 43% more than other Kindle bestsellers, and their royalty on those sales won’t be even one cent higher, the Macmillan author “victory” dance continues apace on the interwebz. The Author’s Guild has come out on Macmillan’s side too, and I’m completely mystified by that stance since Macmillan’s change in terms with Amazon only stands to hurt authors and ebook readers alike.

The only reason I can think of for authors to be on the wrong side of this battle is that they don’t understand it. Let’s look at the facts.

1. Under pre-existing terms Amazon pays big publishers like Macmillan half the hardcover price on each Kindle book they sell: generally, that’s between $12-$17. This means Amazon is taking a loss on the sale of every such Kindle book, but the publisher is still getting its standard share, regardless.

2. Macmillan cut their standard author royalty on ebooks from 25% of the list price to 20% of the list price last October.

3. Amazon announced last week it will grant a royalty of 70% of the list price to U.S. authors and 75% to UK authors who sign Kindle book publication deals with Amazon directly. Ian McEwan, Martin Amis and Stephen Covey are just a few of the authors who’ve already signed on. A data storage/transfer/processing fee of .15 per MB will be deducted from list price prior to the 70% royalty split’s calculation, but Amazon states that on average this fee only amounts to .06 per Kindle book sold.

4. The author’s royalty in either case is/was based on the list price of a given book, not the price at which the book is/was ultimately sold. This means Macmillan authors used to get the same royalty on every sale whether the customer paid $14.99 for it, or $9.99 due to Amazon discounts.

5. Last week Macmillan informed Amazon that if Amazon wanted to continue to sell Macmillan books in Kindle format, Amazon would have to raise [or lower] the prices on them to Macmillan’s stated prices.

Recent reports have said Macmillan essentially asked Amazon to match the ‘agency model’ deal it made with Apple’s iBook store, which dictates a 30/70 split (70% going to the publisher) and allows the publisher to set the price at which each ebook would be sold. If Amazon did not agree to these terms, Macmillan would allow Amazon to continue to sell Kindle editions of their books under existing terms, but wouldn’t allow Amazon to release the Kindle edition of a new book for sale until 7 months after its initial release in hardcover and several months following release in Apple’s iBook store. I have yet to hear or read any report as to whether these delays would also hold for books intially released in trade paperback or mass-market paperback editions.

6. Amazon didn’t agree to Macmillan’s terms, and childishly removed the Amazon ‘buy’ links for all Macmillan books from its site in response to Macmillan’s demand for new terms.

7. Macmillan authors stormed the internet, posting angry diatribes against Amazon and drumming up support among their fans and followers for Kindle and Amazon boycotts. Yes, that’s right: they took the side of the party who demanded that Amazon raise the price of their Kindle books, or delay their release by 7 months, or reduce the price of their ebooks below Amazon’s $9.99 standard and pay their royalties based on an agency (net profit) model instead of the percentage-of-list-price model they’ve had on their Kindle books to date.

It was Macmillan which set forces in motion that ultimately resulted in the removal of ‘buy’ links, not Amazon, and while Amazon’s actions in this seem excessive, I still see plenty of reasons for authors to be irked with Macmillan. If the report stating that Macmillan intended to withold Kindle editions of their books for a number of months after those books were released in the iBook store is true, is that a move that would’ve pleased the thousands of readers who own a Kindle, or who use the Kindle reader app on their computers or portable devices? Seems like a rather diabolical move to pressure ebook consumers to buy their ebooks from Apple (at higher prices) instead of Amazon, no? And isn’t it very likely that by the time Macmillan books were released in the Kindle store following this Macmillan-imposed delay, Kindle-reading consumers would have forgotten all about those titles and moved on to other, more readily-available ebooks?

I don’t own a Kindle, but release delays and pricing impact my book-buying decisions, too. I rarely buy hardcovers because they’re so expensive, and there’s many a book I intended to buy if/when it came out in softcover or e or audio, but either the book was never released in those formats or—salient in this case—by time it did, I’d forgotten all about it. This same phenomenon among ebook fans is well-documented, and ebook fans have always clamored to have their preferred format released at the same time as any print edition.

Also, recall that Macmillan may be planning to offer Kindle titles in a range from $4.99-$14.99. This isn’t good news for their authors either, since Kindle books priced higher than $9.99 will be a tough sell and those priced below $9.99 will net the author a lower royalty. None of Macmillan’s intended changes in its Kindle books deal with Amazon stand to benefit Macmillan authors or ebook readers. The intended changes only stand either scare off sales (in the case of Kindle books priced higher than $9.99 or those delayed by 7 months) or reduce author royalties (on Kindle books priced lower than $9.99).

So while I can understand Macmillan authors’ anger at Amazon for having their buy links removed, especially in the case of authors of books offered in print editions only (since they don’t even have a horse in this race), I still don’t understand why Macmillan authors haven’t been publicly objecting to Macmillan’s actions as well. Macmillan presented Amazon with an ultimatum in which either option hurts authors’ and ebook readers’ current situation.8. Macmillan authors will not receive one penny more in royalties on their Kindle books if those books are priced up to 43% higher, because their royalties were always based on the list price for their books, not the price at which Amazon ultimately sold them, in the pre-existing arrangement.  Now their royalties will be based on 70% of the ebook retail price, and it’s a safe bet their books will be netting fewer sales if prices go up to $12.99-$14.99.

9. The upshot is a lose-lose-lose. Consumers lose reasonably-priced Macmillan Kindle books, and reasonably-priced Apple iBooks too, since according to this NY Times article:

With Apple, under a formula that tethers the maximum e-book price to the print price on the same book, publishers will be able to charge $12.99 to $14.99 for most general fiction and nonfiction titles — higher than the common $9.99 price that Amazon had effectively set for new releases and best sellers. Apple will keep 30 percent of each sale, and publishers will take 70 percent.

So Macmillan earns the dubious distinction of being the first major publisher to make calculated moves to drive ebook prices higher across all platforms. Thanks to Macmillan’s “victory” over Amazon, Macmillan, authors and Amazon all stand to lose sales. Macmillan stands to lose market share. Authors stand to lose readership.

10. Prediction: emboldened by Macmillan’s so-called win, other major publishers will likely follow suit. More “lose” for everyone.

So tell me again: exactly why, and what, are we supposed to be celebrating here? I can already imagine the one objection I hear raised in discussions on this topic again and again: Macmillan is staving off devaluation of the ebook. There’s much hand-wringing over the notions that authors can’t possibly earn their due on low-priced ebooks, and that authors (like me) who sell their ebooks at prices significantly lower than the $9.99 Kindle store standard are somehow doing a great disservice to our fellow authors and trade publishing overall. This is so patently untrue, and such a pointless distraction from more important ebook issues, as to call to mind the Chewbacca Defense.

Under the pre-existing deal between Amazon and Macmillan, Macmillan authors earn a royalty of about $3.19 on their Kindle store standard-bestseller-priced books, whether those books are sold at $9.99 or $15.99. Under the new deal, which is the same in both Apple’s iBook store and the Kindle store, authors would earn a royalty of just $2.10 on an ebook priced at $14.99: 20% of 70% of the book’s $14.99 list price, and about $1 less in royalties per copy sold than what they have earned on their standard-priced Kindle books to date.

At a 70% royalty, I can earn $3.50 per copy sold of my self-published Kindle novels if I price them at just $4.99. The higher retail price does not add value for the author or the consumer, and at this point, it doesn’t even increase Macmillan’s profit since they’ve always gotten half the hardcover price on all their Kindle books from Amazon.

It’s quite clear that Macmillan’s take on each Kindle book sale under the new deal will be less than what they’ve received to date on those sales (since they used to get 1/2 the hardcover price and will now only get 70% of the ebook list price, which appears to have an upper limit of $14.99 for the foreseeable future), but I guess they decided they were willing to take that financial hit in exchange for the freedom to set their own ebook retail prices. Of course, Macmillan was under no legal obligation to include authors in their decision-making process, even though their decision stands to reduce their authors’ Kindle book royalties by up to 33%; I’m just saying it’s mind-boggling to me that Macmillan authors don’t seem to be the least bit peeved at this outcome. In fact, they don’t seem to have noticed it at all.

Publishers claim they need to wrest pricing control back from Amazon for the sake of what Amazon might do someday if it becomes too dominant in the ebook space. What if Amazon eventually decides to tell publishers it will no longer pay them half the hardcover price for their Kindle books, for example?

First of all, that’s a bridge to be crossed if, and when, someday arrives. Second, perhaps the correct answer in the event of that scenario is for publishers to lower their wholesale ebook prices. They claim it costs them just as much—or nearly so—to bring an ebook to market as it does to bring a hard copy, and they are therefore justified in their current pricing demands. But if it really takes a small platoon of publishing professionals and tens of thousands of dollars to bring a Kindle book to market, how is it possible that authors like me, JA Konrath, Piers Anthony, and countless others are doing it by ourselves, in our homes, from our consumer-grade computers, in a matter of hours?

“Your Kindle books lack the professional layout and design a publisher can bring to their Kindle books,” some of you are no doubt answering. This is true. But the thousands of readers who buy Kindle books from me, Konrath and the many other self-publishing Kindle book authors don’t seem to care all that much. I suspect that if you asked them, they would tell you they’d rather have a minimally-formatted Kindle book that costs $4.99 (or less) than an exquisitely-formatted Kindle book that costs $14.99.

As I’ve stated before, publishers arguing in favor of higher priced ebooks are ignoring the customer’s priorities in favor of their own, self-imposed priorities. This is because the ugly truth is this: the only parties being hurt by low-priced ebooks are big, mainstream publishers. Their overheads cannot be sustained by $4.99 ebooks, but that doesn’t mean their costs to bring ebooks to market should be forcibly subsidized by authors or consumers. To quote Konrath, “It would have really sucked to have been a buggy whip manufacturer when Henry Ford introduced the Model T. But technology changes things, and it isn’t always fair.”

In the end, all the arguments I’ve heard and read about the devaluation of the ebook are toothless. There seems to be this notion floating around that books must be expensive in order to inspire readers to value literature, but that’s ridiculous. If I’m earning more on my $4.99 Kindle books than a Macmillan author earns on a $15.99 Kindle book, both on a per-sale and volume basis, how is my book’s low pricetag hurting me, the author? And if low-priced ebooks bring more literature and ereaders within reach of more consumers, how are the books’ low prices hurting literature and literacy? If anything, low-priced ebooks stand to benefit authors and consumers alike, and advance the cause of literacy overall.

Hasn’t it been wonderful to find short fiction and poetry collections—species on the verge of extinction in trade publishing—coming back into their own in the Kindle store? It seems readers are only too happy to take a chance on these supposedly ‘fringe’ books if the price is reasonable. Midlist authors are earning new royalties and new readers by bringing their backlists back into print on the Kindle as well. Most importantly, in my view anyway, the current indie author movement wouldn’t be possible at all without Amazon’s equal treatment of indie and mainstream authors.

So authors, indie authors especially: if you’re backing Macmillan in this flap, why? Has Amazon’s overreaction distracted your attention from the long term ramifications of Macmillan’s move, and the likely damage to be done to you and your readership? To put it another way, see if you can answer this question: what part, if any, of Macmillan’s revised agreement with Amazon stands to benefit you?

April L. Hamilton is the founder and Editor in Chief of Publetariat. This is a cross-posting from her Indie Author Blog.

  • UPDATE – THIS JUST IN – According to E-Reads (http://bit.ly/btk3i2) Macmillan is now saying that going forward, its standard ebook royalty in boilerplate contracts will be 25%, *not* the 20% it came out with last October. This really has no bearing on my post overall, I just wanted to include this new information since the post mentions the 20% royalty figure.

  • UPDATE – THIS JUST IN 2/4/10: According to this report on the Wall Street Journal (http://bit.ly/9NIh6V), Hachette is already attempting to renegotiate its Kindle book terms to match its deal with Apple, too. But why are publishers so anxious to get out from under the thumb of Jeff Bezos, only to wedge themselves beneath Steve Jobs’ opposable digit? I don’t know the answer, but what I do know is that in very short order, big trade publishers will get what they’ve wanted—and we ebook fans have feared—all along: a higher standard price point for mainstream ebooks.

  • I see a different view of all this:

    Macmillan is changing the way they sell to Amazon – they are offering Amazon basically an affiliate program – they are calling it the agency model – where Macmillan is going to pay Amazon 30% for selling Macmillan’s stuff. The publisher is setting the price and saying – we will pay you 30% of that price. It is kind of like Amazon’s own associates program or a real estate transaction. The seller sets the price, the realtor sells it and the seller pays a commission to the realtor for doing that. The only part of this “agency agreement” that isn’t clear to me is who is fulfilling the product? Macmillan or Amazon?

    This model is the way that the new iTunes Book store is set up – iTunes will take a selling fee for books there and the publisher will set the price.

    Many people feel that the price of e-books will increase as they have more diversity of content – live links, author interviews, video demonstrations, games, social networking and yes, gasp, maybe even advertising in them – maybe video trailers for other books – kind of like at the movies!

    I think that within the next 5 years all books will be created as “digital feeds” that can be downloaded, printed in a variety of forms (maybe on the EBM or not), streamed to audio with a text to speech device, put on a CD, delivered to the Kindle or iPad, etc. – there will be various media forms for the content delivery, but there will eventually be only one form of content that the user will decide how he wants it to be manifested. There will be a “basic” charge for the digital feed, then add-on charges depending upon what you want – iPad, EBM, hard cover (delivered to your home later), audio stream, etc. – the user will have many choices and will pay accordingly. I think Macmillan is getting ready for this world.

    On another front, Amazon is now changing its Kindle commission structure from 30% to 70% – sounds good? See my blog post http://www.carolwhitemarketing.com/blog – I think it is wolf in sheep’s clothing – and it all has to do with these “richer” content ebooks.

  • Carol –
    I tried to read your blog post, but it’s truncated so I don’t know what your concerns are.

    However, as I stated in my post, Amazon’s intention to charge .15 per MB of ebook content is no big deal. On static ebooks this comes out to an average of .06 per book, but what about enhanced ebooks?

    First of all, I doubt most self-publishers have the skills or desire to create enhanced ebooks, which are really more like full-fledged computer programs. If this ultimately costs them sales in the brave new world of Vook-type ebook expectations, perhaps they’ll decide to get the necessary skills and motivation, or start hiring developers to create enhanced ebooks for them.

    Secondly, it’s clear to me that this pricing structure cannot hold for enhanced ebooks, which will likely be classified as a different type of media, because the typical “Vook” enhanced ebook has a filesize of around 175MB. At .15 per MB, Amazon’s fee on such a book would be $26.25. There’s no way Amazon would charge this much, because if they did the product would have to be priced much higher than $30 just for the publisher to break even on its production costs—which are much higher for an enhanced ebook application than they are for production of a static ebook.

    Given that ebook readers are already up in arms over the possibility of having to pay just $3-5 more for their Kindle books, there’s no way this business model would be viable – the product would be unsellable. Also, Vooks you can buy today all cost less than $10.

    Jeff Bezos may be many things, but he’s no dummy. If, and when, the Kindle starts supporting enhanced ebooks, I predict their pricing structure will be entirely different than that of Kindle books.

    And on a related note…I really don’t understand why so many people react with knee-jerk suspicion to any move Amazon makes. Yes, Amazon’s huge. Yes, it’s the dominant player among booksellers. And yes, it’s made some bonehead moves when it comes to removing buy links in the past, and may very well make those same mistakes again in the future. But again, Bezos is no dummy.

    His priority is, and always has been, to serve the needs of consumers better and faster than any other retailer. He has a history of willingness to accept losses for years at a time in order to grow his business, or foster consumer acceptance of a new product or business model. People seem to forget, Amazon operated in the red for its first 5 years: a risk that has paid off in spades for Bezos.

    It’s not as if he’s some evil warlord, plotting the destruction of entire swaths of media or the enslavement of consumers. He’s a businessman whose business depends on providing consumers with convenience at a competitive price. He’s not going to do anything to jeapordize the empire he’s built to date—at least, not on purpose.

  • Hmmm – I don’t know why you can’t get there – I just clicked on it and went there fine – but you already figured out what my point was – the paltry six cents that Amazon now touts will rise exponentially as we add more enhancements to books – it will sneak up on us, but it was excellent positioning on Amazon’s part for the future – but with the current “dust up” going on and now Hatchett jumping in too – it is anybody’s guess what this will all look like in a few years.

    As to “lack of expertise” to create e-books enhanced, I can’t create p-books without help, so why would I need employ someone to help with enhanced e-books at a later time – it is just a different technology and we all know that you just have to keep up in this day and age or die.

    Yes, I too don’t understand the hatred of Amazon. I love Amazon, they provide me a playing field level with the big boys, pay me promptly, provide me a huge database of customers who can see my book, collect the money from them for me, do promotions of their own to bring people to their site, provide their customers marketing programs that I can benefit from (free shipping – $25), provide ways for me to interact with my fans, etc. what’s not to like! I give them no more than I give other trade channels (in some cases less) and they provide me the world’s biggest book store. complain? Not me…

  • oops – should have been: why wouldn’t I employ help…

  • Carol – I can “get there” without a problem, but when I do, this is all I see:

    So, what no one is talking about is the little line that Amazon slipped into their announcement package: ” For each Kindle book sold, authors and publishers who choose the new 70 percent royalty option will receive 70 percent of list price, net of delivery costs.”

    They went on to say: “

    (no more text from this point on)

  • Here is the complete text:

    Is the 70% Kindle “royalty” a good deal?

    So, what no one is talking about is the little line that Amazon slipped into their announcement package: ” For each Kindle book sold, authors and publishers who choose the new 70 percent royalty option will receive 70 percent of list price, net of delivery costs.”

    They went on to say: “Delivery costs will be based on file size and pricing will be $0.15/MB. At today’s median DTP file size of 368KB, delivery costs would be less than $0.06 per unit sold.”

    NO BIG DEAL, right?

    Well, maybe not right now, but the e-book arena is expected to explode with all kinds of new features embedded in books – links, pictures, video, animation, and who knows what else – and what does that mean? BANDWIDTH. Cost to download.

    That is what Amazon is really doing – positioning today for the huge files that will be downloaded in the future – and the ability to charge the publisher/author for the “delivery” of those files.

    We may all be yearning for the days of 25-30% “royalty.”

    What browser do you use? I wonder if it is a browser issue… email me off line – I want to make sure I don’t have a website problem.

  • Carol -It’s fine in Firefox, but not Internet Explorer. Since IE is the more popular of those two browsers, you might want to look into it.

  • I’m not backing either of them.

    Amazon’s pricing gauntlet was numb. The book market has long been based on cover margin pricing. They’re right in that the publishers are over-pricing ebooks, but instead of letting the market set the price — the same way a brick-n-mortar would — they chose to try to dictate cover price to a supplier. Stupid move.

    Macmillan’s response was ill conceived. It was a lawyerly answer to an unfamiliar market action. The right answer for Macmillan might have been to pull all ebook production back onto their own servers. Sure they’ll sacrifice a bit of visibility in the short run, but they have the market clout to get that word out. After all, they don’t *have* to sell on Amazon. If they’d agreed to Amazon’s demand (“all ebooks sold thru the kindle store need *this* pricing”) by pulling the few ebooks they wanted to price over 9.99 they’d have avoided the whole fiasco. Power tripping tripped them up.

    Market forces would have handled this nicely and I’m relatively certain that market forces will deal with the fall out as well.

    My observation is that the more the “big guys” duke it out amongst themselves, the more opportunities exist for the little guys to start nibbling away at the edges. I don’t need Amazon to create a Kindle readable version of my book. I don’t need the 80 cents on a dollar that Macmillan pays for a unit sold.

    We’re in the middle of a singularity event where I believe we’re going to see a fundamental shift in the way consumers acquire and use entertainment media. Whether that’s enhanced book, ebook, non-refreshable cellulose display, or espresso machined while you wait, the more the dinosaurs flail with each other, the better the chances for us lil shrews to chew off their toes.

  • As of a week ago, nearly every time you find a $14.99 ebook you are offered a trade paperback for around $10.25. Surely the venal stupids running big publishing can see that most readers–even Kindle-owning readers–will spend $10.25 before they spend $14.99. And especially if the $10.25 “real” book can be shared as is and then resold on Amazon as a $5.00 used book while the $14.99 ebook can be read on one device, a $250 to $500 Kindle (or even Kindle for PC). This is where “market forces” rubber meets the “venal big publisher” road.

    I’ve been a self-publisher since 1985 and, except when I was selling trade hardcovers via trade outlets (to about 2000), I have never made more “money while I sleep since I added ebook editions to every hardcopy title I can. I’ve also added titles that are only available as ebooks, have uploaded by ebooks to Sony, and will begin uploading to Kobo tomorrow.

    I do not understand why most authors hitch their wagons to Big Publishing. The only plan those clowns have going reads: “Barnes and Noble,” a failing business model on all fronts.