Amazon Plead for Your Support in Hachette Dispute and Why You Shouldn’t Give It

A few days ago I unpacked a piece of Amazon propaganda that was posted on the Kindle forum. Well, Amazon have upped their game: in a lengthy letter sent to Kindle authors today (and posted on a new site Amazon set up specifically for this purpose, www.readersunited.com), Amazon have asked indie authors to join Amazon in their fight with Hachette: we are asked to send opposition emails to Hachette CEO, Michael Pietsch (Amazon even published his email, which is really bad manners) and to copy our emails to readers-united@amazon.com. We are even provided with the relevant talking points that Amazon would like us to include.

Should you support this effort? NO! Why? Because higher Big Five ebook prices are GOOD for indie authors. Without them we SUFFER. We may even outright DIE.

It is a long established practice in retail to place lower-priced goods directly beside higher-priced goods because by doing so the lower-priced product appears a bargain in comparison, even though it may not be. The principle is applied to everything from restaurant wine lists — where a $100 bottle is set beside a $20 bottle — to the placing of lower-priced Equate brand acetaminophen beside boxes of higher-priced Tylenol on the shelf at Walmart. The restaurant may sell only one bottle of $100 wine for every fifty bottles of $20 wine, but the $100 bottle is what makes the $20 bottles sell so briskly. If the $20 bottle of wine was the most expensive on the menu, then the $20 bottle would in turn sell less briskly than lower-priced bottles on the menu.

So when Amazon ask us to support their fight to lower the ebook prices of Hachette authors, what Amazon do NOT want indie authors to appreciate is that the $20 bottle of wine sells well only because of the $100 option beside it.

Walmart only flourish because of the higher-priced stores that exist in comparison. If every shop were Walmart, there would be nothing to define a bargain and Walmart would not have the market share that they do. But if every shop were Louis Vuitton, there would be nothing to define luxury, nothing to set Vuitton apart from common goods.

In the publishing world, we are Walmart; the Big Five are Louis Vuitton (their mid-list authors are, say, Macy’s and J.C. Penny).

If our ebooks are to remain attractive to consumers, if we are to have any chance of competing against famous authors who names are readily identifiable, whose reputations are established, who get all the press, we NEED their ebooks to be priced higher. If Amazon manage to force the prices of Hachette and the other Big Five ebooks down to $9.99 or less, we will have to lower our prices to a third of that or less to maintain our price deferential. Amazon only pay us 70% if our ebooks are priced at $2.99 or higher; below that our royalty halves to 35%. By forcing the price of authors like Stephen King or Nora Roberts down to $9.99 instead of $14.99 or $19.99, Amazon force OUR prices down too, and with it our royalty. WE LOSE TWICE. Why would any intelligent indie author support such a scheme? Why would any intelligent indie author encourage our competitors to lower their prices? Do you think Walmart actively encourage the likes of Macy’s or J.C. Penny to lower their prices? Of course not. That would be corporate suicide. Yet this is exactly what Amazon are asking indie authors to do, to put on a suicide vest so Amazon can win their war with Hachette. Which should tell you just how little regard Amazon have for indie authors: we are expendable. And while a suicide bomber is promised 72 virgins and an eternal erection for his sacrifice, what is Amazon promising us for ours? Bugger all.

With digital content, Amazon have NO ADVANTAGE over their competitors like Amazon did over physical bookstores.

Moreover, Amazon sell a proprietary format, the Kindle, while EVERYONE ELSE sells the ePub format. This works both for and against Amazon: the proprietary format locks early adopters into the Amazon ecosystem — a business model Amazon adopted from Apple — but any adoption by a consumer of the ePub format is a lost consumer for good. In the world of digital content, Amazon have no option but to force ebook prices down to lure and lock consumers into the Kindle ecosystem. That is what is at the heart of this battle. It has nothing to do with helping authors or readers; on the contrary, it is about chaining us all to Amazon.

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10 thoughts on “Amazon Plead for Your Support in Hachette Dispute and Why You Shouldn’t Give It”

  1. Interesting. I vehemently disagree on the idea of going back to distributor discount. I’m a big supporter of the agency model, because I believe in people/publishers being able to set their own prices, but with that said I’m also into equality. I think if traditional publishers are going to get forced into set prices, so should indies, with a 70/30 split. It’s only fair.

    I’m not sure Amazon would resegregate books. I feel like that boat has sailed, and again I go back to what’s happened on other retailers. It’s another example of Amazon shooting themselves in the foot if they were to change policies and their competitors did not. They make far too much from self-published titles to accept such a demand from traditional publishers, if it were even to exist.

    PS – The discussion’s been great! They’re too rare on this inflammatory internet platform.

    PPS – Chances are I’ve skimmed that report you’re reading. I have a huge collection of reports from publishing, music, television, and film I’m slowly working my way through as I consider writing a book about the digital age of entertainment.

  2. Agency pricing without the price-matching clause is workable, but agency pricing with price-matching is what is at the core of so many indie author headaches. We spend way too much time worrying about and adjusting our prices to deal with this. Interestingly, this price-matching clause, also known as a most-favoured-nation (MFN) clause, was at the heart of the lawsuit against Apple. But in that case it was only because it was used to set higher prices that the contract was declared illegal. Amazon use the MFN clause to set lower prices, so the DoJ found them guiltless. Yet the principle and method are identical. Everyone who has analyzed the case and its outcome have all agreed it gave Amazon an increased market advantage.

    Amazon also use their price-matching clause to coerce exclusivity: Google, who use the DD model, price below Amazon, Amazon lower their price to match — even though our contract specifically says we are only obligated to set the same list price for each retailer, not that we are obligated to enforce it — and the indie author calls Google “the culprit” and removes their ebook from Google Play. These authors are playing right into Amazon’s hand.

    The other thing about our contract is that our ability to set our price is fundamentally an illusion: there is a notwithstanding clause (5.3.4 Customer Prices) that gives Amazon “sole and complete discretion to set the retail customer price at which your Digital Books are sold through the Program.” We are completely at the mercy of Amazon’s discretion to honour the price we set. And they don’t: they use their web crawlers to find lower prices on the likes of Google that are not set by the author and lower our price to match. Amazon also adjust our list price up or down to accommodate currency fluctuations, something many authors are not even aware of when they allow Amazon to convert the list price automatically.

    So agency pricing that really gives us the right to set our price, and which really pays us 70% (not 70% less a delivery fee, something no one else charges and yet where is our collective outrage?), and which does not give Amazon complete discretion to muck about with our price as they see fit, I, too, would vehemently defend. But we don’t have that. We have a nightmare, one-sided contract and no collective bargaining agent to oppose it.

    The thing, too, about that 70/30 split is that if Amazon force our prices down to below $2.99, they won’t have to change the current structure; we will be paid 35% by default. And even if Amazon decide to shoot themselves in the foot and lower our royalty, or restrict the 70% price band further, I suspect that most indie authors would bitch but not vote with their feet and defect. Most would think that Amazon have the lion’s share of the market, and 60% or 50% or even 35% of something is better than nothing. And it may also be a gradual change so as to judge indie author response with each incremental reduction, and compare revenue from those who stay with estimated losses of those who may actually defect.

    Lastly — and then I have to get cracking on my book or I’m not going to make my deadline — the best determiner of future behaviour is past behaviour, and what Amazon did with print books was first they greatly discounted book prices; Amazon earned less per book but more on total volume. As their power grew, they pushed out the middle men (the distributors) and forced the big publishers to supply Amazon directly for the same price as what the distributors had bought at. Then Amazon, year over year, contract by contract, forced ever higher discounts on the publishers. This allows Amazon to earn more on both price and volume. Amazon’s discount from their inception in 2007 to now has gone from about 38% off list to 55% off list. That is a whopping 17% spread in just seven years. If they can do this to the Big Five, what more do you think they can and will do to us?

  3. On the topic of books not being broken up, whereas albums can easily be broken into singles, I believe serialization is being seriously hampered on current retailers by having to release each piece as a separate product, instead of being able to make one product that a customer can subscribe to in order to receive all pieces of the work, and by the royalty being reduced for works under $2.99. As we move more toward subscription and mobile reading, I firmly believe serialization will boom, as is already becoming quite popular on platforms like Wattpad, which primarily appeals to young readers, and in international markets with heavy commuting cultures (Asia, and to a lesser degree Europe).

    I do, however, agree with you on Amazon and the 70% royalty. I think they’d love to lower it, but I wonder if they’ve now accepted it, since they seem to be suggesting any future deal with traditional publishers would have the 70/30 split, and all other major retailers have adopted it after Apple established it as the benchmark. Obviously, if they try to lower it and other retailers don’t, they will see a certain degree of exodus (as I don’t believe Apple, nor other retailers, would reasonably consider lowering it).

    With that said, Amazon may get creative in trying to reduce the amount they have to pay. They’ve already made the 70% royalty exclusive to KDP Select books on sales in some emerging markets, and could well continue the trend as they continue to expand. They could also continue to provide new features only to Select members, like they did with Kindle Unlimited, so at least the books are only available on their platform.

    I think if they actually tried to reduce the royalty, they’d be committing suicide for KDP. The trend among indie authors is to push for a higher percentage, not a lower one, and while I don’t think we’ll see more than 70% (I believe the 70/30 split is too well-established at this point), I’m not sure decreasing it is worth the risk to them.

  4. I sure hope you are proven correct if Amazon wins this war with Hachette and the others to come. With music, though, from what I understand Apple dictate the price bands, meaning you cannot drop the album below a certain amount even if it is a back title; this is to protect the price of singles. No such restrictions apply to ebooks because we do not sell individual chapters at one price and the whole book at another. So I’m not convinced the comparison to music will hold with ebooks.

    The other thing that worries me is this: back in 2010, after the publishers forced Amazon into the agency model, Amazon lobbied back through KDP (for the sake of ease I shall cut and paste from my new edition of TGIA):

    In June 2010 Amazon shot back by announcing that Kindle Direct Publishing, which was paying a 35% royalty with no price restrictions or parity clause, would now offer its author-publishers 70% but only on ebooks priced between $2.99 and $9.99; ebooks priced outside this would continue to be paid at 35%. And in a move aimed squarely at Apple, KDP allowed ebooks subject to the 35% royalty to be priced as high as the lowest list price for any physical edition of the book—that $30.00 hardcover could have an ebook version priced as high as $30.00 instead of Apple’s $14.99, at least until the lower-priced paperback was released. eBooks subject to the 70% royalty option could be priced as high as 80% of their physical counterparts; however, Amazon also added a small financial penalty: a per megabyte delivery charge for ebooks paid at the 70% rate. More importantly, two new clauses were added to the KDP contract: the first stipulated price parity with all other retailers, the second stipulated that any ebook sold through KDP had to be made available for sale in all jurisdictions for which the author and/or publisher had rights. The effect of the changes to the KDP program were multiple: they highlighted the increased earnings an author could make by bypassing their publishers and contracting directly with Amazon, thereby driving home the advantages of disintermediation; they encouraged Amazon’s preferred price band and ensured it was enforced across retailers; and they ensured that KDP authors could not ignore Amazon in other jurisdictions, thereby protecting Amazon’s global expansion plans in the face of competition from Sony, Kobo, and new entrants Apple and Google, who already had global brands.

    Knowing that we were pawns, and that our 70% royalty was a chess move that Amazon may no longer need when this is all over, what will Amazon do to us next? They’re soliciting our help to bully Hachette (so lame), but I doubt that will be the end of our role, voluntary or not.

  5. That’s indeed possible, but I’d argue the math will change when they’re forced into lower prices. I’d say you’ll see more of $9.99 new, $7.99 old price structure like you see with music now, though even then a lot of old albums are sticking to the $9.99 price tag as they age because of how the price has been lowered from where physical album prices used to be. The only difference is the backlist doesn’t get promoted, and even though the price isn’t shifting, it’s still good value.

    However, I’m not sure the argument that the current price structure works for indies is good enough to fight lower traditionally-published book prices. In the end, only some of us are writers, and even fewer indie writers, but we’re all readers, and lower prices benefits a far greater number of people than higher prices.

    I also don’t think lower prices will be as negative for indies as you’re positioning them to be. I hate to always go back to music, but indies are doing quite well in the new system, because price isn’t the only factor. Indies seem to often have a better grasp of marketing and building a platform/fanbase, which is key in the internet era, and as we move from purchasing media to subscribing to streaming services, artists/writers/whatever signed with traditional companies will get shafted on royalties, whereas indies will thrive, both financially and creatively. We see this with Spotify, where many artists are complaining about low royalties, but indies are showing they’re making great money.

    If you look at what’s going on with YouTube, their top creators are easily able to drive more traffic, sales, etc than the most well-known celebrity. The internet is about forging personal connections, and indies are positioned to do best with it.

  6. Hi Paris:

    The problem with the $9.99 price point is that Amazon want that for new releases — traditionally when a book commands its highest price point. Once the book becomes “old” the price point drops. We already see this happening where big-name authors’ new titles are selling around $19.00 for the ebook and back titles are halved down to about $10.00. So if the likes of Stephen King begin selling new releases at $9.99 and back titles at $4.99, where does that leave us? It prices us out of the market.

  7. I’m not sure I completely agree with your argument. Yes, the high price of traditionally-published books helps indie authors, but I’m not sure shifting that price down to $9.99 for most trad-pub books will make a huge difference.

    Indies books, in that scenario, will still be low enough to position them as the bargain option. I’d say a book at $4.99/$5.99 is still pretty safe in benefiting from that effect, and I’m sure the average right now is still quite a bit lower than that, around the $3 range, which is why Amazon introduced their new price tool to try to encourage indies to increase prices slightly, and why Kobo has vocally encouraged indies to try higher price points.

    Do I think authors should be going to the front lines for Amazon though? Definitely not, it’s ridiculous. Indies are still treated like second-class citizens by Amazon, and I find it rather funny that they said a few months ago they wanted authors out of the negotiation, now they’re encouraging the authors most likely of supporting them to get further involved. It’s laughable.

    Amazon’s advantage in digital comes from the Kindle platform, for those who trap themselves in it, and their often lower pricing than other retailers (because they’ve accepted losses to provide it). You note how Amazon stole the proprietary part of their business model from Apple, but Apple does use ePub, and when it came to music they did force labels to accept set pricing ($0.99/$1.29 for songs/$9.99 for albums) and remove DRM. I’d love to see Amazon force publishers into dropping pointless DRM, and while I don’t like the idea of Amazon forcing publishers into a particular price, the $9.99 ebook is an attractive price point, as long as other retailers get the same deal.

  8. P.S. By the way, thank you for a thoughtful and respectful discussion. It’s nice to be disagreed with but not attacked. I like to be challenged to think differently on a topic — and often find myself modifying my position as a result — but I hate being bullied. There’s far too much bullying on the Net and not enough respectful disagreement.

  9. I love serialization — it’s how the likes of Dickens built their fan base. I’ve toyed in the past with releasing TGIA in sections, but in the end I don’t because there’s a lot of cross-referencing between chapters.

    I agree with what you say about Amazon getting creative with the 70% royalty. The points you make are the very ones I echo in my book. At each stage of new competition, Amazon look for more and more ways to encourage exclusivity. I, personally, am quite tired of all this nonsense — it gives me a headache — and would love to see a return to the distributor discount model. Then all this stuff would just not be our problem: as with print books, we would sell to Amazon (to any retailer, actually) at a fixed discount (say, 50%) and price competition, royalties, and profits become the retailers’ problems, as they should be. We could spend more time writing and less time trying to play catch up with stuff like price-matching. One can dream, right?

    Speaking of which, must shut down now for the night. I’m wading my way through a 116-page global ebook market report and then I think I need a drink.

  10. Forgot to mention: one also must look at the trajectory of integration of indie and traditionally published titles. At the beginning, KDP titles were segregated — we were not included in bestseller lists for example — and rumors were that the Big Six (now Big Five) were behind that; KDP authors were justifiably outraged. After Amazon lost their battle with the publishers, Amazon began experimenting with integration, and found that the integration of lower-priced indie ebooks created market pressure on traditional publishers. So now when you check the bestseller lists, KDP titles are given equal weight. This approach has now been adopted in Europe as part of Amazon’s strategy there, a policy their competitors have been resisting. If Hachette et al are forced into a lower price band, segregation may again be part of the deal.

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