Amazon’s Latest Books Update (And Why You Should Care)

Amazon’s Latest Books Update (And Why You Should Care)

Titanic news boys

Earlier today, the Amazon Books Team issued a statement clarifying its “objectives,” i.e. reconfiguring its position on paying authors in light of the whole Hachette payment/book removal scandal.

To start off, here’s the statement in its entirety:

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

A key objective is lower e-book prices. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there’s no printing, no over-printing, no need to forecast, no returns, no lost sales due to out-of-stock, no warehousing costs, no transportation costs, and there is no secondary market — e-books cannot be resold as used books. E-books can be and should be less expensive.

It’s also important to understand that e-books are highly price-elastic. This means that when the price goes up, customers buy much less. We’ve quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000.

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

* The customer is paying 33% less.

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

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

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

So, at $9.99, the total pie is bigger – how does Amazon propose to share that revenue pie? We believe 35% should go to the author, 35% to the publisher and 30% to Amazon. Is 30% reasonable? Yes. In fact, the 30% share of total revenue is what Hachette forced us to take in 2010 when they illegally colluded with their competitors to raise e-book prices. We had no problem with the 30% — we did have a big problem with the price increases.

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

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

We hope this information on our objectives is helpful.

Thank you,

The Amazon Books Team

Okay, that’s a lot of text. Here’s our TL/DR highlights:

  • They’re discouraging lower e-book prices, but this really means that Amazon wants to be on top of prices all the time. How dare Hachette think they’re on top of their own author’s prices?! Amazon is king, as we indie publishers know.
  • Expensive books don’t do as well and are harder to promote. But you probably already knew that.
  • Amazon would rather play nice with Hachette than lose authors. Let’s face it, Amazon makes a ton of money off us. If they’d rather negotiate with publishing houses and keep us around, great.
  • Amazon wants us to see it as the “safe place” for authors. As these lovely people point out, Amazon takes a potshot at Hachette by mentioning a lawsuit launched against them and Apple concerning illegal price fixing. Amazon tries to present itself as the good guy here, looking out for the authors about the companies. Which brings us to the most interesting part of this statement…
  • Amazon favors indie publishers like us (and self-published authors) over conglomerates. Long ago, Amazon presented itself as the alternative to conventional publishing houses who paid authors advances and… not much after that. In this statement, it comes out and says it: Hachette’s paying its authors too little. Self-published authors and companies like Archangel who share the wealth are welcome. But Amazon will be critical of the other guys.

What do you think of Amazon’s bold statement? How do you interpret it?

2 thoughts on “Amazon’s Latest Books Update (And Why You Should Care)

  1. It all seems very logical. Still, I think the author or publisher should be allowed to choose the price without being strong-armed. If they can’t do the math and realize that ebooks under $10 sell better and earn more, then maybe they won’t make it in the long run. Authors and agents need to fight for themselves when it comes to negotiating contracts and their share. Now that self-publishing is a viable option, they should be able to get better deals… or just walk.

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