If there’s one thing that Amazon’s better at than selling books, it might be stirring up controversy.
For those who don’t know, last year, Amazon unveiled a subscription reading service called Kindle Unlimited (KU). For a monthly fee of $9.99, users can download and read as many books as they want, ten at a time. Once you “return” one of those ten borrowed books/stories, you can download another. For voracious readers, the service is a godsend, saving them tens, or even hundreds, of dollars a month on books, depending on their reading habits.
But, where does the author stand on this? While I do have a book that is available for free, it wouldn’t make any sense for me to have all my books available for free. Call me old fashioned, but I’m rather fond of eating and having a roof over my head.
In order for Amazon, or any other subscription service, to have content available to the consumers, they must compensate the content provider in some way. Initially, Amazon chose to utilize a system where, if a reader downloaded and read a book up to a certain point (10% of the text), they paid the author a portion of a substantial “pot” of money each month. That piece of the pot (which started out around $2 and eventually landed in the area of $1.37) was the same for each qualifying download, regardless of length. A short story received the same slice as an epic doorstop.
Naturally, many authors saw this as an opportunity to put out tons of shorter works, be they single short stories or novels transformed into serials. Less reputable folks uploaded short Wikipedia articles and ridiculous non-fiction “books” to take advantage of the 10% payout trigger. Readers began to complain about having a hard time finding something of quality to read. Longer form authors complained about not being compensated fairly.
Now, Amazon has upset the KU apple cart and updated the payout system to a slice of the pot for each page read. Length of the whole work no longer matters. Authors get paid for engagement. If the doorstopper-writer loses the interest of the reader after 20 pages, they earn the same amount as the short story-writer whose 20-page work is read clear through.
Understandably, short form writers are upset by this change. To earn the same $1.37 they got before from one download read to 10%, they have to accumulate approximately 240 pages read — according to the best guess at the pot slice we have at the moment which is $0.0057, or a little over half a cent per page. Novel writers will get paid more than the previous $1.37 if their book gets read all the way through. Writers will now be rewarded for reader engagement.
To all those up in arms about the change, let’s step back and look at the music industry.
Say you hear a song on the radio and decide to purchase it. You see that the artist has a number of other songs available as well. (Us old folks used to call those “albums”) You certainly wouldn’t expect to purchase all the songs for the same price as the one, right?
“Okay,” you say. “But purchasing is different from renting or streaming.”
You’re right, it is. So, let’s look at how artists get compensated for streamed songs.
Spotify is currently paying approximately $0.006 per play (sound familiar?) according Spotify (the artists get much less than that depending on the contract with their label, much like traditionally published authors are paid a small fraction of the money earned from a book). We can argue about whether the number itself is fair or not, but how does this model apply to books?
Think of a page read as a song play. If the listener/reader likes what you have to offer, they’ll listen again (i.e. read more). Then they get to the end of the chapter, or the short story, and think, “Man, this is really good! What happens next?” Just like if you’ve listened to a particular song from an artist a few times and wonder what else they might have available. That performer has made a fan out of you. Our books have the opportunity to do the same thing for readers. If we catch their eyes and engage them with interesting characters and plot, they will come back for more.
Many of you authors out there are probably still not convinced, so let’s look at it from one more angle. Everyone in the equation has to be compensated somehow. Namely, the readers (who get content to consume), the authors (who provide the content to read), and the platform (who creates the method of getting the content to the consumers). Spotify and Amazon have chosen to be compensated directly from the end consumers in the form of a subscription fee and they, in turn, compensate the artists/authors for product consumed.
Another company, YouTube, has taken a different approach. They provide all their content for free, but compensate themselves and the artists through advertising. Imagine if Amazon went this route. Would you want your book to be interrupted every 20 pages by an ad? As a reader, I know I wouldn’t put up with that for very long, even if it was free for me. Take a look at this brilliant info graphic, at the bottom of this article from the Guardian, to see how many more views/listens a song has to have on YouTube for an equal level of payout from the streaming services. It’s quite eye-opening.
What does this all mean? I think subscription services are here to stay. Spotify and Netflix are popular with consumers. The battleground is content and how much to pay those content providers. Scribd’s model for books, while attractive to authors and publishers, is clearly flawed as we’ve seen with them eliminating much of their most-read content this past week. We are only guessing at Amazon’s payout at this point in time. We won’t know what the actual number is until mid-August and the number will undoubtedly fluctuate over the next several months and settle at a point that Amazon is comfortable with. Whether authors will be comfortable with it remains to be seen, but books are only locked into the program for 90 days. If you aren’t happy with what you are seeing, drop out and try other avenues.
I have one series in KU and one not. I’m looking forward to see the dynamics of how all this plays out through the rest of the year. In the meantime, I need to get busy writing. This next book isn’t going to finish itself!
Please let me know your thoughts on KU, Spotify, how much authors and musicians deserve to be paid, or anything else that comes to mind in the comments.
Amazon just spent nearly a billion dollars — yes, that’s with a Carl Sagan “B” — to acquire Twitch.tv. What is Twitch? It’s a site used mostly by gamers to live stream and record videos of themselves playing video games. Some of the users have hundreds of thousands of subscribers to their channels and sometimes tens of thousands of people watching at any one time. Not only can you watch the action, but there is a chat function as well where the streamer can interact with his/her viewers and the viewers can interact with each other.
Why is this significant? Other than the huge chunk of cash, it shows a glimpse of where Amazon is headed. They recognize that content is king. The more content they have available on their devices (Kindle, Fire TV, Phone, etc.) the more Amazon becomes a destination for their customers. Rather than creating the bulk of that content themselves, Amazon is looking to the grass roots — Indies— to fill their gadgets with fun and interesting things to see and do.
Twitch streamers are almost directly analogous to Indie authors. They are creating content and trying to find an audience. Each has their own personality, talent, and unique ideas on how to present their channel.
Books aren’t special snowflakes as some have bandied about recently. They are entertainment. As such, they compete with every other source of entertainment out there for the attention of the public. Writing a good book is a difficult task. So is writing a song, or creating a video or a game. We’re all vying for eyeballs. The big difference these days is we don’t have to have middlemen (publishers, record labels, distributors, etc.) to make it happen. We have direct, immediate conduits to those eyeballs and I, for one, am immeasurably grateful for those conduits.
I really should be writing, but the misinformation and outright lies being tossed around the Interwebz drives me to distraction.
Hachette CEO Michael Pietsch responded in Digital Book World to all those who answered Amazon’s email plea and sent him a message this weekend. He said several questionable things, but I want to focus on the last bullet point in his letter:
• The invention of mass-market paperbacks was great for all because it was not intended to replace hardbacks but to create a new format available later, at a lower price.
As a publisher, we work to bring a variety of great books to readers, in a variety of formats and prices. We know by experience that there is not one appropriate price for all ebooks, and that all ebooks do not belong in the same $9.99 box. Unlike retailers, publishers invest heavily in individual books, often for years, before we see any revenue. We invest in advances against royalties, editing, design, production, marketing, warehousing, shipping, piracy protection, and more. We recoup these costs from sales of all the versions of the book that we publish—hardcover, paperback, large print, audio, and ebook. While ebooks do not have the $2-$3 costs of manufacturing, warehousing, and shipping that print books have, their selling price carries a share of all our investments in the book.
This bit: “create a new format available later, at a lower price” is referred to as windowing and it’s something readers have railed against since mass-market paperbacks were first introduced. We all know the drill. Our favorite author writes a new book. First, it gets released in hard back. Then, sometimes more than a year later, it finally is released in paperback. Why do the publishers do this? Profit.
Let’s look at a typical bestseller hardback new release. I am going to use generic, made-up numbers for this example. There are always exceptions to every rule. Most new hardbacks these days are priced at about $28. Publishers sell them to distributers/retailers (like Amazon, Barnes & Noble, and Ingram) at a 50% discount, meaning the publisher gets $14 for the book. Mr. Pietsch states above that print books have production costs of $2-$3 per book attached to them, in addition to the fixed costs he states, such as editing, design, etc. (We’ll ignore the fact that he uses warehousing and shipping twice in his argument) Those fixed costs, in normal accounting procedures, would get amortized over the projected sales of the book. For argument’s sake, I’m going to use a figure of $6 per book to cover those “investment” costs — and I think I’m being generous here. Remember that the author’s royalty is baked within that figure because the publisher has paid the author an advance already, so about $4.20 of that $6 is being used to pay down that advance. That leaves $1.80 for the other costs. If the book is expected to sell 100,000 copies, that’s $180,000 for editing, design, marketing, blah, blah, blah.
So, we have a final “cost” of the hardback book at roughly $9 and the publisher gets $14. Pretty good deal. Here’s the problem though. The paperback version of the book retails for around $10 these days. Meaning that the publisher gets about $5. That figure doesn’t look so good against the $9 cost we established earlier, yet Mr. Pietsch claims they recoup those fixed costs he mentions from “sales of all the versions of the book that we publish—hardcover, paperback, large print, audio, and ebook.” Even if we assume the production cost of a paperback is a little less than the hardback, it still doesn’t make financial sense. What are we missing?
Windowing. Because the book is only released in hardback initially, the publisher guarantees it sees that nice number for the first several months to a year of the book’s existence. Contrary to what Mr. Pietsch is claiming, the publishers don’t amortize those fixed costs over all formats — at least not equally. They make their money with that initial hardback release.
Now, ebooks enter the picture. People expect to have access to the ebook version of a new release at the same time as the hardback. To make that happen and still get the profits they want from a new release, publishers have to jack up the price of the ebook beyond reason. Let’s look at the numbers. We had a figure of $9 for production/fixed costs of our hypothetical new book, but we can take out that $3 needed for printing and distributing the paper version, so we’re down to the $6 fixed cost figure. Amazon would like to sell ebooks for no more than $10 ($9.99), of which, they take 30% instead of the 50% for paper copies. That leaves $7 for the publisher. Profitable, but nowhere near the $9 vs $14 we saw with the hardback. Ah! But if the publisher says, “Let’s charge $15 ($14.99) for the ebook,” then we have something. Now, they are getting about $10.50 from Amazon for that book vs. the $6 cost, which is nearly the same as the hardback profit margin. (This doesn’t take into account the lower author royalty dollar-wise for the ebook, which amounts to about $2.65 instead of the $4.20 we showed earlier, meaning the publisher actually does better on the $14.99 ebook than the hardback.)
With me so far? Everything sounds like it works out just fine for the publisher, right? Except for one thing: people get really pissed off at paying $14.99 for an ebook.
Amazon knows this. People leave nasty one-star reviews by the droves whenever a book gets priced over $10. People also get pissed off when publishers have tried to window ebooks — in other words, not release them at the same time as the hardback. The publishers can’t stomach the $9.99 price point because their business model falls to pieces.
Guess what? It’s time for a new business model. Ebooks aren’t going away and neither is the average reader’s desire to not pay more than $9.99 for it. Until the big publishers grasp this concept, they are going to continue to butt heads with Amazon.