Some Thoughts from IBPA on the Ongoing Amazon/Hachette Situation

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August 1, 2014

(NEWS/OPINION)

On July 29, Amazon dropped a public post on its Kindle forum describing why it continues to battle with Hachette over eBook pricing. They want eBook prices set at $9.99 and a 30% cut of sales.

As the largest trade association for indie publishers and self-published authors, IBPA has put a great deal of consideration into the Amazon/Hachette situation over the past several weeks. While we appreciate the thought process Amazon takes in the July 29 post, we’re unsure how they’re qualified to make these calls on behalf of publishers – whether these publishers are large, small, hybrid, or self.

While a publisher can amortize the cost of development, editorial, licensing, etc. with a combined print-plus-eBook format release, a publisher working in eBook only will still have the same licensing and editorial costs. At the same time, professional digital production is not necessarily low cost either. In addition, whereas bestsellers may sell 1.74 times more at a lower price and thus result in higher overall revenues, niche books and professional titles – the areas in which many indie publishers work – are not necessarily price elastic in this way.

A recent article on Mashable.com considers the Amazon phenomenon from a small/self-publisher point of view. Here we read:

“Self-publishing has its success stories, but has also caused concern among many in the industry. The fear is that Amazon could end up doing to independent authors the same thing it has done to publishers — make them reliant on a system and then use its leverage to negotiate relentlessly.

‘I definitely do see a lot of novice publishers just coming into the market, a lot of them in self-publishing, who haven’t really taken a holistic view of publishing as a business and who see an easy way to jump into the market through Amazon,’ said Angela Bole, executive director of the Independent Book Publishers Association. ‘They set themselves up with relationships and partnerships that aren’t necessarily beneficial to them down the line.'”

READ THE FULL MASHABLE.COM ARTICLE HERE.

As Brent Weeks points out later in the Mashable piece, IBPA also understands that “for many customers, if it’s not up on Amazon, then it must not be available at all.” This creates a sticky situation, to be sure. We can only ask that our members consider the long-term ramifications of the deals they create today. There is certainly benefit to having books available on Amazon. There is also benefit in the business of professional publishing. Without respect for both sides, there can be no constructive resolution.

SEE ALSO: Up Against Amazon by Karen Christensen of Berkshire Publishing Group from the August 2014 issue of IBPA’s Independent magazine.


Here is the full post from Amazon:

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.

3 responses to “Some Thoughts from IBPA on the Ongoing Amazon/Hachette Situation”

  1. While I don’t always agree with what Amazon does it is a private business and can conduct that business as it sees fit. If Hachette doesn’t like it, then they should find other venues to sell their titles. If you want to play in Amazon’s sandbox and reap the advantage associated with their reputation and name, then you have to play by Amazon’s rules to do so!

  2. Diane DeVillers says:

    As a first time e book author, i am pleased with my relationship with Amazon who gives my books the opportunity to be in their book listing. I agree one shouldn’t put their e books too high as you don’t have to pay for a physical book. In fact i am selling my three ebooks for 2.99 and have had small sales, i am thinking of reducing the price to try to bring in more buyers. I also downloaed my e books to smashwords and both their and the amazon site i used to download could have been more user friendly but now that I’ve done it a few times it gets easier.
    My books are “From the waters of Coyote Springs” “Felix and Eve” and “The Arrangement” and they are fictionalized memoirs following Eve as she moves west to Oregon and works as a timeber cruiser doing timber inventory in the remote Wallowa Mts in eastern ORegon.

  3. I have done battle on other sites about the hamhanded approach by Amazon toward getting what it wants, but the bottom line is that if Amazon wants the books it had better figure out what to do with them. Amazon is perfectly free to price the ebooks at whatever price it chooses, but it cannot reduce the royalty rate if a contract has already been signed. However, since most of the other publishers are waiting it out to see the results of the issue between Amazon and Hachette, and once their contracts are close to expiring or rendered null and void according to court order, they are free to decide whether sticking with Amazon is a safe bet for them. I suspect not, when they sit down and calculate how much they are likely to lose by working with the giant retailer. Hachette has already indicated that its holdings earn much more on other sites. So then the question should be, how much can Amazon guarantee sales if it is struggling already to maintain a decent rate of return on the investment in digging in. As for me, as a small publisher I made that decision long ago, and so it is up to Amazon to toe the line or lose the trust of its cosignors. My two cents.

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