I’ve been trying to catch up on the dispute between Amazon and the big six publishers on the question of ebook pricing. It’s a pretty interesting story.
Years ago, Amazon wanted to set a ceiling on ebook prices at $9.99 because they thought this would encourage the young ebook market.
Publishers didn’t like the downward pressure on book prices, but they also simply didn’t like Amazon, which they saw as a threat to their business model. That may seem strange, since Amazon sells a lot of books, but it actually makes a lot of sense.
One of the advantages a publisher has in the book marketplace is its relationship with retail booksellers. The publisher can get preferential treatment for their new releases, and they can have an influence on whether a book is displayed prominently or not (e.g., face out or spine out).
Because of their relationships with bookstores, publishers can guarantee a big launch for a new title, which gives them an edge with authors.
The same thing doesn’t apply to Amazon. Or at least not to the same degree.
Amazon does promote more popular books, but that’s based on how well the book is doing, not on a cozy relationship with the publisher. Even at that, the difference between the John Grisham bestseller and my latest release with two sales (thanks, Mom) isn’t nearly as great on Amazon as the difference between those books would be in a retail store. (I.e., my book would never even get in the door, much less be displayed on a table at the front of the store with a huge poster and life-sized cutout of the author.)
In one sense, Amazon is “just another reseller,” but it changed the way people buy books, and it has an interest in promoting ebooks and its kindle e-reader.
Retailers like Amazon can resell books on one of two models: a wholesale model, where the reseller buys the books at a set price and can resell them to consumers at any price they like, and an agency model, where the publisher sets the price and the reseller gets a cut.
The big publishers used to have a wholesale agreement with Amazon. That is, Amazon would agree to pay the publisher a set amount for each ebook sold. Some publishers set the wholesale price above Amazon’s $9.99 ceiling.
Amazon was so interested in promoting ebooks that it was willing to sell ebooks at a loss to win market share. Under a wholesale reseller agreement, Amazon was entitled to do that.
Why does the publisher mind? It’s still getting its remit on the book, no matter how Amazon prices it, right?
The publisher doesn’t like it because it hurts bookstores and it devalues the publisher’s books (i.e., sets lower price expectations for books). So even though the publisher is making money on the sale, the publisher doesn’t think this is in its long-term business interest.
In recent years, many publishers have pushed Amazon into an agency model, where the publisher sets the price and Amazon takes a cut. So far, this doesn’t seem to have worked out very well for the publishers. Both sales and revenue have declined as a result. See Adding up the invisible ebook market – analysis of Author Earnings January 2015, and follow some of the links in that article.
It seems that publishers are losing on both the revenue and the market share side.
That’s not the end of the bad news for publishers. Amazon represents a threat to publishers on the other end of the business as well. Through its affiliate Createspace, Amazon makes it very easy for authors to self-publish, and by eliminating the publisher from the equation, the author gets a lot more off the sale of the book.
Here’s a sample calculation from Let’s Get Digital.
$9.99 Trade-Published eBook
Retailer takes 30% ($2.99)
Publisher takes 52.5% ($5.25)
Writer takes 17.5% ($1.75, or less if there’s an agent)
$2.99 Self-published eBook
Retailer takes 30% ($0.90)
Writer takes 70% ($2.09)
Even authors can do this math, and it makes the publisher’s contract look pretty lame.
It’s not clear to me how this is all going to shake out. Right now, big publishers seem to be losing traction in the market, and independent authors seem to be making great strides. But it’s a mistake to take a short-term trend and expect it to continue. That’s what people did with the initial explosion of ebooks, and that’s where we got the “print is dead” nonsense.
Publishers bring a lot of experience to the table, and some people are becoming annoyed with poorly edited, badly written novels from indie authors. “Self-published” may be getting a bad name.
Publishers have skilled editors who understand genre expectations and what works for what audience. They have skilled artists to do cover design, and layout professionals who can make a book look very nice. Indie authors can hire people to fill in those skill gaps, but many don’t.
On the distribution side, publishers are clearly losing their edge because of the decline of the retail bookstore. It’s a new world out there, with social media and digital marketing changing the way books are promoted. Publishers may or may not have an advantage on that score.
Also, the ebook world isn’t the whole world. Print books still sell, and despite the doomsayers, they still sell fairly well.
My expectation is that the big publishers will shrink and lose some market share, but they won’t entirely disappear. Indie authors are just that — authors. It takes a lot of other skills to make a business of selling books, and there’s no reason to believe that the same people who write well will also know how to be masters of social media, understand how to game Amazon’s search algorithms, and be good at cover design.
I expect there’s going to be a new profession out there — that is, a new kind of literary agent who helps the indie author navigate the odd world of publishing.