Amazon vs Publishers vs Authors

So, last week I was amongst the many thousands who received an intriguing letter from Amazon / Kindle Direct Publishing (KDP). It’s the latest and most intriguing salvo in the big war Amazon is waging both against individual corporate publishers, and the traditional publishing industry in general.

I’m registered with KDP because I have 4 books in the pipeline and will be publishing with Amazon first, then Smashwords, or Ingram to cover the rest of the market. Amazon have created a universe of opportunity for indie publishers and self-publishers to such an extent that the structure of traditional publishing has altered radically, coinciding with a global recession that’s decimated high street retail in the western economies.

Amazon vs Publishers

There’s a big spat between Hachette (only the 6th largest publisher in the world) as Amazon try to radicalize their offer to their consumer, and squeeze the middle (publishers, let alone literary agents) out of the process. The fight with Hachette is only the most visible of the battles being executed by Amazon against many of their major suppliers, while they continue to improve their customer experience, shaking up the stale methods of the past.

So here’s the letter Amazon sent:

Dear KDP Author,
Just ahead of World War II, there was a radical invention that shook the foundations of book publishing. It was the paperback book. This was a time when movie tickets cost 10 or 20 cents, and books cost $2.50. The new paperback cost 25 cents – it was ten times cheaper. Readers loved the paperback and millions of copies were sold in just the first year.
With it being so inexpensive and with so many more people able to afford to buy and read books, you would think the literary establishment of the day would have celebrated the invention of the paperback, yes? Nope. Instead, they dug in and circled the wagons. They believed low cost paperbacks would destroy literary culture and harm the industry (not to mention their own bank accounts). Many bookstores refused to stock them, and the early paperback publishers had to use unconventional methods of distribution – places like newsstands and drugstores. The famous author George Orwell came out publicly and said about the new paperback format, if “publishers had any sense, they would combine against them and suppress them.” Yes, George Orwell was suggesting collusion.
Well… history doesn’t repeat itself, but it does rhyme.
Fast forward to today, and it’s the e-book’s turn to be opposed by the literary establishment. Amazon and Hachette – a big US publisher and part of a $10 billion media conglomerate – are in the middle of a business dispute about e-books. We want lower e-book prices. Hachette does not. 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 and should be less expensive.
Perhaps channeling Orwell’s decades old suggestion, Hachette has already been caught illegally colluding with its competitors to raise e-book prices. So far those parties have paid $166 million in penalties and restitution. Colluding with its competitors to raise prices wasn’t only illegal, it was also highly disrespectful to Hachette’s readers.
The fact is many established incumbents in the industry have taken the position that lower e-book prices will “devalue books” and hurt “Arts and Letters.” They’re wrong. Just as paperbacks did not destroy book culture despite being ten times cheaper, neither will e-books. On the contrary, paperbacks ended up rejuvenating the book industry and making it stronger. The same will happen with e-books.
Many inside the echo-chamber of the industry often draw the box too small. They think books only compete against books. But in reality, 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.
Moreover, e-books are highly price elastic. This means that when the price goes down, customers buy much more. 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 the lower price is good for all parties involved: the customer is paying 33% less and the author is getting a royalty check 16% larger and being read by an audience that’s 74% larger. The pie is simply bigger.
But when a thing has been done a certain way for a long time, resisting change can be a reflexive instinct, and the powerful interests of the status quo are hard to move. It was never in George Orwell’s interest to suppress paperback books – he was wrong about that.
And despite what some would have you believe, authors are not united on this issue. When the Authors Guild recently wrote on this, they titled their post: “Amazon-Hachette Debate Yields Diverse Opinions Among Authors” (the comments to this post are worth a read). A petition started by another group of authors and aimed at Hachette, titled “Stop Fighting Low Prices and Fair Wages,” garnered over 7,600 signatures. And there are myriad articles and posts, by authors and readers alike, supporting us in our effort to keep prices low and build a healthy reading culture. Author David Gaughran’s recent interview is another piece worth reading.
We recognize that writers reasonably want to be left out of a dispute between large companies. Some have suggested that we “just talk.” We tried that. Hachette spent three months stonewalling and only grudgingly began to even acknowledge our concerns when we took action to reduce sales of their titles in our store. Since then Amazon has made three separate offers to Hachette to take authors out of the middle. We first suggested that we (Amazon and Hachette) jointly make author royalties whole during the term of the dispute. Then we suggested that authors receive 100% of all sales of their titles until this dispute is resolved. Then we suggested that we would return to normal business operations if Amazon and Hachette’s normal share of revenue went to a literacy charity. But Hachette, and their parent company Lagardere, have quickly and repeatedly dismissed these offers even though e-books represent 1% of their revenues and they could easily agree to do so. They believe they get leverage from keeping their authors in the middle.
We will never give up our fight for reasonable e-book prices. We know making books more affordable is good for book culture. We’d like your help. Please email Hachette and copy us.
Hachette CEO, Michael Pietsch: Michael.Pietsch@hbgusa.com
Copy us at: readers-united@amazon.com
Please consider including these points:
– We have noted your illegal collusion. Please stop working so hard to overcharge for ebooks. They can and should be less expensive.
– Lowering e-book prices will help – not hurt – the reading culture, just like paperbacks did.
– Stop using your authors as leverage and accept one of Amazon’s offers to take them out of the middle.
– Especially if you’re an author yourself: Remind them that authors are not united on this issue.
Thanks for your support.
The Amazon Books Team
P.S. You can also find this letter at www.readersunited.com

If you don’t know, this is a response to an unprecedented letter written by a group of major authors (Stephen King amongst them) and supported by 900 more (yes!). At the weekend they paid over 100K USD to take a full page ad in the New York Times. (This appears in the next post.)

The Amazon response is pretty clever. You’d be forgiven for thinking that it was a little independent company. In fact it’s more than 7 time bigger than the largest book publishing company in the world (Pearson).

Opportunities

But these are curious times. There’s no question that Amazon is carrying out a Napoleonic sweep across Publishing, burning the past in its wake; but the effect, and their method, is to create mini-publishers of hundreds of thousands authors, empowering us, if we are willing, to work the system, market, sell and engage with our readers.

Changes

It’s true, it does not make sense to price an ebook at the same level as a hardback (if that’s what Hachette are actually doing). My opinion is that paperback prices and ebook prices should be equivalent, with room to price promote immediately and track the results, as is possible with all ebooks. A printed hardback is an old fashioned way of publishers trying to recover a loss on the the large number of books they publish, while waiting for luck to hit the one title they hadn’t guessed would be a success, and extend the life across various formats.

But the market has changed, and it’s Amazon has changed it, with their consumer-facing flexibility and immediacy. They’ve burned through billions of dollars of investment, more that any publisher could dream of, but the fact is, they are here, and they give the sort of short term benefit that the consumer (i.e. readers) loves.