Amazon says it would be content with 30% of revenue if Hachette e-books were $9.99
July 29, 2014 | 8:42 pm
Amazon has posted another update to its Kindle user forum, dispensing more information about the nature of the dispute between itself and Hachette. In fact, this is pretty much the clearest statement of what the actual argument covers that we have yet seen from either side, including those Hachette leakers. (And, interestingly enough, it doesn’t actually agree with some of the content of those leaks! Imagine that?)
I haven’t looked for any reactions yet, but I predict the same howls of outrage we got with Amazon’s last such announcement in May, from Hachette partisans complaining that Amazon didn’t have the decency to put it in a press release instead of putting it out on its forum. Like it’s not going to get reported to hell and gone either way.
Given that this is, effectively, a press release, no matter where or how it showed up, I’m going ahead and reproducing it in full:
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.
The Amazon Books Team
So how about that? Some actual statistics, from Amazon of all people! Books sell 1.74 times as many copies at $9.99 as at $14.99. And this isn’t an Author Earnings interpolation that can be attacked as inconclusive or potentially inaccurate—this is straight from the horse’s mouth. If anyone would know how many copies e-books sell at what price rates, it would be the company responsible for selling the lion’s share of them—the company that has built its business on being a statistics monster.
Another interesting thing is that Amazon explicitly says it has no problem with taking the smaller 30% cut of revenue that the publishers put in place with agency pricing, which seems to fly in the face of the people (leakers?) who’ve been claiming Amazon wants to go back to a 50% share. What Amazon insists upon is that the prices be $9.99 or less. (Of course, if Amazon went back to a 50% share at publishers’ preferred MSRPs, it would effectively be taking that lesser share by dumping some of its margin to mark those MSRPs down, so to some extent it’s six of one and half a dozen of the other.)
And did you notice how they threw in a cute little jab at the royalty rates Hachette pays its authors at the end?
As Nate points out at The Digital Reader, this does gloss over many non-trade books (certain non-fiction titles, textbooks, etc.), which can have ample reason to be priced at over $9.99. There are a lot more than a “small number of specialized titles” in those categories. But on the other hand, this dispute with Hachette is largely about trade books, so I can forgive that omission in this case.
Amazon has once again set the cat among the pigeons, and I look forward to seeing the reactions. I predict more excited crowing from independent publishing partisans, and more moaning and hand-wringing from traditional publishing. Should make for some fun reading, don’t you think?