Amazon, in a public post on the Kindle forum, has finally revealed the details of its ongoing dispute with publisher Hachette–and it’s as far from the “tyrannical” behavior Hachette and its cohorts have been complaining about as can be.
Amazon finally revealed the exact cause behind its long battle with “Big Five” book publisher Hachette in a public post on its Kindle forum: It’s fighting for lower e-book prices and a 30 percent cut of sales.
For the last several months, Amazon and Hachette have been having a very public pricing disagreement that left affected authors enraged and sparked a debate in the literary world about whether or not Amazon has too much power. We knew the battle was over e-books, but rumor had it that Amazon wanted a 50 percent cut of every sale, instead of 30 percent.
In its post, Amazon makes a mathematical plea for why most e-books should be priced at $9.99, instead of $14.99 or $19.99, given that they don’t require printing, storage, or transportation.
For those of us who have been behind Amazon from the start, this is a long-awaited vindication. That the behavior Hachette has described as monopolistic and bullying is, in fact, an effort on the part of Amazon to level the playing field for both authors and readers, only serves to underscore the petty backwardness of traditional publishing. Hypocrisy doesn’t begin to cover it.
The fact that Amazon is going to bat for Hachette’s authors should be a big deal to them, but I’m sure most of them will find a way to turn it into some kind of evil corporate scheme.
That said, this IS great news for indie authors, because it confirms that Amazon’s priorities are writers and readers, and that reason lies at the core of the debate. I see good things coming from this, if Amazon keeps it up.
Here’s the full announcement from the Amazon team:
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