Home » Amazon, Big Publishing, Passive Guy, Royalties » Authors haven’t had it so great under the retailer/publisher oligopoly

Authors haven’t had it so great under the retailer/publisher oligopoly

3 February 2012

From Joshua Gans at Digitopoly:

There has been lots of discussion this week about Amazon’s growing power. This NYT piece heralded Barnes and Noble, once the thing that was supposedly destroying book selling, as its saviour. And today, there was this post on the Authors Guild blog that compared the plight of publishers/authors to that of chicken growers. Here is the analogy drawn:

To a chicken grower, for example, the relevant market isn’t restaurants or household consumers of chicken, it’s the market of chicken processors. Through a variety of machinations, including long-term contracts and the physical placement of processing plants (think baseball, before free agency), chicken growers now routinely have a market of only one processor to sell to.

Substitute ‘chicken grower’ for author and ‘chicken processor’ for Amazon and you have the basic story.

. . . .

Of course, the claim with regard to Amazon is that they will be the only processor in town facing no competition for their customers. Amazon have clearly decided retailers were getting too much and have competed them away. They have decided publishers are getting too much and are now integrating to compete with them. But the article makes out that authors are next. According to them, one company — Amazon — will supposedly dictate who gets to publish and that will be it for authors.

But here is the thing: authors haven’t had it so great under the retailer/publisher oligopoly. It isn’t at all clear that there is any more squeeze to be had in them. And the simple economics of the situation is: Amazon needs the eggs. To get people to buy books requires there to be books to be read. Amazon has created their entire business on a great book variety. Why would they focus in on some books and get authors to pit themselves against each other just to have their book on Amazon and otherwise denied access to the public. Even if Amazon could actually direct that choice, it doesn’t seem in their interests to do so. People have so much time to read. They will pay more to fill that time if they get what they want. Amazon should continue to provide variety so they do.

Link to the rest at Digitopoly and thanks to Sherri for the tip.

Here’s a link to the Authors Guild blog post.

As Joshua’s post demonstrates, authors should be careful not to assume that what’s best for “Publishing’s Ecosystem” is best for them.

Basic economics for an author revolve around how he/she can generate the most revenue from the books they write. Since readers ultimately purchase books and provide the financial support for whatever distribution system connects author with reader, ultimately the author is seeking the most efficient method of getting books to readers who will pay for them.

If Amazon’s distribution system charges 30% of the sales price of a book to connect an author with a reader, it may be more efficient than a traditional publisher’s system that charges 85% to do the same thing with an ebook (70% of Amazon’s sales price multiplied by a 25% royalty less the agent’s commission = about 15% of the sales price. Yes, agents are part of the traditional publisher’s system.).

However, the publisher’s system may sell larger numbers of books. How much better must the publisher’s system be?

A $10 ebook sale generates $7 for the indie author on Amazon. (Please permit PG to round. His math skills are meager.)

A $10 ebook sale generates $1.50 for the traditionally-published author on Amazon.

Simple math says that the publisher’s system must generate about 4.7 times as many sales as the indie author’s system to return the same amount to the traditionally-published author, assuming a 70% indie royalty rate.

So, if an indie author sells 1,000 books, a traditionally-published author must sell 4,700 (4,667 to be more precise) to make the same amount of money. To flip it around, the indie author breaks even with the traditionally-published author by selling about 21% of the books the trad author does.

If we’re really doing the economic analysis right, we run this comparison for as long as the book is in print and the author is alive. (A selfless author would extend the analysis for an additional 70 years to cover benefits to heirs.)

This means the traditionally-published author must sell more than 4.7 times as many books as the indie author in year 1 and every year after that for 30, 40 or 50 years for the indie author to lose the dollar sweepstakes.

How many traditionally-published books that are currently available at retail carry copyright dates more than 20 years old?

Passive Guy can’t speak for all indie authors, but his and Mrs. PG’s self-pubbed books will be in print 50 years from now.

(PG knows about present-value calculations and he’s not going there no matter what.)

Amazon, Big Publishing, Passive Guy, Royalties

30 Comments to “Authors haven’t had it so great under the retailer/publisher oligopoly”

  1. I’ve yet to hear something from the Authors Guild that was up to date with the times. Typically it has seemed to be outdated or incomplete views. This does not encourage me to ever wish to join their ranks.

    Devil’s advocate: Perhaps I have not look hard enough or perhaps I am ill informed.

  2. To be fair, PG – “How many traditionally-published books that are currently available at retail carry copyright dates more than 20 years old?” is sort of old-school thinking.

    The reason publishers can retain those rights basically forever (or 35 years, anyway) is because they keep them in print and available. Under the old system, they went away within a year or two. But under the new system, publishers will keep all the old work up there for sale, same as indie writers do.

    The question isn’t whether your trad pub book will still be selling in twenty years – it’ll still be available, never doubt it. The better question is the other one you asked: in 10 or 20 years, which book will have grossed you better receipts, the indie or the trad? Even at pretty typical selling prices of $4.99 for an indie and $9.99 for a trad pub ebook, the trad pub book has to sell more than two times as many copies just to break even for the writer.

    Editing – cover – formatting – distribution – are all things authors don’t need a publisher for anymore. Which pretty much leaves marketing, and publishers aren’t especially good at the sort of marketing which is important today:
    http://kevinomclaughlin.com/2012/02/02/the-new-publisher-selling-to-readers/

    I think they need to get good, fast; this is one of the main benefits they could, potentially, be offering.

  3. Somewhat related:

    BAM also refusing to stock Amazon titles http://bit.ly/wRfftU

    Anyone spot the contradiction in all of the bookstores banding together to refuse to stock titles published by “monopolistic” Amazon?

    PG, it might be time to re-run that excellent post you wrote on monopolies. I don’t think it got the attention it deserved the last time around (I think Franzen had lost his glasses or something).

    • Completely agree, or that the Big 6 got together and forced Amazon to accept agency pricing. Really? Who’s the monopoly here?!?!

  4. I’m compelled to point out that the 25% of NET has other costs factored in. My digital royalties on my tradpubbed books come in at about 11% (yes, I sat down with 1 1/2 years of statements and did the math). Kris Rusch reports that ALL of her ebook royalties end up being under 10%. So, 25% of net is almost always eroded by various (unexplained) publisher costs. That figure is the BEST CASE scenario for authors.

    • I was going to mention that in my comment and forgot. Thanks for bringing it up – I think a lot of writers simply assume 25% of net means 14.9% after the agent’s cut. It actually means quite a LOT less than that, much of the time.

  5. “Simple math says that the publisher’s system must generate about 4.7 times as many sales as the indie author’s system to return the same amount to the traditionally-published author, assuming a 70% indie royalty rate.”

    Tax laws in the UK tends to mean I make more money if I’m paid in monthly instalments over five years than if I am paid in two or three lump sums (in fact, if I just relied on writing income I could jiggle with the system in various arcane ways and the UK treasury would pay me money).

    Monthly payments are by far the most tax-efficient way to receive income.

  6. Here’s some recent correspondence I had with Authors Guild. Instead of huff-n-puffing about Amazon, why not reach out to self-pubbers and find a way to get them into the tent? Lashing out at Bezos & Co may protect their stable of authors from the tidal wave of ‘unwashed’ writers, but it ain’t gonna endear self-pubbers who are more and more asking industry “buffers” — “What can/are you do/doing for my career?”

    Dear Guild-ers,

    I recently saw an ad for the Authors Guild in Poets & Writers and noticed that AG builds websites for authors. That’s fabulous, I thought. Upon further exploration online (great ad, your graphic designers are all-stars), I discovered that self-publishers aren’t eligible. That I need a “traditional” contract.

    (Sigh..) Well, what can I say. I did sign a Terms of Agreement with Amazon and now have my book listed with them. I do receive royalties. The University of Washington Bookstore has an Espresso Book Machine and prints out my book as well. They consider themselves a publisher (UW Press) and have started papering the neighborhood with brand new stationary to celebrate the occasion. I also signed a Term of Agreement with them. And receive royalties.

    My question is: Does this count to have my own website on AG? Or, am I screwed (literary license, pardon) from ever enjoying the benefits offered by Authors Guild as long as I continue/am perceived to self-publish? Is there some lower-tiered possibilities at AG for the so-called “vanity” set? PW is doing it with their Select program.

    (Double-sigh..) I don’t know if this is the kind of email you would circulate to your members to get a well-rounded opinion. You probably already get a lot of emails like this, already. (If you do circulate, please fix any grammar, spelling and tense malfunctions — self-publishers generally get last dibs on good editors.)

    Best,
    Michael Matewauk

    Dear Mr Matewauk,

    Indeed, at this time we do not take self-published authors. That may one day change in the future, but currently we act as a buffer between the publisher and authors. When it comes to self-published authors, there’s generally no need for that buffer because you are essentially your own publisher. I realize it’s frustrating and maybe one day that will change, but right now that’s the policy.

    Sincerely,

    Receptionist
    The Authors Guild

    • It’s easy to see what a terrific job the Authors Guild has done protecting authors from publishers with all the wonderful standard terms in publishing contracts these days.

  7. Kevin,

    You needed to remind everyone of your excellent analysis of how Indie Authors-who used Kindle Select-have dominated the bestseller ranks http://kevinomclaughlin.com/2012/01/14/update-to-indie-bestsellers-and-kdp-select/

    For me this confirmed what I was seeing even before the advent of KDP Select-that indie authored books were outselling traditional ebooks. Just looking at the bestseller category for my genre-historical mysteries-in the top 10 there are 5 indie authored books, including an Amazon Crossing book, (and 2 of the traditional are big name pre-orders which generally do well).

    Now I know that this doesn’t mean my indie authored books (which make up 2 of the top 10) are selling more books in total than the more famous traditional authors whose books are considerably further down the list-since they have their print sales-in bookstores (although the data suggests that the majority of these bestselling authors are now selling more ebooks than print.)

    However, if you compare a traditionally authored book, for example, the latest Laurie KIng-one of my favorite historical mystery authors to mine, you can see the failure of big publishing to promote their books. The Pirate King is 34 on the historical mystery list today, compared to #3 and # 8 for my Maids of Misfortune and Uneasy Spirits. Even my print editions of both my books, including one that has been out 2 years, are outselling her newest print edition on Amazon.

    I know it isn’t the author’s fault-she did a great promotional campaign-social media, book tour, etc. But the ebook version of Pirate King is $12.99, to my $2.99 price, and this is only 2 dollars less than the hardback price and actually more than 2 dollars more than the price of the paperback versions of King’s book!!!!!!

    And if the data on how much King will get per book that was discussed above is valid-she is probably only getting $1.29 per book to my $2. Such a shame. Such an indictment of her publisher, and such a clear indication that publishers are not adding value in the marketing area (which setting sales price is an important element).

    I was at a writers conference last weekend, and when I mentioned my sales to agents and editors, they would get wide eyed and ask me “how I did it.” But did any of them come to the talk I gave on “Tips to Selling on Amazon?” Of course not.

    They would rather think that indie success is a fluke that only a few unusual authors obtain (sort of like lottery winners), rather than believe that the lack of success of their authors had anything to do with what they as part of traditional publishing industry were doing or not doing. I know that this isn’t true for all agents and editors, but if my experience at this conference holds true for the industry, the change is slow.

    • This is exactly why I don’t see tradpub continuing. On the demand side, they’re charging consumers $10 more for a similar product, and on the supply side, they’re not paying writers as much. It would require a seriously superhuman level of marketing power (we’re talking, forcible coercion) to rectify those kinds of structural disadvantages.

    • Louisa – Thanks for sharing your observations and congratulations on your sales.

  8. I don’t think it have to be in either/or kind of thing. One can be appreciative of the changes Amazon has brought to the industry, yet still be concerned about what might happen if Amazon gains too much power. True, Amazon has been great for authors, but they’re by no means perfect. Remember the whole thing with erotica authors getting their books demoted in the search results? Or the author who had his books offered for free by accident? If you look at the comments in the author’s Guild blog, you’ll find stories from small presses about bad treatment as well. Sure, Amazon is great, but it can only be a good thing for writers if they have competition to keep them honest. It’s never a good idea to have all your eggs in one basket.

    • My feeling is that, if Amazon starts squeezing writers, then they can move elsewhere more easily than they could back in the paper-books only days, where if Ingram decided they wouldn’t distribute your book or if your publisher decided to kill your series, you were just screwed. Right now no one is executing on-line book retail as well as Amazon, which is why writers are willing to go exclusive with them, but if Amazon started really messing up, other companies could get their act together and step in to serve the self-pubbed market.

      • Mary – If Amazon starts sqeezing, it’s not enough for writers to move. The customer has to follow as well. In a world with proprietory ereader formats, customers won’t move easily. Not to say that other companies couldn’t still get their act together and beat Amazon, but it’s not something I’d stake my career on. IMHO, the best strategy is to aggressively build your own mailing list. You aren’t dependent on middle men if you have a direct connection to your fans.

        • Right now writers can be on multiple digital and POD platforms at the same time. Compared with a “We own your book forever!” approach that the big publishers favor.

          Besides even if Amazon started to squeeze they still would probably be giving your average writer 3x the deal that they’d get from traditional avenues.

          • “Right now writers can be on multiple digital and POD platforms at the same time. ”

            Exactly! So you would agree, then, that it is a good thing for there to be multiple digital and POD platforms available to indie authors.

            “Besides even if Amazon started to squeeze they still would probably be giving your average writer 3x the deal that they’d get from traditional avenues.”

            So here’s what I don’t understand. Why is this argument so often used as the QED response to objections about Amazon? So any squeezing Amazon does is okay then, as long as they’re not as bad as the traditional publishers? Are those the only two possibilities that indie writers can come up with? I would’ve thought that a group that prides itself on standing up for themselves and not taking crap from corporations would demand more than that.

        • Oh, I agree. That’s why I think it’s totally worthwhile to learn how to make your own Mobi files (and Smashwords sells those, too). But I guess what I see as different is that, nowadays, you have these options if things go to hell with Amazon. You may have to get creative, but it’s still going to be a lot easier than hand-selling books out of the trunk of your car.

          • Mary – True, glad the trunk days are over! (Barring nuclear holocaust/Internet-disabling-EMP-attack, but I guess we’d have other problems in that case…)

            *Waves hi to ABeth*

      • The other thing to consider is that if Amazon stops treating you well, you can pull your books at any time and start selling them in whatever way you think best.

        This is most definitely not the case if your traditional publisher stops treating you well.

  9. The people who buy into the theory presented by Author’s Guild must either have a trad horse in the race or be miserably poor business people. Certainly, the folks at Amazon are much too clever to follow trad publishing down the path of abusing their supply system to the point of desperation.
    And even if they did, as Digitopoly has pointed out, they can hardly exceed the trad abuses. There would not even be the pretense of money and dignity in it for the author. So who would bother to write the books they need in order to survive? Not me!

    • Wendy – Members of the Authors Guild have agents to deal with all that grubby business stuff. Gentlemen and gentlewomen don’t get their hands dirty with mere commerce.

      • Lol. Though, to be fair, so one of the main services the Guild offers are contract reviews and guidance for members who choose to negotiate the contract without an agent (agented writers are also welcome to use the service as an extra resource). I’ve never used it, but I’ve seen the contracts handbook that the Guild gives to their members, and they take a strong stance in their recommendations regarding the usual suspects (options and non-competes, e-royalty amendments.) Along the same lines as what I’ve seen PG and KKR recommend.

        They *are*out of touch in the self-publishing arena. I believe they made an arrangement with iUniverse for letting their members published out-of-print works. Granted, I didn’t look at the terms, but the company’s name in itself just makes me cringe.

  10. There appears to be something of a PR push by the publishing world these days. Is it me, or is there some article offereing up a scare crow argument about Amazon and Authors beware, or some end of the world if this happens next to publishing article, practically daily. I almost wonder if someone someplace has thrown money into a this PR campaign.

    We have seen the B&N holding back the forces of chaos of Amazon Article this past week.

    We have seen a pompus traditionally published author scream and yell about e-books are a fad, or genra game, and that real books are what we should care about.

    Now AG is sounding the Alarm that if publishers fail, authors are next, and Amazon will force us out too.

    I saw another blog entry of the five worse things about Indie books. The odd thing is they listed only 4.

    All of this at the same time that Amazon launched Kindle Select and the entire bestsellers lists are turned on their heads as the barbarians of Indie take the gates.

    I sort of addicted to the drama now. It is not as bad as a soccer game, or hockey game, but it is entertaining.

    Is there Joan of Arc of traditional publishing that will soon take the stage to slay the evil maurading indie hoards? I wait with baited breath in anticipation of the next act. I think we are at least now in the late stages of Part one of this story and about ready to go into a very thrilling part two.

    • There’s no need for Mademoiselle D’Arc — we’re beating the pants off them already. You can tell by the whining.

    • I’ve noticed that, too–especially the conflation between Barnes & Noble, the Big 6 publishers, and indie bookstores, as though they were all in the exact same business and all about to be plowed under by Amazon. (There was also an Op-Ed piece in the New York Times Dec. 13 that was written along those lines.)

      I think it’s coming from the Big 6–they’ve decided that they need Barnes & Noble, and they’ve realized that neither they nor B&N are very sympathetic, so they haul in the indie bookstores (even though those are actually doing pretty well these days). They’re very careful NOT to mention indie authors, of course.

      Oh, I used to be a reporter, and I honestly do think it’s an industry-funded PR campaign. There are plenty of hack journalists out there who will just regurgitate an industry’s propaganda–you get paid the same as if you did actual research, and you have a lot more free time. A couple of pieces in the Times, and the bloggers and organizations and whatnot will pick up the torch and run with it.

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