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.)