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Making Sense of Kindle Unlimited

2 January 2015

From author Jake Kerr:

One of the single most misunderstood developments in the publishing world is the various book subscription services: Oyster, Scribd, and, especially, Kindle Unlimited. This has led to widespread misinformation on everything from their economics to their impact on authors. Let’s take a look at the whole structure and see if we can provide a bit more clarity.

. . . .

For the user, a subscription only makes sense if they save money. There is simply no other reason to embrace a subscription model when direct sales still exist (as is the case for practically all these services).

. . . .

So if this is great for the consumer why would a business embrace this model? Well, the answer is that you are sacrificing profit on a small group to sell to a larger group, making more money in the process. If the average existing user saved 30% via the subscription model, if you increase your user base by 40% then you are making more money.

In short, the underlying assumption of the subscription model is that pent up demand is significantly constrained by pricing. Of course, you can just drop your price across the board, but that ignores an important point: Subscription models can live alongside direct retail models. So just lowering the price makes no sense, since you could conceivably sell at a higher margin to some of these people, having the best of both worlds.

This underlying concept of the subscription model is critical for authors: If you cannot gain a greater percentage of readers generating new revenue than the revenue you are losing in the price cut, then this is a bad deal.

. . . .

One of the things you hear in the publishing industry are horror stories about musicians making pennies from services like Spotify. This is used as a dire warning of what Kindle Unlimited can do. However, the music industry is different in a lot of ways. Hit songs get played by individual subscribers over and over and over again. Each play generates a small amount of money. If each play were paid the same as a sale, then subscription services would quickly go bankrupt. Music is also split between performance and song-writing royalties. If you think Amazon is screwing writers, think about what musicians get from airplay on terrestrial radio. You know how much that is? Zero. Each time you hear an Andy Summers riff from The Police on the radio, he gets nothing. Because broadcast radio doesn’t have a performance royalty. Sting, however, gets royalties, because he is the songwriter.

. . . .

Back to subscriptions, despite these differences, the actual core economics are the same. You have a set revenue number per subscriber, and people are drawn to “hits,” which will suck up the majority of the money. For Spotify, if the average listener listens to 100 songs a month for their $9.99 subscription fee, that means that each play will generate 10 cents. That 10 cents will also have to be split among the publisher and the performers. Now imagine that 90 of those plays are for “Blank Space” by Taylor Swift. That means that there is only a single dollar to be split by everyone else. Of course, if listeners actually listen to 1,000 songs a month, that’s a penny per play and most likely means more artists are getting paid (albeit less per play).

Link to the rest at Jake Kerr and thanks to Barb for the tip.

Here’s a link to Jake Kerr’s books

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17 Comments to “Making Sense of Kindle Unlimited”

  1. The entire article is long but worth the read. And for what it’s worth, at least at this point in time I disagree with his premise. Yes, things may shake out, but I still see discoverability as an issue for any brand spanking new Indie author and those of us who are solid midlist. Readers have their favorites and they’ll be happy to upload each and every book a favorite makes available, but trying an unknown? Maybe once in a blue moon.
    If he’s right, and his sales and his income increase with a subscription model then I’ll eat my words.
    As I’ve said, I can’t predict the future. Each of us has to do what feels right. KDP Select was a boon for me. No longer. It’s that simple.
    Odd as it sounds, after a precipitous fall in rankings in KDP/KU, those books that I’ve un-enrolled (dis-enrolled?) are creeping back up in the rankings and sales are increasing. Or maybe that’s not so odd?
    It’s always been about trial and error– what works. I’m not one of those authors who assumed Amazon was my friend so for me it’s about the bottom line.
    Besides, I’m a writer. I write. I don’t intend to quit, I intend to adapt.

    • Readers . . . trying an unknown? Maybe once in a blue moon.

      For me, that blue moon comes at least once a month. How do you think I found Libbie Hawker?

      YMMV.

      • Yes, I understand and as an Indie writer I’m always willing to read stories written by other Indie writers. However, the notion persists among the general population that if one is not with a traditional publishing house, if one has not gone the traditional route and been vetted and edited in the traditional sense, one is not an author. I’m serious. This notion is tenacious. Very sticky.
        Some Indie writers– relatively few– have gone on to greater and even great success despite this notion.
        But just like those who’ve stuck with traditional publishing the vast majority of us will labor in relative obscurity.

        • I do run into that view among people who read traditionally published books (the few times a year they actually have the time and money to purchase them). I find that annoying as I experienced it a bit more in 2014 more than I had in the few years before. But it’s usually people who don’t know anything about how publishing works that espouse that notion, meaning they don’t read books that often anyway. The high volume readers I run into read all kinds of books. Those are the people I’d rather write for. They actually PURCHASE books, instead of just talking about books. I particularly like readers that are a fan of a genre, who like different variations on themes and topics they love. Those people support the careers of authors, not the people who think only traditionally published books are worthy of being published.

    • There are two competing realities here, Julia. On the one hand, publishing absolutely IS hit-driven. Check this out: It is not uncommon (I know it’s happened at least twice in the past five years), where a single author accounted for over 50% of a major publishing house’s entire sales. So, yes, people are drawn to those big hit books. That is undeniable.

      Yet, new books break out all the time. So there is this second force where unknown writers are constantly breaking through.

      This is dichotomy that I think is what we’ll see in subscription services: Major series like The Hunger Games and Harry Potter given better terms to act as the big draw, and then this large marketplace of new books and authors.

      I’ve said from the beginning that the authors that make the least sense for KU are the ones that are successful but not successful enough to negotiate better terms with Amazon. Or, in other words, KU is awful for midlist authors.

      Unrelated: KU would be an interesting option for major publishers to use as a dumping ground for books that fail via their traditional marketing schemes. Instead of just dropping the author and forgetting about the book, they toss it in KU for one last try. I would actually see that as a likely occurrence.

  2. He also is ignoreing the other aspect of subscription services, namely that a lot of people overestimate how much they will use, and so they sign up for the service, but don’t use it enough to make it actually worth what they are paying for it, but don’t bother cancelling the service.

    Gym memberships are a classic case of this. There is a large burst of signups at the beginning of each year, but within a couple months, the number of people using the service drop drastically.

    With book subscriptions, there is going to be the same effect, people sign up, grab a few books, but don’t get around to reading them right away (if ever). A significant number of these people will allow the autopay billing to continue to run.

    • Well, they lose money with me. I rent far more than my monthly subscription.

    • David, the ‘gym membership’ trope is used a lot but (IMO) the two are not at all comparable. There’s a huge difference between sweating in a gym (which is a ‘I must do this because it’s good for me,’ task, and is generally an unpleasant experience, at least until the results are seen), and sitting down in your favorite armchair with a good book.

      Going to the gym — hard to sustain the effort.

      Reading — hard to stop doing it.

      It’s like comparing subscription services offering S’mores and plain rice cakes (aka styrofoam) or liver on a stick (a fast food franchise I once considered before I launched my literary career).

  3. I’ve heard that Summers got royally screwed by Sting on “Every Breath You Take”. Screwed, like, to the *eighth* digit.

    When I hear about Sting’s do-gooderism, I shake my head.

    • Yup. The problem there isn’t with how radio is run, but how writing is attributed. If you add something, you should be credited for that something.

      • Actually, this is the problem with government getting involved in the payment of creatives. The reason performers don’t get paid has a lot to do with very complicated industry/government deals which favored big music publishers over artists. (Because you can be damn straight the big music publisher’s were going to get paid.) This dates back to Edison getting agreements to rewrite copyright law so that song writers had to split money with publishers and had less say over whether their music could be used for records. This evolved into radios getting to play music for free (not paying performers) because it was “promotion.” But you can be sure the music publishers would be paid anyway (and writers got their half because of the old deals). Naturally in the long run, big corporations do fine, and a lot of artists get screwed because they have no control.

        This is why when the AU crowd started talking about getting government involved in ebook publishing, it was time to be afraid.

    • Not sure I understand you. Did Summers write the tune and isn’t getting royalties? Then, yes, he’s getting screwed. Otherwise he’s entitled to performance royalties and nothing more.

      Music is the one place where the writer can potentially make more money than everyone else in the chain… And that’s as it should be.

      • Sting did a quick demo on organ, gave it to Summers, said “make it your own”. He devised the rondo guitar part and recorded it in one take.

        Now Sting makes $2000 a day from that song. No joke.

        These things are always cagey to define, but it shows Sting’s essential character. He couldn’t give credit where credit was due.

  4. Can someone elaborate on the writer/performer/publisher split of the radio money?

    • Broadcast radio does not have to pay a performance royalty, which is the money that goes to he people singing and performing on the song. They DO have to pay a royalty to the person who WROTE the song. This is paid via ASCAP, BMI, and SESAC.

      Streaming radio (not broadcast via FM or AM) has to pay a performance royalty (to the performers) AND a publisher royalty to the person who wrote the song (or owns the rights, that is). The performance royalty is handled by Sound Exchange.

      The important thing is that these are compulsory licenses mandated by the federal government, with rates set by the a government appointed board. They are compulsory in that not only do the broadcasters have to pay them, but artists cannot opt out. For example, Taylor Swift pulled her music from Spotify (which is on demand and not considered radio), but it is impossible for her to pull her music from Pandora.

      For authors, there is no parallel to compulsory licenses, so they have the ability to opt out (assuming they haven’t signed that power over to their publisher). Of course, there is also nothing really parallel to the Pandora or broadcast radio model of content played that isn’t on demand.

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