From The Global Indie Author:
As the dispute between Amazon and Hachette ramped up earlier this year, Amazon tried to exercise some leverage by delaying the sale of Hachette titles as well as increasing prices and changing Amazon’s algorithms to Hachette’s disadvantage. Hachette authors took to social media, and Amazon customers, accustomed to finding what they want at prices they like, were similarly annoyed.
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In the announcement, Amazon suggest they are happy with their 30% cut, but are committed to the $9.99 price point except for “a small number of specialized titles.” Amazon then offer unsubstantiated evidence that ebooks priced at $9.99 sell 1.74 copies to every ebook priced at $14.99, and suggest to authors that if they would agree to that price they would be earning 16% more from an audience 74% larger:
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.
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Having read the entire 160-page Opinion and Order of United States v. Apple Inc, et al, I can report that the 30% commission was never the publisher’s idea or ideal — it was imposed upon them by Apple — and that a $9.99 price point would have meant a 46% decrease in publisher revenues compared to the old distributor discount (wholesale) model. Under that model, publishers were releasing the ebook and hardcover at the same time, and charging the same price; the average was $26.00. The ebooks were sold to Amazon at 50% off list, or $13.00; Amazon would then discount the list price to whatever they wanted, as they do with print books. But Amazon, in an attempt to drum up business for its Kindles, began selling these new releases at $9.99, taking a 23% loss. This is what started the fight. In Madame Justice Cote’s missive you can read the whole story of how Apple skillfully manipulated the publisher’s twin Achilles’ heels — fear and arrogance — the machinations between Apple, the Big Six, and Amazon a surprisingly riveting read, with a theme of mutually assured destruction not witnessed since the Bay of Pigs.
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In any case, to make a long story short, Amazon accepted agency pricing because they saw the advantage to them by the new model, and by demanding the inclusion of the same most-favoured-nation (MFN) clause* that Apple had ingeniously added, AND adding a model-parity clause,** Amazon ensured that they, despite being unhappy with the higher price point dictated by the agency contract ($12.99 for ebooks with a $26.00 hardcover counterpart), would now earn 30% of all sales and, in fact, would never risk a loss again on any ebook.
Secondly, Amazon is notorious for manipulating figures, and in their forum post they do so again: just how many authors sell 100,000 copies of a single ebook? Very, very few, estimated at about .0001% of books published per annum in the United States.
Link to the rest at The Global Indie Author and thanks to Tarra for the tip.
PG would note that Amazon’s figures are illustrative only and don’t apply only to instances in which a single book sells 100,000 copies.
The relevant numbers are that an ebook priced at $9.99 will sell 174% as many copies as an ebook priced at $14.99. That applies across the universe of ebooks sold by Amazon and should apply to a book that sells 100 copies as well as one that sells 100,000 copies.
On the conspiracy side of things, based on his professional experience with both groups, PG tends to believe that typical tech execs are a bunch smarter than typical publishing execs. He doesn’t doubt that Apple execs were perfectly capable of out-maneuvering Big Publishing CEO’s.