Audible in Contract Fights with German Publishers?

new_audible_horizontal._V188360181_[1]After years of investment by Amazon, Audible has a dominant position in downloadable audiobooks. And now they're cashing in.

Spiegel reported on Friday that Audible is pressuring unnamed German publishers to agree to a new contract. No one has shared the specifics of the new contract, but it is said to include a flat-rate royalty offer which is backed by a threat that Audible would stop carrying those publishers' audiobooks if they did not go along.

This story has been reported by several German news sites, but all point back to the Spiegel story. As such, we should take it with a grain of salt.

On the one hand, this does sound similar to the new contract that Audible summarily announced in February 2014, but on the other hand the publishers could be using this news story as a way to bring public pressure against Amazon.

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Early last year Audible decided to replace the incentive-based royalty offered through its ACX publisher's portal with a new one which paid a flat 40% or 25%. The old deal paid as much as 90% to the publishers with the best-performing titles, while the new contract paid 40% for titles distributed exclusively through Audible, and 25% for non-exclusive titles.

And now we have a report that Audible is pushing a similar deal on German publishers. And they're not happy.

According to Spiegel, the publishers have considered filing a complaint with the Bundeskartellamt, the German Federal Cartel Office. Spiegel quotes the head of Börsenverein, the German book industry trade group, as wanting to file an antitrust complaint on the basis that Audible is using its 90% share of the German (downloadable) audiobook market to illegally  pressure publishers.

That could well be true, but my gut says that the publishers are actually trying to cause bad publicity for Amazon as a negotiating tactic.

A similar tactic was attempted last year during Amazon's negotiations with Bonnier.  That eventually came to naught, and I expect that the current threat of filing an antitrust complaint will amount to as little.

Spiegel

image by jeff_goldenJohan Larsson

About Nate Hoffelder (11577 Articles)
Nate Hoffelder is the founder and editor of The Digital Reader:"I've been into reading ebooks since forever, but I only got my first ereader in July 2007. Everything quickly spiraled out of control from there. Before I started this blog in January 2010 I covered ebooks, ebook readers, and digital publishing for about 2 years as a part of MobileRead Forums. It's a great community, and being a member is a joy. But I thought I could make something out of how I covered the news for MobileRead, so I started this blog."

7 Comments on Audible in Contract Fights with German Publishers?

  1. News about the publishers filing a complaint at Bundeskartellamt should also be taken with a grain of salt, as always. According to GfK 80 percent of the German audiobook market still consists of CD-sales. So Audible’s “90 percent” shrinks to “90 percent of 20 percent” share…

    • Hah! I knew that story was nonsense!

      Good catch on the market share; Spiegel missed it, and I didn’t think of it either.

    • Those CD sales are almost certainly because the reduced VAT tax on books currently applies only to physical media, typically print or (for audiobooks) CDs. Downloaded audiobooks must pay the high-end VAT for a country, typically in the 20-25% range. Ebooks labor under that same unfair burden. And as of January of this year, the EU has banned getting around those high VATs by selling through low VAT Luxembourg.

      That strange distinction will almost certainly go away in a year or two. The EU officials are well aware of just how illogical it is. And when it does, all the advantage will shift to Amazon, with its market-crushing 90% share of audiobooks downloads.

      That’s why these German publishers are understandably worried and why these battle needs to be taken with more than a grain of salt.

  2. I don’t blame these German publishers for fighting this one. When I lived in Seattle, I heard one of Amazon’s top server-farm gurus brag about how rapidly the cost of providing web services has fallen. Amazon is a leader in that field.

    Now recall that about 2007, Steve Jobs said that selling music at 99 cents a song and paying 70% royalties was a break-even point for Apple. That’s about 30 cents paid to Apple to process a credit card transaction and download a music file that’s about the size of an audiobook. If 30 cents would cover costs in 2007, then those costs must be about a dime today.

    I just went to Audible to get their current bestseller. It’s The Girl on the Train, which is priced at $28. Assuming for a moment that it had a German publisher, how much would Amazon be pocketing with each sale?

    When Amazon pays 40% royalties and has an exclusive, Amazon pockets 60% or $16.80 or, less the dime cost, $16.70. The publisher who created that book gets only $11.20 and from that must cover all the cost of editing, publishing and marketing, along with paying royalties to the author.

    When Amazon slashes royalties to 25% because a publisher dares to sell the book through another retailer, Amazon pockets 75% or $21, again less that dime that constitutes all its per-sale costs. For doing everything else in creating that audiobook, the publisher will only get $7.

    Do the math. Spending a dime to earn $21 is a 21,000% profit margin.

    Are my numbers wrong? Increase Amazon’s costs by 1000% to a mere $1.00 and what Amazon is doing remains sheer robbery. It’s spending $1 on a sale for which it reaps, in the latter case, $21 in income. That’s a 2,100% profit margin and all done at no real risk to itself since its cost to put that book into its retail system isn’t likely to be over $100. Compare that to the publisher, who has invested tens of thousands of dollars.

    You can get similar, although not quite as exaggerated, numbers running Amazon’s profit margin on ebooks when they’re priced outside the narrow $2.99-9.99 window where Amazon pays 70% royalties less an grossly inflated download charge that reduces the real royalties to the 60-65% range.

    All this is sixth grade math. Is there anyone in the publishing industry medi willing to run those numbers and give what is happening the publicity it deserves? And are there any lawyers at any of the federal consumer protection agencies in countries where Amazon does business who can see the legal implications of such hefty markups?

    With Amazon contributing almost nothing to the creation of books but taking the lion’s share of the profits, that must inevitably drive up the cost of ebooks and audiobooks. And it also means that many authors are getting no more than a pittance.

    Amazon is no one’s friend but Amazon. Not publishers, not authors, and certainly not consumers.

    Like I said, this is sixth grade math couple with a few reasonable surmises about the cost of file downloads.

  3. Your math is accurate. But too many people on this site and others like it spent too much time ankle grabbing for Amazon and now it hurts when they sit down. I’ve spent a fair amount of virtual ink pointing out that Amazon is not doing indies any favors, but it’s going to take some time before all the Amazon flacking comes to an end. Read Escape from Stalag $7 on http://www.rule-set.com and some other choice articles on the topic.

    But while your math isn’t wrong, your terminology is, and by continuing to use it, you continue to help Amazon get away with its grabby ways.

    Amazon doesn’t pay a cent in “royalties.” It charges an operating expense. Once that is deducted, you, the author/publisher or “indie,” bear all the expenses associated with marketing and selling your book.

    When Amazon slashes royalties to 25% because a publisher dares to sell the book through another retailer, Amazon pockets 75% or $21, again less that dime that constitutes all its per-sale costs. For doing everything else in creating that audiobook, the publisher will only get $7.

    Do the math. Spending a dime to earn $21 is a 21,000% profit margin.

    Are my numbers wrong? Increase Amazon’s costs by 1000% to a mere $1.00 and what Amazon is doing remains sheer robbery. It’s spending $1 on a sale for which it reaps, in the latter case, $21 in income. That’s a 2,100% profit margin and all done at no real risk to itself since its cost to put that book into its retail system isn’t likely to be over $100. Compare that to the publisher, who has invested tens of thousands of dollars.

    You can get similar, although not quite as exaggerated, numbers running Amazon’s profit margin on ebooks when they’re priced outside the narrow $2.99-9.99 window where Amazon pays 70% royalties less an grossly inflated download charge that reduces the real royalties to the 60-65% range.

    All this is sixth grade math. Is there anyone in the publishing industry medi willing to run those numbers and give what is happening the publicity it deserves? And are there any lawyers at any of the federal consumer protection agencies in countries where Amazon does business who can see the legal implications of such hefty markups? +++

    Probably not here. Mr. Hoffelder has stated he’s a friend to authors, but I’ve not seen much analysis of Amazon’s pricing grabs that prove that. In point of fact, he thought my article on Amazon sticking indies in that ridiculous pricing box got far too much attention.

    But we can always hope, can’t we.

    Rick Chapman

    • Spending a dime to earn $21 is a 21,000% profit margin.

      If your business skills match your debate and math skills then I wonder how you manage to keep food on the table. Do you have a day job?

      Your argument about Amazon’s costs is simply ridiculous.

      • +++ Your argument about Amazon’s costs is simply ridiculous. +++

        Those aren’t my numbers. Those are Mr. Perry’s numbers. Mr. Perry appears to be an academic publisher and I rather imagine he knows something about book margins.

        Nor are his numbers ridiculous. Actually, they’re publicly available to anyone and don’t require more than sixth grade math to analyze. As he astutely notes.

        It requires High School math to analyze Amazon’s stupid statement about $9.99 being some sort of magical number 42 for pricing ebooks and understand how silly it is.

        I note that you actually don’t challenge his numbers, but instead resort to the old rhetorical trick of apophasis.

        I suggest you embark down a different path. Why don’t you and Hugh Howey and Konrath and all the rest of you write an open letter to Amazon asking them to justify a royalty grabs of 60% on audible books and 75% on international sales. Ridiculous price restrictions that the publishers don’t have to follow. The lifting of bans on indies bundling and creating ominbuses.

        After all, you were quite harsh about current publisher royalty rates and practices and sometimes with good reason. Don’t you think it’s time to show your impartiality and evenhandedness by putting Amazon under the same scrutiny?

        Or do you with to follow in the footstesp of Hugh Howey, who’s been reduced to putting up more “sounds like 2008 all over again” flack posts telling everyone how wonderful it is everyone can upload a book to Amazon’s servers.

        Yeah, we get it. Now, let’s discuss why 60% operating charges to download a file are equitable. Let’s also discuss telling Amazon to stop misleading everyone with claims it’s paying royalties.

        That would be good journalism.

        Rick Chapman
        Author “Selling Steve Jobs’ Liver. A Story of Startups, Innovation, and Connectivity in the Clouds.
        Author “SaaS Entrepreneur: The Definitive Guide to Success in Your Cloud Application Business”
        Read Excerpts from all 10 chapters at http://www.saasentrepreneur.com
        Author “Rule-Set: A Novel of a Quantum Future.” http://www.rule-set.com

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