Earlier this week Amazon stunned the publishing world when they sent a letter to agents and authors affected by the contract dispute with Hachette. That letter, which was soon leaked to the press, included details which suggested Hachette was not negotiating in good faith, and it offered to remove authors from the conflict by giving them 100% of their respective Kindle ebook sales.
Hachette quickly declined the offer, thus achieving Amazon's real goal of no longer being the only bad guy in the fight. But as the story percolated through the media, any number of arguments were made in favor or against Amazon's proposal including one from Mike Shatzkin.
Shatzkin argues that the advances that most of the authors had already received made it impossible for Hachette to agree to Amazon's offer. I don't see the logic of that argument:
What the deal elides — as does almost all the “analysis” about how authors fare with big publishers versus how they fare with Amazon — is “unearned advances”. For the biggest authors with the biggest sales of print and ebooks, Hachette has already paid the ebook royalties at more than the contractual “25% of publisher revenue” rate.
So we have a $10 ebook. Normally, Amazon would pay $7 to Hachette and keep $3. Hachette would notionally divide the $7 as $5.25 to Hachette and $1.75 to the author. What Amazon proposed was that the author would get the whole ten dollars, Amazon would give up its $3 and Hachette would give up its $5.25. Not quite fair, and, to be honest, I hadn’t even done that math when I spoke to the reporter.
But the math is worse than that because Hachette has already paid the author’s $1.75 in the advance for the lion’s share of the sales that would be made under this deal if it were agreed to. So Amazon is giving up $3 and Hachette is giving up $7 on most of the books. And many of the authors, frankly, aren’t entitled to even their own share on those sales (they already got it), let alone Hachette’s (or Amazon’s).
To put it in its simplest terms, Amazon is proposing to give Hachette authors ebook revenues to which they are not entitled under contract.
Shatzkin is saying that Hachette can't agree to this because it would involve giving authors ebook revenues to which they are not entitled under contract (they already got the revenues in advance).
Yeah, that argument doesn't stand up to scrutiny.
If you had told me that Hachette couldn't afford it, I might agree with you. Kindle ebooks account for 18% of Hachette's US revenues (see the postscript), and I am not sure Hachette could afford that kind of hit to their pocketbook.
What's more, Hachette is already taking a hit in the ongoing contract dispute with Amazon (with the tacit approval of Lagardère). Amazon has been responding to what they say is Hachette's refusal to negotiate by reducing the number of copies if Hachette titles stocked in Amazon's warehouses, reducing discounts, and disabling the pre-order buttons. This is costing Hachette sales, and the publisher will likely report a significant drop in revenue in their next quarterly report.
TBH, we all know they were never going to; it's just too big of a hit. The cost of the positive press was too high, and I'm sure many would say that the damage resulting from declining the offer will likely be minimal. Almost everyone hates Amazon, after all.
P.S. According to Lagardère, Amazon accounts for 60% of Hachette's ebook sales in the US, and ebooks make up 30% of US revenues. Thus, Kindle ebooks are 18% (ish) of Hachette's US revenues.
image by Tobyotter