Amazon Speaks: We Want Lower eBook Prices from Hachette

Amazon Speaks: We Want Lower eBook Prices from Hachette Amazon Amazon hasn't said much concerning their ongoing contract dispute with the French media conglomerate Lagardère and its US publishing subsidiary Hachette, and today the retailer broke their silence with what is only their third official statement (not counting the leaked letter).

Like the first two statements, Amazon isn't saying much. According to a message posted on Amazon's forums (and copied below), one of the sticking points in the negotiations is the price of ebooks. We of course knew this from the WSJ interview in which Russ Grandinetti said little and avoided defending Amazon, but Amazon expands upon that earlier statement with a call for higher author royalties on ebooks.

The statement below lays out the math Amazon uses to justify their push for lower ebook prices, but it's worth noting that the statement is somewhat misleading.

Amazon would like you to think that most ebooks can be priced at or below $10, even going so far as to point out that "there will be legitimate reasons for a small number of specialized titles" that will cost more, but what they hope you won't realize is that they are glossing over whole swathes of nonfiction content, including textbooks, reference manuals, professional books, and works that are much longer and more expensive to create than your average novel.

I don't think anyone really expects that to be priced below $10 a copy, and while this type of content might be the negligible minority at the moment I would not guarantee that it will stay that way.

Amazon's statement:

With this update, we're providing specific information about Amazon's objectives.

A key objective is lower e-book prices. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there's no printing, no over-printing, no need to forecast, no returns, no lost sales due to out-of-stock, no warehousing costs, no transportation costs, and there is no secondary market -- e-books cannot be resold as used books. E-books can be and should be less expensive.

It's also important to understand that e-books are highly price-elastic. This means that when the price goes up, customers buy much less. We've quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. 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:

* The customer is paying 33% less.

* The author is getting a royalty check 16% larger and being read by an audience that's 74% larger. And that 74% increase in copies sold makes it much more likely that the title will make it onto the national bestseller lists. (Any author who's trying to get on one of the national bestseller lists should insist to their publisher that their e-book be priced at $9.99 or lower.)

* Likewise, the higher total revenue generated at $9.99 is also good for the publisher and the retailer. At $9.99, even though the customer is paying less, the total pie is bigger and there is more to share amongst the parties.

Keep in mind that books don't just compete against books. Books compete against mobile games, television, movies, Facebook, blogs, free news sites and more. If we want a healthy reading culture, we have to work hard to be sure books actually are competitive against these other media types, and a big part of that is working hard to make books less expensive.

So, at $9.99, the total pie is bigger - how does Amazon propose to share that revenue pie? We believe 35% should go to the author, 35% to the publisher and 30% to Amazon. Is 30% reasonable? Yes. In fact, the 30% share of total revenue is what Hachette forced us to take in 2010 when they illegally colluded with their competitors to raise e-book prices. We had no problem with the 30% -- we did have a big problem with the price increases.

Is it Amazon's position that all e-books should be $9.99 or less? No, we accept that there will be legitimate reasons for a small number of specialized titles to be above $9.99.

One more note on our proposal for how the total revenue should be shared. While we believe 35% should go to the author and 35% to Hachette, the way this would actually work is that we would send 70% of the total revenue to Hachette, and they would decide how much to share with the author. We believe Hachette is sharing too small a portion with the author today, but ultimately that is not our call.

We hope this information on our objectives is helpful.

Thank you,

The Amazon Books Team

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Nate Hoffelder

View posts by Nate Hoffelder
Nate Hoffelder is the founder and editor of The Digital Reader: He's here to chew bubble gum and fix broken websites, and he is all out of bubble gum. He has been blogging about indie authors since 2010 while learning new tech skills at the drop of a hat. He fixes author sites, and shares what he learns on The Digital Reader's blog. In his spare time, he fosters dogs for A Forever Home, a local rescue group.

25 Comments

  1. Iver H.29 July, 2014

    Wow. Just speaking as an employee of a very small publisher here, we would be absolutely ecstatic if Amazon only took 30% – and we would be overjoyed to then be able to share 50% of that remaining 70% with our authors. Where do we sign? Oh, wait. We are of course a small non-profit university press, so we publish those “specialized” (read obscure) ebooks that should be priced over $9.99. And yes, I realize KDP would give us 70% if we priced at $9.99 or less, but with $0.15 on top per MB, the stuff we publish can’t really be compressed that much, if we wanna maintain our high standards of quality. And we kinda do, cause the stuff we publish is really, really cool. So, Amazon. Call me. You have my number, I know, cause I’ve left you like 900 messages.

    Reply
    1. Nate Hoffelder29 July, 2014

      You’re the second publisher that I’ve heard that from. I think I’ll go work this point into the post.

      Thank you.

      Reply
    2. Will Entrekin30 July, 2014

      But aren’t “‘specialized (read obscure) ebooks” all the more reason you should price at less? What stuff do you publish that “can’t really be compressed that much”? Heavy on pictures?

      I run a nano-press. I tend not to price above $4.99, and the agreements I sign with authors are, for the most part, seven-year limited term contracts for exclusive digital license. They get 70% revenue (Amazon takes 30% of list, and I get 30% of what’s left, mostly).

      Reply
  2. Dan Agin29 July, 2014

    Maybe the real basis for the dispute is a conflict of agendas. Amazon is trying to make money with a new technology, while the Hachette agenda is to keep making money with an old technology. It’s the horse-and-carriage against the automobile and history tells us who will win.

    Reply
  3. Chris Meadows29 July, 2014

    The interesting to me is, didn’t some of the Hachette anonymous leakers claim Amazon wanted to go back to a 50% revenue share? This pretty clearly seems to contradict that.

    Also, this could be the first time Amazon has been specific about the number of copies e-books sell at different price points…

    Reply
    1. Nate Hoffelder29 July, 2014

      That was the claim from the UK, and from Germany.

      Reply
    2. fjtorres29 July, 2014

      Not totally.
      I read the statement as saying: “you can have no-discount agency at $9.99 but not at $14.99”. With the implication that if they want more per book they’ll have to wholesale them.

      To me, the really interesting stuff isn’t the price points but rather the underlying threat in the whole “they’re not paying their authors enough” angle. I don’t think Hachette would much enjoy a further escalation along those lines from Amazon. If Hachette keeps the negotiations public things are going to get very… interesting… very fast. They may regret dragging authors into the fight.

      Reply
      1. Rob Siders30 July, 2014

        That really is the nut of it.

        Reply
      2. Felipe Adan Lerma31 July, 2014

        Felix – and maybe the hundreds of thousands of small self-published authors (like me) will then, also, get to be in Kindle Unlimited non-exclusively.

        So this might cut in both directions, for authors.

        Which would be good, in my opinion.

        Reply
    3. Valentine30 July, 2014

      Leaks can and will be used by both sides in fights like this. Unless it’s some kind of clear photographic proof, they should always be taken with a hefty grain of salt.

      Reply
  4. William D. O'Neil29 July, 2014

    Amazon now offers KDP authors the chance to view its estimate of the demand vs. price curve appropriate to books similar to the one you’ve written. Reviewing those for my books it appears that they see much steeper demand curves for genre fiction than for non-fiction, or at least for serious non-fiction. Indeed, the inverse relation between price and volume is just about offset, over a broad range, by the direction relation between price and unit royalty, so the yield curve is all but flat.

    As an author/publisher of serious non-fiction I’ve found ways to package my work in forms that allow me to take advantage of Amazon’s policies, selling at less than $10 per volume while making a good return on my investment of time and effort. Others would do well to consider how they might accomplish similar ends. At the same time, Amazon might better serve authors, publishers, and itself by applying its incentives to lower prices with more subtlety and discrimination, rather than with a $9.99 guillotine.

    Reply
    1. fjtorres30 July, 2014

      The $9.99 guillotine exists because it is a threshold value with psychological impact to consumers. Much like the traditional $299 pricepoint for discretionary spending that drives mainstream gadgets and consumer electronics sales or $99 for impulse buys or $0.99 for guilt-free disposable purchases.
      Those aren’t arbitrary numbers; there is historical behavior behind them that speaks to perceived value.

      Reply
      1. fjtorres30 July, 2014

        Check the abstract on this paper:
        http://www.emeraldinsight.com/journals.htm?articleid=853521

        Consumer psychology isn’t an exact science but certain things are known to a high degree of confidence and threshold prices is one of them.

        Smashwords’ Coker found a similar “magic” price band (at $2.99/$3.99) when looking at sales of genre fiction distributed through his company which is something many indie publishers have also noticed. For other genres, sweetspots exist around $4.99 or $6.99 but to date nobody has found one above $9.99.

        If Amazon says mainstream commercial ebooks should preferably be priced between $2.99-$9.99 odds are they aren’t pulling the numbers out of thin air.

        Reply
        1. Felipe Adan Lerma31 July, 2014

          Interesting link Felix, thanks!

          “This effect was particularly marked for the lower-priced food items (cheese, chicken and chocolates) and for prices ending in the digit 9…”

          Reply
  5. Valentine30 July, 2014

    It’s a nicely edited document for a “leak”, and however much I like the things said there, there are some points missing.
    Flexible price. The content is usually unique to Amazon or Hachette, and that will always allow for a higher starting price, making their stated numbers pure fiction.
    After that first period, the price will go down to an average, possibly the 9.99 they state, but over time, it will go even lower than that.
    There was another point about splitting the profits, but my headache is getting worse.

    Reply
    1. fjtorres30 July, 2014

      It’s not a leak.
      It is an official statement from the Amazon ebook team.
      Hachette relies on “anonymous leaks” to their big media friends but Amazon is only speaking openly, on the record and for attribution.

      Reply
  6. Paul30 July, 2014

    I noticed they skipped on all the other bits and pieces that will go on top of that, such as a price for loading the content in, a price for promoting it etc.. basically a lot of stuff the publishers got for free that they now want to pay for, so that 35% for publishers is probably closer to 10-20% once you factor in all these fees.

    Reply
    1. Anne30 July, 2014

      Paul- I’m pretty sure what you’re referencing came from a leak by Hachette in the UK. I suspect those sort of extras would be discussed under a wholesale model but I doubt it applies to this scenario. I think this statement is just laying out the terms that Amazon would find acceptable under a RPM model. I could be wrong though!

      Reply
  7. Paul30 July, 2014

    There’s some good thoughts on this from John Scazli.
    http://whatever.scalzi.com/2014/07/30/amazons-latest-volley/

    “Authors: Amazon is not your friend. Neither is any other publisher or retailer. They are all business entities with their own goals, only some of which may benefit you. When any of them starts invoking your own interest, while promoting their own, look to your wallet.”

    Reply
    1. Felipe Adan Lerma31 July, 2014

      🙂

      Reply
  8. Vonda Z30 July, 2014

    It is interesting that Amazon talks about e-books as if that is the only format that exists and that is impacted by e-book pricing strategies.

    I am confident that e-book pricing and sales works as described but what was left out of that argument is what happens to the sales of the hard covers and paperbacks when e-books are priced higher/lower. Most likely e-book sales go down at higher prices, but paper sales go up. I would be curious to know those figures, as I am sure that Hachette doesn’t care much if the e-book sales go down and most likely would be pleased if they did, if that also meant that their paper sales were going up.

    I, personally, don’t buy paper books anymore except for technical books, so my money wouldn’t transfer to the paper book market with higher prices. But I would be very interested to know how much of that lost e-book revenue does transfer over.

    Reply
    1. Nate Hoffelder30 July, 2014

      Indeed. Like nonfiction, this is another point which Amazon avoided mentioning.

      Reply
      1. Anne30 July, 2014

        Why do you not think they covered that under “small number of specialized titles”? I figured non-fiction fell under that category so I let it go as I’m thinking the primary bone of contention is the pricing of fiction. I’m totally missing why I should think this is a problem unless you’re thinking the word small is inaccurate. If so, I’ll think on this some more.

        Reply
  9. […] in vendita. Come dovrebbe allora un autore districarsi nella giungla di disquisizioni, dispute (vedi il caso Amazon – Hachette), commenti di esperti del settore e varie vicissitudini di cui si legge in rete, che ruotano […]

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  10. […] to raise ebook prices, and then it reiterates the economics argument Amazon made in their statement last week (which does have some market research to back it […]

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