Here’s Why Amazon Won’t be Cutting KDP Payment Rates to 35%
There’s a frightening what-if nightmare going around indie publishing circles this week. It’s scaring the children, giving many heart palpitations, but actually has very little chance of ever happening.
The "sky is falling" scenario originated over at KBoards, where one author wrote:
Once B&N fades to black, there is Apple and Kobo. But Amazon will likely have the vast majority of sales, and with it, market share.
I believe at that point, it will do something nobody wants to contemplate, but which makes perfect sense: It will double its bottom line revenues overnight from indie publishers.
Cut the royalty rate from 70% to 35% on all self-pubbed books. Presto. Double the net margin on the majority of their sales with the flick of a switch.
I first read that Thursday morning (6 days after it was written), and after thinking about it for a few hours I think I have figured out why it’s not going to happen any time soon.
My arguments reach an entirely different conclusion from Hugh Howey’s, who argued based on a publisher/retailer relationship, and that of the comment section at The Passive Voice, which pointed out that the move would embolden Amazon’s competing ebookstores.
All of this is true, but I have yet to read a rebuttal that looked at this scenario and considered the effect it would have on the whole of the publishing industry. Most seem to have considered the effect on retailers, or the effect on indie authors. Many of the conclusions reached about the possible outcomes and how Amazon would benefit are true, but only on a small scale.
When I played this scenario out on the scale of the entire publishing industry I quickly realized that the 35% scenario will very likely never happen.
To put it simply, the 70% option doesn’t just forestall competing ebookstores, it doesn’t just build up the number of indie authors, and it doesn’t just give Amazon a direct relationship with suppliers.
All of this is true, but the 70% payment option also acts to fragment the publishing industry. And that’s why it’s not going away in any drastic fashion.
In order to understand why the 70% option won’t be going away, let’s go back to when it began. Amazon launched the 70% payment option on 20 January 2010. This was about a week before the iPad was unveiled, which means that Amazon might have launched it as a response to the blackmail pressure exerted by the 5 publishers who conspired with Apple. I think that view is a tad Machiavellian, but let’s skip it and consider the effect.
The possibility of earning more money inspired new authors to jump in, and it inspired existing authors to ask for their rights back so they can take existing titles and go indie. This is a huge financial incentive to not deal with a legacy publisher or distributor but to instead go it alone.
And that’s not all.
I might have missed a comment here or there, but all of the comments I read on this scenario missed at least one important detail. This 70% payment option affects more than just indie authors; there are small and medium publishers of all stripes that deal directly with Amazon and reap the financial benefit of the 70% payment option.
Consider, for a moment, how the 35% scenario would affect the indie publishers. The drop in income would cause them to lay off staff, pass on contracts, and tighten their belts, but that’s not all.
The reduced income would also make the indie publishers more amenable the next time they got a buyout offer from one of the Big 5. And do you know what? It would have the same affect on indie authors.
If an author is only earning 35% from a sale in the Kindle Store and S&S comes along and offers 20% of retail price (not as crazy as it sounds), a lot of authors are going to seriously consider taking S&S up on their offer. It’s not that much less money, and if S&S really puts some marketing muscle behind a launch the author might even make more than they did as in indie.
That 70% payment option is Amazon’s carrot for keeping power from concentrating in the hands of a few major publishers. Take it away and the major publishers will have a much easier job at signing authors and acquiring smaller publishers.
Amazon might not have planned for the fragmentation effect, but I would bet that they are aware of what would happen if the 70% payment option went away. And that is why I seriously doubt that it will ever happen.
What do you think?
image by Foglienere