The industry is buzzing about the new deal between Simon and Schuster and Amazon. I'm not going to comment to any extent on the deal in this article because no one yet knows any of the details (it's a dead given that both parties have agreed to put the particulars under NDA) and if you're an indie, it really doesn't matter to you. The battle between the publishers never was about indie authors and was always about the clash of two large business entities, each trying to protect its market power via control of how E-books are priced.
Apparently, under the terms of the deal, Amazon will buy X% of Simon and Schuster's books under the agency model and buy the rest under wholesale. Agency will be used for Simon and Schuster's hottest and latest titles, as is always the case. In return, the publisher will provide provide juicier discounts and drop more MDF into Amazon's pockets. This is a typical supplier/channel negotiation and in a few years, after the current contract expires, they'll be at it again. It's mistake to say anyone "won" or "lost" (especially if you don't have access to the contract). It is interesting to see that Amazon seems to have changed its mind about how evil agency pricing is and about how $9.99 is the optimal price point for all books. We can tell this because many Simon and Schuster books will be priced above $9.99, particularly when they're new.
However, the ever reliable Hugh Howey is here to ensure all of us indies that in the midst of the normal corporate hypocrisy that surrounds any major corporate tussle, Amazon's actions are in our very best interests. The current $7 pricing box turd that indies are forced to burrow into under Amazon has had its exterior walls polished to high gloss by Hugh, who is here to tell us that we actually live in a shiny new McMansion.
How does Hugh do this? First, by a feat of verbal prestidigitation that would turn David Copperfield green with envy. In his latest column, he tells us that:
"Some commentators are hailing the deal as a return to Agency pricing, but I wonder if these are the same commentators who claim that self-published KDP authors employ Agency pricing?"
First of all, this is a return to agency pricing (well, a continuation of it, in the case of Simon and Schuster). This is not a disputable point.
At this point, Hugh's feeling a little silly, because he's been telling everyone how wonderful it is that Amazon is going to strike down the evil agency model, then the company goes and signs a deal that retains it for one of the members of the "Evil Cartel." It sort of has a "Nazi-Soviet Non-Aggression Pact of 1939" feel to it all.
Hugh is also feeling a bit of heat because several people, including yours truly, have been pointing out that its indies who live under agency pricing. All the time. I refer to it as modified agency because of the two elements of the Amazon/indie pricing model. They are:
But, you'll be happy to know that Hugh has discovered that we are not paying modified agency! No sirree, we're paying...wait for it...drum roll please...
Incentivized Agency! (That's Howyish.)
As you can read below:
"Our agreement with Amazon is something more like Incentivized Agency. If we set our prices between $2.99 and $9.99, we get 70%. If we set our prices outside that range, our split drops to 35%. According to our EULA, Amazon retains the right to discount our ebooks as it sees fit."
This is an example of Hugh Howey parroting that immensely dishonest claim of Amazon that it's paying indies royalties. There is no "split" here. Amazon is simply charging you a fee to use its website servers to download your book. In this case, a predatory 65% that you can't afford to pay. The wall of the box.
But Amazon's tender care of indies doesn't stop there. Reread the last sentence of that quote above and get a load of this:
"What does this mean? It means if we price our ebooks at $14.99, Amazon has plenty of meat left on the bone to discount our ebooks back down to $9.99. The customer gets a good price, and Amazon still makes a profit. That is, we the authors are punished for jacking up the prices."
First all, Howey has a lot of nerve telling anyone, especially indies, they should be punished for pricing their books at the point they think makes the most sense. That's just off the wall. If you as an indie screw up your pricing, you'll find out soon enough. The market will tell you. Amazon not needed to police this nor Hugh Howey.
Second, how does the math on all this work out? Well, let's assume I charge $14.99 for a book. And please, please, don't be an idiot and tell me why I'll never do that. Indies aren't stupid. Not every book is about Vampire Love or Bondage with Billionaires. Thousands of authors are writing books aimed at limited or specialized audiences and a $9.99 price points makes no sense in many markets. As Amazon itself has already acknowledged via Amazonium Codexorum.
So, a bit of calculating takes us here:
$9.99 * .70 = $6.99 (I should add in the transmission fee Amazon charges, but will keep it simple.)
$14.99 * .35 = $5.24 (Pretty awful, particularly since the reason you are pricing above $9.99 is often because your audience is much smaller than that enjoyed by a large genre.)
But wait! According to Howey, Amazon retains the right to discount your book back to $9.99.
So does that mean that your cut remains fixed at $5.24? After all, you didn't discount your book. Amazon did. That takes your margin to over 50% on $9.99. Or do you now receive $3.50 per book, because you broke the walls of Amazon's box?
Howey doesn't tell anyone. Knowing how channels work, I'm betting on $3.50.
And then Howey unloads this howler:
"Amazon has been right to say that the negotiations are about price, and Hachette has been right to say that the negotiations are about margin. That’s because margin is to be determined by price, just as it is for KDP authors."
No, it's not "just as it is for KDP authors." Because the big publishers don't live in the box. Amazon will buy certain categories of books at either agency or wholesale from them and price these titles above $9.99 because that makes sense for those markets. Amazon can't loss lead every book it sells.
Of course, there are plenty of other reasons why the $7 box is stupid, but I'll save that for a future article. Not that you can't figure it out yourself.
But don't worry, indies. You've not been stuck in a roach motel. No, that sticky 65% margin is in reality the finest "wool" Persian carpeting and you're really living in Mint Green Turd Acres.
No, really, you are.
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