Business Musings: Price Wars and Victims

Business Musings: Price Wars and Victims

I had an interesting experience this week: I just bought a brand-new hardcover novel for less than I would have paid for the ebook. I wouldn’t have noticed except that I’ve been doing a lot of stuff online this week, and Amazon, good marketers that they are, sent me an e-mail to let me know that I had received a preorder discount of 90 cents.

I prefer to read paper books, although I do read ebooks, especially when I’m binging on a series.

The thing is, I’d ordered the book six months ago from Amazon. The book, Sara Paretsky’s Brush Back (which I’m enjoying, thank you very much), has a publisher’s list price of $27.95 for the hardcover. Amazon never listed the book at full price. I believe I initially ordered a $17.95 hardcover. I kept getting notices of discounting from Amazon, until this last, which arrived after the book was shipped.

Caveat here: I preorder because it makes some random day feel like Christmas. Suddenly, a book I really, really want shows up in the mail, almost like a surprise gift from a special friend.

I had forgotten that the Paretsky was coming out in August. If you’d asked me, I would have said September, because that used to be her release date. So when I received the most recent notice of the preorder discount—one that sounded final, final—I went to Amazon and looked up the publication date for the book.

And just about fell off my chair when I saw that the Kindle edition was $13.99 and the hardcover was listed at $13.

Remember that Amazon changes its pricing and its listings all the dang time. When I logged on today, the book had an $11.64 Kindle edition and a $13.37 hardcover.

As I searched for the publisher’s list price, too lazy to get up and pick up my copy from the other room, I found that Barnes & Noble lists the book at $16.83 for the hardcover and $11.84 for the Nookbook. Powell’s lists the book at full retail, $27.95, but not an ebook, and sadly, the description of the book wasn’t for Brush Back, but for the previous novel in the series.

Agency pricing has returned to ebooks, which means that publishers are setting their own ebook prices and the retailers, like Amazon, are not discounting. The ebook price on Amazon is clearly a price-match with Barnes & Noble, not something that Amazon has done.

I poked around Amazon, looking at e-book prices, and almost fell off my chair for a second time. Lisa Scottoline’s next book, which releases in October, has a $14.99 ebook. So does Michael Connelly’s November release. And Stephen King’s November release. Robert Crais’s next book shows a $12.70 Kindle edition paired with a $13.37 hardcover. Does that sound familiar?

And what’s fascinating to me is that these books, and the dozens of other traditionally published upcoming releases that I looked at are coming out of different publishing companies. Not different imprints of the Big 5, but each of the Big 5.

Once again, pricing seems…agreed upon.

Five years ago, just after ebooks took off, the largest traditional publishers set their ebook prices high so that readers would buy the paper editions. Despite the high prices, ebook sales increased. Then the whole Justice Department debacle happened, pricing became an issue for traditional publishers, and, last summer, Amazon and the big publishers started renegotiating their contracts.

After a lot of Sturm und Drang, the contracts were finalized: Big publishers could set their own ebook prices, and Amazon wouldn’t automatically discount them. I’m seeing different reports as to whether Amazon is even allowed to discount ebooks, except through price matching.

Nonetheless, Amazon is leaving the ebook prices—set by the publisher—alone…and messing with the paper prices.

I mean seriously messing with the paper prices. I should not have been able to get a brand-new hardcover for more than half off the list price on the day the book released. Maybe at Christmas. Maybe nine months from now, as the publisher gets ready to release the mass market paperback.

But now? Release day? Seriously?

I looked at all of my other preorders and found the same issue. The hardcovers are the same price—or nearly the same price—as the Kindle edition.

And I got to thinking…

The traditional publishers are screaming about Amazon. I’ve learned over the years that when someone screams about something, they’re doing so because they feel some kind of pressure, some kind of pinch.

How could traditional publishers be feeling a pinch from Amazon? After all, in the United States, Amazon is selling more books than any other retailer. Why would that hurt traditional publishers? Is it hurting traditional publishers?

Oh, my friends. One should never ask these sorts of questions. Because the answers are often surprising.

From the evidence that I’m seeing, here’s what I believe is going on.

Amazon is clearly fighting the price war on a variety of fronts, and I’m sure Amazon’s policy is pretty simple: They want affordable ebook prices. So if traditional publishers want to charge $14.99 for a Kindle edition, then Amazon will make sure no one buys the expensive Kindle edition by lowering the price of the hardcover.

My unscientific examination shows that when the Kindle prices are high, the discount on the paper edition is deeper.

Hear me out before you get enraged that I’m taking Big Pub’s side. I’m not. I’m trying to look at something here, something that’s been bothering me.

So of course, we must go directly to the calculator for a bit of math.

When publishers returned to Agency Pricing, they had to agree to the same ebook royalty schedule that indies have. Which means that for any ebook priced over $9.99, the publisher will receive 35% of the sales price. (If the publisher prices the books between $2.99 and 9.99, then the publisher receives 70%)

The publisher, with a $14.99 ebook, will receive a royalty payment per sale of $5.25. If the publisher had priced the ebook at $9.99, the publisher would have received $6.99.

So traditional publishers are deliberately receiving a lower percentage royalty to keep the ebooks prices artificially high.

But traditional publishers aren’t the only ones taking less money to prove a point. If business is being conducted as it usually is, then traditional publishers sell their books to Amazon at the discount they use for all of the other big accounts (Wal-Mart, Costco, and so on). (See comments below. Deep discount might not apply. kkr 8/7/15)

That would be 60-64% of list price. This is known as a deep discount.

So, if Amazon pays 64% of $27.95 for the hardcover of, say, the Paretsky book, then Amazon is paying a little over $10 per book. Amazon is currently selling that book for $13, making a $3 profit.

If Amazon sells the Kindle edition of that book, Amazon makes $7.57 per sale. (65% of $11.64) If Amazon sells any of the $14.99 ebooks, it makes $9.75—over three times what it’s making on these discounted hardcover new releases.

Why is Amazon doing it?

I’m guessing here that the price wars continue. And Amazon is trying to force publishers to return to $9.99 ebook prices.

The problem is that in this price war, the publishers and Amazon are still making an okay profit on each book sold. The people who are getting squeezed are the ones who get no vote in this: the traditionally published writer.

Here’s what’s happening.

Publishing contracts have changed in the past 15 years. Now, each contract has a discount schedule, reducing the royalty if a book is sold at deep (or what the average person would call high) discount. In the past, many contracts didn’t have a discount schedule; the publisher would eat the loss.

Now writers get a much lower royalty if the actual discount to the retailer is low.

At 60-64%, some writers are receiving only a 1-2% royalty. Let’s be charitable and give that writer a 2% royalty. That’s 2% of $27.95, which comes out to 56 cents per hardcover sold.

If the book sells at full price, the writer would get 10 to 15 to 20%, depending on the royalty schedule. (Often royalties are based on sales numbers—10% to 150,000 copies, 15% to 500,000 copies, 20% over 500,000 copies.)

Let’s be realistic instead of charitable this time. Most writers traditionally published in hardcover never sell 150,000 copies of that hardcover. The writer will get the 10% royalty, which is $2.75 per book. Not 56 cents. That’s a significant loss for books sold at deep discount.

But it’s a fact of life. That writer would get the 56 cents if Amazon sells the book at $27.95 or if Amazon sells the book at $13.37. It won’t matter to the writer at all.

The squeeze occurs on the ebook prices. Currently traditionally published writers across the board are getting 25% of net income received on ebook sales.

So…if the publisher sells the ebook through Amazon at $14.99, and Amazon pays the publisher a royalty of 35%, then the publisher will receive $5.25. That’s “net income received” of which the writer will get 25% or $1.31.

However, if the publisher sets the ebook price at $9.99 on Amazon, the publisher will receive $6.99. The writer will get 25% of that $6.99 or $1.74. A little better.

But the other bonus at the lower ebook price is this: It has been proven over the years that the lower price point brings in more sales. So the writer would receive more money per sale and also make more sales.

The traditionally published writer is losing out here.

It’s really important to note that the problem in this equation is not Amazon. Yeah, they’re acting like a 300-lb gorilla, trying to force behavior within their own marketplace. Just like any other retail business does.

(Dean and I have a tiny retail business, and we have certain policies that our suppliers must follow as well. If the suppliers don’t like it, they can go elsewhere. That’s just business.)

The problem here is the traditional publisher. They’re still acting as if it’s 2010, without recognizing that the ebook market has changed dramatically while they were defending themselves in court and trying to negotiate with Amazon.

As I’ve mentioned time and time again when discussing pricing, retail businesses study pricing to death. Study after study have been released since ebooks started showing that there really is a sweet spot in pricing. The sweet spot depends on what you’re trying to do, what genre the book is in, and whether or not you’re running a promotion or setting a standard price.

Even if you’re trying to avoid Amazon’s pricing suggestions, you’ll find a million retail sites that have actual sales numbers that support the price-sales correlations. Places from Bookbub  to Smashwords have accumulated enough data on sales to outline how price impacts purchases. The links I posted are to the sites’ blogs, which often have articles on pricing. You can find a lot of unsubstantiated opinion on the internet about prices too, but look at the places that are actually in the business of selling ebooks. They’ll tell you more about price than you want to know.

Traditional publishers still believe that setting a high ebook price on a new release will drive the readers to the hardcover. That may have worked in 2010 (although even that’s up for debate), but what’s clear this month is this: that strategy does not work in 2015.

Lagardere reported its first half-year financial results late last month. Lagardere, for those of you who don’t know, is the parent of Hachette Book Group (among many other companies). Lagardere’s financial statement doesn’t break down HBG in particular, but does discuss its US operations in general. And what Lagardere admitted this in its financial statements:

Their ebook sales in the US have declined. The ebook sales in the first six months of 2014 were 29% of their trade revenues. In the first six months of 2015, ebook sales were 24%. Lagardere blames “a less successful slate of new releases and the implementation of the agreement with Amazon.”

Lagardere expects that the company will absorb the new reality—lower ebook sales—by 2016, although that might simply be hype for the investors.

Industry analyst, Mike Shatzkin, who often acts as an unofficial mouthpiece for traditional publishing, wrote a rather surprising blog on Monday about this very thing. Surprising, because for the very first time, Shatzkin is admitting that the industry might be in trouble due to its own behavior.

He writes:

So the sometimes startlingly high publisher-set prices are prevailing. And, aside from the Hachette numbers that were reported, we’re hearing widespread but totally unofficial reports that big publisher ebook sales are dropping noticeably when their new higher agency prices are activated.

He—and the publishers he’s been talking to—are finally beginning to realize that the indie publishing movement has had a major impact on the sales of traditional publishing’s books:

What is definitely true is that the share of the reading market held by commercially-minded publishers (not just commercial “for profits”, but also university presses) will diminish as both successful self-published authors and hundreds of thousands of others who don’t succeed (and maybe don’t even care) take their content to market on their own.

It has only taken 5 years, but traditional publishers are beginning to see a leveling, a flat-lining of their sales due to the loss of authors, the rise of indie publishing, and the fact that velocity (selling a lot of books quickly) can’t be manufactured any longer.

In fact, velocity is almost impossible to build these days. This summer, one wag joked that the only books which are selling the old-fashioned way (meaning through media coverage and velocity) are by two old-fashioned authors—Harper Lee and Dr. Seuss. There’s an element of truth to that.

So let me step out of the details now and get back to my original point. I’m starting to get a handle on the screaming.

Traditional publishers are screaming about Amazon because they’re still at war with Amazon. The war is a price war, with both sides sustaining losses to prove their point. The losses aren’t huge, since books are still being sold at a gross profit by both sides. Although I would argue that traditional publishers’ net profit on hardcovers is probably slimmer than it used to be, given the growing costs of warehousing, shipping, and manufacturing even as hardcover book sales are decreasing.

When traditional publishers scream about something, their cries of agony echo through the canyons of New York. Agents pick up the cry, and relay it to their writers.

But agents and traditionally published writers are also seeing something they haven’t seen in a long time. They’re seeing reduced royalties and lower sales. Plus, the sales that do occur are often at deep discount.

According to my royalty statements, 80-90% of the books I’m selling through my traditional publishers are at deep discount. I’ve heard other authors say the same thing. When they drill down into the numbers on their royalty statements, these writers find very few paper books (hardcover or mass market) selling at full retail price.

According to an Association of American Publishers study released in June, trade book sales have remained steady—and that includes paper books. So the number of books sold remains the same (or has grown slightly), but the venues which sell the books have changed enough that the books are being sold at a discount (rather than full retail).

Discounted books mean less money to the writers.

Publishers can’t pay less rent on their warehouse space, or decrease their employees’ salaries (quickly anyway). The shipping costs continue to rise. But publishers can pay writers less, through reduced royalties and lower advances. And publishers are doing that.

Add to that the problems caused by charging ridiculously high ebook prices and getting paid less money for those high-priced ebooks than if the books were properly priced, and the traditionally published writers, who receive 25% of net ebook royalties, are really losing money here.

A lot of money.

So those screams in the canyons of New York, the ones from the publishers, get heard by the people who are actually taking a bath because of these new policies—the writers (and their agents). The publishers are blaming Amazon, so the writers (and their agents), seeing reduced revenues, believe what the publishers are telling them, instead of looking at what’s really going on.

Right now, traditional publishing is going to do what all businesses do in a time of transition: they’re going to tighten the belt where they can and adapt to the new reality. If they refuse the change their policy on e-book pricing, the only way they can continue to make a profit on their books is by squeezing writers even more.

I’m hoping that this week’s Shatzkin article shows that publishers are beginning to realize how stupid their ebook policies are. But I’m an optimist.

I’m also different from some of my indie writer friends: I don’t want traditional publishing to wither and die. I like having the option to publish books on my own, through a small company, or through a larger one. I like being a hybrid writer.

But I don’t want to see my friends getting screwed either. And I think that as long as traditionally published writers hear those screams in the canyons of New York— think echoey versions of Damn you, Amazon! (accompanied by hundreds of shaking fists sticking out of high-rise windows)—and believe that the bad guy is Amazon, then this behavior won’t change.

Yes, as far as traditional publishers are concerned, they have a problem with Amazon. Amazon is tweaking them, just like the traditional publishers are tweaking Amazon.

At some point, one of those two parties will blink. And from Shatzkin’s post, that party might be the traditional publisher.

But traditionally published writers, stop repeating the party line. The problem isn’t Amazon. The problem is that your traditional publishing company is still fighting with Amazon for dominance over the marketplace.

The problem is that traditional publishers don’t know a damn thing about the way price works. They haven’t had to know: they’ve had a monopoly for nearly five decades. Now that they need to have retail and pricing experience, their executives aren’t able to pivot and make those decisions.

Amazon knows everything about the retail marketplace and more. So when it adjusts prices, those adjustments have a real effect.

Right now, that continued war between Amazon and the publishers is like two chess players at a table in Washington Square Park. The chess master, who really knows how the game is played, is toying with the old-timer who was once reigning champion of his high school chess team.

At some point, the old-timer will realize he’s outgunned. I think that Shatzkin post is the first glimmer of hope I’ve seen for traditional publishers.

Whether it translates into anything, only time will tell.

And a lot of writers will lose money, will lose sales, and will lose audience because they’re the pawns in this great chess game.

It’s a shame, really. I almost feel guilty about my $13 Sara Paretsky hardcover.

I use the word “almost” because I’m as price-conscious as everyone else who lives in the real world. Much as I want to support my fellow writers and independent booksellers like Powell’s, I would rather buy two hardcovers for my $28 than one. And if I’m really price conscious, I’ll buy 5 ebooks at $4.99 each, and then get a latte to drink while I’m reading them.

Everyone has their price, everyone knows how much they’ll spend for something, and much as we agree or disagree about each other’s motives and politics, we will ultimately behave as self-interested consumers simply because our money—and our time—happen to be finite.

I wish I were a disinterested party in this price war between the traditional publishers and Amazon. I’d break out the popcorn. But every time I see a Kindle price higher than the hardcover, I wince a little. I know that the person getting knocked around in that tussle is a writer—a writer who hasn’t yet realized that they’re being injured. That realization won’t come for a royalty statement or two or three—anywhere from 9 months to 18 months from now.

And it’ll be impossible to trace the bruises back to a tug-of-war in August of 2015, because there’ll be a whole new battle being fought. One that will suck all the air out of the room.

Just like this one has.

There’s a lot of business news this week, and I hope to get to more of it during August. Usually summer is a slow time for publishing, but that hasn’t been true these past two years.

I know we’re still in vacation season for most of you, so I value those of you who show up each week even more. Thanks for the comments, emails, links and donations. They mean a lot.

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“Business Musings: Price Wars and Victims,” copyright © 2015 by Kristine Kathryn Rusch. Image at the top of the blog copyright © Can Stock Photo Inc. / shandrus

 

 




79 responses to “Business Musings: Price Wars and Victims”

  1. Elka says:

    So, was Zacharius able to shed some light on what the items in royalty statements are, if they are not, as he claims, deep discounts?

    • I can’t get most of the authors to give me permission to send to him. They are worried that their publishers will find out (even though I’d scrub) and they don’t want another pub to see confidential material. I’ve got one to send to him, which I haven’t forwarded yet. I should do that before I leave for Worldcon. Thanks for the reminder.

  2. Another data point–or, at least, anecdata point–to toss into the mix.

    A few years ago, a couple years after I’d left my career as a feature and review writer for various tech magazines in favor of making a go at fiction writing (due in no small part to the economic collapse of the tech journalism sector–it’s amazing what it takes to get you to chase your dreams sometimes), I wound up with a couple non-fiction books on my to-do list.

    Rather than just self-pub them, I poked around to see what I might get for terms from tradpub. The market, I fancied, might be different than it was for pulp mystery and adventure goodness, so I talked to several friends who were currently publishing in the reference, self-help, and tech spaces.

    This was in 2011, before the reports of the big declines.

    What I found was that, to a man (and woman), they were all signing contracts that more-or-less amounted to work-for-hire. Certainly, there was a royalty schedule, but none of them had ever seen a dime of royalties even on books that had a lot of publicity push behind them, that sold very well, and that hit various trade lists. The reason? The majority of these books got to bestsellerdom through Wal-Mart and Costco placement, and bulk sales to corporations and trade schools, etc.–I did not ask about Amazon. But each of my friends told me “It’s all in the advance. You’ve got to assume you’re never gonna see royalties.”

    So, naturally, I asked the advances. And I was appalled. Even back then, the kind of books I was intending to write were fetching so little in advances that I would have done better selling a couple-to-four articles at my old feature rate (we’re talking 2500 word features, too–so, I’d make more for less work writing and selling four of those as WFH or open license pubs than I would for writing an 80k word reference book for writers, for example).

    Narrative nonfic seemed, at the time, to be a different ballgame both in terms of advances and royalties, but in the tech, reference, and self-help spaces, the entire game was deep discount.

    FWIW
    -Dan

  3. The deep-discount problem isn’t a new one. Back when I was doing computer software books for a while during the 90s boom, it was pretty common knowledge that getting a good advance was important, because the discount clause would be used to undercut royalties, especially on really hot books.

    I gave one friend the “good news” that I’d seen his book (a top-selling title from a major publisher on a then-popular word-processing program) flying off a pallet-sized stack at Costco and he just groaned, knowing those would earn him a pittance because of his deep-discount clause, and were also undercutting his conventional bookstore sales. Large scale corporate sales on titles like these (companies would buy a book for every employee using the software) also undercut retail sales. I even heard some rumors that warehouse stores were given deeper than negotiated discounts, just to be sure the high discount clauses kicked in. I can’t confirm that this actually happened, but I do know that the discount clauses were a concern among writers and agents at the time, and that it was not something publishers were willing to negotiate on.

    I don’t know all the details of my friends book, but my recollection is that, even though it was a perennial hot-seller, he saw very few royalties, and made most of his money from the advances on update editions as new versions of the software came out.

  4. As far as I can tell, the agency deals are not the same as KDP, but they do have incentives to keep prices low (as in the publisher’s cut falls as the price rises). The drop-off is simply graduated instead of a single cliff.

    It would be very interesting if the paper deep discounts started at the same time as the agency deals for ebooks.

    • So it’s the same effect, William. If the e-book price is high, then the publisher gets a smaller percentage. The writer, who gets 25% of net, gets an even smaller percentage.

      Is there a way to check old ebook prices to see if your speculation is correct about the timing?

      • I can’t due to lack of time and data.

        You can. My hypothesis is that when the new agency contracts were negotiated Amazon got deep discount pricing on some or all of the Big 5 physical books. Here is how you could test that.

        Take the royalty statements showing increases in deep discounting that you have access to and divide them up by publisher.
        Make a spreadsheet that has one column for each of the Big 5.
        Label the rows by month, starting with January 2014.
        Fill those cells with zeros.
        For each publisher, determine the month that they renegotiated with Amazon (some of them may not have yet, I am not sure). Change the background color of the cell corresponding to that month and publisher.
        Take the royalty statement that shows the largest percentage of deep discounting in a particular month, add 1 to the cell for that month and that publisher.
        If the statements only show aggregated totals for, say six months, you will have to do a bit of averaging.
        For all other royalty statements and months, take any month that shows deep discounting at least half as much as the largest and add a number between .5 and 1.0 to that publisher cell, based on its ratio to the largest number. Example: if the largest percentage of deep discounting is 90% and one title has a month with 72%, you would add .8 to the appropriate cell because 72 is 80% of 90.

        When you are done, you should be able to tell just by looking if the deep discounting is related to the ebook contracts. If it is, congratulations you discovered something really important. If not, one hypothesis has been shot down and the mystery remains.

        If the relationship exists AND you have royalty statements for Big 5 titles that don’t show a jump in deep discounting, that is a bonus. Now we start figuring out who is getting shafted and who isn’t.

        If any of this is unclear, shoot me an email.

        • Oh, I can, William, but that presupposes I have the time. I get hundreds of pages of royalty statements (paper) every few months. I’ll fire this to a friend of mine and see if he can do it with his (fewer) books.

          (I’ll also see if Dean’s interested. This might challenge his math brain.)

          If anyone has royalty statements and want to try this, then please, please do. Report back here.

  5. C.E. Petit says:

    This issue is about time. Our Gracious Hostess has nicely described a data slice… that implicates a lot more, older data slices.

    The excessive duration of publishing contracts — especially “older” works from 2005 and before — fossilizes cost and compensation structures as of the date of the contract, without regard to later changes. If you have a medium-term publishing memory, you might recall a dispute a few years ago over whether an e-book is a “book,” as described in pre-1994 Random House publishing contracts.* Let’s assume, for the moment, that commercial publishers suddenly change their contracting patterns to be simultaneously fairer to the authors and more flexible in their own pricing by redefining “deep discount” to mean “sold at a price less than 200% of the actual per-copy production cost established by printer invoice.” That might have an effect… in about six years. That’s the best available profit-equalization estimate for multiline commercial publishers — half of such a publisher’s profits come from works published more than six years ago. (Not revenues — profits. Under real accounting rules like the ones that a publicly traded media conglomerate must use in making SEC reports.) All of those contracts “for the life of the copyright” without reasonable reversion (aka “out of print”) clauses force the ossification: The publisher can’t adopt a “nimble” pricing policy because its backlist will continue to dominate the actual results, and nobody wants to take a risk on changing the ways things are without any chance of having enough data to even adjust things for half a decade.

    Worse, the internal decisionmaking systems at publishers are stuck in the 1960s. You may have heard of a “profit and loss projection” (more properly called a “cost-sales projection,” because actual “profit” depends on factors unrelated to individual-copy sales) used in determining whether to acquire rights to a book. The real problem is that these projections are based upon memes that, umm, ossified in the 1960s and 1970s: “List price needs to be six times fully-extended cost or ten times printing cost,” and similar assumptions built into the models. Leaving aside that these memes haven’t a bloody thing to do with pure-sunk-cost “print runs” like e-books, they also grievously misrepresent the relationship between labor costs and materials costs even within printing; for example, they distort historical comparisons with today’s shorter print runs. (The less said about the failure of these models to account for either contemporary distribution systems or data perturbations in the inputs,** the better.)

    And it continues to pain me to take the author’s side in this because that’s also taking the side of… an actor I’d rather not acknowledge (not the author, but the “competing publisher,” who was engaged in an unacceptable conflict of interest and that’s the good part).

    ** Biochemist by training. I have a more-than-healthy respect for the way that a single outlier experimental run can continue to influence both evaluations of an entire set of the same experiment and the design of later experiments, such as determining whether a particular single-instance determination of the level of 9-nor-delta tetrahydrocannabinate indicates prior use of Certain Substances all by itself… or requires a similar result from a retest of the same sample. You will not find similar care taken in these managerial models.

  6. Alan Spade says:

    Kris, I would be curious to know if this situation will lead you in taking a decision about your backlist published at Pocket, Sourcebook and Berkley. Do you envision trying to get back your rights on these books?

    Do you envision being no more a hybrid author but only a self-published one?

    I hope you won’t take offence at my questions. As they are personal ones, I would understand if you weren’t responding.

    Another question: do you think the discounting by Amazon could be on purpose, because they noticed big publishing was practicing deep discount conditions with Amazon’s discounts, and Amazon knew the more discounting it would do, the more trad pub and hybrid authors would be screwed, and tempted to become only self-published authors?

    That would imply, of course, that Amazon is really willing to hurt authors if that serves its goal.

    • Whenever my books went OP, Alan, from 1990 onward, I got the rights back. I have been unable to get my rights back from a handful of publishers these past few years. I suspect one of those publishers and I will be talking through our lawyers soon, since the e-book from that publisher is (wait for it) $28.00–for a mass market.

      Amazon does business for Amazon, and no one else. Just like the Big 5 do business for the Big 5 and no one else. That’s how business at a large scale works. Writers need to defend their own rights, and they do a piss-poor job of it most of the time, because they don’t have a business attitude. Imho.

  7. brokenyogi says:

    I think you have the margins publishers get from Amazon on ebooks wrong. While self-published authors only gross 70% on ebooks priced from 2.99-9.99, significant publishers have no such restrictions. They get their full 70% regardless of the ebook price. The Big Five even get more than 70% in some cases if they price below 9.99.

  8. Dafaolta says:

    I had noticed the rush to overprice books a while back and my first thought was that there were a lot of writers getting screwed by their publishers. I don’t like paying 9.99 for an ebook unless it’s a series I’m following. I have paid hardcover prices for electrons in the past, and will probably be pushed into it again but I’ll bitch about it.

    What I’m thinking that publishers are missing here is that Amazon has much less to lose than they do. If the titans of Industrial Publishing keep trying to squeeze their authors more of them are going to test the waters in the Indie pool. And once they get to figure out that it’s easier the second/third/fourth time around, Amazon gains another Indie Imprint and the big boys lose even more money. The AU crowd, who’ve put their egos as well as their pay checks on the line with the Anti-Amazon front, will probably be the last ones to do it. Assuming they can find a way to cover their egos.

    I know Amazon isn’t perfect but I have to say that have a better handle on the essentials here. There are only 2 really essential people: writers and readers. And Amazon has worked very hard to make the transfer of stories from the one to the other as smooth and painless as possible.

  9. Philomorph says:

    Thank you for the insightful article Kristine. I love your books and your blog is always interesting,

    Just as a single data point, I’ll admit that I simply won’t pay more than $10 for an ebook, no matter how much I like the author. I haven’t touched a paper book in years and I have more ebooks than I have time to read lately. The number of ebooks I’ve picked up for under $6 may have spoiled me, but I’m happy to wait for a title to drop in price if necessary.

    The market (aka readers) will set its own price. Publishers will learn it the easy way or the hard way, but they will learn it or they will die.

  10. Hrafn says:

    The problem seems to be that, whilst Publishers should have an incentive to maximise their revenues from Amazon, and thus maximise royalties to authors, they appear to be screwing both themselves, and their authors, over by settings prices at levels that ensure that they both get less money out of Amazon than they might otherwise do.

    Amazon appears to be simply ‘giving publishers more rope to hang themselves’ by further accentuating these absurd price differentials. Their message to publishers would seem to be ‘your prices are stupid, and will bankrupt you eventually.’ It is however not clear what the publishers message to Amazon is, other than ‘we want things back the way they were (even if that’s now impossible)’.

  11. MrTroy says:

    Very interesting analysis, but I’m left with one question (well, truly more, but one in particular). I’m not sure why Amazon discounting the hardcover to below the ebook price is counter to what the publisher wants. As you mention:
    Traditional publishers still believe that setting a high ebook price on a new release will drive the readers to the hardcover. That may have worked in 2010 (although even that’s up for debate), but what’s clear this month is this: that strategy does not work in 2015.

    I think it’s clear that I’m missing something, but I couldn’t say what it is. The publisher wants to drive readers to the hardcover, and Amazon is discounting the hardcover so readers don’t buy the high-priced ebook. Maybe I’m just uncertain when the deep discount kicks in; I read it as being between the publisher and the retailer, not between the retailer and the customer. I can see authors would be hurt by all of this, but not how publishers could be.

    • There is no deep discounting of books on Amazon from traditional publishers. It doesn’t kick in. Amazon is a traditional book account and not a “special sales” where a deep discount would be applicable. Nor does Amazon get the kind of discounts that were mentioned in this post.

      Steven Zacharius
      President and CEO
      Kensington Publishing Corp.

      • MrTroy says:

        Thanks for the reply, Steven, and for having a fascinating discussion with our host here in public. What you say only seems sane, and yet some of the rest of the stories coming out here since you posted… seems to be veering firmly to the insane.

        I hope you manage to source some royalty statements that might yield some clarity, and that you are able to report any findings. But thanks again for the insights so far, regardless.

        -T

  12. Wendy Rathbone says:

    This blog post is so amazing that I shared it on my FB page. I hardly ever share anything, nor am I on FB much. But I just had to. This says it all so well.

    • This article has a lot of misinformation unfortunately. Major publishers do not sell print books to Amazon at the discounts that the article mentioned. None of the major publishers that I know of sell Amazon as a “deep discount” account where authors would get a much lower royalty rate than a traditional sale. This is totally incorrect. People are going to accept this as gospel unfortunately and it’s not true at all. I am not an Agency publisher but I do not believe that publishers follow the same discount terms as KDP authors. I do not believe that they receive a lower rate at prices above $9.99 but you’d have to ask one of them to comment. If I’m correct, as I suspect I am, the entire basis for all of the math in this post is wrong.

      Steven Zacharius
      President and CEO
      Kensington Publishing Corp.

      • Steven, wish we were still getting royalty statements from your company to check what you are saying. But alas, we are not. However, we still get royalty statements from Pocket, Sourcebooks, and Berkley among others.

        I find it very, very hard to believe that publishers on our statements can count from 80% to 85% of our royalties as deep discount and not be selling deep discount to Amazon. Math flat doesn’t work.

        Also, we have seen a bunch of other writer’s royalty reports and deep discounting has been increasing over any logical amount of sales to Costco and Walmart and other normal deep discount channels.

        So logical thinking from this side of all the math is that Amazon and B&N are now negotiating or have negotiated similar terms as Walmart. Seems like a well-duh. And the royalty reports of authors support that logic.

        However, if what you are saying is true, then writers are getting screwed from another side. Publishers are reporting deep discounts on royalty reports without actually giving the big channels the discounts. Seems like an easy way to drain more money from authors and would never be caught without a major audit which very few writers would be willing to do.

        I tend to not want to believe that. I tend to think that Amazon and others agency agreements are getting deep discounts inside author contract levels, which accounts for many royalty statements being around 80% in deep discounts. (60% to 64%)

        As far as the agreements with the agency publishers, it has been reported by people on both sides that the agreement forced less percentage on higher priced books by Amazon, meaning above the $9.99 level. And a number of sources (of course, off the record) have said the amounts are similar to what indie publishers are getting. Very similar.

        Which makes sense from Amazon’s point of view. New York publishers would never notice anyway because the publishing world revolves around all of you in your towers. But for Amazon and the rest of us, that world seems sort of behind.

        Now, I know you run your company differently than the big five and I applaud that. And if you are not charging your authors deep discounts for Amazon sales, great. And I know you are out trying to learn.

        But maybe to learn, you might want to actually open your mind to what authors are saying. Authors with royalty statements besides yours in front of them.

        I just wish all the companies out there worked like you do and treated authors as you do.

        (Kris and I still miss Kate.)

      • Steve, it is entirely possible that my numbers are wrong. I am not privy to the deals that the Big 5 have made with Amazon.

        However, if I’m wrong about the deep discounting, then I have no idea why my royalty statements and the royalty statements of other authors that I’ve seen from different companies are 80-90% paid at the deep discount royalty rate.

        And yes, those deep discounts are on the cover price—1-2% of cover, versus 10% or higher of cover. The math still works out badly for the author.

        If you’re right—and the books aren’t being sold at deep discount to Amazon (like they often are to Wal-Mart and other large accounts)—then where are 80-90% of the books being sold, and so cheaply?

        Because if you’re right and I’m wrong, then something is either rotten in Denmark or there’s a very large discount market that I’m not seeing.

        As for the lower royalty rates above $9.99 on ebooks, that was discussed over and over last fall, and it was one of the terms that leaked repeatedly in the press.

        I’ve worked with your company and have found its terms to be much fairer than any Big 5 that I worked with, and that was years ago. I suspect you’re still doing business honorably. I can say with certainty that some of your colleagues are not.

        • Kris, let me add that books are not sold at deep discount to WalMart either. WalMart discounts their prices and they are full priced sales to authors. I can’t comment on the royalty statements that you’re mentioning cause you haven’t shown them to me. If you’d like to email the to me, I’d be happy to look at them in more depth and give you my explanation of them. On the books that you’re talking about, what percentage of the print run is at a deep discount. It should be very small. Any traditional book account is sold at normal terms, not deep discounts. Deep discount accounts are reserved for generally when sales are to non-returnable accounts or special sales account. But certainly not the overwhelming majority of the distribution. Deep discounted sales should be the excpetion.

          • Thanks for the clarification on WalMart, Steve. In the past, several publishers I worked with told me that they were selling books to WalMart at deep discount. I do not have evidence of this, but I did take them at their word. Of course, this was some time ago, and things might have changed.

            As for the rest of your post, everything you say about deep discount is what I learned about deep discount in years of publishing. Particularly this as you said: “Deep discounted sales should be the exception.”

            Exactly. And yet, I am looking at royalty statement after royalty statement, most of which are not mine and were shared in confidence, which list almost all of the books sold at deep discount–64% to be exact. These are front list titles.

            I’ll see if I can get permission to pull pertinent (author name/book) info and send these to you. Otherwise, writers who are reading this, if you’ve checked your statements, would you send Steve something with your private information pulled off?

            My backlist titles are also at deep discount, but as I said, I would expect that as publishers are dumping backlist inventory. And as you said upthread, no sales channels are listed.

            It’s the front list titles sold at deep discount that I find very disturbing. And not a small portion of the book sales either. As I said, it’s 80-90% of them.

      • C.E. Petit says:

        I can’t speak to Kensington’s treatment of Amazon and deep discounts. I can speak to actual incidents at more than one media-conglomerate publisher — confidentiality requirements keep me from specifying — and some (not all, and quite probably not “routine”) Amazon sales are being treated as “deep discount” in royalty accounting.

        Keep in mind that the “deep discount” clause usually kicks in at 51% for books contracted prior to 2011 or so… and that trade nonfiction (which actually drives this whole conversation — trade fiction is the flea on the tail of the dog, at least insofar as the money in book publishing goes, and is the source of every default in publishing) has been much slower to raise that trigger point.

        This “disagreement” comes because “deep discount” has a different meaning on the royalty statement than it does in trade practice. Once again, this is legacy reasoning driven by older contracts. In short, it’s not that Mr Zacharius or Ms Rusch is “wrong” or presenting “misinformation” — it’s that they’re each talking about specific circumstances (“boundary conditions”) that are not being made explicit or being compared, and are being themselves slightly misled by treating “publishing” as a single industry (instead of as a collection of thirteen distinct industries unified not by anything internal, but by where its “products” made their way to the ultimate end-user… in the 1970s).

        • Thank you for the confirmation, C.E. You’re seeing more contracts and royalty statements than I am, so you have a lot more evidence than I do, from various companies.

          And yes, because like you, I’ve promised confidentiality (although I am not a lawyer like you, so I can’t defend the confidentiality as a client privilege), so I can’t specify much more than I have in my public blog, for fear of revealing my sources. This leads me to tar every publisher with the same brush, which I know is not true, just like I know that all contracts and contract terms are different.

  13. Lurkertype says:

    It’s times like this I’m glad I’m a reader and not a writer.

    I’m off to surf Amazon for some books now — why NOT have a lovely hardcover for the price of an ebook?

    Yep. Scalzi’s latest is 4 cents cheaper as a hardback than an e-book at AMZ and B&N. Looks like I get me a space opera in paper next week.

  14. danceswithlife says:

    Another thing traditional publishers don’t seem to realize is that some of us don’t want paper books anymore. I usually read 3-5 books per week, and I re-read. As I moved into ebooks I was ecstatic that my library could be contained in an e-device. No carrying hardbacks, no book cases to buy or dust, no wondering which bookshelf a book I wanted to re-read was in. If I can’t get an ebook for something I want to read, I reserve it at the library and wait for an ebook edition with a sensible price (under $8.00, most of the time). I don’t want paper books in my life, and am slowly replacing my favorites as ebooks. I spend a lot of time on Kindle hitting the “Tell the publisher you want this in Kindle” on my old favs that aren’t in ebook format yet.

    In the olden days before ebooks I had a very short list of authors whose new books I would buy new in hardback. So when I started buying ebooks I decided that I would pay a reasonable hardback price for new ebooks from those authors. For me “reasonable” is usually less than $20.00 depending on the length of the book. I resent it, but I will do it. It dramatically helps trad authors to buy their books in the first week, and I want my favorite authors to keep publishing.

    For quite a while I avoided Kindle ebooks. I don’t like the closed garden mentality, and know that Amazon doesn’t treat its employees well a lot of the time. But then many authors I follow mentioned that they get the best royalties on their Kindle books, so I gave up and began to switch from epubs to mobi. I know there are people who don’t want, or who can’t afford, ebooks, and I want them to continue to have access to reading. It’s likely multiple formats are more expensive to produce. Nonetheless, I’m a reader and have been all my life, so publishers as well as indie authors get a lot of my fun money. But I won’t pay more for an ebook than for a hardback, and I won’t buy hardbacks anymore. Publishers beware.

    • A.Beth says:

      I get my best royalties from Smashwords, actually, overall — up to over 80% instead of 70%-minus-transmission-fees, at best. But Amazon pays most promptly and, obviously, has better automated promotion stuff.

      …was gonna say something else, but kid.

  15. davidelang says:

    A few years ago I found that the e-book for one of my favourite authors was more expensive than the hardcover. I was so disgusted with this that I left a lengthy comment on the Author’s site and paid $2 more than the Amazon hardcover price (and $1 more than the Amazon e-book price) to get a used hardcover instead (and made it very clear in my comments that I had done so)

    If an e-book is the same price or higher than the paper book, it’s pure price gauging by the publisher. Any way you look at it, there are expenses in selling a paper book that you don’t incur when selling the e-book, so there is no excuse for the e-book to be more expensive. Frankly, I think it’s questionable if the e-book is more expensive than the paperback will be, but there is the (questionable) value of paying extra to get it sooner.

  16. Jackie Weger says:

    Wow! Kristine: You nailed it. I thought it telling that a publisher blamed his stable of authors for less than stellar best sellers. I was once trad published. Romance and earned about 18¢ per unit sold in the US. Perhaps a penny or less for foreign language units. New indies yell often about how little they earn with Amazon. But, Golly, Amazon stuffs my bank account every single month… even when a book is not in promotion. When under contract, the publisher had all of those funds at its disposal, often, as you say for 18 months before I saw a dime. Twice a year royalty statements. Next, my agent held onto the checks for another ten days or month. Nice bank float. I hear authors calling Amazon Big Brother almost every dang day. I see it as a virtual book shelf on which I can shelve my titles and bring them front and center into the buying public’s attention at my leisure. I have colleagues who signed with reputable on-line publishers simply because they wanted the cachet or affirmation that he or she could write. Sales of those titles don’t come close to sales they gather with ebooks. They have no control of pricing and no control of promotion–which is nil by the publisher. I have my fav trad pubbed authors as do you, but I am not paying above 4.99 for an ebook. I did so only once. Never again. $12 is my limit for a trade pback. What savvy indie authors do, is market their books in the climate available. I, too noticed more activity in the market by trad publishers in what I used to term the fallow months. Or farmer planting and harvest months. Great post. I’ve read it twice. You really thought it out.
    Jackie Weger
    Setting Up House

  17. Pam Stucky says:

    Great post with lots of data and stats to back it up. Thank you! It’ll definitely be interesting to see how this all plays out. I envision a future where writers, agents, and publishers all still exist, but writers are pilots rather than pawns. Okay, “pilots” isn’t exactly the word I wanted, but I was dead set on some alliteration there. Anyway, thanks again!

  18. This column caused me to go check on my first trad published book – one that I got a very good advance for 11 years ago and pretty much figure I’ll never see another penny from.

    The ebook on this decade old book is set at $10.58. Not even a standard price. And close enough to 9.99 to spit, which I’m sure is part of it’s job.

    I wrote my editor a note asking what gives. I also sent this article to a newly published friend whose ebook is selling at 11.99.

    Thanks for doing this research, Kris.

    Thorn

  19. T.A. says:

    Excellent, well thought out post.

    There is one thing you’re assuming, that I’m not sure is true. You said, “When publishers returned to Agency Pricing, they had to agree to the same ebook royalty schedule that indies have.”

    Nobody knows the terms they agreed on. At one point during the negotiations, when the negotiations were stalled and the publishers were accusing Amazon of deliberately harming writers, Amazon posted on its blog that at any time the publishers were free to agree to the terms offered through KDP. Some of the hints dropped on both sides indicated to me that one of the sticking points in the negotiation was whether Amazon would offer “incentives” to the publishers for offering lower prices. In the end, there were obviously incentives in place, but I’m not sure we can conclude that the pay structure is the same as for Indies.

    • That’s true, T.A. I don’t know what the Trad Pub terms are. But enough of them have leaked out that I’m reasonably certain that they’re following the same structure as KDP. Also, I’m not entirely sure on that deep discount for Amazon for all publishers, but I know it’s a deep discount for some of the Big 5 and the lower-tier down publishers (from royalty reports). Again, all I can rely on is anecdotal and leaked evidence.

      • davidelang says:

        It’s worth noting that when Baen started selling on Amazon, they were required by Amazon to make some changes, which included increasing the prices of their books from what they had been selling for on the Baen store.

        Toni (who heads Baen, and Jim before her) had said repeatedly that they would have been willing to accept the 30% cut for the increased visibility/sales that Amazon would have gotten. So I don’t quite believe the “publishers could just use KDP” argument. Something else prevented Baen from being able to get the KDP terms.

      • I’d be happy to comment on a royalty statement if you wanted to share one. My comments are regarding larger publishers. I can’t imagine a single big 5 publisher claiming Amazon is a deep discount account though. Our deep discounts begin at 60% I believe in our contracts and there are no traditional accounts sold at deep discounts which would lower the royalty rate for authors.

        • Good to know that Kensington is doing this. Several other publishers are not. The deep discount percentages have been applied to most of the books sold–and 64%, not 60%, as the royalty rate. As I said in response to your other comments, the front list royalty statements I’m looking at are not mine. I’ll see if I can get permission to share with you.

    • davidelang says:

      Amazon was not “deliberately harming writers” Amaon was continuing to sell the writers books without a contract in place permitting them to do so. I’m pretty sure that legally they were on thin ice to do so. At the very least, they were selling something that they didn’t know for sure that they could deliver. Removing the preorder buttons was eliminating the longer-term (and therefor riskier promises). The slow shipping wasn’t Amazon slowing anything down, it was not having books in their warehouse (again the pesky issue of not having a contract to sell the books)

      Amazon offered multiple times to contribute to a fund to go to writers who were hurt during the stalled negotiations.

    • The comment about not knowing the publisher’s terms on Agency is correct and I do not believe that publishers follow the same discount rules as KDP authors. I believe the discounts are the same no matter the ebook price but you’ll need someone to comment who is an Agency publisher.

  20. jrmurdock says:

    It makes me really sad as I have seen many debut authors with ebooks priced from $18.99 to $21.99. I would never pay that price. I wouldn’t pay $14.99 for the latest Stephen King eBook.

    I am sure there are some people they are paying these prices, but as people find out there are so many books for so much less, trad pub will find it harder and harder to justify their pricing.

    I doubt I am alone, but right now I read ebooks exclusively. So if an eBook is priced too high, I do not buy the print book. I just don’t buy that book at all. I would rather purchase 5-10 new ebooks rather than 1.

    • Diane Boyle says:

      I also only read ebooks. I won’t pay more than $9.99 for a new release. If I think the price is too high, I check the library. More often than not, my library has the book. Then I just get on the waiting list and download it when I get the email that it’s my turn.

      I’m also amazed by some of the prices publishers have set for ebook copies of books that have been out for awhile. The ebook for a PD James book out since 1963 is going for over $11 while one can get it used for one cent plus $3.99 shipping and handling. If my library didn’t have it and I really really wanted to read it, I’d buy the used copy. It just doesn’t make sense.

      • A.Beth says:

        Yeah, the lack of dropping the price is what makes me, as a reader, resentful. I have paid $15 for an e-ARC from Baen, and thought it fair for “Impatience Tax.” But if I hadn’t had that, or hadn’t been that impatient, then I could’ve waited for the paperback.

        But it seems like a lot of publishers just list ebooks of old books at brand-new prices and never lower them. And unless my kid gets obsessed over an author I agree is good (she pretty much won’t read anything that’s not on her phone, so iBooks it is, so we can Family-share trivially)… Well, I won’t buy new-price ebooks when I already own the slowly-growing-more-fragile old book.

        So far, only Terry Pratchett (and his estate) have benefitted from my kid obsessing over a series/author. That’s a high hurdle, publishers. A very high hurdle.

      • I experienced this recently when seeking out books by as-yet-unread-by-me (no-longer-living) authors Dunnett and Heyer. I really wanted the ebooks. But they were at least 5 times the cost for what I could get some of the books used. I hated doing it, but I bought the used books. Some of Heyer’s books have been out for nearly 80 years. Sheesh.

        • I agree that the cost of Georgette Heyer’s ebooks are ridiculous. As near as I can tell, they’re all on Scribd, so I’m getting my money’s worth with hers and Bernard Cornwell’s backlist. 🙂

          • Over the last 18 months, I’ve seen ebook titles by Heyer go on sale – just one at a time – for $2.99. I’ve snapped them up each time. I think I have all except 3 of the regencies, but I haven’t seen any sales for a while now. But I’m not in a hurry. Crossing my fingers that The Foundling, Friday’s Child, or Cousin Kate will go on sale at some point. As I type this, The Reluctant Widow IS on sale – for $1.99. Go snap it up, if you haven’t yet!

            I see that the ebook Heyer mysteries have all increased in price since I last looked. They used to be priced at $5.99. Now they are all listed at $9.99.

  21. john zemler says:

    Hello Kris,
    Thank you for taking the time to break this all out for us.
    I, too, read the Shatzkin piece and was surprised at the dose of realism its author seems to have absorbed about the affects of agency pricing.
    btw: This morning I just bought the Women in SF collection at Story Bundle. Thanks for putting that together.
    Semper Pax, John

  22. I had a similar wtf moment when I pre-ordered Felicia Day’s new memoir. I wasn’t willing to plunk down 15 bucks for an ebook, but I felt okay about dishing out twice that for my own hardcover copy. When I went to the Amazon page, turned I was right about the ebook price but the hardcover was only $2-3 more. Compared that to the other retailers I was willing to buy from, and all had similar prices.

    I too feel a tad guilty, because I’ve got a bad feeling Ms Day could’ve made more money on my one sale, but impossible to know that without asking her about her contract terms (won’t happen).

    I’m so happy I came into this business at the right time. I had to learn how to write queries, etc, but also got to see the indie gold rush with a skeptic’s eye. Now I work for myself and I can skip the corporate politics for the most part.

    Thanks for your insights… you have the quirky skill of seeing things others don’t.

    • On printed books the author gets paid based on the list price of the book; not the discounted price that a retailer might be selling it for. So even though an account might sell the $28.00 book for $14.00, the author is still receiving their royalty based on the $28.00 list price.

      • Yes, but the amount the author is receiving is based on the discount schedule. So if the book is selling at full retail, the discount schedule does not apply. The author receives at minimum a 10% royalty of the list price. If the book starts selling at discounted prices, then the royalty rate goes down. Yes, the royalty rate is still based on list price, but that royalty rate goes from 10% to 8% to 5% to 2.5% to 1% to zero if the book is sold through a discount channel.

        We as readers cannot know if the book was sold to the retailer through a discount channel or at normal wholesale prices. I probably should have said that above.

        But if the royalty statements we’re seeing are any indication, the discount clause is being applied almost all the time, at least through the royalty statements I’m seeing from 3 of the Big 5 (and from some smaller publishers). And I should add that the royalty statements I’m seeing aren’t just mine. I initially thought I was getting deep discount rates because the books are backlist, but writers are showing me frontlist royalty statements with the same kind of deep discount present. Books that should have earned out, haven’t because of the application of deep discount royalty rates.

        • With a printed book, the royalty rate is based on the list price of the book at no matter what price the book is sold at retail. So the author’s earnings are not being reduced. The exception would be a deep discounted sale which is the exception to the rule and there aren’t any major accounts that should be considered a deep discount account. So even though you may see the hardcover for 14.00, the writer is still being paid based on the 28.00 list price. Again, the amount of books sold at deep discount is very small and it would be to a special sales account or non-returnable account. These are not the normal sales that publishers make and this is not happening with Amazon.

          • Yes, I know. I think we’re saying the same thing, but not communicating with each other. The discount royalty rates are being applied. I know that discount royalty rates are on the full list price of the book only if the book is sold through a deep discount channel.

            However, what I’m seeing is this: 80-90% of the books sold on these front list titles are being reported to the author as deep discount, and so the discount schedule kicks in.

            One author statement which I have next to my computer reads like this:

            Units sold: x
            Value sold: y (this is the actual monies received)
            Pricing: Retail
            Discount: 64%
            Royalty Percent: 4%
            Royalty Earned: 4% (of list price)

            When I do the math on units sold, they account for most of the royalties reported. Now I realize a lot of this is dependent on the author’s contract, discount schedule, and things the author agreed to. But this is a front list book. And most of the royalties of a front list title should not be sold at a 64% discount.

            So where are these books being sold? What is a discount channel that big to encompass 80-90% of front list? Am I missing it?

            • Initially had one incorrect parenthesis. Just fixed it.

            • If you could post the royalty statement and black out the title and author I would be able to comment on it. Otherwise it would just be speculation. Is it possible these books were remaindered and the publisher paid a small royalty on the remainder sale? The frontlist book should absolutely not have big deep discounted numbers. Something is wrong. If I were the author, they should call their agent or if they didn’t have one, their editor or royalty manager at the publisher and ask for an explanation. The publisher should explain the numbers without a question. I can’t fathom any channel being 80% of the frontlist business. Doesn’t make sense at all.

              • Thanks, Steve. It makes no sense to me either. And it’s not just one author. I’m looking at a number of these.

                I agree. Writers should be contacting their publishers for explanations. Something is Not Good.

                As I said, I’ve got e-mail in to these authors to see if they’ll let me post with material blacked out.

                • ecw0647 says:

                  Is it possible the deep-discounted prices are those to distributors like Baker and Taylor and Ingram, etc. I know before I retired, when I was buying books for my academic library, our library system had negotiate a discount of 45-50% on trade books from Baker and Taylor. In order for B&T to make any money they would have to get a discount from the publisher of at least 60% I would think. Why Amazon would not get the same deal as B&T considering the volume of books they move surprises me.

              • Steve,

                Just heard from a couple of readers. I privately e-mailed you on some of this. One reader mentioned that Amazon was getting a 53% discount from the company then known as Penguin/Putnam. The information was in the Justice Department documents for the case against Apple and the publishers. Apparently, this information is available on PACE. I have not yet looked.

                Another reader sent me this link from Agent Kristin Nelson’s blog on royalty statements: http://nelsonagency.com/2015/07/guest-post-by-angie-hodapp-authors-do-you-know-where-your-money-is/

                Here’s the pertinent quote:

                “Unpaid royalties of approximately $7,300 because the publisher sold nearly 6,500 copies of a $17.99 hardcover edition at “high discount,” even though Agent Kristin had ensured that the author’s contract limited the number of copies the publisher was allowed to sell at high discount. ”

                From what I’m seeing and hearing, this is happening more and more. I guess it’s easier for big companies to say I’m sorry to a handful of authors who actually monitor their royalty statements than it is to get it right in the first place.

                Still working on the front list royalty statements.

          • ecw0647 says:

            Steve: “On printed books the author gets paid based on the list price of the book; not the discounted price that a retailer might be selling it for. So even though an account might sell the $28.00 book for $14.00, the author is still receiving their royalty based on the $28.00 list price.”

            I find this astonishing for it means that your company is paying royalties on an amount that is rarely collected rather than on net income to your company. You don’t sell books to retailers at list price (somewhat of a fiction anyway), you sell them at a discount. That’s your income.

            If you contract with an author for a 10% royalty on $28.00 he’s getting $2.80 no matter what your income might be. So if you had a fire sale and sold all of his books for $5.00 to some large retailer you’d be screwing yourself. Your income would be $2.20 while the author would get $2.80. I suspect most publishers are paying royalties based on income, certainly not on list price which they would get only if they are selling direct to the consumer.

            • ecw0647, you’re missing something. In addition to the straight royalty rate, every contract (these days) between a writer and publisher has a discount schedule. So if the book is sold at deep discount, then the writer gets a smaller royalty. So if the book is deep discounted at $5.00 through a deep discount account, the royalty will probably be 4%. When the discount markets came into being, the publishers had to make the change for the reason you cite.

  23. Vera Soroka says:

    Very insightful post. I wish they the BPH would look at themselves and how they treat authors but I don’t see it happening. Prices here in Canada are very expensive for hardcover. That’s why I go on line if I want one. It’s cheaper through their on line store than the physical one. The ebooks can be very expensive as well but I am seeing some sales here and there. I even seen a serial being offered by one of my favorite authors and the first installment was .99 cents. That was different. They are adopting or trying some indie things. But overall they got a long way to go.

    • The market in Canada is definitely difficult for publishers with the changing exchange rates. I know we generally print tradepaper editions of hardcover books exclusively for Canada so that the books are more reasonably priced there.

  24. Bob Mayer says:

    Interesting. Many things I thought would happen three years ago are finally happening. Last year publishers got complacent– record profits off eBook sales, etc. But trad authors are wising up. The next three years will see massive changes, not the status quo most in the industry expect.

  25. Chong Go says:

    Wow, I had no idea the deep discount clause was being applied to Amazon sales. That’s going to be ugly. 🙁
    On a bit cheerier news, I just got the “Women in SciFi” bundle! There’s some great-looking books there that I’d never heard of. I’m looking forward to getting into those once I finish Jean Johnson’s “A Soldier’s Duty” series; I just can’t believe there’s people out there who think women can’t/don’t write scifi!

  26. Gnondpom says:

    The situation is still very different in other countries. For instance in France there is a law saying that book prices have to be decided by the publisher and not the seller, so that kind of war between publisher and seller can’t happen. But the result is that ebooks in French have always been priced way too high: usually the publisher only gives a 20% discount from the hardcover price (which also means that sometimes the ebook is even more expensive than the mass paperback edition – but I digress).

    And exactly like you said, traditional publishers don’t know much about how to sell ebooks, and like you would probably have guessed, ebooks in French don’t sell well in France. Consumers still prefer to buy real books (I mean, if the price is almost the same or even cheaper, why buy an ebook, with all the restrictions about lending it for instance?). Or like with the music industry, some people just get ebooks through other non-legal means. In which case the author does not get any money at all.

    And indie ebooks are not very popular yet in France. But I guess that will probably be the next evolution in the market, just like ebooks in English-speaking countries. At the very least I noticed that Amazon.fr is trying to promote the Amazon KDP platform, like I guess they also do everywhere else. They do have a sense of the market, if readers can get indie ebooks at a fraction of the price of traditionally published ebooks, it seems that this market has quite a high potential!

    • Barbara Miller says:

      Quite a long time ago, I think in the 1980s, an agent brought and won a suit regarding the deep discount clause. The gist of it was that no books sold through ordinary book selling channels (regardless of price) could use the deep discount price to lower author royalties. This I think is what Steven Zacharius has been saying, earlier. Someone with a dog in this fight (presumably an agency) should track down this case and use it as a precedent if what Kris is saying here is actually happening. I truly apologize that I can’t recall the details–I was only peripherally connected. I believe the publisher may have been Wiley.

      • Thanks, Barbara. It is definitely worth checking, particularly since it seems like agents are asking more and more publishers to revisit some of these royalty statements that list a lot of deep discounting.

        • jrmurdock says:

          If authors feel they’re getting the raw end of the deal, they should file a class action lawsuit, band together, and hire a forensic accountant to go in and find out what has really been going on.

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