Monday, May 26, 2014

Amazon's Hachette Dispute Foreshadows What's Next for Indie Authors

Amazon and Hachette Book Group are locked in an epic battle over the future of ebook publishing.

The outcome of this dispute will have permanent ramifications for publishers and indie authors alike.

On one side you have Hachette, the fourth largest trade book publisher.  Hachette earns over 1/3 of its US sales from ebooks.  Hachette wants agency terms for its books.  Hachette wants to control the list price of its books and earn 70% list from each sale.  Smashwords announced agency terms with our retail partners in 2010.

On the other side is Amazon, a fierce opponent to agency pricing.  Amazon wants the ability to discount books, and to enable greater discounting Amazon wants a larger percentage of the publisher's pie.  A story out Friday by Jeffrey Trachtenburg of the Wall Street Journal confirms Amazon is seeking to reduce the percentage paid to publishers.  Amazon is seeking to weaken or abolish the agency model.

This is also the view of Andrew Albanese of Publishers Weekly, who in his March 16 story, Will the Agency Model Survive? speculated that the future of agency hangs in the balance.  As Albanese writes in his piece, the timing of the Amazon/Hachette dispute is not coincidental.
One likely reason (for the current timing of the dispute) is that when the publishers' 2012 consent decrees in the e-book price-fixing case begin to expire this fall, so too will Amazon’s ability to discount e-books. The parties don't comment on specific negotiations (and neither Hachette or Amazon will comment directly on the current dispute or ongoing talks). But it is fair to say that Amazon officials likely see the current negotiations as their best chance to push for the end of agency pricing for e-books, and are apparently prepared to bring to bear all the pressure they can on publishers—whether on the Kindle side, or print. The question is, will the major publishers stick together to keep agency pricing for e-books?
The dispute is generating some spectacular fireworks.  It's also confirming the suspicions of Amazon's worst critics.  In an attempt to force Hachette to capitulate, Amazon is employing a shock and awe campaign of scorched earth retribution against Hachette.  According to multiple press reports, Amazon has increased Hachette's book prices to its customers then turned its automated merchandising algorithms into attack dogs that encourage customers to consider "similar items at a lower price"; Amazon is telling customers Hachette print books are out of stock; and is denying Hachette the ability to list preorders.  For a company that prides itself in customer service, these are all customer-unfriendly moves.  These actions also punish Hachette authors, who through no fault of their own will suffer reduced sales at Amazon.

For the last four years, indie ebook authors have endured similar iron-fisted policy enforcement and lost earnings with Amazon's KDP price-matching, even when Amazon knew the out-of-sync ebook prices were not the author's intention or fault.  Amazon plays business like war.  Overwhelming force pushes weak hands to surrender and comply. 

In a letter written to Amazon by the Association of Author's Representatives (AAR), a trade group representing literary agents, AAR likened Amazon's tactics to hostage-taking and extortion.

Amazon defenders (and critics too) and will say business is business, and if you want to play in the Amazon sandbox - the world's largest ebook store - you have to play by their rules.  The Amazon defenders are correct.  Amazon is under no obligation to carry Hachette's books under the terms Hachette wants. Amazon is under no obligation to play nice.

The industry can cry until it's blue in the face about how Amazon is ruthless and heavy-handed, and how other retailers are kinder and gentler. The truth of the argument doesn't change the reality.  Amazon does what it does because it can, because authors and publishers let them do it, and because it's in Amazon's nature to act this way.  Lions eat wildebeest.

For its part, Hachette is sending letters to agents and authors asking for their patience and support.  In their May 23 letter, Hachette wrote:

Please know that we are doing everything in our power to find a solution to this difficult situation, one that best serves our authors and their work, and that preserves our ability to survive and thrive as a strong and author-centric publishing company.

Amazon is playing a game of divide and conquer.  Amazon knows if they weaken or cancel their agency agreement with Hachette that the other publishers will have less leverage to hold the line on agency.  And whatever concessions Amazon gets, other retailers will want the same, further undermining the ability of publishers to control their prices or maintain their profits.

Amazon's tactics hit Hachette in two places where it hurts:
  1. Author confidence - The dispute will undermine literary agent and author confidence that Hachette can deliver books to Amazon.  This will cause some agents and authors to think twice before selling upcoming projects to Hachette.  
  2. Profitability - Amazon knows that if they if they can make Hachette the first domino to fall in their anti-agency crusade, it's more likely to force other publishers to abandon it as well.  Once agency is eliminated, ebooks will become less profitable to publishers, which then marginalizes publishers by weakening their strategic power in the marketplace.  With lower margins, publishers will have less flexibility to increase ebook royalty rates to authors at at time when their authors are clamoring for higher royalties.  This would thereby compel more authors to self-publish directly with Amazon, which benefits Amazon.  

Publishers deserve much of the blame for making their ebook margins such an appetizing target for Amazon.  Amazon's assault on their margins should come as no surprise.  In 2012, Adam Lashinsky of Fortune Magazine wrote that a favorite Jeff Bezos aphorism is "Your margin is my opportunity."  Publishers have been complaining about Amazon for years yet still supplied them the books that created Amazon. 

Publishers have been reporting healthy earnings in recent months, driven in large part by high-margin ebook sales.  Publishers pay authors only 25% of net ebook proceeds, whereas indie authors earn 85-100% of net proceeds.  In other words, publishers made themselves a target for a company whose very DNA is programmed to strip suppliers (publishers) of their margin.

From a PR perspective, Amazon can cast their move as taking from the greedy publishers to provide customers lower prices.  But in the end, they're really taking from authors.

Hachette faces a dilemma.  They face the lose/lose decision of either giving that margin to Amazon, or choosing to kiss its Amazon relationship goodbye.  It would be painful for publishers to say goodbye to Amazon.  Amazon controls approximately 1/3 of the overall trade book market in the US, and up to 50-60% of the ebook market.

In 2010, publishers presented Amazon with a unified front by simultaneously demanding agency pricing terms.  This forced Amazon to capituate and accept agency pricing.  It was a different world back then. Amazon's nascent Kindle ebook business needed the books of big publishers.  The bitter aftertaste has never left Amazon's mouth.

The publishers viewed agency as a better model.  The US DoJ viewed the united front as collusion.   

In 2014, publishers are more disposable to Amazon than they once were, thanks in part to the rise of indie authorship, and thanks also to better business diversification.  Amazon's business is no longer as dependent upon books as it once was.  They sell everything under the sun, from diapers to shoes to cloud services to groceries to media devices.

Books represent only one of hundreds of layers of icing on the cake of Amazon.  Amazon can lose money on books while still operating a profitable business.

Pure-play book retailers - Kobo and Barnes & Noble for example, must earn money from book sales.  Unlike Amazon, they don't have the financial resources to sell books at a loss forever.  Publishers must also earn money from book sales, otherwise they can't keep the lights on.

If Amazon can abolish agency pricing it will have the power to put its largest pure-play book retailing competitors out of business.  This will make the publishers even more dependent upon Amazon, which further weakens their power.

How can Hachette get out of this mess?  None of its options are good.  Amazon holds the strongest hand in this high-stakes poker match.

The boldest option is for Hachette to play the nuclear card: they can withdraw all their books from Amazon.  Hachette could direct readers to more publisher-friendly platforms and stores.  Hachette could also make a more concerted effort to develop new channels of distribution.  Curiously, neither Hachette nor any other major NY publisher has ever attempted to sell their books in the Smashwords ebook store, despite the fact that Smashwords pays up to 80% list.  Publisher insistence on DRM is one of several factors that has locked them into Amazon and locked them out of new outlets.  Most of the publishers are also refusing to work with the new ebook subscription services, or have treated libraries as second-class citizens, even though these two channels provide yet another healthy counterbalance to a single retailer's dominance.

It's uncertain if Hachette or other publishers could survive if they abandon Amazon.  Would authors and literary agents continue to support them if their books didn't reach Amazon?

The window of opportunity for such a bold move is closing quickly.  Within the next several years, ebooks as a percentage of the overall book market will increase as print declines.  Within a few years, Amazon's sales of indie-supplied ebooks will probably exceed sales of publisher-supplied books.  This means the leverage publishers hold over Amazon will diminish each year. 

The other alternative is for Hachette to capitulate to Amazon, which is akin to Hachette accepting a long term death sentence.  Amazon views publishers as unnecessary intermediaries.  Amazon works to disintermediate the intermediaries so it can control the relationship with the creators (authors) and the customers.

The other Big 5 publishers might do well to play their nuclear cards before it's too late.

If the big publishers capitulate and abandon agency, the other retailers, in order to remain competitive, will be forced to abandon their agency agreements with the publishers as well, otherwise Amazon would have the ability to underprice them. And then the pure-play book retailers would fall.

Are Indie Authors Next in the Crosshairs?

The dispute with Hachette foreshadows what comes next for indie ebook authors at Amazon who have grown comfortable to KDP's 70% royalty rates.

Think about my divide and conquer reference above.  Indies are already divided and conquered at Amazon, but most don't realize this.  These indies all have direct-upload relationships with Amazon.  They don't have the collective bargaining power of a large publisher to advocate on their behalf.  As the unfolding events indicate, it's questionable if even a large publisher has leverage over Amazon.

If Hachette doesn't have the power to maintain 70% earnings, how will million-copy-selling New York Times bestselling indie authors have any power when Amazon decides to put the squeeze on them?   And how about the rest of the indie community which has even less leverage over Amazon?

How long until Amazon puts on the squeeze?  The squeeze may already have started.  In February, Amazon gutted the royalty rates they pay for audiobooks, as Laura Hazard Owen reported at GigaOm in her story, Amazon-owned Audible lowers royalty rates on self-published audiobooks.  Previously, authors earned up to 90% list.  Under the new terms, authors earn from 25% to 40% list. Amazon can do this because they dominate audiobooks.

At any time, Amazon could choose to eliminate the 70% royalty option at KDP.  They could offer the same terms as their Audible division: 25% list if you're non-exclusive, and 40% list if you're exclusive. 

If Amazon tightens the screws, indies will face the same painful decision Hachette now faces.  Either swallow the bitter pill, or remove your books from Amazon. .

Most indies would probably choose to accept lower royalties at Amazon under the logic that something is better than nothing. As individuals, indies have little leverage against Amazon.

Most vulnerable to any change in policy at Amazon are the indie authors who supply approximately 500,000 ebooks to Amazon's KDP Select program.

Advice to Indie Authors: Four Steps to Improve your Independence

Is it really necessary that retailers and publishers should view one another as war-like adversaries, or as predator and prey?  I don't think so.  At Smashwords, we serve our authors by serving our retailers.  We help our retail partners efficiently receive, ingest and sell our authors' books.  By opening up new retail and library channels, we support our authors.  We think our new channels help our retailers too, because each new channel we open is a reminder that exclusivity is bad for publishing.  What leverage we do have we apply to negotiating fair and equitable agreements that are win/wins for our authors and retailers. We want our retail partners to profit from our books, because if they don't profit it's not a long-term sustainable relationship.  We believe the 70/30 agency split provides retailers a fair profit.  I've always believed that partnership and cooperation are preferable to war.

As an indie author, it's important you understand that you're the future of publishing.  Your choices matter.  Your decisions will shape not only your future but the future for all indies.  Your decisions will shape how retailers treat you.  Independence is earned - it's not something you can take for granted.  Here are four tips to preserve your independence:
  1. Choose your partners carefully.  In the Indie Author Manifesto I wrote that indie authors should seek business relationships marked by partnership, fairness, equity and mutually aligned interests.
  2. Favor retail partners that support the agency model.  Agency puts authors and publishers in control and frees retailers to compete against one another based on customer experience rather than cut-throat price wars.  The agency model enables lower customer prices because more of the money goes to the author/publisher rather than the retailer.  Indies have used agency to lower ebooks prices while publishers made the mistake of using agency to raise prices.  Agency establishes a framework by which authors and retailers can work in partnership rather than as predator and prey.
  3. Avoid exclusivity.  Exclusivity makes you dependent upon a single retailer.  Work for independence, the opposite of dependence.  Diversify your income stream by distributing everywhere.  Every retailer reaches new readers you otherwise won't reach.  Each retailer, and each store they operate in each country, represents it's own unique micro-market of readers.  It can take years to develop readership, so maintain a strong and steady course of uninterrupted full distribution.  This is similar advice I gave gave in 2011 when I cautioned authors to steer clear of Amazon's KDP Select option. 
  4. Support a vibrant ecosystem of multiple competing retailers.  On your website and in your promotions, provide direct links to your books at each retail partner.  Give your fans choice.  Choice makes your books more accessible to readers.
Good luck!

50 comments:

  1. Many, many thanks Mark. It's great to get an insider perspective.

    I'd stress an important fact. If Amazon can:

    1. End agency pricing.

    2. Force authors to not sell cheaply elsewhere ('most favored nation' clauses).

    3. Pay authors roughly half the royalties of other ebook retailers.

    Then Amazon can slash retail prices, still maintain profits and drive almost everyone but deep-pocketed Apple from the ebook market.

    It'll also screw up writing as a way to make a living, not that Amazon cares.

    --Michael W. Perry, co-author of Lily's Ride: Rescuing her Father from the Ku Klux Klan

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  2. The only reason Amazon can play the game this way is because everyone is so dependent upon Amazon.

    But if, as you say near the end, we start listing out books on other sites as well, this increases competition for Amazon, which will then have to make sure it remains competitive with others.

    So thanks, Smashwords, for being one of these other sites!

    Of course, what if Amazon buys out Smashwords....?!?

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  3. Ha! Jeremy, that's not going to happen. :) We're not for sale. Also, they'd have no reason to buy us other than to shut us down (like they did with Stanza). I wouldn't leave our authors and retailers in a lurch like that. I want to empower Amazon's competitors to compete, and we're just getting started on that front.

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  4. Thanks for expounding upon our part in this, Mark! Most journals and blogs reporting this story have, of course, been looking at it purely from the point of view of publishing houses, so it's good to see it broken down for our benefit, too.

    To be honest I have been so disgusted with Amazon that for three years now I've not bought from them, because it's the only vote we really have. Next month I'm putting ALL of my titles on every outlet that Smashwords offers and I'm already planning to discourage my readers from Amazon in favour of stores with a better attitude towards the industry. But seriously, at this stage, I'm tempted to refuse to sell through Amazon altogether - I'm not making such a fortune from them that it'll make much difference to me. If they try to put the squeezers on us Re: royalty rates then I'll definitely go. But a part of me wants to go before being forced out, if you get what I mean. Even if it's cutting my nose off to spite my face, it's not in my nature to capitulate.

    I recently saw a quote in regard to the elections in the UK, where somebody said that "Abstaining is only a vote for the eventual winner". Although it's impossible that such a thing could happen at this stage, I wonder what would happen if every Indie author "abstained" from casting their lot in with Amazon. Maybe in a book, lol.

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  5. Very important, extremely well done post Mark, thank you! Have shared via many avenues.

    Not to diminish iTunes and Barnes & Noble's and other's importance, I'm so very glad we now have OverDrive up along with Scribd and Oyster.

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  6. Fabulous as always Mark- I put the word out linking to this important article.

    I think it's important to note, the judge slapped the Big Pubs hard in that decision, and Hachette is up first, I understand, because the judge ordered them to go in staggered order. In a way, that's all. And it's unlikely they'll all get away with any kind of coordinated action, except Mark's nuclear one I suppose. Seems very unlikely, so the prospects seem grim indeed.
    My only guess on a fight-back strategy would be niche-oriented: retail outlets that specialize in say romance, or horror etc. and establish a rep for unparalleled quality as well as low price. As long as the target is big enough, the Zon will shoot at it.

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  7. Seems to me that if Amazon tries putting the squeeze on indies, they'll eventually cut themselves out of the indie market, so long as we have Smashwords and the multiple distribution channels Smashwords offers. Mark, you have always been the counterbalance to the Goliath that is Amazon. I think Hachette's (and other publishers) best move would be to abandon DRM and come aboard the Smashwords train. Maybe then Amazon KDP Select authors and others would do the same. It's not over yet.

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  8. Hi Carrie, for the last six years I've always advocated that every indie author should have every one of their books at Amazon, even though Amazon hasn't reciprocated the sentiment. I encourage people to distribute with Amazon but avoid the Select option.

    They've oriented their entire strategy around exclusivity which is good for them but ultimately bad for everyone else.

    A lot of newbie authors who upload first to Amazon don't even know they have the freedom to distribute elsewhere. I've lost track of the number of times writers have come up to me at writers conferences surprised to learn they can publish at Amazon AND at other retailers. Even though they willingly opted in to Select, they feel trapped and sometimes even duped. I think part of the reason for this confusion is that Amazon makes a person's KDP account look incomplete until they've opted in to KDP Select exclusivity. If you want 70% in India or Brazil, they remind you you need to be in Select. They dangle their shiniest bells and whistles to encourage you to opt in, and then after you're in they send threatening emails if you don't comply 100%.

    You're considering a bold move. If enough indies avoided their store, they'd be less likely to put on a squeeze. But it's not a move I'm advocating at this point. For now, they pay 70% in most markets for $2.99-$9.99 price points, and they help you reach a lot of readers.

    But for authors who do it on principle alone, it all starts there.

    My final word of caution would be that we don't yet know what Hachette is trying to negotiate for (and they'd do their case well if they revealed this). Until that's known, it's difficult to fully understand which if any side is being unreasonable.

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  9. I have over a dozen books published but the lure of KDP select caught me in the web and I moved ONE book there to test the waters. Within a few weeks slow sales reporting by Smashwords sellers showed the mistake I had made when 134 sales showed up from India on the book I had just pulled from Distro at Smashwords. Of course I don't want to blame myself for the stupid decision I made, so I've blamed the sellers for snail paced sales reports. So within the war Mark has so well described for us, lies a minor flaw (fast reports from sales) that needs fixing fast if we are to pull more Indy authors into the world we know.
    Charles Wells

    https://www.smashwords.com/profile/view/ChasW

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  10. All great points here. I've long recognized that Amazon wants to treat its suppliers the way Walmart does. Drive down price and quality until only the retailer makes money and the rest can rot in the street.

    The only reason Amazon raised indie ebook royalties to 70% was because other stores like apple and B&N entered the market. Amazon started out by offering 35% which I thought was insulting for digital. I'm sure the company can't wait to get back to that.

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  11. Here's a question... if Amazon is deceptively shooing customers away from Hatchette offerings -- how is that not 1) fraud with regard to their agreement with Hatchette (they must have one somewhere) and 2) deceptive marketing to the public??

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  12. The elimination of distributors like Smashwords is possible if Amazon ends 'agency pricing' method and introduces 20-40% royalty rates.

    Other retailers will eventually follow suit and indie authors everywhere will feel the pinch of depleted profits. Distributors like Smashwords will eventually die as expenses exceed profits, or struggle along in a death-row existence of low 4-figure profits.

    It is in the best interest of indie authors to support companies adhering to 'agency pricing' model.

    Indie authors everywhere should thank Mark and Smashwords for trying to keep the 'agency pricing' model alive.

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  13. Such smart writers follow you, Mark. Well done, everyone.

    What did we learn in second grade? Don't put all your eggs in one basket.

    I don't think this lesson has changed, do you?

    Love your writing life, that's the first order of business. Stay diversified. Write great books. Support your local indie author community. Write great books. Take good care of your readers. Write great books. Anything else? Oh yes, write great books.

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  14. Thanks Mark, for spelling it out so clearly for everyone.

    I have always disliked retailers that have such a large hold on any one market. Convincing buyers to elsewhere will be a trick and take time, but I can be done, if we all stick together.

    I would guess the agency model is slowly on it's way out, but what will replace it is anyone's guess!

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  15. Like many indie authors with ebooks at "the world's largest market," ebook sales has been flat for the last several years. Many who signed away their souls for Select are regretting that their don't have an alternative revenue stream by publishing on Smashwords. Since this hissy-fit between Amazon and Hachette started, my Amazon sales has increased by 400%.

    I'm hoping this is the result of making the categories consistent for all my Amazon ebooks and/or favorable attention from several blog posts by an author with a bigger fan base who likes my work. Probably both.

    What I hope it isn't is Amazon tweaking their search algorithm to make my ebooks more visible than before to score brownie points against Hachette.

    My royalty rate with Amazon is 35% and not 70%. The 35% rate has a no restrictions because Amazon is taking money from the author. The 70% rate has restrictions because the author is taking money from Amazon. Since I love freedom and make more money with Smashwords, I settled for the lower royalty rate with Amazon.

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  16. Mark, thanks for your statements toward the end of your article, which refer to adding links of my retailers to my web site. I had not thought this through all the way, and did not put retailer links on my site, thinking I "had to" (as, was forced to)compete there. But, after reading your viewpoint, I can see that adding retailer links on my site helps them, which, in turn, helps me. A win-win solution that CAN be done to help the overall indie position.

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  17. If the other retailers want to encourage support from indie authors to encourage our readers to buy their books at -their- ebookstores and not at Amazon's, then they need to do a few things to encourage us to spend our scant advertising dollars directing traffic to their stores:

    1. Better real-time download stats so we know quickly what is working and what isn't (you are already working on this ... I can't wait until it goes global!) :-)

    2. Better searchability within their stores so we know how our books rank in relation to other books. This would not only help -us-, but also readers. I can't find my own books within ANY of the bookstores without doing a specific title/author search (not even when I scroll through all 300,000 books looking for my title). At Amazon, on the other hand, I can see when my 'feeder' title is dropping out of the top three landing pages and throw a quick advertisement at it in order to boost it back up in the algorithms to keep it visible to potential readers. A lot of us are pros ... tiny ... but pros ... tell us what you want us to do to keep visible and we'll do it because serendipity and good writing alone don't get you visible. You've got to know where to target that advertising money.

    3. I really -like- it as a reader that I can search for 'paranormal / romance / angels' and pull up my book and dozens more like it. Why don't the other platforms do this? It's idiotic that most people I know do a book search on Amazon first to pick titles in this manner, and then have to go back to B&N or iTunes or Kobo to search specifically for the book they're interested in. Hello ... McFly .... financial suicide???

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  18. Thank you for writing this article, Mark. I'll be sharing it on Facebook.

    I stopped shopping at Amazon three years ago. Since then I've made two purchases in the Marketplace there because I literally had no other option for what I was after. And I looked all over the place before I swallowed my disgust and clicked add to cart.

    I've been saying for years Amazon is not the author's friend. Amazon is our enemy, because all they care about is owning the market. When KDP Select debuted I *knew* it was a bad idea. I own a Nook, and chose it specifically because it's not tied to Amazon. KDP Select books sometimes tempt me, but I don't buy them even though I have the ability to strip DRM and convert. It's the principal of it.

    I'm in the process of joining the ranks of indie author-dom and focusing on Kindle sales is NOT part of my plan. I want to build it elsewhere, and Kindle will probably be the last place I upload to.

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  19. Thanks, Mark for pointing out what I have known for years, and it is precisely why I returned to Smashwords for ebook distribution. I have been an indie published author for years, and my struggles with getting my books noticed on Amazon caused me to leave Amazon altogether. Yes, it is Amazon's sandbox, but I've got the ball and I took it home with me. I have seen many sock puppets defend Amazon, but its game strategy is indefensible. Amazon used the agency pricing model to attract more authors, and now it is doing both authors and readers a disservice. The only way is the nuclear option: pull your books from Amazon, and watch it scramble for its self-styled "customer-focused" hat.

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  20. At one time Amazon was the number one seller of my books. That position, however, has lately been taken over by Barnes & Noble. So yes - diversify!

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  21. Awesome article. Great info, I shared on my blog and added my own thoughts on the matter.

    For those who think this hasn't affected Indies yet, check your KDP account under Book Pricing. Amazon has started charging authors "delivery fees" for books in the 70% royalty bracket. Bet you won't see that in their newsletter.

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  22. Well that's certainly eye-opening. It seems to me that Hachette should
    > be reaching out right now and gathering support from other publishers
    > both large and small. Reverse the divide and destroy into a united
    > front. Despite the profits from all the other junk Amazon sells, the
    > loss of profits...any profits...never sit well with stockholders.
    > Personally, it doesn't matter to me if my books are on Amazon or not.
    > Yes, they control 1/3 of the market, but that means 2/3 is still open.
    > If Hachette and other publishers band together and take away the profits
    > from Amazon, then that 1/3 will dwindle away damned fast.
    > Anyway, I just hope everything stays good with you folks. You're the
    > best thing that ever happened to independent authors.
    > Ed Ireland

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  23. Thanks for your analysis, Mark. The war began even earlier. I noticed it with Draft2Digital where Amazon dumped them with no warning saying they did not approve of the D2D business model.

    Soon after, with no warning, Amazon began dumping smaller publishers with no warning, making the claim they were in violation of the KDP TOS when in fact no violations existed.

    Conversely, the TOS is written in a way that every author can be interpreted as violating it.

    Here is the crux of the deal. Thanks to Smashwords, the cat is out of the bag. Today, Smashwords, B&N, Amazon, and a couple of others are the only complete self-publishing platforms that exist, and of those, only Smashwords is instant.

    "In war, over time, technology loses value" is a maxim Sun Tsu would have written had he thought of it. Self-publishing websites with online ebook converters are going to explode into a widespread presence on the Internet within the next year. How do I know? Due to censorship issues, I've been working on one myself, and I know of several others who are doing the same.

    Any censorship and any attempt to control this market now will only hasten the number of online self publishing platforms that arise. The slowdown problem is not one of technology, rather it is one of merchant account credit card processing, an issue Smashwords is well aware of.

    Solutions exist here too for those willing to seek them out.

    Amazon cannot put my small publishing company out of business so long as I can program around any issues they create. The high technology of online ebook conversion is about to become commonplace. When this occurs, Amazon had better be careful it does not find itself having alienated everyone.

    Hmmm. I wonder if Hatchette would be interested in purchasing my already tested and working online ebook converter?

    Phaedrus T. Wolfe
    Lot's Cave Publishing

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  24. Hi,

    I like you Mark, but I can't help but feel that you're trying too hard to push this one. Not about Amazon vs Hachette - I'm sure that's going to be a blood in the water battle of the sharks. But about the effect of this battle on indies.

    Yes, Amazon could start lowering royalties, but I don't see them doing this any time soon. At least not until they are a true monopoly which should be a few more years away. (Had never heard of a monopsony before by the way - so good education there.)

    My guess is that they will start tinkering with them again in time, but mainly to increase sales - and sales require motivated authors. Squeeze the indies too hard and you'll start finding less books arriving, and perhaps though I hate to say it, a lowering of standards. After all if an editor costs thousands, cover design hundreds, and then there's promotion etc, and your income from each book gets cut in half, the economics of publishing start to shift. You'll start losing indie authors, and if someone down the road opens up a 70% royalty scheme in competition, you'll get more competition as well.

    On top of that while you're pushing the Agency model, lets be honest. Authors haven't done that well out of it - publishers have.

    But it'll be interesting to see who wins.

    Cheers, Greg

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  25. Ahh, the Indie life .. it ain't boring!

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  26. One thing that would help me in this discussion, is for someone with clout, a prominent blogger or such, to rename away from "agency" some term that would mean, definitively, favoring the independent author.

    Something catchy, something people would like to refer to, and something that always means in indie authors' best interests.

    Because, frankly, every time I hear "agency model," I don't know if I'm supposed to be in favor of it, or not!

    'Course, I'm a young senior, and could use that as an excuse, but really, do I need to? :-)

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  27. Thanks Mark, made the whole issue easy to understand in laymans terms, I have read other info on the matter and it was like wading through a legal book, the jargon was too much. thanks again for the clarity.

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  28. Mark, as usual you have delivered a thoughtful post on the shifting ebook landscape. Monopolies are harmful for everyone, but one thing that many observers have failed to acknowledge is how many erstwhile competitors have failed to get their ducks in a row.

    Apple is the one that bothers me the most. At one time Apple offered a superior e-reader experience, but the Kindle Fire has really changed the game. While Amazon continues to aggressively develop its hardware and software platforms, Apple makes incremental changes, the B&N/Nook platform seems to struggle, and Google has yet to find its footing. Smaller retailers without their own hardware have their own issues (as you noted in your post) and the subscription plans will only work if readers read in moderation.

    In summary, I think the current state of affairs not only is the result of Amazon's monopolistic ambitions, but the failure of the other platform players to provide more attractive alternatives in the marketplace.

    Ian Lamont
    Founder, In 30 Minutes guides

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  29. Excellent article! It will be quite interesting to see how this all plays out. I went with Amazon's KDP option and I did not benefit from it at all. Thanks, Mark, for keeping us in the know about these important topics.

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  30. In the wild, wild west that is the internet, new outlets will emerge for the direct selling of eBooks to buyers.

    eCommerce solutions continue to grow in accessibility and ease of use even as their cost comes down.

    Cooperatives are springing up all over the place - primarily between indie authors for now, but how far behind can it be for publishers, particularly small presses? (I ask that as someone who runs a small press.)

    Margins may indeed tighten, but in the end, content providers like Amazon (and Smashwords) must have a continual flow of fresh content. Smashwords has made great strides to broaden the opportunities for indies, including small presses like the one I run.

    I must admit, I find it difficult to believe that Amazon would be stupid enough to shoot their own content providers. I could be wrong; maybe they are that stupid, but I'll have to see it to believe it.

    In the meantime, publishers are seeking to protect themselves, not their authors. They've been happy to treat the vast majority of their authors like crap for so long, because their wink-and-nod monopoly allowed them to do so. Now that's over, and they're getting a wee bit desperate.

    $14.99 list price for an eBook? Often higher than the price of the paperback? You must be kidding me. And then they pay their authors a pittance. They've been abusing consumers and authors alike for far too long, and I grow suspicious every time they scream that something is unfair. I usually take it to mean that they'll not continue to live and work in their ivory towers at the expense of everyone providing them their comforts.

    Amazon without content is a blank page, and if they think there won't be a whole new revolution by authors if they try to squeeze them, then they'll be in for a rude awakening. We'll see.

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  31. Great article. This is why I already use Smashwords for the e-books I published and link straight to them on my website. While I worked my paperbacks through Lightning Spark (part of Ingram) I link to dozens of sales venues through directtextbook.com so people have a choice of something besides Amazon.

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  32. I’ve said it before, and I’ll say it again: Amazon everything is bad! The entire reader newsletter environment is geared toward, and for, Amazon users. Like Smashwords is a dirty word. I don’t think there is even one promotional newsletter that will actually consider promoting a Smashwords book, even though the money we use is still green. We need something that rivals Bookbub, only for Smashwords users.

    We need more Smashwords author awareness with our readers. I’ve said this here several times, and I’m still waiting to hear more favorable news on this front. The promo newsletters do work, but only if you can afford them, and meet their review requirements (most), or their (what?) editorial content requirements.

    Mark, we can only do so much promoting ourselves, but what good does it do you, or us, when Amazon still rules all? Where is Smashwords in all this? Where should we put our advertising dollars?

    The very moment Amazon dictates lower royalty rates, is the very moment I drop them from my Indie Author life, and I don’t think I’m alone in this. It certainly won’t break them, but it will hurt them, and do so enough they may think twice. Who knows.

    All my books on my site have iTunes links, B&N, and Smashwords links, and I’ll get the others up shortly. No problem there.

    To bottom-line this, we Smashwords authors need more promotional opportunities. Smashwords needs more Smashwords promotional opportunities. We can only do so much on our own, when the promo-world seems geared toward Amazon.

    Proud Smashwords author of nine books, three of which are free!

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  33. When it really comes down to it, I don't care which model is used for pricing. In an ideal world, I would say to the retailer: for each unit you sell, you owe me x. How much you sell it for is your business as a retailer, writing books is mine.

    Frankly, as a publisher, I find the "royalty" nomenclature to be factually incorrect. As the publisher of record, I am not collecting royalties from retailers--I'm collecting owed commission or revenue (or however you wish to view it depending on the method of sale).

    As a publisher, I then pay the author (myself) royalties. It's time to get this language cleaned up. Make it accurate. Publishers pay authors royalties, retailers pay publishers money due for unit sales. It's not that complicated. There should be no percentage rate; it should be a unit cost determined by the publisher, paid to the publisher by the retailer for each sale. Maybe there should be an agreement for a range of prices that title can be given, to make sure it's priced competitively, but beyond that I don't see a reason for the broken percentage method that's used right now.

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  34. It's understandable that there's an anti-Amazon slant here, this being Smashwords, a competitor. But I'd like to offer a somewhat different picture of the future.

    The agency model isn't a good solution for authors or their royalties. It helps publishers control distribution is all, but as noted, it's dying out no matter what not just because of Amazon, but because digital changes the whole distribution chain. Publishers are understandably upset about that, but you can't blame Amazon for the digital revolution. They just got ahead of the curve, and publishers are behind the curve.

    I don't think self-publishers have much to fear from Amazon doing away with the 70% royalty on ebooks, for the simple reason that it's too easy to compete on ebooks. Apple isn't going away, and either is Smashwords or any of the other ebook distributers. As long as someone out there offers something close to the 70% royalty, authors and readers can switch over. Amazon doesn't want that ever to happen, so I don't think it will mess with that program significantly.

    The audio program lowering of royalties was completely expected, because Amazon always said their high rates there was a temporary thing to attract customers, and that those who signed in would never get their rates raised for existing items, only future releases. Still, I think their royalties are too low and restrictive. So we'll see where that goes.

    But the biggest reason Amazon won't mess with their self-publishers isn't that they are the people who make Amazon so attractive, and Amazon owes them some sort of loyalty. They don't. It's that Amazon has never cared about making money from books, period. They won't change, because they don't need to. From the start, getting into the book and publishing industry was always a loss-leader aimed at attracting highly educated, high-income tech savvy customers to its store. They are not going to risk losing domination of that market for a few bucks if that means losing those customers. And if for some reason they decide to risk it, others will sweep in and take those customers away, because digital books are the easiest product to carry and distribute.

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  35. Yep, need a new word to describe the indie authors' position, something away from "agency model" or anything else so confusing and conflicting. I don't have any good ideas on hand, but I know there's a bunch of really creative folk out there that could come up with something :-)

    Happy NATIONAL SENIOR HEALTH & FITNESS DAY!! ;-)

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  36. Here is another perspective on agency pricing:
    http://jakonrath.blogspot.com/2012/04/agency-model-sucks.html

    Agency pricing is good for self-published authors selling direct to Amazon, but not so good for the authors of the large publishing houses. It is kind of strange to see lots of Hachette's authors complaining about Amazon when they should be complaining about Hachette's policies. There is much more about all of this in the more recent posts on Joe Konrath's blog: http://jakonrath.blogspot.com/

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  37. Publishers have been complaining about Amazon for years yet still supplied them the books that created Amazon.

    Time they could have spent building their own sales platforms and/or in the care and feeding of Nook, iBooks and Kobo.

    And don't forget ACX. With Amazon's business model, almost the only audiobook sales platform left, there is no profit left for authors on audiobooks, either as an indie and never as a traditionally published author because there is no piece of the pie left by the time it gets to you, unless you have massive sales, which most of us don't. Right now, authors have never made more money than by publishing on Amazon, but ACX may be a cautionary tale for the future of Amazon e-books.

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  38. My perspective is slightly different. There are a few things to keep in mind here:

    1) The Wall Street Urinal and other "news" outlets are owned by the same media conglomerates that own the Big 5. As expected, all the coverage so far has been very one-sided and slanted to favor the publishers. Like any big corp, Amazon has been pretty quiet directly—and they don't own any networks or newspapers. As for the authors, Amazon has offered to go 50/50 with Hachette on a pot to make sure their authors still get paid. So far, Hachette seems to be thinking that's not even worth responding to.

    2) I agree, diversification is good for a number of reasons. I have 9 of my 10 books in Smashwords as well as Amazon. But, when I look at my income, I see $600-$900 coming in from Amazon every quarter, and about $20-$30 from Smashwords (which I use to aggregate the rest of the world, except B&N, because I like their Nook Press tools so much). I know that other authors have different spreads, maybe a few lopsided the other way. But frankly, if you hadn't started taking EPUBs, I'd probably be Amazon-exclusive at this point. I don't have a workflow that involves a Word file, and the income is not worth the time for me to produce one that the Meatgrinder likes.

    3) As one of the other commenters mentioned, the online publicity sites/newsletters work from the assumption that you're in KDP Select and can schedule free days whenever you need them. (I should also mention that Amazon mentions my books in their own email blasts once a month or so.) Maybe Smashwords should create its own promo services, or at least encourage the established services to be more Smashwords-friendly. I would love to see more revenue coming from Smashwords.

    I've sort of digressed from the original point, but Amazon is winning the eBook wars for a number of reasons right now, not the least of which is that it's making a lot of authors a lot of money. Rooting for a publisher who would just as soon see Smashwords dead as well as Amazon isn't going to change that.

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  39. Mark, I love how you keep us informed with all the latest news and updates in the publishing industry. I'm proud to share your blog post links to my Author Chat Facebook fan page!

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  40. "Publishers deserve much of the blame for making their ebook margins such an appetizing target for Amazon."

    I couldn't agree more and a point I've been making for some time. If publishers were sharing ebook profits in a manner similar to print books (about 50/50 rather than 75/25) then Amazon wouldn't be seeing such an attractive opportunity.

    Publishers really shouldn't expect that they can keep 52.5% of the most lucrative aspect of book selling...give this to your authors or have it taken away by Amazon...but realize that you're not going to be able to keep it all.

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  41. Mark, Here is a request for speakers at Copy Camp, a conference in Poland where this and similar material can be aired to the greater universe of copy activists. http://boingboing.net/2014/05/27/call-for-speakers-copycamp-wa.html This would be a good place for a European Smashwords rep or especially a self publishing author to discuss our independence. Reflective of the quality of the conference are the two keynote speakers, author Cory Doctrow and Birgitta Jónsdóttir the outspoken poet from Iceland's parliament. Just ten minutes to start an avalanche.

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  42. Mark
    Great perspective on this gnarly issue that seems to be coming to a head soon. Hard for me to know what to believe-I come from traditional where forEVER, they did whatever the frick they pleased so to see puch back appeals to that part of me that for decades was under legacy publishing's thumb. That said, amazon seems to be saying 'What's good for the goose....' and that concerns me because 2 wrongs don't make a right. I just wants us authors to have a fair share---is that asking too much? We create the products they profit from so a little respect for authors, please, and I'm talking to Amazon and legacy---

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  43. Hi Marketing the Muse, unfortunately, in some corners of the indie-sphere the Amazon/Hachette story is getting spun as an "Amazon vs. Big Lazy Publisher" story.

    I think it's important indies view this differently. Yes, as i mention above, the big publishers brought some of this upon themselves by giving Amazon a big fat juicy margin target.

    But the bigger issue here - and the reason the outcome here is important to all indies, is that this is Amazon vs. Agency.

    Hachette is manning the front lines of this battle, so for indies who appreciate their high royalty rates and the ability to set their own prices, we should all be rooting for Hachette to persevere.

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  44. Good post Mark, I have come back to it a couple of times since you posted it and followed your advice on diversity from the first day I published through Smashwords. Variety is the key and your pithy resume of the bigger issue "Amazon V Agency" reaches the core of the disucussions, and the possible ramifications. I believe Hatchette's claim to be author centric would be strengthened and win support by keeping authors; traditional and independent, up to date with what is happening, and particularly where they are coming from in their current negotiations.

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  45. One might imagine Hachette pulling one author, someone who does not need the money and might be cooperative as evidenced by supporting fan fiction based on her works, and moving that one author elsewhere. That would both enhance alternative markets and send a message to Amazon.

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  46. Mark,
    I've been writing for thirty years, but only started publishing a few months ago. The mountain just looked so steep prior to Smashwords making it possible to get my work out there almost free. As I look toward my third novel coming out in just a few weeks, I'm a little disturbed by the long term implications of a monopoly held by Amazon. I get the economics of WalMart and Amazon, but i have to wonder if I will ever reach enough sales to write full time if Amazon can shrink my sales to whatever they want.

    If that's the case, I'll keep writing, but it'll never be more than a hobby.

    Thanks, Smashwords for helping me reach my dream.

    S. Rodger Bock

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  47. And I received today the note

    "We’re thrilled to announce that we’ve partnered with Simon & Schuster to bring over 10,000 titles from their celebrated catalog to the Scribd library, including books by classic and bestselling authors like Ernest Hemingway, the Dalai Lama, Joseph Heller, Janet Evanovich, Stephen King, and more."

    Outflanking Amazon

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  48. While Mark has done great things for the eBook world, reality trumps wishful thinking and lofty goals (no matter how good they are) in the business of selling books. In his wrap, Mark used these terms: “Is it really necessary … I don't think so … We think … We want … We believe … “ – all wishful thinking. The reality is this: in 2 years of marketing my eBooks on ALL platforms and outlets, marketing them ALL equally whenever I mentioned or promoted where they could be purchased, Amazon outsold EVERYONE ELSE COMBINED 7 TO 1. That is because Amazon offers the benefits, algorithms, and promotional clout that moves merchandise. Until the same level of marketing benefits appear in Smashwords, Barnes & Nobel, Nook, etc., Amazon will be the top dog, for better or worse. Just as I have no interest in “saving” the indie bookstore (much as I like them), I have no interest in supporting the also-ran eBook outlets that are not investing in the level of marketing muscle that Amazon is. I would very much like to access to KDP Select AND other eBook outlets, but, right now, that is not possible. In the real world, I never hear a negative comment when I say you can get my books at Amazon. It is a given, much like Walmart. Much in our world these days is distasteful, but until other eBook outlets can overcome 7:1 sales ratios ON THEIR OWN, Amazon is the place. – RJ Schneider / author..

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  49. @Richard Schneider

    I get the majority of my sales through the Smashwords premium catalog (i.e., Apple, B&N, Kobo, etc.). Amazon is a distant fifth behind the stores in the premium catalog. Despite being the "world's largest market," Amazon does very little for me.

    However, I'm not going to diss it. A revenue stream is a revenue stream, no matter how small it may be. As some of my writer friends found out with KDP Select, when your only revenue stream goes away so does your only source of income.

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  50. Excellent post.

    I'm definitely one of those "careful, you'll end up in my novel" authors. In my first novel, which can be found on Smashwords, I go after companies like Wal-Mart pretty hard. As for Amazon, I worked for them for about six months and the experience was so traumatizing that I wrote a play based on it. I want to show people the damage that companies like this are having on average Americans and their families, because it's real. Amazon Fulfillment Centers are basically sweatshops and the level of physical, mental and emotional abuse that goes on is staggering. It's all in the name of money. So, the fact that Amazon would pull some heavy handed crap like this comes as no real surprise to me. The fact that Stephen Colbert has literally given the middle finger to Amazon made me stand up and cheer.

    My play is supposed to premier in the next few months and I'm thinking that I may send Bezos a ticket.

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