Amazon yesterday launched a broadside against competing ebook retailers when it introduced a new program that requires authors to remove their books from competing retailers.
The new service offering, KDP Select, promises participating authors a shot at earning their share of a $500,000 monthly pool of cash. Amazon will distribute the funds to participating authors based on the number of times an ebook is borrowed from Amazon's new lending library.
To entice indie authors, Amazon's FAQ notes that if the author's book accounts for 1.5% of the downloads during the monthly lending period, they'll earn 1.5% of the pot, in this case $7,500.
But there's a catch. Actually, there are multiple catches as outlined in Amazon's Terms and Conditions for the program. Some carry potential anti-competitive and restraint-of-trade implications.
- From the time an author enrolls their book in the program, they cannot distribute or sell their book anywhere else. Not the Apple iBookstore, not Barnes & Noble, not Smashwords, not Kobo, not Sony, not even the author's own personal blog or web site. The book must be 100% exclusive to Amazon.
Let's examine the broader implications of this new program, not only for authors but for the nascent ebook industry as well.
Impact on authors:
- Forces the author to remove the book from sale from the Apple iBookstore, Barnes & Noble, Sony, Kobo, Smashwords and others, thereby causing the author to lose out on sales from competing retailers.
Impact on readers:
- Books enrolled in the Amazon program will be removed from all other retailers, thereby forcing readers to patronize Amazon if they want to sample or purchase the book.
Impact on competing retailers:
- Harms other retailers by denying them the ability to sell the author's book.
Program Limits Competition, Restricts Opportunity for Authors
The new Amazon KDP Select program reeks of predatory business practice. Amazon is leveraging their dominance as the world's largest ebook retailer (and world's largest payer to indie authors) to attain monopolistic advantage by effectively denying its competing retailers access to the books from indie authors. Some of these retailers supply international markets or power the ebook stores of other retailers outside the US, so Amazon's terms harm non-US retailers at a time when Amazon is opening stores in those same countries.
More importantly, the KDP Select program harm authors by limiting their sales opportunities at competing retailers. Since Amazon controls anywhere between 60 and 70% of the ebook market, some authors may underestimate their lost sales opportunity. Their participation in the KDP program will blind them to missed sales opportunities and make them ever-more dependent upon Amazon.
Amazon might argue that indie ebooks today only account for a fraction of overall book industry sales. True, but that fraction is growing quickly as indies scale all the best-seller charts. This trend will continue as more and more professional authors turn their back on traditional book publishers in favor of self-publishing.
Amazon is smart. They understand indies are the future of book publishing. They also understand that by causing authors to remove their titles from distribution and lose sales rank (a key factor in ebook discoverability), they'll severely limit competing retailers' long term ability to drive sales for the authors.
European Commission and US Department of Justice Unwittingly Assist Amazon's March toward Monopoly
Amazon's new service offering comes at a time when the European Commission and even the US Department of Justice are scrutinizing the legality of agency ebook pricing. Agency ebook pricing (this blog post last year explains my company's move to agency pricing, which, ironically, was necessitated by Amazon's price matching practices) allows authors and publishers to set their own price and receive higher royalty rates. Amazon is a long time foe of agency, and as a result is probably enjoying a virtual wet dream as they savor the implications of potential restrictions against the agency model.
If agency pricing is limited or overturned, it would allow Amazon to engage in predatory pricing by selling ebooks at below cost in an effort to drive current and future competitors out of the market. It's ironic that the EC and US DOJ are pursuing these ill-advised campaigns that could lead to less competition in the ebook market, not more.
What the EC and US DOJ fail to realize is that big publishers (the target of these investigations), which (I agree) price their books too high, are becoming less relevant to the future of book publishing as authors lose faith in the myth of big publishing. The problem of high prices from big publishers is not an agency pricing issue, it's a problem of big publishers pricing their books too high.
Agency Pricing Enables Indie Authors and Small Publishers to Lower Prices
Despite fears to the contrary, we see evidence at Smashwords that agency pricing might actually encourage lower book prices. Indies, which are enjoying great benefits from the agency model (my company only distributes to agency retailers), are using agency to offer customers lower prices, not higher prices. The average ebook at Smashwords is priced under $5.00, and we have over 15,000 books priced at FREE. Why do indies price their books lower when they have the freedom to charge anything they want? The reason is that indies realize that consumers appreciate low prices, and as a result these lower prices give indies a competitive advantage over the large publishers.
When an indie author can earn 60-70% of list with agency pricing, they can set a lower price yet still earn more per book sold than if the book was sold under a wholesale pricing model (where the royalty would equal 43-50% of list). As an example, if an author wants to earn $2.00 from each book they sell, at a 70% agency rate they'd price the book at $2.85. Under the wholesale model (50% discount off list), they'd need to price the same book at $4.00 to earn $2.00.
The agency model puts profits in the pockets of the author or publisher, where it belongs, while allowing the retailer to earn a fair profit. Agency pricing relieves retailers from the pressure of competing on price. Instead, agency retailers compete on customer experience, such as creating discovery tools and recommendation systems that help match readers with the books they'd enjoy reading.
How should indie authors respond to Amazon's KDP Select program? Horror might be a good start. It's in every author's best interest to support the development of a vibrant and competitive global ebook retailing ecosystem. With the democratized distribution enabled by indie ebooks, authors should distribute their books to as many retailers as possible. A world of many ebook retailers, all working to connect readers with books, is much preferable to a world where a single retailer restricts access to books.
In the interest of full disclosure, I am not an impartial observer. I have a horse in this game. Smashwords is the world's largest distributor of indie ebooks. We publish and distribute over 90,000 ebooks from 33,000 indie authors and small presses around the world. We exist to serve our authors and publishers by distributing their titles to retailers such as the Apple iBookstore, Barnes & Noble, Sony, Kobo, the Diesel eBook Store and others. In other words, we supply Amazon's competitors. We also distribute a small number of titles to Amazon. We're eager to supply Amazon our entire catalog, but unlike every other leading ebook retailer, Amazon to date has been unwilling to provide us agency terms.