By now you've probably heard about Amazon's Kindle e-book reader. I've been thinking a bit more about the economics of it. According to one knowledgeable colleague in a private writers' mailing list, Amazon takes 65% of the money it receives for e-books and the other 35% goes to the publisher. Large publishers are probably getting a better deal - I hope
they're getting a better deal. But better deal or not, this is a significant development and one that should command attention of freelance authors. So let's comb through the readily available information to see what we can learn:
- Although journalists are saying that 90,000 books are available, that's not how Amazon phrases it. Instead, it's over 88,000 books, with 100 of the current 112 NYT best sellers. (Who knew there were that many on the various NYT best seller lists - something that is interesting on its own.)
- The screen uses reflected light, and not a back-lit approach, and it only uses power to change the image on the screen, so it should have far longer battery life than other devices.
- It's $400 bucks to the user. Add in the 65% of the sales price it gets, and that seems like a lot. But, the device uses a cellular phone network for browsing and shopping, and there are no monthly fees, so some amount of that money has to go to the carrier providing the service, and has to potentially last a long time. That might explain some of the economics, and why publishers/authors aren't likely to get better deals going forward. Amazon may not be able to afford to give them.
- NYT best sellers and all new releases are "$9.99, unless marked otherwise," which is like saying everything is a dollar unless it's not. That low a level of pricing has two effects. One, it potentially hurts the preceived value of books, and, should this take off, puts competitors into some pretty serious trouble. Do they start more heavily discounting? Because even with the lower price, Amazon makes a bundle. Figure a best selling paperback costs $15. Amazon, or one of its normal competitors, gets maybe a 55% discount, but probably knocks off 30 to 40% of the cover price, so it getting 5% to 15% of the cover price. That's $0.75 to $2.25 a a copy as gross margin (money left over after they pay for the copy). But 65% of $9.99 is $6.49 - a heck of a lot more in their pockets. They say that it takes less than a minute to download a title, so take out, what, 50 cents at most to the cell carrier, figuring that they have to cover all the times that someone doesn't buy? That's still profit to make them drool, and it lowers warehousing and processing costs.
- If Amazon is making out like a bandit, what happens to the publisher/author? They get 35% of $9.99 (for that category of book), or roughly $3.50, rather than the $6.75 they would have received. So take out $2 for printing and warehousing, and that's still $4.75. Guess what that means? Publishers will want to pay authors even less for these rights. It becomes smart business to insist on keeping the electronic rights - probably difficult without some leverage of good sales history, but important to try anyway, because with contracts going the way they do, that means the author will get 12% of the new lower price (that paperback trend of getting royalties on money received), or a whole 42 cents per book. Sell 100,000 copies electronically, and you see $42,000, which is chicken feed given the popularity.
- Some money must be split with newspaper publishers, because you apparently get wireless copies of the NYT, WSJ, Washington Post, Time, Atlantic Monthly, and Forbes. No mention of subsciption costs to these. And you get international newspapers, as well. Guess what? That means more pressure on costs - including writers fees - across the board.
- There are some significant drawbacks to the business model. You don't sync the machine with a computer, so how do you store the titles you aren't keeping on the machine? It's also a proprietary system, which means it could leave people with the feeling of being locked in. Then again, I used to think that about the iPod, but I was clearly wrong there. So there is a chance that the publishing industry will get locked into this, whether it wants to or not.
In other words, it's not going to be a pleasant business model, but you may have to deal with it. Better figure out how to without losing even more income to all the other businesses that want a cut so they
can make money. Best new mocking nickname of the system? The Swindle. Question is, who's getting the worst of it - reader, or author?
Labels: digital, publishing, sales, strategy