Sabrina Sumsion

You may or may not be watching all of the debate in the publishing community abut eBooks.  There is a lot of drama as the industry professionals attempt to set precedences and standards for the future of digital books.  At the forefront of the debate is Amazon.com and Macmillan.  Recently, Macmillan informed Amazon that they are setting up an agency model and setting a firm pricing structure that Amazon does not have control over.  Amazon responded quickly.  They pulled all of Macmillan's titles from their website before the executive could even get back to his office.  You can still purchase titles from third-party sellers but not from Amazon's sales channels.  That means customers do not qualify for free shipping with orders over $25.00 even if they use Amazon.com to find the seller.  For more details on that debacle, read the write up in the New York Times.

It looks like Macmillan's books are back on Amazon.com now but I have strong opinions about the current publishing model and many of them revolve around how authors are treated.  I am fully in support of Macmillan for several reasons.  The main reason is Amazon is actually a negative sales channel for authors.

Many authors aren't aware that when a publisher adds titles to Amazon.com's database, the publisher grants Amazon.com the right to sell the books at any price Amazon.com wants.  For a typical brick-and-mortar store, setting their own prices is fine.  The brick-and-mortar stores pay a set price for the book and if they sell it for a loss, they incur the loss.  With Amazon.com, they can choose to sell a book for a dollar but they still make some money.

Here's how it works:

A publisher sets up a book and lists their cover price.  For easy math we'll say the cover price is $10.00.  Per the agreement that the publisher made with Amazon when setting up an account, Amazon automatically sets the online price 15% lower than the cover price.  The price advertised online is $8.50.  When a customer visits the site and buys that book for $8.50, Amazon.com keeps 55% of the sale price ($4.68) and sends the publisher 45% which is $3.82.

When the publisher receives the $3.82, they must then subtract the costs of creating the book.  Large commercial publishers can probably print, ship etc each copy for around $1.50 since they create a "run" of books.  In other words, they print thousands at one time to reduce the per-book cost.  After the publisher subtracts the creation costs in this hypothetical situation, there is $2.32 left to split between the publisher and the author.  The author's cut is determined by the royalties agreement so varies from author to author.

Let's compare to a brick-and-mortar location:

Barnes and Noble buys the book for 55% of our cover price set at $10.00.  They send the publisher $4.50.  After subtracting the $1.50 there is $3.00 to split between the author and publisher.  $0.68, the difference between Amazon.com and a brick-and-mortar's payment to the publisher, might not seem like a lot but when you sell 100 books, you make $68 less through Amazon.com.  If you sell 1000 books, you make $680 less through Amazon.com.  Think about books like the Twilight Series.  If a million copies are purchased through Amazon.com, the publisher and author lose $680,000.00.  If you're thinking that authors and publishers shouldn't be greedy, consider that money could have been invested in a new author like you!  Amazon.com has a direct impact on how many new authors are launched each year.  Less money to the publisher = less money for new authors.

Now let's take this scenario and apply it to someone who has a publisher with a print-on-demand publishing model (not to be confused with publish-on-demand):

That $10.00 book that cost $1.50 from a large commercial publisher that purchases books in a run now costs $3.50 to create using print-on-demand.  Amazon sells the book for $8.50 and sends the publisher $3.82.  The publisher recoups $3.50 to pay for the printing costs and that leaves $0.32 to split with the author. The cut from Barnes and Noble will not make anyone rich but the publisher and author will share $1.00.  Again, as the publisher and author begin to sell volume, the difference between brick-and-mortar and online sales begins to make a large difference.

The difference in cut isn't the nefarious part however.  Before I mentioned that Amazon gains the right to sell your book for whatever price they want.  If they decide to sell your $10.00 book for 20% off, the sale price is $8.00.  They send your publisher $3.60.  If your book costs $3.50 to create, you and your publisher split $0.10.  If they decide to sell your book for 50% off, the sell price is $5.00 and Amazon sends your publisher $2.25.  You made no money for that book sale and your publisher lost money.  They paid $3.50 to creat the book and only received $2.25 back.  They lost $1.25.

If a brick-and-mortar store sells your $10.00 book for 20% off, your publisher receives $4.50. 
If a brick-and-mortar store sells your $10.00 book for 50% off, your publisher receives $4.50.

Amazon is over-powered.  Consumers grant them that power because consumers like to purchase commodities for a lower price.  The problem is Amazon consistently under-values items and drives prices down.  This causes the creators of the items to receive little to no compensation for each item sold.

I stand behind Macmillan because they are protecting authors by taking a stand.  Yes, Macmillan is probably mostly interested in preserving their cut but in the end they will ensure that authors see compensation for their products.  I hope all the publishers will stand up to Amazon and curb the monopoly Amazon has created online.  I urge you all to pass along knowledge about Amazon.  Teach people you interact with, post to your blogs and social media sites and generally educate the people you know.

Amazon is getting out of control and now are punishing others when Amazon doesn't get their way.  Let's make it clear they can't bully authors and publishers anymore.  Digital rights is a great place to draw that line.