Screen Shot 2014-07-19 at 5.12.32 PMThusfar, I think it is safe to say that publishers have had the most to worry about with regard to Amazon’s monopsony power rather than authors; and what power there is comes at their own fault for relying continually on DRM restraints. Indeed, on many levels, one can see that Amazon has provided more opportunities for authors to get their work out without the potential bottleneck filters the publishers have owned in the past. This is why a surprising number of best selling books have come from self-published authors.

From the perspective of consumers, Amazon’s Kindle Unlimited (Netflix style) plan looks like a terrific innovation and is consistent with the way we read and share books. I thought that it could be even better for authors too. To be sure, it would be harder to sell books that were bought but never read but for authors who wrote books that people actually did read, the returns would be far higher. Amazon’s payment to authors is similar to its payment to them for the Kindle Owner’s Lending Library. There is a fund (amount = F) that is set monthly by Amazon. If there are a certain number of books downloaded that month (N) and your book is downloaded n times, you receive (n/N)*F in payments that month. That’s for lending. For books under the Unlimited plan, they have to be at least 10% ‘read’ (on the assumption that flipping 10% of the pages is the same as reading them). And so your share is based on how often your book is minimally read. Basically, people can try before they buy with their attention.

Now this plan isn’t all rosy because while it rewards books that are readable, it does so asymmetrically. For instance, Piketty’s recent book has 696 pages whereas mine most recent one has 93. Suffice it to say, Piketty will receive the same payment for another book read this month beyond 70 pages as I would get for 10. That strikes me as amiss. After all, someone could read 6 books of the size of mine in the time it would take to get through Piketty. So from the perspective of consumer attention, one Piketty is more valuable than 5 of my books but Amazon isn’t recognising that. For the consumer, that is no issue but for Amazon and authors it is.

The issue for authors is obvious. You don’t want to write long books. Instead, you should chop them up like a salami. If Piketty’s book was five volumes, he would get paid if someone read just 14 pages of Volume One and if someone ploughed through all five he would get five times the amount he would get for a single volume. So if you consider the equilibrium, Amazon is encouraging salami slicing. That may not ultimately be a problem for authors but it does suggest an artificiality to Amazon’s approach. Why not, for instance, pay based on the amount of consumer attention that is devoted to reading?

This also suggests that there may be some issues in sustainability for Amazon. Remember there is a sense in which, for authors, salami slicing is a zero-sum game. If Piketty were to do this, so would others. In the end, longer books would get a share based commensurate with their length. So this is just a reaction to Amazon’s compensation rule and not something that will expand the pool. The point is, that if Amazon did have as their intention, getting smaller books, the market can adjust to remove that incentive or bias in the long-run.

But there are two other dangers for authors in the long-run. First, for independent authors (and I guess for smaller publishers) you can’t access the Kindle Lending Library or Kindle Unlimited unless you are exclusive (digitally) to Amazon. This is perhaps why Piketty’s book is not available on iBooks although it is on Nook so who knows? Exclusivity is a big ask. But the point is that it will be attractive to many authors. Second, one of the potential benefits of the Netflix style model for books is that it does not lock consumers in. If there are several providers, then consumers can happily switch between them as the need arose without worrying about DRM lock-in or not having access to old books they have read. However, exclusivity will undermine that. Consumers will not face symmetric options and so the market for subscription libraries will not be competitive.

Of course, not having a competitive market is kind of what we have now, so what’s the difference? Well, in the future equilibrium, where Amazon has exclusivity which leads to network effects and scale effects, then it will be insulated from competition from other platforms. Remember that fund (F) that was used monthly to allocated payments to authors? Well, there is nothing that gives a formula as to how that fund is determined. For instance, Amazon do not state that it is a share of the $9.99 per month fees paid by consumers. This is from their FAQ:

If more authors choose to enroll their titles in KDP Select, how will it affect my share of the monthly global fund? How do you determine the monthly KDP Select Global Fund amount?

The size of the global fund is calculated to make participation in KDP Select a compelling option for authors and publishers. We will review the size of the fund each month to consider adjustments.

See the problem. There is no accountability. They want to “make participation in KDP Select a compelling option for authors and publishers.” Suffice it to say, if, in the future, it is a compelling option because you can’t sell books otherwise, then the fund doesn’t have to be large.

This, sadly, is not a situation inspired to give us confidence. For me, I have liked many of Amazon’s innovations in terms of opening up opportunities for authors. But it does strike me that their commitments to make sure the platform continues to operate in author interests are less than satisfactory. There are two things authors should push for. (1) Exclusivity should be optional and (2) the Fund formula should be transparent. These look like no-brainers to me.

3 Responses to Amazon’s Kindle Unlimited: There may be a danger for authors

  1. Arnold Kling says:

    I thought that if as an author you opt for Kindle select you only have to give them a 3-month exclusive

  2. Here is what the term says.

    “When you include a Digital Book in KDP Select, you give us the exclusive right to sell and distribute your Digital Book in digital format while your book is in KDP Select. During this period of exclusivity, you cannot sell or distribute, or give anyone else the right to sell or distribute, your Digital Book (or a book that is substantially similar), in digital format in any territory where you have rights.”

    I didn’t see a mention of three months.

  3. Dan Hill says:

    As an author with two books in KDP Select I can confirm the exclusivity commitment is for 90 days at a time. Actually it’s KDP Select that is a 90 day commitment of which exclusivity is a requirement. Suffice to say, if you don’t want to renew in KDP Select you are then free to distribute elsewhere but you lose the other benefits – participation in Kindle Unlimited, Kindle Owners Lending Library and free prompotion and price discount options. The real risk is if too many people swith from purchasing to subscription.

Leave a Reply

%d bloggers like this: