BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Why Amazon Terrifies Publishers: Let's Look At Royalty Statements

This article is more than 9 years old.

Like many authors, I've been struggling to decode all the noise coming  from Amazon and traditional book publishers, in hopes of figuring out which side is right in this long-running quarrel. The breakthrough moment for me came earlier this month, with the arrival of a new royalty statement from my New York agent.

Clearly, there's a tug-of-war going on right now about what books should cost -- and how the revenue should be divided between authors, publishers and retailers. The immediate battleground involves Amazon's pricing of e-books published by Hachette, one of the publishing industry's "Big Five" players. Amazon wants lower prices and leaner terms for Hachette; the publisher prefers the opposite.

While the battle rages on, distribution of Hachette books on Amazon is getting snarled. This makes famous authors such as Stephen King and Robert Caro very upset. They have signed a group letter denouncing Amazon's conduct. On the other side of the divide, some 7,000 less-famous authors and their fans have signed a petition urging Hachette to see things Amazon's way.

I've been writing books since the early 1990s. That's provided opportunities along the way to write for three of the Big Five publishers, as well as to see Amazon emerge as an important marketplace for my own books about everything from Wall Street to talent selection. To date, both sides have provided fair terms and good value for what they do. But it's a fast-changing world, and the message hit home for me when I got a new royalty statement for my very first book, "Merchants of Debt."

This 1992 book is a full-length profile of Kohblerg Kravis Roberts and its role in the rise of private equity. It's also the proverbial log traveling down the river of change. Merchants of Debt started out in 1992 as a popular hard-cover, priced at $23 and published by News Corp.'s Basic Books imprint. It then spent a few years as a Basic Books paperback, at $11.95. It went out of print for a year or two, and then re-emerged as a print-on-demand offering from Beard Books, priced at $34.95.

The Beard contract wasn't my favorite, because the $34.95 price to buyers seemed quite steep, and because my royalties per copy were only 15% of the purchase price. But that 15% royalty rate has long been the norm for print-publishing contracts. It came of age when jacket design, publicity, type-setting and distribution all involved much more laborious efforts than they do today. And for a while, the Beard contract was the best way of keeping the book in circulation.

Then, in 2013, my agents, Inkwell Management, arranged to have Merchants of Debt republished as an e-book. We created two versions: a full-length e-book priced at $9.99, and a condensed version, priced at $3.99. In each case, e-tailers such as Amazon or Apple's iTunes store get 30% of sales revenue; Inkwell gets 21%; I get 49%.

You can probably guess what's happened to sales trends. Overall sales of the book have more than tripled, and nearly 90% of the sales are coming from e-books. We're still talking about small amounts of money, but the checks now pay for getaway weekends, rather than an occasional lunch or two. Customers are getting a much better deal. And the e-books' royalty formula means that I make almost exactly as much on a $9.99 e-book as I would have on a $34.95 paperback . It's a win for producer and consumer; only the middleman suffers.

Evidently, lots of other authors are discovering something similar. This report from AuthorEarnings, a website run by e-book enthusiast Hugh Howey, culls through a lot of Amazon data to suggest that independent publishers are becoming an ever more important part of the Kindle ecosystem, gradually displacing Big Five publishers.

I'm willing to believe that old-line publishing -- with its emphasis on relatively expensive print copies -- is uniquely well-suited to serving star authors. That's important. But for the vast majority of authors, the low-cost e-book alternative is compelling.

Amazon has a pretty clear-eyed view of what it will take to keep the book-reading habit alive in a new generation of consumers. As Amazon's senior vice president for Kindle, Russell Grandinetti, recently told The New York Times, "Books don’t just compete against books. Books compete against Candy Crush, Twitter, Facebook, streaming movies, newspapers you can read for free. It’s a new world."

Amazon believes it has figured out how to keep its book business vibrant in such changing times. I'm starting to think that the old guard's ferocity in the current Hachette-Amazon tussle reflects deep anxieties -- perhaps even outright terror -- about what to do next.