Escape from Stalag $7: Why Amazon's Pricing Box Is Bad for Indies

(Just a quick reminder that I'll be appearing on January 15th on a Digital Book World panel in New York entitled  "Authors Facing the Industry: Data and Insights From Authors on the Publishing Business, Author-Publisher Relations, and Marketing." 

Click here or on the image to view the full DBW agenda. Time is 3:00 to 3:50PM. You can save 5% on your attendance with Speakers Code DBWSPEAKERS; make sure you register today. The agenda is very broad and provides extensive coverage of issues of interest to both traditional and self-published authors. I intend to ask some Amazon people some hard questions if can get near an audience microphone.)

During the Hachette vs. Amazon struggle, I started to visit some of AAAG's (Aggregated Amazon Ankle Grabbers) most prominent websites and ask some hard questions. As I pointed out in my series on the book channels, independents had no stake in the outcome either way, but AAAG's intense interest in the business practices of the publishers inspired me to spend time investigating Amazon's pricing and operations model as it applied to indies. This was an issue in which I had a stake.

The results were not very informative. I did learn a few things about how AAAG operates. The Passive Voice (a lawyer guy) deals with hard questions on his blog by not allowing them to appear via comment blocking. Ditto Hugh Howey. Joe Konrath was a bit better, but is given to rewriting history. As he squirmed and evaded my straightforward questions about Amazon's pricing and marketing practices model, the inevitable hints about being banned were issued and the history rewrites began. For example, despite copious words to the contrary, he suddenly announced he'd been OK with agency pricing all the while, though he'd have to be suffering from the same brain dysfunction that Guy Pearce exhibited in Memento  for anyone to believe that.

David Gaughran was the worst. In two posts on his blog, I asked my hard questions and received the usual blast of blather and evasion. For example, he called my observation that Amazon's pricing model as it applied to indies was a modified form of agency "nonsensical."  Apparently, while holing in up in Prague, he'd failed to talk to Hugh Howey about this issue, who referred to the model as "Incentivized Agency." Perhaps it was the different adjectives that confused him. 

When I stayed on topic, I was eventually "banned" from the blog  after the inevitable, unctuous, weaselly speech about his undying devotion to freedom of speech. Take this to the bank. When a blog owner affirms their commitment to First Amendment principles, you're about to be censored. It's how hypocrisy works.

But after all the fireworks and fun, the one thing I never ever received from AAAG were coherent answers to my questions, particularly the most important one of all. And that is: Why has Amazon placed indies in a $7 dollar pricing box? Why does it grab 65% of your revenue (not counting its transmission fees, which it charges on every transfer and which vary based on book size) if you price under $2.99 and the same if you charge over $9.99? This is an issue of critical importance to indies because it is not financially feasible to hand over that level of margin to a reseller for a download service. (And if you think Amazon is paying you a "royalty" when you fork over that 65% operating expense, please stop reading now. You are incurably ignorant and I cannot help you.)

The most coherent answer I ever received from AAAG acolytes was "because they can."  When I'd respond that Hachette was therefore perfectly justified in providing that same answer to Amazon over the issue of agency pricing, AAAG people became very unhappy, though never informative or more coherent.

I'll give one member of AAAG credit for integrity and that is Dan Meadows of The Watershed Chronicle. He runs what I regard as an AAAG-lite site, and most of his articles on H vs. AMZ focused on his amazement that Hachette actually insisted on negotiating in its best interests, not Amazon's. 

But to his credit, I've never seen any comment blocking or banning threats. And  when he asked in an article how writers had benefited from the whole contretemps, and I told him how, he was honest enough to acknowledge that indies had benefited from the fight as Apple's and the publishers' introduction of the proposed 70%/30% agency split had forced Amazon to compete and offer indies the same deal for books in their pricing box. Prior to that, Amazon charged indies 65 points to use their download service regardless of the book's price.

(What, you never read that fact on the AAAG sites? Hmmm. Fancy that. You indies can make it up to Apple and the publishers by saying a little prayer on their behalf to the God of Book Publishing tonight. But don't go overboard. The publishers still need to rethink their royalty structure in this new era.)

What's Wrong With Amazons's $7 Dollar Pricing Box?

Let's count the ways. Before I begin, let me stipulate for all of the following points the underlying issue is that Amazon's policies are depriving indies of revenue now and in the future.

Amazon's current pricing policy makes it financially impossible for thousands of authors to sell their books on the site that currently accounts for at least 65% of the digital download market (and I think that share is higher). Books about the Zombie Apocalypse  probably, in most cases, can't command prices above $9.99 unless the author's name is Stephen King. But a lavishly illustrated art book discussing the Italian Renaissance can (and must) to make economic sense. So does a book that discusses how Software as a Service companies can optimize their business operations (I'm the author of that book). These titles must be priced higher to make publishing them feasible. If you don't understand why, I'm not explaining it to you. Go do some homework.

Amazon's stated motive for the pricing box is a falsehood. If Amazon was worried about the price of E-books being too high, the market has solved that problem. I cannot keep track of the number of mysteries, fantasies, Sci-Fi, horror, historical fiction, bodice rippers, and soft porn books featuring pliable heroines being consensually tortured by handsome sadists selling for under five bucks, never mind ten, on Amazon. And if people want to pay more to read the works of better known authors, can someone identify the gun being pointed at their heads?

The real reason Amazon has placed indies in the box is to keep the pressure up on the publishers. Amazon failed to gain control of the book pricing model in its last go round with the publishers, but it's not giving up. They'll be back at it, sooner rather than later. Indies are thus pawns in a game we are not playing. I don't like being a pawn and neither should you.

Amazon's statement that the optimum price point for E-books is $9.99 is utter nonsense. It's what people who conduct statistical research call a "median stew." $5.99 might indeed be the optimal price point for a self-published book about proper etiquette when dating a member of the undead. However, a book by Stephen King on the same subject may sell very well at $12.99. This is because King is a well-known brand and you're not, though one day you want to be one. OTOH, suppose the major book reviewers state the Master of Horror's latest opus stinks worse than a Florida mullet left on the bank of a Ft. Lauderdale canal all day in August (this is a smell I'm personally familiar with). All of a sudden, you and Stephen are on the same pricing curve. Refer back to point one to understand how this applies to other categories of books. Amazon's stated "research" incorporated none of these variables and is as useful as the above unfortunate mullet.
Amazon's pricing box makes effective bundling impossible (and the company specifically forbids it for books, which ties back to point two). Suppose you have two books in a series, each priced at $7.99. You'd like to put together a bundle of both titles at a combined price of, say, $11.99, a four buck savings over buying each book separately. Why can't you? I can tell you there's no technical obstacle. It's because Amazon wants to continue putting pressure on the publishers and doesn't really care about you, indie. 

Amazon's pricing box makes effective couponing impossible. Why would you want to use a coupon? To build a sense of urgency and value into a promo. Why can't you? Same reason as in point four.

Amazon's pricing box destroys your brand/author equity the more books you write (and prevents you from building it into your pricing). An illustration. Let us suppose you've written 15 books in total. The median price for your line or series is $8.99 and sales are good. Some of your books are long in the tooth and the long tail now waves sluggishly. You decide to put together an omnibus of your first 10 books and price it at $19.99. Seems fair, you think. Two bucks a book. But no. Amazon's pricing box forces you to devalue yourself to a buck a book. Why?  Because Amazon wants to continue putting pressure on the publishers and doesn't really care about you, indie.

Amazon's pricing box prevents you from finding out if your author equity is expanding. As I've pointed out, its stated price point research is nonsense. You're a successful indie and your last book sold very, very, very well at $9.99 and people are clamoring for the next release. Maybe you can command $10.99 for thirty days after the new launch. Maybe 60 days. Or maybe $11.99 combined with a two-buck-off coupon. Who knows? Well, you don't, and can't, because Amazon won't let you find out. Why? Because Amazon wants to continue putting pressure on the publishers and doesn't really care about you, indie.
 Amazon's pricing box discourages innovations in online book selling. 3D printers capable of spitting out bound and braille books, as well as collectibles and memorabilia, are coming to the market. Online book selling enables you and the publishers to experiment with the concept of selling print-ready as well as E-files with your purchase. But that's just a start. More heavily illustrated books, sound tracks, screen savers, alternate versions of books, comics, illustration collections, games, printable posters and even video are all possibilities. But the price box squelches most experimentation, hurting both you and Amazon.

Amazon's pricing box has led it to proclaim it will establish some sort of pricing codex, Amazonium Codexorum. If/when the codex is established, people will waste time and effort on attempting to get in it. Now, to be honest, I don't think Amazon will ever actually try to establish the codex. I think the whole concept was a head fake for the benefit of the DOJ. But the idea is distasteful and would be an administrative nightmare. But price rigging schemes lead to these kind of bizarre projects.

This final point is broader in scope and encompasses the interests of the industry as a whole. Amazon's current indie price box is part of an attempt to price rig an industry. It is not healthy for a $75B company to attempt to do this. The free market will establish appropriate pricing guidelines for different types and levels of authors quickly. Amazon's attempt to control this process is not in anyone's best interest, even ultimately their own. (Not that I expect them to realize this.)
What Is To Be Done?

How can all the above issues be quickly resolved? The answer is simplicity itself. Amazon should lift all restrictions on book pricing and establish a uniform service fee for the use of its downloading infrastructure. Within this framework, the authors will quickly learn what works for them and their books. Amazon's "assistance" is not needed.

To help speed up the implementation of this logical and intelligent course of action, it's time for Hugh Howey, Joe Konrath, David Gaughran and the rest of AAAG to raise their palms off the pavement, rise up, and ask Amazon, for the benefit of indies, the industry, and ultimately Amazon itself, to burn the price box. It's one way they can atone for the atrocious misreporting they provided us during the Hachette vs. Amazon battle. And in the end, AAAG's bottom lines and book sales will benefit as well.