Amazon’s Offer to Authors: a reality check

Amazon floated a trial balloon in their dispute with Hachette to “take authors out of the middle.” Gigaom.com has the full text here. Within minutes of the letter’s publication, warriors on either side of the fight decried the letter as a cynical PR ploy, or praised it as proof that Amazon truly is sympathetic to authors.

Here’s the operational portion of the letter:

• If Hachette agrees, for as long as this dispute lasts, Hachette authors would get 100% of the sales price of every Hachette e-book we sell. Both Amazon and Hachette would forego all revenue and profit from the sale of every e-book until an agreement is reached.

Amazon goes on to offer a series of concessions to Hachette that amount to a return to status-quo ante while they are negotiating. All in all it looks like a fantastic offer that will benefit authors.

And it’s an offer that Hachette will never agree to. Here’s why:

1) Hachette, in its corporate state of enlightenment, has decided on a course of action in its negotiation with Amazon. They seem content to hold firm. For better or worse, that is their position and they don’t seem inclined to budge off it.

2) For Hachette to accept that offer it would require Hachette to modify clauses in contracts with tens of thousands of authors, agents and author estates. That alone is costly enough that their legal department has to be screaming “No!” at the top of their lungs. Add to that the potential of some authors to hold out for further modifications of ebook clauses or going public with the news that Hachette isn’t allowing them to accept Amazon’s offer, and this is just a PR nightmare for Hachette.

Hachette’s accounting division would also have to come on board, and that portion of most publishing houses is extremely slow to move. (Kinda like Brazil’s defense against Germany.) That’s just a non-starter.

3) I have no doubt that folks on the publishing side of the equation see this tactic as being close to extortion. We know Amazon will be negotiating with other members of the Big Five in the future, and not a one of them wants to see Hachette cave to an offer like this. Moreover, Hachette can look to a return to this tactic next time contracts come up for renewal. No corporation would open themselves to that kind of strategy.

The real question is this, “How good an offer is this for authors?” That would depend on how many ebooks the author sells, clearly. But most folks don’t understand how payment for books work.

If Hachette were to accept this offer starting today, few, if any, authors would see a dime until 1 April 2015.

We’re in the second half of the year, so all sales from July to December are totaled together, and then checks are written for the appropriate amount of royalty money in April. That’s how archaic the publishing world’s accounting system is. While this offer seems like a boon to authors, it is not immediate financial relief. It would be a windfall in April, but that’s the earliest anyone would see money.

(Yes, Hachette could pass the money immediately through, but that would go back to contract modification, which they’re not going to do. Plus, having showed that they don’t need three months to calculate royalties and deliver payments, they’d be on the hot seat for not modernizing across the board.)

Curiously enough, Amazon has in its power the ability to win all authors onto their side in this dispute. What they would have to do is simple, and wouldn’t cost them nearly as much as their offer to Hachette would.

1) For all ebook sales, create a super-sweet-spot of pricing. For any ebooks priced between $4.99 and $6.99, the author will receive 85% of the cover price.

2) Drop the payment schedule from Net-60 to Net-30, getting money to authors faster.

In one fell swoop they’d be able to drift ebook prices upward on average, and yet keep them in the price range they’ve long tried to promote. The Net-30 aspect means that authors would even more immediately feel the effect of their self-published work on their economic bottom-line. That will encourage them to do more independent publishing, and Amazon is clearly the leader in that market.

As I noted in my previous post, I’m not taking sides in this fight. The comments above are meant to clarify a situation by pointing out economic and contract realities. While the offer, if accepted, would be wonderful for Hachette authors—and I wish Barnes & Noble had offered it in the summer of 2014 when their pissing match with Simon and Schuster meant B&N stocked 1 (one) copy of my World of Warcraft™ novel in each store when it was released—the benefit would only appear in April, not immediately.