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Piers Karpinski June 30, 2016

Why don't authors earn more from their books?

Authors don’t earn much.  In April 2015 Queen Mary University of London published a report entitled The Business of Being an Author – A Survey of Author Earnings and Contracts.  The report found that the typical income for a professional author in the UK was £11,000.  Almost a fifth of authors earned nothing.  Of course, some authors earn millions, but they constitute a tiny minority.  

Let’s throw in some numbers for comparison: (i) In April 2016 the UK living wage was introduced and it's significantly higher than £11,000 for those working full time; (ii) In 2015 the UK publishing industry generated sales of £4.4 billion, with some £1.9 billion of sales in the UK alone; and (iii) Jeff Bezos is worth an eye watering £45 billion (I know that Jeff Bezos and Amazon do much more than sell books, but I still think it’s an instructive comparison).

Being an author has never been considered a “safe” or “stable” career (I don’t remember anyone at school being told to pursue a career as a professional author – although my sister was told to be brewer), but these figures raise an important question:

Why do authors receive such a small slice of the pie (that they make)?

There are many (potential) links in the publishing supply chain and a lot has been written about the value added by publishers, editors, agents and others.  One area that's not been talked about as much is the value added by retailers.  Retail is the area that areobooks is going to disrupt, and retail is the focus of this blog post.

Historic retail models: wholesale and agency

Under the wholesale model publishers (or more likely their distributors) sell books to retailers, normally for a substantial discount on the list price, and retailers sell books to readers for whatever price they want.  This means that retailers control the price that readers pay for books. 

Under the agency model the retailer acts as “agent” for the publisher.  The publisher sets the price for the book and the retailer receives a commission from each sale.  This means that publishers control the price that readers pay for books.

Controlling price is important

Controlling the price that readers pay for books is important for lots of reasons.  At the risk of oversimplifying, publishers like the agency model and retailers like the wholesale model.  For anyone that doubts how seriously this issue is taken by big publishers and retailers I recommend you look at the dispute between Hachette and Amazon in 2014 and the antitrust case against Apple and the Big 5 publishers in 2013.

Following this corporate arm wrestling there has recently been a shift away from wholesale towards agency.  This may feel like a victory for publishers, but it’s not that simple. 

In June 2015 the European Commission announced that it had launched an antitrust investigation into Amazon’s use of Most Favoured Nation (“MFN”) provisions in its contracts with publishers.  MFN clauses require publishers to: (i) inform Amazon if their competitors are offered more favourable or alternative terms; and/or (ii) offer Amazon equal of better terms.  It sounds like Amazon is using contractual clauses such as MFN clauses to stifle publishers' ability to price books.  Not surprisingly, the European Commission is concerned that MFN clauses limit competition and stifle innovation.

What’s sad about all of this wrangling is that even though it takes place at a globalised corporate level, it’s often individual authors that lose out.  For example, during the dispute between Hachette and Amazon, Amazon removed the buy buttons from books of Hachette authors.  Nice going Jeff! 

What about subscription?

Digital media subscriptions are big business and have had a significant impact on the way we consume music and TV.  The model involves a user paying a monthly subscription for access (normally unlimited) to the content on that platform.

Spotify has roughly 100 million subscribers, with a third of them paying around £9.99 per month to get unlimited access to 30 million songs.  Both Amazon and Apple have launched their own music subscription services in the past couple of years.  Netflix has over 30 million subscribers paying around £6.99 per month for access to around 5,000 movies and 1,000 shows.  Again, Amazon has its own TV subscription service.  Also, Netflix and Amazon are much more than streaming services; they both commission and make award-winning shows.

So what about ebooks?  For a while, it seemed that ebooks would follow music and TV down the road of subscription.   Scribd and Oyster were two of the first companies to try and exploit ebook subscription, charging users a little under $10 per month for unlimited access to their libraries.  In July 2014 Amazon jumped on the ebook subscription bandwagon with the launch of Kindle Unlimited, which now has a library of over 1 million ebooks and costs £7.99 per month.

However, in the same way that the shift from physical books to ebooks has been less pronounced than many expected (and feared), the ebook subscription concept is not expanding in the way many thought it would.  In October 2015 Oyster “sunsetted” its business (apparently this means selling to Google) and in March 2016 Scribd dropped its unlimited subscription.  Kindle Unlimited is facing its own issues, not least that scam artists appear to be taking advantage of the platform to the detriment of genuine readers and authors.  Of course, Amazon has deep pockets and can hang around until someone figures out how the make ebook subscriptions work, or at least until all of its competitors have gone out of business. 

What does this mean for authors?

Hugh Howey, successful self-published author and an inspiring and straight-talking voice in the industry, recently wrote a blog post arguing that self-publishing has never been easier.  He must be right.  Firstly, a number of platforms exist for authors to self-publish their books (eg. Kindle Direct Publishing, Smashwords, Nook Press) and get instant access to millions of readers.  Secondly, lots of companies now exist to provide authors with the editorial, design and marketing services that historically would have been provided by traditional publishers. These processes are bearing fruit, as shown by the increasing number of self-published success stories.  This isn’t to say that all authors will become, or should become, self-published.  Far from it.  However, it does mean that authors have much more flexibility and choice when in comes to deciding how to get their books in front of readers.

By contrast, retailers are behind the curve in terms of how they’ve responded to ebooks and self-publishing.  Most importantly, it’s time they improved their anachronistic pricing models.  Agency and wholesale are hangovers of the physical world, while subscription has been an attempt to impose a business model that worked for music and TV onto ebooks.  I love Amazon, and goodness knows I spend enough money on Jeff’s website, but monopolies are not conducive to innovation. Unfortunately, the monopolistic trend is getting worse, with both Waterstones and Nook recently exiting the UK ebook market.  The fact that Apple and Google are seemingly uninterested in ebooks doesn’t help either.

Where’s the blue sky thinking?

Google tries to encourage blue sky thinking through something called “20% time” – a full day a week during which engineers can work on whatever they want.  That’s incredible, and clearly not a bad idea given that Google is one of the largest and most profitable companies in the world.  Not surprisingly, lots of Google’s product launches originate in this 20% time.  Blue sky thinking is really important for innovation and creativity.  However, it’s sadly lacking from the world of ebook retail.  That might be because Amazon has a near total monopoly of the industry so no one else bothers, which in turn means that Amazon doesn’t bother.  It might also be because publishers aren’t exerting enough pressure on Amazon (which isn’t surprising given how they’ve been completely blindsided by Amazon over the past decade).  This needs to change.

Here are some ideas from the team at areobooks that we think could help the digital retail environment for books, in particular ebooks, move forwards:

(1) Give authors control over how their books are sold.  Agency, wholesale and subscription models all take control away from authors.  Wholesale does this most obviously, but agency means that retailers have an interest in controlling content (e.g. price and marketing) and subscription is so complicated very few people understand how the money gets divided up.  Authors understand their content best, so why not let them control it?

(2) Get readers more involved.  Why not give readers more access to authors and their books to foster a greater sense of community?  Some websites already do this, but why not also combine this sense of community with the retail element?

(3) Keep it simple.  The best ideas are usually simple.  Solutions that are complicated tend to feel artificial and are also more open to being subverted.  The recent press about Kindle Unlimited is an example of this.

(4) Royalties don’t add up for ebooks.  Sure, a 70% royalty is better than a 35% royalty, and a 35% royalty is better than a 15% royalty.  But why is a 70% royalty the right royalty? Why not an 80% royalty? Why not a 100% royalty?

(5) Get rid of conflicts of interest.  The agency model creates a conflict of interest for the retailer because they have an interest in authors selling more books and this provides a temptation to attach strings and undermine the control authors have of their books.   

(6) Author subscriptions.   What about a system that charges authors a small amount to sell their ebook through the platform?  For example, authors might pay £9.99 per month to have an Author Account on the website.  However, the website takes no commission from sales, meaning authors get 100% royalties on the books they sell.  This is great because, among other things, it: (i) removes the conflict of interest from retailers; (ii) gives authors the potential to earn much more; and (iii) would create an element of curation because only serious authors would be willing to pay the subscription, which in turn would give readers confidence that time spent on the website is not wasted.

None of the points listed above are complete solutions.  But they’re a good place from which to start.  Over the next few months the team at areobooks is going to be talking to as many authors and readers as possible to understand their views, pain points and overall genius in an effort to create a solution that works for everyone.  A solution exists, we just haven’t found it yet.

What do you think? We’d love to hear your thoughts!