Is Amazon Unlimited Fair to Indie Authors

Taylor Swift made Apple blink. Apple introduced a subscription music service (Apple Music) in June and, since they are late to the game, offered the first three months free to those who sign up. Good news for music listeners, for sure. Swift’s complaint: Apple decided since it would not be paid during those three months, it wouldn’t compensate independent artists (and others who would earn royalties from their songs: writers, producers, etc.) during that period. In a blog, Swift called on one of the world’s largest and most profitable corporations to pay artists fairly.

What is fair in a subscription service? Apple thought fair meant that if it wasn’t paid it did not need to pay those whose creative works it was using. Swift called them on it and they backed off.

For books, the latest trend has been for unlimited subscription services. For consumers these subscription services offer a clear proposition: for typically about $10.00 a month you can receive unlimited electronic book downloads, with two caveats. You may be limited to the number of downloads you can have at any given time, and (more importantly) the books have to be available within the subscription service.

Publishers negotiate terms for their books; indie authors take the terms offered or their books aren’t included. Now, let’s zero in on Amazon. There is no Taylor Swift of the publishing world to make Amazon blink, so let’s go back to basics and build a model of fair compensation and see how Amazon’s methods compare.

Fair compensation for books

The author offers an ebook on Amazon and sets the price. Amazon determines what royalties will be (which depend on the price of the book and whether or not the book is available elsewhere). The indie author can take those terms or not have their book available on Amazon. Let’s assume the author accepts the terms. When a customer buys the ebook in the usual fashion from Amazon, the author is (eventually) paid the royalty amount.

It seems to me that when Amazon sets up a distribution system that parallels their online bookstore , the starting price for fair compensation is the amount the author would have received had the book been purchased from Amazon.

Reasonable so far? Good. However, let us recognize that there is additional recordkeeping required to keep track of subscription customers, even though much of that is automated. Just as Amazon charges a very small delivery fee for an ebook sale, it is reasonable they should charge a very small fee for each ebook delivered through subscription and that this fee should be a bit higher, because the process is a bit more complicated. I’ll stipulate the author should perhaps receive a few cents less from a borrowed book than a sold one.

Now, one problem with unlimited downloads is that there is no reason for people not to download any book that looks even somewhat interesting. In order to set a reasonable monthly price for the service Amazon only wants to pay authors for books subscribers actually read. Unlike a direct purchase, where Amazon does not care whether the book is ever read, with a fixed-price subscription service, that sounds reasonable and fair to me.

What if someone finishes part of the book, but not the entire book? Until July of this year, Amazon’s policy was that if someone read 10% they counted it as if the whole book was read. Effective July 1, they changed so to get full credit, the subscriber must read all the pages. I’m okay with that with fiction. If a fiction reader stops reading, presumably it was because they stopped receiving value.

However, consider a nonfiction book might be 250 pages of text and 50 pages of detailed footnotes documenting all the research and giving links to further material. With that kind of book I am unlikely to read but a fraction of the footnotes, but knowing the footnotes are there does have value to me even if I do not read them. Some nonfiction authors may not be compensated appropriately for their work. Since I do not write that kind of book, I’ll let others suggest a solution. I’ll use novels as the basis for our continued discussion.

Summary of fair:

[ (Retail price) X (royalty rate) – (small transaction fee) ] x (proportion of book read)

Hit me in the comments with your objections.

Here is Amazon’s proposed structure starting July.

(1) Set aside a pool of money each month (which they alone determine).

(2) Divide the pool by the total pages read by subscribers during the month.

(3) Multiply that result by the number of pages read for each author, and voilà we have the author’s payment.

How Fair is That?

Let’s start with the good stuff. The revision recognizes the number of pages read. Heretofore two authors, one of a thirty-page “book” and the other of a 1,000-page book, were paid the same amount if a subscriber read at least 10% of each. This new methodology recognizes there are different value propositions given book size.

There is no recognition that one author may price his 250-page book at $1.99 whereas another prices her 250-page book at $5.99. Amazon treats them the same: 250-page commodities. (Pages are determined based on an Amazon standardization process, so authors can’t game the system based on huge fonts, etc.)

Under the Amazon system authors must take on faith that Amazon will treat its content producers well. There is no history to believe this has been or will be the case. For example, Amazon unilaterally reduced royalty payments for Audible. The prior system also relied upon Amazon determining the size of the pool, but compensated authors equally for every book read (at least 10%). Below is a chart showing the author’s payment per downloaded (and “read”) book. It started almost 30% higher than when it ended.

If you had a book listed for $0.99 you did REALLY WELL under this program since you were compensated more for a borrow than a purchase. At $9.99, not so much. Last month Kindle Press released my book ANT FARM at $3.49. I have a contractual 50% royalty rate for sales. In recent months the equivalent payment from Kindle Unlimited would have been about 40% of that royalty.

To the extent that price is a rough approximation for number of pages, its elimination from the equation would be reasonable. (Although given payments are all determined through computer programs, why is it necessary to make that assumption?) But in reality price is not a proxy for length.

The Fatal Flaw in Amazon’s Payment Platform

For me, the biggest bugaboo is that Amazon determines the size of each month’s pool. It “adds” extra dollars each month and uses that as an opportunity to pat themselves on the back with a glowing press release. As the chart above illustrates, there is nothing to stop Amazon from reducing rates.

The big-five publishers all negotiated whether Amazon can include their books in Kindle Unlimited, and if so with what compensation Amazon must pay them. Indie authors can take or leave Amazon’s offer.

Is it fair? Let me know what you think in the comments.

~ Jim