Why Amazon Must Change Its E-Book Royalties to Indie Authors

by James M. Jackson

Indie authors have had a love/hate relationship with Amazon for years. Circa 2011–12, Amazon decided as a market strategy that e-books should cost between $2.99 and $9.99. This strategy is outdated and harmful to Indie authors.

 Amazon formed their theory as part of their battle with the major publishers about Amazon’s right to discount e-books regardless of publishers’ list prices. At the time, Amazon was trying (and succeeding) to build market share and was willing to sell e-books at a loss. This blog focuses not on Amazon’s turf war with large publishers, but on how Amazon applied their vision of e-book pricing to the detriment of Indie authors.

 I don’t know the exact date, but by 2012 Amazon set the royalty rate for Indie authors at 70%, but only if they priced their e-books in the golden window of $2.99 through $9.99. If an author priced an e-book outside of that preferred range, Amazon dropped the royalty rate in half to 35%. Amazon presented a rationale that went something like this: because there were no production costs, no storage costs, and virtually no return costs, e-books should cost consumers significantly less than print books.

If one only focuses on manufacturing expenses, Amazon’s analysis is correct: e-books cost less to produce per copy than paperback and hardcover books. However, authors sell more than a physical product; they sell hours of entertainment (or perhaps education for non-fiction works). Amazon ignored this inconvenient fact and relied on the cost of production analysis to set $9.99 as an appropriate top price. Perhaps not coincidentally, $9.99 is an attractive marketing price point. It ends in ninety-nine cents and the dollar amount is one digit, not two.

At the low end, they arbitrarily proclaimed that anything below $2.99 was discounting the value of an author’s work below what it was worth, or words that affect. Even if you bought their general philosophy, they left mammoth holes in their logic. For example, they made no differentiation between short stories that could run, say, 5000 words, and multiple-book boxed sets whose total word count could easily exceed 500,000 words.

The only way a short story author could earn seventy percent royalty on their work product was to either charge $2.99 (generally considered way too expensive for an electronic version of a short story) or combine multiple short stories into an anthology. A boxed set containing 500,000 words is the equivalent of five 100,000-word novels, each of which Amazon believes should not cost less than $2.99. Amazon should encourage a minimum price of at least $14.95, but if the Indie author charges that amount, Amazon subjects them to a 35% royalty rate

Amazon retains its right to discount an author’s e-book whenever they chose (and keep paying the normal royalty rate). But if the Indie author discounts their e-book below the $2.99 minimum, their royalty rate drops.

In 2014, Amazon created Kindle Unlimited (KU), a subscription service for readers. Indie authors who choose to list their e-book exclusively in KU have several perks that lessen the financial burden of pricing e-books priced outside of Amazon’s golden window. Two key features are (1) the ability for Indie authors to periodically run promotional sales and keep the 70% royalty rate, and (2) in KU, since it pays authors based on pages read not books read, boxed sets and short stories are on the same footing as regular novels.

Yeah, Jim, I hear you. But it’s been ten years since Amazon created the golden window of pricing, and seven years since they introduced Kindle Unlimited. This is all old news. What has changed?

Inflation.

In the decade since Amazon introduced its golden window of e-book pricing, prices as measured by CPI–U rose 23.543%. (The December 2011 CPI-U of 225.672 increased to 278.802 in December 2021.) Amazon’s golden window of e-book pricing rose exactly 0.000%.

Even if we assume that Amazon’s heavy handed royalty rules were appropriate at the beginning of 2012, they are outdated now. Amazon has not suffered by their lack of action, but Indie authors have. To reflect the overall level of inflation in the decade, the $9.99 maximum should now be $12.34. The inflation-adjusted equivalent of the $2.99 “minimum” is $3.69.

Keeping the $9.99 maximum becomes another method for Amazon to exploit its position as a dominant player in the U.S. e-book market to disadvantage Indie authors.

Since I think Amazon should pay 70% royalties on any e-book, I’m not advocating for them to increase the $2.99 minimum to $3.69. However, Amazon must increase the top end of its golden pricing range from $9.99. I suggest $12.99 as a minimum to accommodate expected inflation during 2022.

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James M. Jackson authors the Seamus McCree series. Full of mystery and suspense, these thrillers explore financial crimes, family relationships, and what happens when they mix. You can sign up for his newsletter and find more information about Jim and his books at https://jamesmjackson.com.