Friday, 18 July 2014

Don't Panic!

This week Amazon leaked and then launched Kindle Unlimited in the USA. It's an all-you-can-eat reading service for $9.99 with approximately 600,000 titles in it so far.

The service includes hundreds of thousands of KDP titles (i.e. those in KDP Select like our own Cleaver Square Spanish Edition) plus some big names.

The latter, I believe, are not on the same terms as the KDP lot. From the rumours on the net, it appears the big names are getting their full contractual royalty.

But indies aren't. Here's what we get according to the KDP Select Terms and Conditions (scroll down within link to see original context):

"2.3 KDP Select Fund. We will establish a fund on a monthly basis and
you will be eligible to earn a share of that fund for each of your
Digital Books included in the Kindle Unlimited and Kindle Owners'
Lending Library Programs. You will earn a share of the monthly fund,
calculated as the number of qualified reads of your Digital Book
through Kindle Unlimited plus the number of qualified borrows through
the Kindle Owners' Lending Library as a percentage of the number of
total qualified reads and borrows of all KDP Digital Books. This share
is your total Royalty for customer access to your Digital Book through
the Kindle Unlimited and Kindle Owners' Lending Library Programs. For
example, if the fund for a particular month is $1,000,000, your
Digital Book has 1,000 qualified reads through Kindle Unlimited, 500
qualified borrows through the Kindle Owners' Lending Library, and
there are 300,000 total qualified reads and borrows for all
participating Digital Books in that month, your Digital Book will earn
$5,000 ($1,000,000 x 1,500/300,000 = $5,000). We will determine in our
sole discretion the criteria for determining which customer events
qualify for this calculation. A maximum of one event per customer
account will qualify for each Digital Book. We may publically announce
the top Digital Books, including the author, publisher, number of
qualified reads and borrows, and KDP Select fund royalties earned."

In short Amazon create a 'fund' then divide it up by 'units' neither of which are all that fixed.

Firstly, the fund - Amazon set this, in their sole discretion. Authors have no control over it.

Secondly, the 'qualified reads'. The terms don't actually define qualified read but my understanding is that for KOLL (the one book per month free with prime) a qualified read is 'on download' whether the book is read or not. Conversely, a qualified read for Kindle Unlimited may well mirror other subscription services like Scribd where partial reads under 10% are discounted and over 10% count as a unit (or part thereof).

From a 'I want to know how much I'll be paid' perspective, this sucks. We don't know how big the pie is or what slice of it we'll get.

We can guess. If Amazon charge readers $10 and maintain the 30%-65% cut they charge on books at the moment then that leaves $3.50 - $7 on the table.

I suspect it may be a tad more - subscriptions are cheaper for Amazon as there are less micropayments (taking one big $10 chunk costs less than 10 x $1).

Let's be really generous and say it's $7.50.

There are 4.3 weeks in a month.

  • If, on average, a KU reader reads past 10% once a week  then that's about $1.74 per book into the fund.
  • If they read two a week then that's $0.87 per book into the fund.
  • If they read one a day then that's $0.25 per book into the fund.


Of course, it isn't this simple. Amazon are merging the Kindle Unlimited Fund into the Kindle Online Lending Library fund. That has historically paid about $2 a borrow give or take about 15%.
Now, that's one per month per reader (who has prime).
Not everyone has prime, so not all KU subscribers will be prime members. I don't know what proportion will be.
Let's guess at half - probably on the high side but early adopters are probably big Amazonians.

Fund share = assumed $7.50 from above.

Non-Prime:

  • One read a week (Fund share /4.3) ---> $1.74
  • Two a week (fund share/ 8.6) ---> $0.87
  • One a day (fund share/ 30) ---> $0.25


Prime (assuming ALL use their borrow):
One a week ---> $2 for the first read plus 3 more at the rate of (Fund share/ 4.3] = $1.74 ---> $1.81 on average.
Two a week ---> $2 for the first read plus 8 (rounding up) at the rate of $0.87 ---> $1.00 on average
One a day ---> $2 for the first read plus 29 at $0.25 ---> $0.31 on average.

Now, if half are prime members then we'll be dead in the middle on an average pay to author basis so $1.77 / $0.93 / $0.28. I suspect less than half will be prime, and that only a proportion of prime members use their borrows.

We know that there are 'over 20 million prime members' (http://www.businessinsider.com/amazon-prime-members-2014-1). We also know the average royalty in KOLL has been $2 - indicative of about 600,000 borrows per month... suggesting less than 3% of prime users actually use their free book each month.
On that basis, the 'non prime' figures likely to be much closer to the truth. Even if they aren't, we're talking about a swing of pennies per copy caused by prime.

Now if we suggest Amazon want a bigger cut of the $9.99 e.g. the half off that they've been rumoured to be asking for as their margin from hachette then we can take a knife to a third of those royalties reducing them to:

  • One a week -  $1.15
  • Two a week - $0.57
  • One a day - $0.17

So how does that compare to the amount earned by the author on a sale? An author selling for 99c gets a flat $0.35. If the average reader reads less than four Kindle Unlimited books a week, the author gains on average.

But at $2.99, the author gets $2.00 (minus a few cents if the file is huge as authors get charged for delivery). He only wins if the average subscriber takes out 3 books a month. If the average reader grabs 4 ($1.75 a copy to the fund plus adjustment for prime) then he's making less.

At $4.99 ($3.50 royalty) then you'd need Mr Average KU Subscriber to read two books a month or less.

What this tells us is that authors are unlikely to maintain their current margins. Unlimited subscriptions increase usage (as proven with buffets the world over, netflix, spotify etc). We're talking of course about averages. On average, authors lose out - and Amazon gain as authors have to give them exclusivity to get into KU.

In my experience borrows cannibalise sales.  Why would a sensible reader buy what (s)he can have for free (or included with a prepaid plan of some kind)?

Individual authors may do very well - I forsee a 1% economy in play here as in the rest of the kindle store. The big names will get tens of thousands of downloads while others languish. We know that one sale a day at present nets a ranking under 100k on Amazon.com. That suggest the other 2.4m+ don't get one a day i.e. downloads are concentrated into a very small number of authors nabbing very large numbers of downloads. Those doing well now are likely to get a disproportionate share of the fund. Think of YouTube - the big get bigger and the unloved stays unloved. There may well be a few break-outs, but this is going to depend both on word-of-mouth and on exposure algorithms within the KU store pages.

But what about readers? Is Kindle Unlimited worth $9.99?

The 'occasional reader' of a handful of titles is best off just buying their books. We can already see that. So those who subscribe are likely to be voracious - which means we're probably looking at royalties under a dollar on average. If you're spending more than $9.99 a month at the moment then KU is obviously worth considering - IF the content contained within it is what you want to read. With a one month trial available for free there's no harm in giving it a go (just untick autorenewal!).

But, will savvy readers go for it? Those who want to save a few pence (i.e. the demographic KU is targeted at) might realise that Select titles (i.e. ALL the indie books in the KU offering) were probably given away for free at some point. KDP Select free days and countdown are the reason authors/ publishers opt in. As a reader, I'd personally rather pay slightly less and go to Scrib'd for a wider selection... or I would if they could deliver to my e-Ink kindle. But they can't and Amazon can. I don't see the point in paying a sub for titles that may well be free at some point in the next 90 days (the length of the KDP Select term).

KU may fail for lack of quality content - or Amazon will suffer the hit and pay full royalties on the big names just to get the content that will hook everyone. I think it'll be a lot like early video streaming - that early adopters will soon read everything they want to and may unsubscribe until the content selection is more mature.

Amazon may also take a hit on the cost. They might run Kindle Unlimited at breakeven rather than profit, or even take a loss to increase subscriber base. Books are great, but Amazon makes a lot more money getting readers to engage with their ecosystem - their devices (inc phone, tablets etc) AND their store. Books cause engagement - and they deliver rich customer behaviour data. Amazon might decide that information is worth forgoing a cut (or some of the cut) of the eBook subs.

Or they might do what most big corporations do - keep content providers happy in the short to medium term to gain market share then use that dominance to slice margins to a razor thin level - and if you look outside of ePublishing, Amazon has pressured suppliers in the past.

Why then, is this entitled Don't Panic?

A few reasons. Firstly, some people want to own rather than buy. We don't stop selling. DVD sales are down, but they do still sell. We will probably see less sales in the long term in eBook format. But it won't drop to nothing.

Secondly, indies can adapt. We can put out shorter works - they still count as 'a unit' so those putting out short stories (particularly in erotica) stand to gain a huge number of units at the expense of longer books.

But thirdly, we can survive on less. Big publishers cannot operate on 17c royalties. They just can't. If they get forced into similar terms then they'd go bankrupt. Authors with those publisher on 25% lockstep net royalties would end up with 4c per copy.

If you think about that, we're a million miles better off. We don't have high overheads. No staff (except freelance) for most, no New York/ London offices.

Of course we should keep an eye on this. It might well work best for back list/ specially created titles to help engage readers to buy the rest of our books. It might be a great discovery tool like Netflix. It might mean we have to think about other ways to monetise - and we're well placed to innovate in that regard. Indies can react and adapt very quickly - much more so than our competitors.

So proceed with caution. The sky isn't falling and book sales won't nosedive this week - but do think about where your place in this new publishing paradigm is.

7 comments:

  1. Update - Amazon are now telling authors about this (AFTER it was already live!)...
    Details are as expected.

    "Hello,

    Today we are excited to introduce Kindle Unlimited-–a new subscription service for readers in the U.S. and a new revenue opportunity for authors enrolled in KDP Select. Customers will be able to read as many books as they want from a library of over 600,000 titles while subscribed to Kindle Unlimited. All books enrolled in KDP Select with U.S. rights will be automatically included in Kindle Unlimited.

    KDP Select authors and publishers will earn a share of the KDP Select global fund each time a customer accesses their book from Kindle Unlimited and reads more than 10% of their book-–about the length of reading the free sample available in Kindle books-–as opposed to a payout when the book is simply downloaded. Only the first time a customer reads a book past 10% will be counted.

    KDP Select books will also continue to be enrolled in the Kindle Owners' Lending Library (KOLL) available to Amazon Prime customers in the U.S., U.K., Germany, France, and Japan where authors will continue to earn a share of the KDP Select global fund when their book is borrowed. KOLL borrows will continue to be counted when a book is initially downloaded.

    For July, we've added $800,000 to the fund, bringing the July fund amount to $2 million.

    Learn more about Kindle Unlimited. Visit your Bookshelf to enroll your titles in KDP Select, and click on "Manage Benefits" to get started.

    Best regards,
    The Kindle Direct Publishing Team"

    ReplyDelete
  2. Once more, Sean, you jump to the forefront in sharing with us: "all things affecting indie authors." Truly, you dazzle me with your immediate grasp of the nuances embedded in Amazon's latest program. Thank you so, so much. You have one of the kindest hearts I've ever come across.

    ReplyDelete
  3. One download a month is worth $1.2 mil... but unlimited is $2 mil?!

    ReplyDelete
    Replies
    1. While true, this is only for July. A 66% increase with only 2 weeks of Kindle Unlimited use this month should keep July payments relatively high. This might be counteracted by a rush of new subscribers trying the service out for free and downloading in bulk. Readers can grab ten titles at a time under KU but the chance of them reading past 10% on all ten straight away seem a little remote.

      It's going to take time for this all to settle down - both in usage and pot size. Amazon won't want to cut the rates too low too soon. They want exclusive content - it denies both subscription AND sales content to all the other vendors and maintains Amazon's dominant position.

      Long term, I think we'll see a drop - but as above, if you can write more/ write short and write commercial content then you'll still get plenty of eyeballs.

      Delete
  4. So how do you feel about this now? I'm a newer Kindle author (since 2012) and really haven't had any way of nailing down how KOLL works for my side of the fence. I can see through the reports section of KDP where there are KU/KOLL units downloaded, though in my Excel report, there is really no information for me to go on past the number of KU/KOLL units downloaded. So I just wondered if you could touch on that a bit. Thanks, Dave

    ReplyDelete
    Replies
    1. Hi David,

      We've had a bit of an experiment comparing Cleaver Square in and out of Select. Overall, we've seen a moderate increase in unit sales (slightly above the expected recovery rate coming out of the slower June/July summer sales season). Some sales have become borrows - which is fine at the £1.99 price point (as borrow royalty is holding steady due to Amazon adding huge extra amounts to the cash pile - otherwise they would have crashed. Amazon added $2.7 million for August on top of the $2m promised which kept the payout just shy of the historical rate.

      Kindle Unlimited makes sense if:
      a) you price low (which only really works in higher volume genres like romance and crime as otherwise your total income is derisory)
      b) Amazon keep topping up the pot. Without their support it would be too little for us to keep exclusive and
      c) you're not making a killing elsewhere. Our Kobo/Nook/ iTunes/ Google/ Smashwords sales weren't high enough to require us to avoid exclusivity.

      If you're not selling cheap (and thus will feel the hit moving from say 70% of £4.99 to a $2 a pop payout), you've got good sales elsewhere (think 10-15% or more of your current sales volume) or you are concerned about Amazon eventually pulling the plug then avoid KU.

      If you are pricing low, want KDP select perks like free days/ Countdown/ simply prefer the easier admin of maintaining one file/ one sales page/ one payment source (which can significantly cut paperwork hours come tax time!) then try KU. It's only a 90 days term so if you feel it isn't work out, you can easily move back to wider distribution.

      Delete