How Kindle Will Kill the Book Star

Amazon’s (AMZN) Kindle will do to book authors what the internet has done to newspaper journalists-- and I don’t mean this in a good way-- by broadening the reach and influence of the writer. It’ll only serve to reduce their numbers as digital economics are horrible for those who spend 18 months or more writing a hardcover book, only to see it sold for US$9.99 on Kindle.

The lyrics to The Buggles - Video Killed the Radio Star song seem so appropriate:

I heard you on the wireless back in Fifty Two
Lying awake intent at tuning in on you.
If I was young it didn’t stop you coming through.

Oh-a oh

They took the credit for your second symphony.
Rewritten by machine and new technology,
and now I understand the problems you can see.

Oh-a oh

I met your children
Oh-a oh

What did you tell them?
Video killed the radio star.
Video killed the radio star.

Pictures came and broke your heart.
Oh-a-a-a oh

—–

In my mind and in my car, we can’t rewind we’ve gone to far.
Pictures came and broke your heart, put the blame on VTR.

—–

Video killed the radio star. (You are a radio star.)

I had a chance to play with the Kindle 2 for a few hours last week, until I realized that the only appropriate thing to do was to “lend” it to someone who seemed even more keen on it than I.

At first glance, you can’t but help be excited about the idea. Books and newspapers sitting on a small device, waiting to be brought to life at the push of a button, wirelessly. With 284.265 books available to download from Amazon.com, most of which sell for US$9.99, you’ll never run out of something to read. And the electronic library is growing by 500 books a day. Compared to lugging Warren Buffet’s 800-page Snowball around, it is quite convenient for consumers; particularly those of us who usually find time to read while traveling.

But the Kindle will financially ruin most authors. At least those who once thought they could make a living from their trade.

Here’s why. Book authors live off royalties, a portion of which they receive up front in the form of an advance. For most authors, their entire income is the result of these two fee streams; few ever hit the speaking circuit a la former U.S. President Bill Clinton. For a publisher, they try to determine how many books will sell of a certain title, apply 15% to that figure, add a buffer, and offer that as an advance for the right to publish a certain title. Once the book sells enough to cover the advance, the author gets ~15% of the cover price of each book sold. If a book store has a sale on bestsellers and discounts it by 30%, the author’s royalty is still based upon the cover price.

In the Kindle world, early murmurs are that authors are going to receive somewhere between 10-25% of the “net” that the publisher receives from the online book store; the topic is still so new that the rules are still being devised and negotiated, but this appears to be the current direction.

Let’s pick a few books and see what the Kindle will do to the livelihood of writers, assuming Amazon.com only takes 30% of the purchase price of a Kindle book as their markup:

Four Seasons by Isadore Sharp

In a U.S. book store, it will cost US$29.99
Author commission: US$4.50

From the Kindle store, US$16.47
Author commission: US$1.15 - US$2.88 (26%-64% of traditional)

The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb

In a U.S. book store, it will cost US$27.00
Author commission: US$4.05

From the Kindle store, US$9.99
Author commission: US$0.70 - US$1.75 (17%-43% of traditional)

Soros: The Life, Ideas, and Impact of the World’s Most Influential Investor

In a U.S. book store, it will cost US$27.95
Author commission: US$4.19

From the Kindle store, US$15.37
Author commission: US$1.08 - US$2.69 (26%-64% of traditional)

First Family by David Baldacci

In a U.S. book store, it will cost US$27.99
Author commission: US$4.20

From the Kindle store, US$9.99
Author commission: US$0.70 - US$1.75 (17%-42% of traditional)

Saavy and best-selling author Michael Lewis appears to have not yet released his Kindle rights on Panic, even though his most recent hardcover book was published last November. Yet Izzy Sharp’s Kindle version was released contemporaneously. Who has the right strategy?

Some will argue that Kindle book sales are all incremental, but I don’t buy that. If the 17% royalty figure is directionally correct, an author would need to sell six Kindle books to earn the same as a hardcover sale. Certain online shoppers may add a title to their shopping cart based on the theory that “it’s only US$9.99″. But I don’t ever find myself shopping using a budget of “this is what I’m going to spend today on books”, and then spend that $40 on four Kindle books rather than one Canadian hardcover.

I can see how it might boost sales of older titles, such as the 2005 Charlie Johnson in the Flames by Michael Ignatieff. The economics here make some sense, with the Kindle version selling for US$8.00 and the hardcover being available for US$12.00 (plus shipping), both from Amazon.com.

But no author ever made a living with a $12.00 hardcover book price.

Let’s consider the notion that Kindle buyers will download twice as many titles as they would otherwise buy in a book store. So long as they make up even 20% of the buyer universe for your book, the economics are worse for writers. Here’s the analysis:

25,000 hardcover sales generates commission of $105k

If you still sell 25,000 books, but 20% (5,000 sales) come via the Kindle, total royalty payments are $87k

For an author to be flat royalty-wise on the 25,000 hardcover sale figure (having sold 20,000 hardcover books), Kindle sales may need to reach 30,018. Replacing 5,000 lost hardcover sales might require six time as many Kindle sales to earn a writer the same income.

The pricing for digital sales made sense for musicians, since Bearshare resulted in zero revenue. That problem doesn’t exist in book-land. Danielle Steele need not worry about the Kindle age, but most Canadian authors sell less than 10,000 hardcover titles; few will ever hit the best seller list. The economics of publishing are so poor right now, publishers aren’t in a strong bargaining position.

But selling new release books for $9.99 will eventually drive a majority of authors away from their trade.

Comments

[Andrys:]

Currently, if the bestseller list price is $25, and Amazon chooses to sell the Kindle book for $10, Amazon still must pay the publisher 35% of the list price the Publisher chooses for the digital version.

So, with a $10 bestseller, the publisher gets almost $9 (split with the author as in their contracts) and Amazon pockets a little over $1.

Off the bestseller lists, I see that Kindle books are less discounted, with newer ones selling for about $15. Books that were popular a few years ago will pull less than $10 though.

May 17 04:37 AM

[curious cat:]

i'm confused. why do you need a publisher, now that you have amazon? won't authors start making direct deals with amazon and get the lion's share for their work? the justification for paying a publisher a huge cut is gone. amazon can crank up a side deal with a publisher for small runs of hardcopies based on the number of orders it receives for them. authors should be able to get a much better deal now.

May 17 10:08 AM

[vassar:]

Couldn't the Kindle increase sales as it will kill the used book market?

May 17 12:29 PM

[brahmburgers:]

I am a writer who has a few titles on Kindle. For starters, their format restrictions change the format of the book, and doesn't do good enough job for graphics. One of my titles, dealing with Thai language, won't work with Kindle because of the foreign fonts in the original text - so Kindle is a limited platform for readers.

May 17 07:36 PM

[Richter Scale:]

It'll be interesting to see how "content creators" manage to earn a living in the digital age. People are getting used to downloading anything that can be digitized for free or low cost. Does this business model seem sustainable to anyone?

May 17 08:29 PM

[Ric Merrifield:]

Don't underestimate the value a publisher adds. A great book still needs editorial help and the PR push they can provide is enormous.

Beyond that though, why not look at this more like the American Idol phenomenon? I think more music is selling now, and even though it's one song at a time instead of albums, we are getting access to more artists than ever (even if they aren't to my taste - I am more of a Buggles guy myself) and the good ones are making piles of money.

So while I think there's a lot of rethinking (and getting out of what I call the "how" trap in my book) that needs to go on in the publishing world, I wouldn't rush to compare it to newspapers and radios because I think there's a more positive evolutionary trend going on.

-Ric

May 18 10:01 AM

[raytayzmd:]

...one of the dumber articles I've read...I am simply amazed how narrow minded people become when they start discussing Kindle!...think of the POSSIBLITIES...first, contracts CAN BE RE-NEGOTIATED!...and since no authors means NO PUBLISHERS, I kinda suspect something along that line will occur...second, as pointed out by "curious cat" -- WHO EVEN NEEDS PUBLISHERS?...a good author could simply hire themselves a good press agent and tell the publishers to KMA!...and for the joker who complained Kindle being a "limited platform" because it doesn't include "Thai fonts" -- cut it some slack, already!...Kindle is only marketed in America right now, okay?...the Thai population wanting Thai books probably isn't terribly large right now in America...HOWEVER, since Kindle is still growing and evolving, MAYBE SOME DAY, Amazon will get around to including Thai fonts and might even start publishing Thai books!...just think of all the POSSIBILITIES!

May 18 10:11 AM

[Oscarrob:]

It's not that its a dumb article, just that it fails to recognize some major facts - Kindle sales will likely increase sales during the Hardcover publication because of price but they will also cut into paperback sales at a higher price, thus benefiting the author, publisher and Amazon. The contracts can, of course, be adjusted once the digital market is understood and matures. Also, on the cost side it eliminates distribution, inventory and production costs for all books sold on Kindle thus increasing margins even though sales may be reduced. There is a lot more to the economics of publishing, and author compensation, than meets the eye so it remains to be seen who it benefits (other than the reader and Amazon) and what the trade-offs are.

May 18 08:01 PM

[LoneRngr:]

a good article, as it's designed to provoke thought and stimulate debate. no one knows for certain how the kindle will change author compensation. one thing we do know is that there will always be a need for content. the medium doesn't matter as much as the content. personally i'm having a hard time trying to reconcile the purchase price of a kindle, at $300+ for the device, plus $10 per title, you need to be a big reader to make the economics pay off. the kindle also won't make people read any faster, so i don't buy the argument for more purchases on the kindle. eventually though the kindle (or knockoffs) will catch on and bring device prices down. the potential to revolutionize the newspaper and magazine industry is huge (publications that are generally thrown out immediately after reading), but i digress.

i know the industry will find a new model that works, and publishing costs will come down. traditional paper publishing is a dying business. thanks to lower barriers to entry more authors will be able to come to market. self-publishing ("glamor press") is becoming easier and easier. the new choice however could overwhelm readers and dilute the existing talent pool of published works, with a likely outcome causing polarization of authors - some could earn a bundle thanks to "best-seller" lists, where number of downloads are tracked, and a great many could earn next to nothing. in the end, a redistribution can take place and life will go on...

Jun 04 04:01 PM