Hugh Howey
Hugh Howey

Bestselling author of Wool and other books. Currently sailing around the world.

The Sky is Falling! The Sky is Falling!

Waits.

Okay, maybe tomorrow.

Or the day after that.

I’ll get back to you.

But it’s definitely going to fall. At least, that’s what authors keep telling me about Amazon’s 70% royalty rate. I have heard this at least once a month for two years. Rates used to be lower before the iBookstore and B&N began competing for self-published clients, so the argument goes that once Amazon forces out their competitors, they’re gonna halve the royalty rate and rake in all those juicy profits (the Wall Street crowd is laughing right about now at the concept of Amazon raking in profits).

Let’s ignore the wild assumption here that Amazon is somehow going to force all competitors out of a market that has almost no barrier to entry. (We could all sell PDFs on our websites for 99 cents if we want). I think this second and equally irrational fear of halving our payout arises from the huge discrepancy between what online distributors pay self-published authors and what traditional publishers pay their authors. How can Amazon and B&N and Kobo afford to continue paying 70% royalties when major publishers only pay 12.5%? Surely this is a false market that must eventually collapse, right? Right?

Wrong. There’s a fallacy in this fear. Two fallacies, in fact. The first fallacy is to ignore the fact that traditional publishers have expenses besides the author. They have buildings to lease, employees to pay, printing costs to consider. That 12.5% is just one expense that comes out of a larger pot. So the first fallacy is that the royalty split is insanely generous. The second fallacy is that this is even a royalty we’re earning. It isn’t. It’s not a royalty at all.

When I worked at a small bookstore, we typically received 40% discounts on the books we ordered. That means we were happy to keep 40% of the profit and send 60% back to publishers (which they split with the printer, author, etc.) 40/60 isn’t far off from 30/70, which is what Amazon and B&N pay. Nearly the same split, but the difference in overhead is enormous!

So the fear mongers want us to be terrified of a profit split that is nearly identical to the profit split that bookstores have used for decades. The reason is that they confuse a wholesale price for a retail good offered for a royalty. My 70% pay isn’t a royalty. When I hand Amazon a book to sell, I’m telling them they can have it for 30% off my retail price. A price that I get to set.

Just like a publisher, I do all the work of producing and delivering a product. They get 30% in exchange for distributing it. That’s not a crazy deal. What blinds people to the fairness of this rate is the comically smaller royalties from major publishers. We have come to think of 12.5% as fair. But again, this is a bad comparison. Royalties to authors aren’t the same as profits to publishers. We are the publisher when we self-publish. So start comparing our 70% take to a publishers’ 60% take when they deliver a book to a bookstore —  keeping in mind that we don’t have a physical location to lease, shipping costs, or employee wages — and you’ll see that this is a very fair, sustainable, and permanent rate. If anything, there’s room for it to be more generous.

Just like the sky, this rate isn’t coming down. And I’m not afraid to put a public declaration on this. Because hey, the chicken littles and the Jeremiads are wrong every single time. Yes, even tomorrow. Especially tomorrow.

91 replies to “The Sky is Falling! The Sky is Falling!”

I’m not a writer but truly appreciate good writing. In the past we relied on publishers weeding out the junk and only taking to print good books. Now we have self publishing and yes I have bumped in to some bonfire junk. But oh the treasures! Wow there are some terrific self published books. I find myself wondering where this or that author has been hiding. Love this idea…. And digging for gold.

But, but, but…they’re hurting people who want to charge a higher price…or something.

BTW, just as a side note, I know that traditional publishers are supposed to weed out bad stuff, but given what I’ve seen on shelves(from Modelland to Pregnesia), they’re not doing a very good job. At least with indie the market gets to decide.

Back when I originally self-published (1992 through 2003), the only way I could get distributed in bookstores was through companies like Ingram, and Baker & Taylor. I had to give them 60% off the $12.95 retail price of each book: the breakdown was 20% for distribution and 40% for the bookstore discount. So, for each trade paperback I received $5.18. From that I had to recoup my printing, production costs and shipping costs, which came to about $2.00 per copy, not including eating the damaged returned copies. That means I would see a max return of 24%.

Publishing in any form (paper or digital) is a business. In the case of ePublishing, at least I don’t have to store thousands of copies in my apartment or basement, nor do I have to invest thousands of dollars to keep a minimum number of copies in print to maintain a back list.

As a self-publishing writer today, even getting 35% of the retail price is almost 50% more return on my effort than what I could expect back then.

As usual, Hugh sums it up eloquently.

Amazon.com’s focus has always been the customer–in this case, the reader.
And paying 70% is not particularly generous for a distribution arrangement–it’s just fair.
But paying a fair percentage to content creators (writers) also serves the reader. It ensures that the best content will always be available to Amazon’s customers, and priced in the most consumer-friendly way.

Thank you for once again reminding us that the sky is not falling.

Next month, when the alarm bells ring again (like they always do every month), just link everyone to this post and save us a lot of time.

When I was published by a paperback mystery line, as a paperback-only author I earned a whopping 4% on the first 50,000 copies sold. Since midlisters didn’t tend to sell that many copies over the life (often cut tragically short) of a paperback novel, that princely sum was the best most of us could hope to do. This was a “big five” publisher whose terms were not unlike those of others of their size, so I think I was in pretty good company.

An important thing to consider is the overhead for distributing an ebook. It is almost nothing. So there is considerably more money available in that 30% share that Amazon takes.

Yes, servers consume electricity, storage media for those servers costs money, software and maintenance is needed, too. But those systems already existed for Amazon’s retail sales effort. An ebook is a file that that has no further production costs and takes up no warehouse space, and in file size is not much bigger than most JPEG images used for promoting various items they sell. There are no fuel and transportation costs involved, and no need for buybacks of unsold stock.

Outside of pure greed, there is no incentive for Amazon to step out of the current share ratio. By keeping authors as happy as possible, it increases the likelihood that Amazon will be the go to sales outlet that authors send potential customers. A change in Amazon’s ratio would also possibly open the door for competition to draw authors to their own market.

Amazon’s KDP Select program offers the chance to make more money through other channels in exchange for giving Amazon a three-month exclusive on new releases. If Amazon is going so far as to incentivize exclusivity, why would they want to cut the share ratio? Well, they could do it to drive more author’s into giving Amazon a three-month exclusive agreement on new releases. But right now they are trying to attract authors to their market place, not antagonize them and possible drive them away.

As Mr. Howey pointed out, even if Amazon did slip the ratio a bit, it would still be a better split than with a legacy publisher and a share from a larger piece of the pie. The one place where e a publisher wins over Amazon is they can offer an advance against future sales, where Amazon will definitely NOT do that. Amazon is a distributor, not a publisher. Well, yet—we’ll have to wait and see what the future brings on that development.

This is misinformation. When you worked for a bookstore they didn’t keep 40% of the profits. They kept 40% of the sales price. That is totally different. You started off correctly in talking about overhead. What about your salary when you worked for the bookstore or the rent, heat, ac, carrying costs of inventory. The comparison is totally wrong. Just as it would be to say the publisher would keep 60% of the profits.

These types of discussions are all fine for self-published books where there are no upfront costs and manufacturing costs. But once you start moving away from self-published ebooks, the bulk of the market, the facts change. The publisher has significant costs, most importantly the guaranteed advance. And don’t forget that books are returnable and only sell between 50-60% of what’s distributed. The publisher could not possibly give a 70% royalty on a book with traditional costs or they wouldn’t be in business.

Agreed. With all of that. I’m not suggesting publishers should give a 70% discount, and I acknowledge their overhead in the above post and elsewhere. All I’m saying is that the 70% from Amazon should be seen not as a royalty but the other way around. Amazon keeps a 30% distribution fee. It’s profit sharing, not a royalty for a written work.

The fact that Amazon doesn’t have all the overhead you’re talking about is the reason they can beat the 60/40 split. All those costs you mention are precisely my point! If bookstores can afford a 60/40 split (which is the critical fact here; there is no misinformation), then Amazon can afford a 70/30 split with their far lower overhead for digital delivery and lower incidence of returns.

I assure you my conceptualization of this 70% payout is solid. Perhaps I’m not explaining it well enough. I very much agree with what you are saying. It is actually one of the central points of my argument.

A very insightful comparison. If physical bookstores got only 40% with all that overhead, then 30% is very generous for online bookstores. But it should also be noted that since ebook prices have dropped, the 30% discount amounts to substantially less $ per book. But that is only as it should be since the cost of selling a book online is much lower. In the end, as long as there’s competition (and there always will be, because, as you point out, the barriers to entry aren’t that high), the retailer’s keep will fall roughly in line for costs.

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Howdy! Questo è un po ‘ off topic , ma ho bisogno di qualche consiglio da un blog di stabilita.
E ‘ molto difficile creare il tuo blog ? Io non sono molto techincal ma
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[…] Hugh Howey: Der „Silo“-Autor gehört zu den Selfpublishing-Stars und wendet sich in einem aktuellen Blog-Beitrag gegen Spekulationen, wonach die von Amazon und Co. gezahlten hohen Selfpublisher-Honorare bald der Vergangenheit angehören könnten. Denn wie Howey überzeugend darlegt, entfällt beim Selfpublishing nicht nur die gesamte Kostenstruktur traditioneller Verlage, sondern handelt es sich bei den Zahlungen auch nicht um Autorenhonorare im gewöhnlichen Sinne: […]

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