Barnes & Noble, Amazon, and the 70% Royalty

I’ve read a few recent articles that make things sound pretty damn ominous for Barnes & Noble. The company’s been closing storefronts all over the country, so perhaps it’s no surprise that revenue from that segment was down almost 11 percent in the last quarter of 2012. What’s more surprising is that the Nook segment’s revenues were down over the holidays as well — by 12.6 percent. (These numbers are drawn from the article in Publishers Weekly.) It sounds as though the Nook is not competing all that well, at this point.

The closure of B&N would be a bummer for many readers. The majority of people still prefer paper books, and many people enjoy shopping for them in bookstores (though perhaps quite a few of them actually buy the books they’ve found through Amazon). I myself love browsing in B&N. I’ve always loved the big-box bookstores. Even back in the 1990s, I wasn’t one to think they were wicked for driving indie bookstores out of existence. I was too busy being excited about the ability to walk into a bookstore and walk out ten minutes later with exactly what I wanted — Book 5 out of eight in a fantasy series, a piece of literary theory, an obscure magazine, a map of a foreign country, whatever — instead of having to special-order it. That was what made the big stores attractive to me: selection, selection, selection. And they let you drink coffee around their merchandise. That was nice.

Then along came Amazon and put everyone else’s selection to shame; as you might expect, that’s where most of my book-shopping dollars began to go, especially after I moved to a small, rural town and signed up for Prime. Poor B&N.

But when I take off my reader hat and think like an author, I find B&N’s position not just sad but alarming. Here’s the thing: Amazon has recently opened virtual storefronts in Brazil, Japan, and India that do not permit authors to receive the normal 70 percent royalty on books unless they’re enrolled in the exclusive KDP Select program. (Books enrolled in Select may not be sold or given away in electronic form through any other site or vendor.) Amazon has not made membership in Select a precondition for the 70 percent royalty in the U.S., Canadian, or European stores. In those stores, any book priced between $2.99 and $9.99  is eligible for the 70 percent royalty.

But if Amazon’s largest epublishing competitor founders, who will provide pressure to keep royalties up? I’ve read that Amazon is currently pursuing the holy grail of same-day deliveries to major metro areas. To pull that off, it’ll need more major new distribution centers. That’s expensive. Really expensive. And Amazon has always operated with a tiny profit margin.

I can think of one place where huge profit margins are available. Ebooks. Sure, Amazon has some costs in running the KDP publishing platform. It’s a good platform, so it must’ve cost a chunk to develop it. KDP provides has pretty good customer service for its authors. And I’m sure it needs a whole bunch of servers and so forth. But surely the costs don’t compare to those incurred by traditional publishers, which provide editing and design and distribution of a physical product. Not to mention remaindering. If Amazon begins to pay royalties on ebooks similar to those paid by traditional publishers, a whole lot more of that income will represent profit.

As part of the general entity of “authors publishing on Amazon,” I suddenly feel a bit like a goose with a golden egg in my nest. (Well, my personal nest has something more like a brass gumball in it, but there are thousands of indie authors out there who sell a shitload of books.) Amazon’s too smart to kill its layers. But it could well take a much bigger bite of each egg. A 65 percent bite, to be exact. We’re already feeling that bite in three storefronts. It’s hard to believe Amazon wouldn’t like to impose it universally.

That’s why the possible loss of B&N alarms me so deeply. Amazon is an amazing company, but it’s already dominant enough to give me the heebie-jeebies. Once it becomes the only mass distribution point for paper books other than super-sellers, that dominance will progress from heebie-jeebie territory to the land of shaking-like-a-bowl-of-Jell-O. If the Nook goes under along with the brick-and-mortar stores … well … I can’t come up with an adequately quivery metaphor. It’s scary.

We call ourselves “independent” authors, but we’re only independent in some senses. In many others, we’re highly dependent. By and large, Amazon is what we’re dependent on. With every alternative publishing venue that proves unable to compete with Amazon, that dependence grows. It’s not a good feeling.

So come on B&N! Come on Nook!

(Of course, what do I own? Two Kindles. Sigh.)

2 comments

    1. You said it, Fred. For the time being, I actually really admire “The Big A.” But you know what they sat about absolute power. Not that any company truly holds absolute power. Markets are dynamic and unpredictable. But functionally, just in terms of the book market, A seems to be flirting with a rather extraordinary level of dominance.

      Maybe the Big 5/6 will continue to consolidate into fewer and larger companies and set up a viable direct sales outlet for their own ebooks. Dunno.

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