Tis the season to be predicting. The New Year brings a rash of predictions about the future of the publishing industry, but it is really a way of reviewing the previous year and pretending to have a prophetic gift. If we look back at 2014 there were probably two major stand-out moments, both involving the retailer that dominates the English-language markets, Amazon. The first event was the bitter dispute between authors supporting Amazon in the Amazon-Hachette dispute and the authors supporting Hachette in the Hachette-Amazon dispute. You will not find this mentioned in any predictions made 12 months ago as the dispute only came to public awareness in May 2014. Nor will you find predictions of Amazon entering the eBook subscription service as their hastily launched Kindle Unlimited service appeared to great surprise in July 2014. What you will find in the predictions is the launch of the rival eBook subscription services Scribd and Oyster, for example at Smashwords, the first distributor to deliver large numbers of self-published books to those libraries. The Smashwords founder Mark Coker was prescient when he wrote:
If the ebook subscription services – the most notable of which are Scribd and Oyster – can make their business models work, then they’ll drive a game changing shift in how readers value and consume books.
That is almost exactly what happened. Scribd and Oyster challenged Amazon's policy of asking self-published authors to sell exclusively for them via KDP Select (KDP is Amazon's self-publishing business). One of Select's incentives was that subscribers to Amazon's Prime delivery service who owned a Kindle got to borrow one free eBook per month. Scribd and Oyster made that look parsimonious and weakened Select's hold on authors and threatened many more books becoming available at Apple, Barnes & Noble/Nook, Google Play and Kobo. However the launch of Kindle Unlimited has been a major disruption to the market and has cost many self-published authors substantial amounts of income. In December million selling author HM Ward went public about her losses in late November on the Writer's Café of the kboards discussion forum. This was then picked up by the New York Times in December and so brought this matter to national attention in the United States.
Kindle Unlimited caused a major disruption in the eBook market due to the massive share of sales that Amazon has (roughly 65% in US and UK) and the granting of boosts in a book's sales ranking based on how many times a book was borrowed. That hurt those books not in Kindle Unlimited because their sales ranking sank down the lists, which has a major impact on sales because of the way that Amazon organises its website. Author incomes are further impacted because for books in Kindle Unlimited the payout per borrow is the same regardless of its list price. Borrows in November earned authors $1.33 whether the book borrowed retailed at $0.99 or $9.99. HM Ward and other top sellers were allowed for a trail period to enter Kindle Unlimited without being required to remove their books from other retailers, but most self-published books have to go exclusive via KDP Select in order to enter the Kindle Unlimited library. Kindle Unlimited is still bedding down and while many self-publishers have added books to KDP Select, some long-standing advocates of Select are leaving. Their departures will have a knock-on effect on the industry as those authors will almost certainly begin to sell through Apple, Barnes and Noble/Nook, Google Play, and Kobo. That will make those services more attractive and may reduce Amazon's control of the eBook industry. It may also boost Scribd and Oyster as those services pay roughly the same as a sale per borrow and so authors unwilling to use Kindle Unlimited may be willing to use those services, both of which have extensive back catalogues from mainstream publishing houses such as HarperCollins and Simon and Schuster. This raises the question as to whether Amazon defeated its own purpose of protecting KDP Select by establishing Kindle Unlimited.
There is another value of Kindle Unlimited to Amazon in that it gives visibility to books published by Amazon's own imprints. There has been a concerted push to ratchet up the value of authors signing for those imprints with the launch of Kindle First, where Prime members gets a free book from four on offer before it is published (in January 2015 it was two books). Amazon also have a deal with Samsung mobiles to provide their customers with one free book. This helps to boost sales of Amazon Publishing books if some of those reading these books leave positive reviews. It also helps to sell Amazon Publishing to authors. In addition Amazon Publishing titles feature prominently in promotional emails sent out to readers. There are claims that Amazon Publishing are actively recruiting authors from among the best-sellers in the KDP Select programme, which allows the lure of a publishing contract to act as a stay factor for those in Select. Those businesses who sell to supermarkets are well used to competition from the store's own brands, but publishers and bookstores are less inclined to accept the competition from the own brand of their biggest retail partner (in US and UK markets). If resentment rose too high it would be possible for a publisher to complain to a regulator (e.g., in the European Union) that Amazon was unfairly privileging its own imprints.
As the New Year opens one prediction is very easy to make and that is that the changes on VAT laws in the European Union will have a major impact on the book trade. VAT has been chargeable at the rate of the European Union state within which the supplier was based, which led Nook, Amazon, and Kobo to establish offices in low VAT Luxembourg. From New Year's Day VAT will be based on the purchaser's address, which means that an Irish customer of Kobo will now pay 20% more (Luxembourg VAT is 3%; Irish VAT is 23%). This is much more complicated for retailers to administer, although they can ask their state's tax authorities to handle VAT remissions to other EU states. This not only means that there are differential tax inclusive prices across the European Union (or different profits per sale in Euro prices are kept the same, as they have to be at Kobo), but makes eBooks less attractive purchases vis-a-vis print books, which are usually zero-rated for VAT. Already this has lead the self-publishing distributor Draft2Digital to launch differential pricing for different currencies and Smashwords are to follow suit in 2015. The major impact will be on self-publishers and small-scale independent publishers who sell direct from their own websites. They will not have the economies of scale of the major retailers and will face a disproportionate administrative burden in this new system. Note that businesses without an office in the European Union have been charging VAT on the basis of the purchaser's address since 2008.
I began by writing about those authors who took sides in the now resolved Amazon-Hachette dispute. That public support for the opposing sides in confidential business negotiations revealed how much loyalty many self-published authors feel to Amazon and how much antipathy many other authors feel towards the retail giant. Hachette won the battle in this war over eBook pricing and also were the clear winner in terms of the PR war. Amazon shocked many by emailing all its self-publishers and asking them to write to the CEO of Hachette. This suggested that Amazon was rattled by its failure to bring Hachette to heel and by the strength of anti-Amazon feeling among many best-selling authors. Amazon pitched the email as a war to force Hachette, and by extension other publishers, to never charge more than $9.99 for an eBook. The retailer regularly discounts best-sellers as a loss-leader, but they were asking Hachette to take part of the loss and therefore grant preferred retailer status to Amazon. KDP already penalise self-publishers for pricing eBooks over $9.99 by charging 65% retailing fee rather than 30%, which does not please authors of academic non-fiction or those looking to bundle several novels together. Amazon has some work to do in 2015 to reassert its damaged authority over publishers and what they will do is something that is completely unpredictable.
© Mercia McMahon. All rights reserved