It’s all really about the value of books.
Two sides met in battle. On one side, there were several major publishers and Apple. On the other, the Department of Justice (with Amazon in the wings, whispering into the DOJ’s ear). I think we all know how that turned out. And you probably know the history of it, so I will simply mention that one major instigator in this battle was Amazon’s pricing of major titles at a maximum of $9.99, apparently often at a loss, and clearly leading customers to believe that the eBook of a $30 hardcover should be 1/3 the price, which devalues the hard work and creative effort that goes into writing a book.
Following Amazon’s logic, a Picasso is really only worth the cost of the paint.
If Amazon hadn’t insisted that eBooks should be only $9.99, we may not have the agency model today. But it did. And while the DOJ won the battle, in the end publishers sort of won the war, because the limitations of the settlements on publishers weren’t in perpetuity. They were, basically, two years, and have all or nearly all expired now. Which means that publishers are again able to name their price for eBooks, versus having to let Amazon set the price.
What about all of those publishers who are using the Kindle Direct Publishing (KDP) program to sell eBooks? And, honestly, these are not just little guys. There are definitely publishers with a good number of titles using KDP. After all, the royalty is 70% of net, which is basically what publishers using the agency model get. The big difference is that publishers using KDP cannot price books above $9.99 if they want that 70%. Amazon requires publishers to keep their prices within a specific range or the rate publishers receive is cut in half, thereby restricting publishers’ ability to set their own prices. Ironically, Amazon is doing the same thing to KDP publishers as publishers are doing to Amazon: forcing pricing to be on its terms.
And then there’s that pesky VAT problem.
The price that Amazon allows you to set for all countries that have VAT has to be VAT-inclusive, so that £9.99 on a book sold in the UK is actually £7.99 plus VAT. Publishers lose 20% to the VAT on that sale.
To put this in perspective, the US price is not inclusive of sales tax. So if you buy a book and there is an 8% sales tax in your state, you pay $10.79. You, the customer, pay the sales tax. But, in the UK, Europe, Australia, and other countries with VAT, on a title priced at 9.99 in the local currency, the publisher pays the VAT and therefore lose anywhere from 3% to 27% in income, depending on the VAT in that country. This is, of course, grossly unreasonable and Amazon obviously has the ability to let publishers set a VAT-exclusive price but chooses to require small publishers and self-publishing authors to pay these taxes for their customers or lose half their income because they broke the 9.99 price point.
But the problem at KDP goes beyond VAT.
What about when you publish a title in both eBook and print and you want to set a reasonable price for the eBook—compared to the print edition—just as the big publishers do? What if you want to bundle two or three eBooks together and offer them at a discount from their individual price, but still price it more than $/£/€9.99?
One might argue that not only is Amazon causing publishers to lose money be requiring them to keep prices at 9.99 or less, it is restricting the availability of discounted bundles for its customers. And as Humble Bundle and Storybundle have demonstrated, readers like their bundles.
Amazon KDP is the elephant in a field of mice.
Sure, sales on iTunes, Nook, Kobo, and Google Play may be 2% of sales on Amazon—and Apple is just as guilty of trying to force VAT-inclusive prices on publishers when it should not—but at least I can price a book above $/£/€9.99 if I want.
It’s time for Amazon to break open the ceiling on the 9.99 price point.
Let publishers price their books as high as they want and still receive 70%. This would allow publishers to set a VAT-inclusive price that accurately reflects both the price of the book plus the VAT, as well as allow for bundling or even just pricing of a new book at market rates, which are often higher than $/£/€9.99.