June 2015 saw Amazon make a significant change to the method used for calculating Kindle Unlimited royalty payments to writers. The tweak caught many writers by surprise and raises an interesting question. Can Amazon unilaterally change any of the royalty rates paid to self-published authors on a whim? As an Internet business attorney, I’ve been receiving this question a lot. Let’s dig into the issue.
Amazon Changes Royalty Rates
As a writer, your legal relationship with Amazon is governed by the Kindle Direct Publishing Terms of Service. The appropriate language in the terms is found in Sections 2 and 2.2 as follows:
2. Agreement Amendment. The Program will change over time and the terms of this Agreement will need to change over time as well. We reserve the right to change the terms of this Agreement at any time in our sole discretion.
2.2. Changes to the Terms of Sections 5.4.1 (Royalties) and 5.5 (Grant of Rights). Changes to terms of this Agreement contained in Sections 5.4.1 (Royalties) and 5.5 (Grant of Rights) will be effective and binding on you on the date 30 days from posting or on the date you accept the changes, whichever first occurs. You accept the changes by either (a) clicking agree or accept where you’re given the option to do so or (b) by using the Program to make additional Digital Books available through the Program. Changes to the terms of Sections 5.4.1 and 5.5 will only apply prospectively with respect to Digital Books sold after the date thirty days from our posting of the changes, unless you accept the changes as provided above. If you do not accept the changes, you must withdraw your Digital Books from further distribution through the Program and terminate your use of the Program prior to the date thirty days from our posting of the changes. Note that we may make acceptance of changes a condition to continued use of the Program.
Boiled down, Amazon has the right to change the terms of its contract with you at any time. You then have a Faustian choice. You either accept the changes or remove your books from the Amazon system.
Amazon’s Unilateral Control
In 2010, Amazon was not the dominant eBook platform the company is today. The eBook market was still in its infancy and companies ranging from Apple to Barnes & Noble were still experimenting with the best approach to selling digital books.
Recognizing the potential of the eBook market, Amazon moved to dominate the market through a two-step process. First, Amazon bumped the royalty rate paid to self-publishers to 70 percent. The new rate doubled the previous royalty payout of 35 percent. Writers flocked to the site, giving Amazon the largest inventory of eBooks available online.
At the same time, Amazon instituted a second policy designed to corner the market. The company limited the new 70 percent rate to eBooks priced between $2.99 and $9.99. With books priced $10.00 and over still paying out at the old 35 percent rate, most writers moved to price their books cheap enough to take advantage of the 70 percent royalty. The resulting lower prices proved attractive to consumers, increasing Amazon’s market share.
The new 70 percent royalty rate has proved to be incredibly popular with authors. It is important, however, to step back and recognize the lesson provided by these changes.
Amazon can change your royalty rates at any time for any reason.
The 2010 changes were a positive development for the vast majority of writers. The recent changes to the Kindle Unlimited payouts are more controversial. Who can say what Amazon will do in the future?
I can see you sitting there thinking:
“Amazon would never eliminate the 70 percent royalty? Writers would revolt!”
Perhaps, but ask yourself two questions. Didn’t Amazon institute the 70 percent royalty rate only to gain market share? Hasn’t the company achieved its goals? If the answer to both questions is yes, there is nothing to stop Amazon from cutting the 70 percent royalty to a lower figure.
Then again, Amazon might have no choice. The company could be forced to directly or indirectly lower writer payouts. There is nothing to stop Apple from starting a price war, for example. Imagine Apple announcing a new iPad that revolutions tablets. To enhance sales, the company offers to sell consumers unlimited eBooks for no more than .99 cents for the next five years with every purchase of an iPad.
How would Amazon react?
The answer is anyone’s guess, but I can guarantee there would be a response. Historically, Amazon has reacted to developments of this sort by cutting prices to the point where the company is willing to suffer financial losses to protect or gain market share. Whatever the specific change, one can assume writer revenues would suffer accordingly.
Companies Act In Their Best Interest
Amazon is not your publisher. Amazon is not your friend. Jeff Bezos may be a charming bloke, but make no mistake – he is going to do what is best for Amazon. That’s his job. If you believe Amazon will not change royalty rates in the future, you are incorrect. After all, the company just did so with Kindle Unlimited. You need to prepare for this eventuality accordingly.
Given the tone of this article, one might reasonably surmise I am not a fan of the Amazon publishing platform. Nothing could be farther from the truth. Writers have never had a better opportunity or platform for publishing their works. I just believe it is important writers understand they are at the mercy of Amazon when it comes to royalty changes.
Grow Your Brand – Not Amazon’s
Recognizing the risk of relying on Amazon for a stable royalty model is critical. Of course, a second question then becomes obvious.
How does a writer guard against the risk?
Build your brand.
Every writer should develop a website. The website should offer a newsletter function. You should then market to the site and newsletter. Writing is a business. Read articles on building a newsletter list, and incorporate the lessons into your marketing. Offer readers enticements to sign up for your newsletter including:
- Random free short stories during the year,
- Signed copies of books,
- Google Hangouts to chat, and
- Anything else you can think of to build a following.
The bigger your list, the less reliant you are on Amazon or other third parties for your livelihood. If Amazon makes a future policy change that crushes your sales or royalties, you can sell directly to your email list using another platform. Cultivating the list can be the difference between making a living as an author or working at a job you hate.
Building an email list takes time and effort. Much like writing a book, you need to stick with the process month after month. The effort will pay off in the end. Consider a list of 50,000 followers. $25,000. Send a new book announcement to your list, and $25,000 is the revenue you can roughly expect on a $2.99 offering on Amazon if a quarter of the list buys the book. Sell the book for $5.99 on another platform and your revenue only increases.
Many writers also focus on building a large following on social media sites ranging from Facebook to Tumblr. Be careful. Once again, you are at the mercy of a third party. Internet laws are drafted in such a way that companies often must take action against account holders when certain common issues arise whether the company wishes to or not.
Consider the case of Coketalk on Tumblr. The page was run by “Coquette” who offered rather interesting advice to people on various issues. The page built up a vast following over time. Then Tumblr received a number of copyright complaints based on music and images appearing on the page.
Under the Digital Millennium Copyright Act [“DMCA”], an Internet service provider such as Tumblr receives immunity from copyright infringement complaints based on content uploaded by users of the site so long as the provider takes certain steps. One such step is to terminate the account of a person who receives repeated copyright infringement complaints.
Pursuant to the DMCA requirements, Tumblr was forced to terminate Coquette’s page. She lost all of her posts made over the years. She lost all of her followers. She was barred from opening another account with Tumblr. In short – a disaster.
You face a similar situation with your social media accounts. Have you ever posted an image from another site on your Facebook page? You’ve likely committed copyright infringement. If Facebook receives a complaint, the company will take down your image. Receive one or two more complaints and your account could be terminated as a “repeat infringer” much like the example above.
The Internet is a “share” community. As a writer, you should participate in the community and interact with your audience. Just make sure you drive people back to your website, so you are not at the mercy of third parties.
Not only can Amazon make royalty rate changes at any time, but I would argue the company is guaranteed to do so in the future because of changing market conditions. The only question is whether the changes will be positive or negative for authors. As a writer, you need to understand such changes are inevitable and plan accordingly.
Richard A. Chapo, Esq.