Monday, November 10, 2014

Amazon Ethics and Practice: How Authors Get Ripped Off

This article by Lynn Serafinn provides not only one of the best explanations for how Amazon manages to elude every ethical practice in the publishing world, it lays out neatly and concisely how publishing actually works.

This is a must-read article if you intend to publish. Whether you are doing it on your own or through a traditional publisher, it is important to understand the different functions of printers, publishers, retailers, and distributors. 






By Lynn Serafinn

Other the past few months, many authors have been writing to me all in a fluster over a controversy that apparently has arisen between Amazon and Lightning Source. I wanted to address this controversy because, frankly, I think a lot of people are having a knee-jerk reaction to what I think is basically an ethical issue, and I would like to show what I think might be a more ‘holistic’ response to it.

First of all, you need to know a bit about the parties involved and what is going on. Before we do that, let’s take a quick look at the flow that is involved in the production of any product, including your book:

1) It starts with the creator
2) It goes to the publisher
3) Then it goes to the manufacturer
4) Then to the distributor
5) Then to the retailer
6) Then to the consumer

STEPS 1 & 2: When you are truly self-publishing a book, YOU are also the publisher (so steps 1 and 2 are combined). But if you are going through a subsidiary press (such as iUniverse, Balboa Press or Create Space), you are not 100% ‘self published.’ On the one hand, you ARE self-published in that you don’t need a publishing deal and you retain all rights to your work. On the other hand, you are NOT self-published in that your subsidiary publisher is entitled to (usually) around 50% of your royalties as long as you print through them.

STEP 3: In printing, the ‘manufacturer’ is the printer. The publisher (even if that means you) then sends the book to the printer. Either we get a quantity of books printed in advance, or we use a “print on demand” (POD) service. Back when I first started out in the published world (and also when I ran a record company), you typically have to order 1000-2000 copies of your book (or record/CD) in order to get a decent price. Then, you always ran the risk of your publication sitting around collecting dust because you couldn’t move 2000 copies. Since the rise of POD in the publishing industry, that risk and investment has been removed for self-publishing authors. Lightning Source is one such POD service, certainly the most known in the world, and the one I use and recommend to my clients. Instead of having to buy 2000 copies of your book and the ship them to distributors, they print them ONLY when you have a customer for them (whether wholesale or retail), so you only pay for what you know you are going to sell.

STEP 4: The next step is to send the books to a distributor who then sells the books to retail shops. Of course, this saves the publisher a heck of a lot of time and energy, so the distributor is one of the most important pieces of the sales puzzle. Distributors typically buy your product between 50-60% off the retail price (55% is the most common), so they can sell it on to retails shops, and the retail shops can make a profit. That means if your book is selling for $10, they will pay around $4.50 for your book. From that price, you deduct your printing costs (I spoke about this in another article – Click HERE if you’d like to read it), and that is your profit.

Now what is so cool about Lightning Source is that they will also distribute your book for you via Ingram Book Company. Mind you, that does NOT mean that retail shops will necessarily BUY your book. It just means that they can supply them with your book if they order it.

STEP 5: The next step is the retailer. The retailer is the ‘shop’, whether online or on the ground, that sells your book to the customer. Typically, in my experience, retailers in the book and record industry buy your product for between 35-45% off the retail price. That means they will pay about $6.00 for a $10 book, which means the distributor makes about $1.50 per book sold, and the retailer makes about $4.00. However, as we all know, retailers like to be able to have a good profit margin so they can LOWER the price, to be able to entice customers to buy your product OR to get RID of a product that isn’t selling (let’s hope that doesn’t happen to OUR books!). Back when I was a retailer, I often had to sell “dead stock” at cost or even BELOW the price I paid for it. It’s the only way to keep cash flow going. So retailers take a risk every time they buy something. They want to know they can sell it.

STEP 6: The last step, of course, is the customer. The customer likes to get a good deal on a product. That’s why, if you give your distributor a good discount in the first place, the retailer will have the freedom to lower his price and get more people to buy your book.

SO WHAT’S WRONG WITH THIS PICTURE?

The thing that confuses me is how Amazon fits into this picture. Now I have a close connection to Amazon in that much of my business depends upon it, as I work with authors. And as a customer, I have also found them to be both reliable and convenient. Authors love to see their books on Amazon because they can reach a wider audience much more quickly than they could by going only through traditional distribution routes to retail shops. All in all, Amazon is a great asset for us authors.

But here’s where things are a bit hazy. According to their entry on Wikipedia, they are it is often called the world’s largest online retailer. Most of us associate Amazon with books, but they have really expanded and now sell just about everything.

So Amazon is a ‘retailer’ (Step 5 in the model above) BUT for some strange reason, when it comes to purchasing power, they are not paying the same price for the books they sell as other retailers. In fact, they are paying the price that wholesalers/distributors pay for your book (Step 4). That means they are buying books at an average of 15% LESS than other retailers. This means they have a tremendous advantage in that they can seriously undercut your High Street book shop.

But wait… there’s more…

Read more here.

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