Friday, March 14, 2014

Audio Books: What Happens When Amazon Dominates A Market

The audio book market is a relatively small market to dominate. It's nothing compared to the e-book market, paperback market, etc. Recently, it's become pretty clear who dominates when it comes to audio books. Amazon. The largest distributors of audio books are:



Amazon created ACX which distributes to all three and gives a cut to the author (and in some cases the narrator if they did a royalty share deal.) The reason they dominate is simple. There is no way to directly distribute audio books to iTunes without going through ACX and Amazon owns They pretty much control the entire market.

Up until recently, they had what I would consider pretty fair terms as well. On a royalty share deal (which is what I'll be talking about today since all of my audio book deals are royalty share deals) a narrator agrees to produce an entire audio book for the author and then is entitles to half of their royalties and bonuses for seven years (at which point all of the royalties and bonus payments revert back to the author.) So if I sell an audio book, ACX gets 50% of the price, my narrator gets 25%, and I get 25%. They also had an escalator clause so that with every 500 you sell, you gain an additional percentage point all the way up to 90% (or 45% to the narrator and 45% to the author in a royalty share.)

On top of that, if your book was one of the first three purchased and downloaded by an new subscriber, they would give you a $25 bonus payment as long as that member stayed a member for at least 60 days. In a royalty share deal, you split the bonus payments with your narrator.

The Changes

Amazon realizes that they completely dominate this market. With that in mind, they sent out an e-mail to all narrators and authors on Feb. 27 explaining that they were changing the terms. All audio books that had been produced or had a contract in place before Mar. 12 would stay under the old terms (with the exception of the bonus payments.) Anything produced after that would be under new drastically reduced percentages:

-In a royalty share deal, author and narrator would split a flat 40% (down from 50%.) There would no longer be an escalator clause to allow them to make their way up to 90% if they sell enough.
-The $25 bonus payment paid when a new subscriber purchases your book as one of their first three is gone. Now you get a $50 payment if your book is the first audio book purchased by a new subscriber (which again gets split with the narrator.)

One thing I haven't mentioned is that they set the price. For a while all of my audio books were $6.95 which I thought was ridiculous since they were all under 1 hour of audio. Then they reduced them to $4.95 and finally to $3.95 which seems like a much more reasonable price point. As of Mar 12, I had 9 audio books completed and for sale under the old contract terms and I have contracts in place for another 3 that will be produced under the old contract terms. I doubt I'll make anymore audio books any time soon because I don't think I can get the same narrators or even good narrators to agree to royalty share deals anymore.

Possible Causes For The Changes

So under the new contract terms, ACX wants to take 60% for distributing a product that was created by others. They didn't help narrate and they didn't help write the book. They also retain full control over the price. I've been thinking about why they're doing this because this seems very against what Amazon is usually about. A few things come to mind:

-Amazon and have been paying a ton of money to make audio books a big thing. I see their ads on buses, billboards, and all over Facebook and Google. They're definitely trying to get people excited about audio books.
-For audio books that they think will be successful, they've been paying the narrators an additional $100 per finished production hour on royalty share deals. That's definitely a good incentive to take on a project from a narrator's standpoint, you get a decent cash payment up front and then royalties for seven years.

So maybe they're digging themselves out of the hole they dug themselves in to. I know a lot of Amazon companies that operate at a loss for a long time but they all have to eventually turn a profit, even if the margins are very thin. Another thing to consider is the fact that audio books are large files and paying for the bandwidth to transfer these files is a fairly substantial cost. They don't pass that cost on to the narrators and the authors.

As of Mar. 12, I've sold 187 audio books. I haven't had to do much to sell them. I do believe is responsible for a lot of my sales and the rest come from people stumbling into them on iTunes (which again would be a market unavailable to me without ACX.) Last year audio books were responsible for slightly over half my royalties as an author (they definitely won't be this year but they're still a substantial part of my author earnings.) I made two of the bonus payments last year which gave me $12.50 each time for a total of $25.00.

In The End

I understand some of the reasons why they need to make a change like this and start making some money. What I don't quite understand is why it had to be so drastic right now. They could have eliminated the escalator clause and changed the bonus payments but let the author and narrator split a flat 60% of the royalties. They could have gone to a flat 50% and given authors control of the pricing. There's a lot of things they could have done to cause less of an outcry when they did this. They didn't really care.


They're receiving petitions, hate mail, negative comments on their blog, and they're seeing lots of authors and narrators walk away. They aren't responding. I think their silence is basically their way of saying "we don't care. Try to find someone else to distribute your audio books if you can." Oh and the rates I quoted above are if you are an exclusive distributor through ACX meaning your audio books aren't anywhere else. If you choose to be non-exclusive, you make even smaller percentages.

I don't care all that much. By the end of the year, I should have 12 audio books under their old contract terms. I've already been selling audio books for over a year. I'm glad I jumped on this when I did because anyone who put it off is about to get screwed out of an emerging market or forced to accept very crappy terms. I just see this as a very interesting way to analyze what Amazon does when they control a market. They could even do this without much of an outcry from anyone other than authors and narrators because pretty much no one outside of those two groups knows that Amazon owns and is the sole distributor of audio books to iTunes.

They also just raised the cost of Amazon Prime membership by $20 a year. Are they making small steps towards becoming a company that actually cares about margin? Have the shareholders finally had their voice heard by the behemoth? Or are we seeing the same Amazon that is just trying to grab some cash to fund the takeover of new markets?

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