Amazon Lending Library, KDP Select, and Risk

So, let’s talk about the Amazon lending library. When they launched the Kindle Fire, Amazon also announced a digital lending library, likening it to Netflix for books. For a flat fee (being an Amazon Prime customer for $79 annually), you could borrow one e-book per month. Sounds great, sort of, but they ran into trouble right from the start.

They went around to the various traditional publishers, and the vast majority of them simply refused. The terms they offered those publishers aren’t public, so I don’t know what they were, but in the age of the digital book with on-demand borrowing, the only difference between borrowing and buying a book seems to be the money changing hands, or rather, not changing hands. Hence, anything less than full purchase price per customer loan was not going to fly for the traditional publishers, who were not exactly bearing much love for Amazon in the first place.

Undeterred, Amazon decided to loan out those books anyway, declaring that they would simply pay the publishers full price. Well, that’s nice on the one hand, but it also seems unsustainable. Furthermore, it might not even be legal. As anyone familiar with publishing will tell you, authors don’t sell books. Rather, they license copyright, and they give that license under certain specific terms. If you want to put their copyrighted work to a use that’s not covered under the license contract, then you’re out of luck. Those rights still remain with the author.

So, even if the publishers had been temporarily mollified with full-price payments, the authors were not. Enter the Authors Guild who believes that the authors have not given their publishers the right to enlist their books into this lending library, even if they’re getting paid for each loan.

So, to hell with the traditional publishers, right? What about all those authors using the Kindle Direct Publishing program (KDP)? Amazon decided to enlist those authors in the lending library by offering them a deal called KDP Select.  In exchange for allowing their books to be in the lending library and not to sell them anywhere else, Amazon offered some promotional carrots as well as a slice of a $500,000 pie. To date, about 30,000 self-published authors have taken them up on the offer.

But there has also been a lot of push-back, pretty much dividing the self-published authors down the middle. Some expressed concern over the fine print on exclusivity as well as the opaque financials on figuring out how much your book will earn in lending fees.

Specifically, the various KDP Select authors are fighting over a pool of $500,000, all 30,000 of them. While their example math talks about your hypothetical book getting a 1.5% chare of that (i.e. $7500), the reality is much more likely to be much closer to 0.00333% of that (i.e. just shy of $17), quite possibly less. With a potential for one to five million books to be loaned per month, the loan fee is anywhere from ten to fifty cents each.

David Gaughran wrote an excellent piece on why he is not going to enroll any of his titles in the KDP Select program, but it’s less about what he might get today. It’s more about how much he’ll be paid in the future.  He feels that this notion of setting a pool for us to fight over is a dangerous precedent. At a time that authors are finally getting direct access to their readers and the financial transparency that comes with it, this is a step in the wrong direction.

Now, I like Amazon. I’m even an Amazon Prime customer. Sill, I think this is a bad deal for authors for similar reasons as Gaughran’s, but it’s not just about having authors fight over the money pool. It’s about the assumption of risk and the data to manage that risk properly.

Being an Amazon Prime customer had other features before this lending program. One of them is free shipping on just about anything Amazon ships out of its warehouses. This covers everything from books to Kleenex to cookies. Personally, my wife and I use this a lot, and we only pay $79 each year for it. For us, it’s much cheaper than the regular shipping charges on all the individual purchases. Seriously, they have a great deal on Kleenex, and with our allergies, that’s a bulk purchase. Ditto with the soy powder, the rice cookies, the diapers, and the air filters. In fact, I bet we use it so much that Amazon loses money on us.

But Amazon knew that was going to happen. They didn’t know it would be me they would lose shipping money on, but they knew it would be someone. They also knew there were folks they would make money on for the shipping. They have a database of millions of customers and billions of transactions. They can make predictions of how many shipments will go out under their Prime program, and they can make sure that it’s priced accordingly. They are assuming risk here, but they also have the data to manage that risk. Costs will vary on the small scale, but they can predict the aggregate with high accuracy.

With the KDP Select lending program there is risk as well. How many books will be borrowed? How much with that eat into sales of books? How much will exposure translate into more book sales? At this point, no one really knows, not even Amazon. But Amazon has the best chance of knowing early what the costs are going to be since they’ll have real time data that no one else in the world will have. It makes sense then, that they should be the ones to shoulder that risk and manage it appropriately. But they have not. Instead, they have determined that their cost will be $500,000 a month.

I don’t think that’s fair. Of course, they don’t have to be fair. They’re running a business, and their bottom line is their ultimate focus. Of course, authors don’t have to play along with it either. I suspect that the authors who have embraced self-publishing as a way to take control of their rights back from traditional publishers are not going to be too quick to hand them over to someone else.

We’ll see, but I’m hoping that Amazon and others eventually reach some arrangement that works better than this. After all, even Netflix saw the light and aborted its ill-conceived Flickster project.