The Free Dilemma

I got an interesting reply today on my post about the 99 cent price point, and it made me do some reading and research.  First, a chunk of the reply:

But didn’t you hear: FREE on Amazon’s Kdp Select is the new 99 cents! These people have tripped over themselves in that race to the bottom, that race to nowhere, and are offering Amazon Select EXCLUSIVITY on their ‘work’ in exchange for being able to give it away for free.

I had heard, but I forgot about it.  Largely because it didn’t affect me at the time, since I’ve pulled my one and only self published eBook from all distribution channels over quality concerns.  However, I did some more reading and while…wait.  Crap.  That’s a picture of Admiral Ackbar I just posted over on the right hand side.  Damnit, that’s going to give away my entire thesis.  Alright, play it cool, maybe no one noticed it.


I did some more reading and while it’s a program that doesn’t directly affect me right now, I do have some thoughts.  Largely because it plays into a few things that I like to talk about: math, innumeracy, and psychology.

First off, what is KDP Select?  It’s a new program that eBook self publishers can opt into that allows Amazon Prime members access to their books within the Kindle Owner’s Lending Library program.  What is the Lending Library?  It’s a new carrot Amazon has offered to lure Kindle owners into Prime membership by offering them the ability to “borrow” free of charge one Kindle book per month from a limited catalog of all titles.  It’s a fine benefit, and the one-a-month limit makes a certain amount of sense.  Amazon has, in general, provided some fantastic value-added to the Prime membership since it’s initial launch offer of free two-day shipping.

To compensate for these free downloads, Amazon has created a pool of money, promising that it will dip no lower than $500,000/month for the duration of 2012.  Each month this money is split between those authors who have books within the KDP Select program using a formula that I’m going to quote directly from Amazon’s KDP Select Terms and Conditions (REQUIRED reading for anyone considering participating):

We will establish a fund on a monthly basis and you will earn a share of that fund for each of your Digital Books included in the Kindle Owners’ Lending Library Program. Your share will be calculated as the number of times that the Digital Book has been borrowed during the month as a percentage of the number of times all KDP Digital Books have been borrowed, multiplied by the fund amount we establish for that month. This share is your total Royalty for borrows of that Digital Book through the Kindle Owners’ Lending Library Program. For example, if the fund for a particular month is $500,000, your Digital Book is borrowed 1,500 times, and all participating Digital Books are cumulatively borrowed 100,000 times, your Digital Book will earn $7,500 ($500,000 x 1,500/100,000 = $7,500). We will determine in our sole discretion the criteria for determining which borrowing events qualify for this calculation. A maximum of one borrowing per customer will qualify. We may publically announce the top Digital Books borrowed, including the author, publisher, number of borrows and KDP Select fund royalties earned.

This is odd explanation for what is a complicated formula to begin with.  Basically they look at what percentage of all KDP Select loans your books represent, and you get that same percentage of the pool money.  The sample math then shows someone earning $7500 based on two entirely hypothetical numbers.  While there’s no point where Amazon states that this is how much you might reasonably expect to earn, I’m rather uncomfortable with them throwing around such a generous number in their hypothetical math.  This is some of the initial bait that Amazon is laying down.  The next will come at the end of the month.

See, December is the first full month for the program, so it’s the first time these loans will pay out.  Expect to see some people report some gaudy numbers, as I suspect there are a lot of people taking a wait-and-see approach to this new deal.  However, there is a very limited resource at play here.  Thanks to the one-a-month limit, the total number of monthly loans has an absolute cap equal to the number of Amazon Prime members who also own a Kindle.  This means that, as more writers and books jump into the program, the pool will get diluted.

Now, the cap is going up.  One of the goals Amazon has in this program is for more Prime members to buy Kindles, and vice versa.  More and more Kindles are being bought, many people just got them for Christmas (some, if they got a Fire, also got three months of free Prime membership, so three chances to borrow).  The ceiling is rising, but it’s still a ceiling.

This creates an interesting situation.  First, it means that a participating book is facing wider competition for a slowly growing, finite number of borrowing slots.  Second, it means that the same number of borrows, month to month, might produce widely different payout.  Let’s say that a lot of people just got a new Kindle Fire for Christmas, and discover the Lending Library in January.  This sends the number of borrows up by 20% from Amazon’s math above to 120,000.  This means that each borrow is no longer worth a $5 royalty, but now only $4.16.

The $4.16 calculation assumes that the pool remains at $500,000.  I will give Amazon some credit.  When they launched Amazon Studios, they were promising minimum payouts for the first year, but those payouts have actually increased.  By the end of 2012 the pool of money for KDP Select may very well be closer to $1,000,000.  Or it may still be $500,000.  Or the number of downloads may be such that, even if the pool of money does double, the worth of each loan goes down by more than half.  Everything is an unknown right now, even how much these payouts will come to in December.  I can’t say people won’t make significant money.  Amazon can’t say people will.

But here’s where I get uncomfortable with the deal.  Again, from Amazon:

1 Exclusivity. When you include a Digital Book in KDP Select, you give us the exclusive right to sell and distribute your Digital Book in digital format while your book is in KDP Select. During this period of exclusivity, you cannot sell or distribute, or give anyone else the right to sell or distribute, your Digital Book (or content that is reasonably likely to compete commercially with your Digital Book, diminish its value, or be confused with it), in digital format in any territory where you have rights.

There’s the price you pay for entering the program.  You cannot offer the book on Smashwords, have it distributed to the Nook or iBook stores, or sell it directly on your website.  Amazon has become your publisher, and only they may distribute your eBook.  Additionally, there’s a non-compete clause in there I cannot even begin to understand or speak about, so I instead refer to the KDP Select post over on Writer Beware.  It’ll be hard to say what Amazon will consider as “likely to compete commercially,” diminish value, or create confusion until such a time as they invoke this clause.  It also has Smashwords, which has a growing stake in the wide distribution of eBooks to multiple sales venues, accusing Amazon of predatory practices.

So yes.  I started this post with a picture of Admiral Ackbar, largely because I look at this and my only reaction is…It’s a Trap!  But honestly, this is another one of those trials of being a writer looking to self publish, right up there with setting your price point and finding the best way to make your book as polished as possible.  Many writers will determine this is a good way to promote their books, and many authors will get good promotion out of this program.  Many of the authors jumping into this program are offering just one novel, whether a stand-alone or the entrance novel into a series.  However, as with any legal agreement, it’s best to know exactly what you’re getting into and what the ramifications are.  Especially with that exclusivity clause that I’m certain at least some writers will fall afoul of entirely by accident.

Let’s go back to the math for one more interesting, and I stress entirely hypothetical, thought experiment.  It’s possible for the pool of money to increase, for an individual author’s readership to increase, but for that writer’s compensation to decrease.  Here’s how it works.  Let’s use Amazon’s math from above: 1500 borrows for a book out of 100,000 total borrows.  Which results in a $7500 payment.  Let’s say the number of borrows quadruples, so Amazon moves to double the money available to $1 million.  Let’s also say the author improves their borrowing rate by 50%.  That means they have 2250 loans out of 400,000 total.  This is 0.5625% of all loans, which means the author is now making $5625.  In spite of everything going up (overall popularity of the program, payment pool, and number of loans for the author), the author’s compensation goes down 25%.  It makes this a gamble.  And the paradox here is that the program will be better for early adopters the less popular it is.  Hell, in theory if only one person signed up one book he or she would get a cool half million.

So be smart, consider the risk versus reward.  And if you jump in?  I wish you nothing but the best of luck.  I’d be thrilled if I’m being unnecessarily pessimistic about this program.  But, for now, I write to you firmly from the wait-and-see camp.  And keep an eye on Writer Beware in the following months, as there are several self published authors who are experimenting with KDP Select and have promised their experiences to the blog.

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