April 8 update.
1. Jerome and I had a debugging session with the Cyclone site. We’ve sussed out a number of things that will need to be fixed. I’ll spare you the list. With luck, we won’t overlook anything major. If anybody out there reading this happens to notice something, you’re welcome to send an e-mail to us at hello [at] typhoon [dash] media [dot] com in order to give feedback.
2. We’re in negotiations with a very astute publisher in Malaysia, who has put some very worthwhile questions to us. Among other things, he asked whether it would be possible to set prices as low as US$0.99. No one had asked me this before. I am glad the question came up, because after all the media twitter about Amanda Hocking’s success, others are bound to be wondering the same thing. The short answer is no.
First, a reminder: we are a publisher, not a sales portal. Although the website offers downloads and is e-commerce enabled, we are not trying to be Amazon. We can’t compete against them. We’re not trying to, either. Books we offer are being reprinted (or co-published, if you will) by us. We handle the production side of things (conversion into e-book formats from either the production files or the physical copies) and also put them up for sale on our own site, Amazon, and numerous others. This is very much like a paper publisher arranging for books to be printed and then engaging a distributor to send them to stores. Except we’re doing both of those things with our e-book titles — producing and distributing.
This is why the agency pricing model Amazon and most other sales portals use is not applicable to us. Although we do give publishers and authors the option to recommend a price, if they have something in mind already, we’re not obligated to use it if there are reasons why we shouldn’t. And the $0.99 question brought this into quick, sharp focus.
Our royalties are quite high. Especially while we’re starting up. The rate will not be as generous later, once we’re up and running. What we’re doing now is an indirect expenditure meant to build up our catalog and show that our model works. Will it be sustainable in its present form forever? No, it will not. So when you apply this rate to $0.99, that would see us getting a little tiny slice of a very small amount of money. Then you have to take into account what we spent on the conversion job. (I won’t go into specifics. Trade secret. We are getting a good deal on this, but that doesn’t mean we’re getting it for free.) And then you have to take into account what the sales portals charge.
For a Kindle book priced between $0.99 and $2.99, Amazon’s default royalty rate is only 35%. So one book would earn the publisher most of $0.35, and us… less than that. Other sales portals aren’t quite so greedy: they keep commissions of between 30% and 50%. That’s an improvement, of course. However, it’s not cost-effective for us to price books this low. Taking all of this into account — plus credit card charges! — we’d effectively be subsidizing purchases. There are situations in which this is OK for limited periods of time and for specific purposes, but as an across-the-board business plan? Not so much.
On top of that, Amazon charges an extra $2.00 if the customer is outside of the US (offhand, I’m not sure whether Canada is the exception) — they look at either your account info or your IP address, and the price is shown accordingly. The same is true if the publisher is based outside of the US — prices are automatically increased by the extra two bucks. Since we’re mainly working with both publishers and authors based outside of the States, you can see how this all becomes rather complicated.
Then there’s the fact that Amazon only gives 35% royalties on books sold to non-US customers. The company makes much of its 70% royalties… but that is only available on books sold to US customers, and priced at or above $2.99.
We are a Hong Kong corporation. We also have a US subsidiary, though which pretty much of all of our US-related business is conducted, precisely because of cases like this. (Has the US always been such a troublesome country?) The subsidiary allows us to bypass some of these charges but it doesn’t give us complete immunity.
Having outlined all this, I now ought to comment on our solution, because we do have one.
We’ve decided to release our e-books in stages. First, we’ll upload them to the BookCyclone site. We’ll keep new(er) releases there for a couple of weeks; older books, for a month. (Give or take. We still have day jobs and lives outside of Typhoon Media Ltd.) Any super-aggressive promotional pricing will happen during this time. If a publisher wants to price a few titles at $0.99 to stimulate interest, we can accommodate that… while the books are on our own site, and we’re not taking it up the ass on all the charges I’ve mentioned above.
The next stage will be Amazon, Kobo, and the other major e-tailers we’re working on. Back to Amazon for a minute, that $2.00 screw-the-foreigners charge may end up benefiting us, because it’ll mean our prices are cheaper. They’re creating a no-win situation for themselves, ultimately. We’ve held off on Barnes & Noble, Sony, and a couple of the other major ones until we’re big enough to be hard to ignore. At our present rate of growth, given what’s in the pipeline, we’ll be ready to have that conversation with them quite soon. These are the sites we expect to generate most of our sales. When we upload the books to these sites, we’ll price appropriately.
The third stage will be smaller and newer e-retailers. Many of these are quite easy and pleasant to work with, fortunately. There will eventually be a fourth stage, the international e-retailers we’re aware of but not hooked up with yet. And all this will have to be revised as time goes by and we learn more.
Is this a perfect solution? I am not sure that’s possible. It’s easy to be dazzled by the articles about Amanda Hocking and the other self-published authors who’ve priced their novels dirt cheap and are making a lot of money. However, it’s important to realize that this is a very different set of circumstances. How many of these people are not professional writers, but are people with day jobs who’ve done all the work at their own time and expense? Publishers have to look at the financial big picture in a way that hobby novelists (for want of a better term, and not meant with condescension) do not. You can risk pricing your debut novel at $0.99 because what do you have to lose? Maybe you’ve spent a few hundred bucks or a bit more on having it edited, having a cover prepared, and having the conversion done. People sink more into other hobbies. It’s cheaper than buying a boat. Publishers are to be commended for wanting to experiment with aggressive pricing. We’ll support that up to a point, because it’s a philosophical position we actually agree with. To that end, our prices are generally going to be a bit lower than a lot of what’s out there.
However, the novelist in our hypothetical scenario is gambling. We’ll gamble a little, as well. What we won’t do, however, is let other people gamble with our money… and control the stakes as well. Which is why, at the end of the day, we set the prices.