Smashwords Moves to Agency Model

Smashwords has moved to an Agency Model for pricing when using their expanded distribution channels.

Founder Mark Coker: “We’ve renegotiated our ebook distribution agreements with Barnes & Noble, Sony and Kobo.  Effective yesterday, our 10,000+ Smashwords authors and publishers now determine their ebook prices at retail.  No more discounting.  The move also allows us to increase the royalty rates we pay authors and publishers to 60%retail price across the board.”

Smashwords really had no choice but to try and renegotiate those agreements. A number of small publishers and indie authors had to pull their books from using Smashwords extended distribution because of Amazon’s robots trolling the web looking for the lowest prices.

Here is an example of what has been happening:

  1. Ebook is put up on Amazon. Opts for the 70% rate and prices ebook at $2.99 or $3.99 to spur sales.
  2. Ebook is put up on Smashwords and into their expanded distribution into other online stores like Kobo, Sony and B&N.
  3. One of the online stores discounts the ebook to below $2.99.
  4. Amazon robot finds it. Ebook in the Amazon Kindle store is suddenly discounted to match it, and the royalty rate paid on any sales drops from 70% to 35%. ($2.99 is the lower threshold between the 70% and 35% royalty)
  5. Publisher/indie author is not informed of this change by Amazon. Instead, they stumble onto it, horrified to find they are making only half the money they thought they were.
  6. Publisher/indie author frantically pulls ebooks out of Smashword’s expanded distribution in an attempt to get the Amazon price back up to where they are making a decent royalty. The problem is compounded by the delay between the take-down request and the ebook actually getting taken down, possibly resulting in a several week span of lower royalties.

In the above scenario, a publisher/indie author could be losing thousands of dollars in the fiasco. The truth of the matter is that the few books sold through the other avenues does not make up for the many books sold through Amazon.  The other online stores just don’t have the sales volume to make up for the losses.

Big ouch for the publisher/indie author.

The above example is bad for everyone. By pulling out of the expanded distribution, it’s reinforcing Amazon’s monopoly. Readers won’t be able to find the ebooks in question in the places they prefer to purchase or in the formats that are compatible with their preferred ereaders.

Amazon might be a great place to sell your ebooks (if you are on their good side) but they do need the competition to help keep them honest and their terms reasonable. Competition in this case is a good thing. Expanded distribution, and not having your eggs all in one basket, is a good thing.

It is good for the readers, in that it allows all those great books to be found in the online store they prefer to shop that provides them with the ebook format usable on their favorite e-reader.

Good for Smashwords in finding a solution. Allowing the publisher/indie author to set their prices, enabling them to keep royalties intact across all online distribution/selling channels, is a major breakthrough. It allows many to go back to using Smashword’s services without worry for their bottom line.

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