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The announcement of changes to the royalty payments to authors participating in the Kindle Unlimited program has caused widespread angst – but I’m going to explain why, objectively, these changes are a good thing. If after reading this post you still defend the old system, then:

In case you don’t know, here’s a quick breakdown of how the old and new systems work:

By way of background, short stories used to suffer in the print environment because the printing costs were prohibitively high and no return could be made on them at market prices. So historically short stories suffered and print favoured longer stories (but not too long, because then costs become too high again).

The ebook revolution changed this by removing the print cost of production. Once again, short stories were in vogue, and more or less had equal standing to longer stories. Authors tended to price their stories according to length, with full-length novels priced from $2.99 up to around $9.99, and shorter stories appearing under the $2.99 price point.

Kindle Unlimited’s old royalty system favoured short stories even more because all stories were paid the same, regardless of length, which meant short story authors would get the highest return for effort. So the pendulum swung from discriminating against short stories, to a level playing field, to discriminating against longer stories. Authors were now disincentivised to write long stories (or to include their long stories in Kindle Unlimited) because the return was too low for the invested effort.

However, this also meant the old system was subject to being ‘gamed’ because authors could churn out masses of (often sub-standard) short stories and make money on them because the reader only needed to read 10% for the author to get paid. So even if the reader abandoned the story relatively early, say because the story was garbage, the author would still be paid.

Now that things are changing, a lot of people are complaining, and yet the new system is fundamentally fair. You will get paid per page read. It doesn’t matter how many stories you have, or how many pages they are, you will get paid exactly the same as Joe Bloggs down the road and Jane Smith halfway around the world. Everyone gets paid equally for their effort. There is no discrimination between short and long stories. Authors are equally incentivised to write stories of any length. Well, so long as your pages actually get read, and so….

The system is also incentivising authors to write good quality books, because if they don’t, and the reader stops reading because the story is rubbish, then the author won’t get paid. So keeping readers reading is now imperative.

So why are people complaining? Let’s look at some of the most common complaints…

Well, yes. But not because this new system is unfair. Some of you will get paid less now because the first system was unfairly skewed in the favour of short story writers and to the disadvantage of longer story authors. This argument is purely self-interest – I don’t want things to change because it affects me badly, and I’ll just ignore the fact that assessed objectively the new system is fairer.

I recognise that some of you were making a living off your royalties, which is money you now won’t receive – but recognise that some people were trying to live off their royalties, and couldn’t, because their return on investment (their payment for the same or greater work) was too low.

Kindle-Unlimited

Yes…. But no.

A short story can be a complete story and provide the same amount of enjoyment as a long story. But it doesn’t take you nearly as long to write it, and as a reader it won’t take me as long to read it. If we consider value as a dollar amount per hour, if a short story costs the same as a long story, it will be less valuable to me, because the entertainment cost to me per hour of pleasure is higher. This is, fundamentally, why short stories are usually priced lower than longer stories on Amazon.

Also, if you write a 10,000 word story, and I write a 100,000 word story, then assuming all else is equal, in the time it takes me to write my story, you can write ten. If one person reads my one story, and one person reads all ten of yours, then under Kindle Unlimited we will get paid the same. Looked at another way, we are being paid the same hourly rate for the same work…

If you still don’t get it, consider the situation where you were paid $400 a week to work 40 hours, but someone else gets paid $400 a week to work 4 hours a week doing the same work. You are the long story author. The other person is the short story author. Your hourly rate is $10/hour. Their hourly rate is $40/hour. How would you feel about that?

The new program gives equal reward for equal effort – assuming you can write something that people want to read.
And if you can’t write something that people want to read…. Well, you’re out of luck. Produce a better product.

Still not convinced? This idea of being paid for length is not new. If you submit a story to a magazine, you get paid per word. In that system, you get paid for the words written, so you get paid no matter if it ever gets read, but you also only get paid once. Under Kindle Unlimited, it’s the same concept – you get paid per page read. It’s read, not written, but the flip side of this is that you have the opportunity to be paid again and again.

Fundamentally true – this is why big brand name authors can charge more for their books, because they have a perceived higher value to readers, who are willing to sustain a steeper price to get their fix.

But if you choose to participate in Kindle Unlimited, you are sacrificing any brand power you have, because you no longer have the power over your price – Amazon does. Or its Kindle Unlimited payment algorithm, anyway. So if you choose to participate in Kindle Unlimited, under the old or new royalty system, don’t even bother dusting this argument off.

One person suggested that the Kindle Unlimited changes can be regarded as unfair on the basis that Amazon has unilaterally changed the consideration under the contract, and therefore the changes are unlawful. I am not familiar with the US law that applies to the Kindle Unlimited contract, but I believe this is actually unlikely to be the case.

The general principle of law is that parties are contractually free to agree to whatever they want, with only unconscionable (excessively unfair) contracts being void (subject to some other exceptions). Mere unfairness isn’t enough to void a contract.

In Australia, we do have unfair contracts legislation, but currently it only applies to consumers, so such a thing wouldn’t have any application to a contract between businesses like the Kindle Unlimited contract. It looks likely that legislation is also about to be rolled out to small businesses, and it certainly does include reference to unilateral changes to consideration potentially being unfair – but it’s not considered unfair for one party to change the amount to be paid if the other party has the right to terminate the contract when they do. In other words, it’s only unfair to change the payment amount if the other party is forced to accept it because they have no out. And authors have the right to exit Kindle Unlimited at anytime. So even under Australian law, it’s highly unlikely this contract would be illegal.

As I mentioned, US law applies, not Australian law, but given that Australian regulation is generally tighter than US, I’d be surprised if similar legislation exists – but if you’re curious, by all means check.

“She had not yet decided whether to use her power for good or evil.”

In this instance, Amazon has used its power for good – they made changes that are objectively fair.

But… It didn’t have to be this way. Amazon could have used its power to change that contract any way it liked. Amazon is a borderline monopoly, and the more authors that sign up for KDP Select (which is an exclusive arrangement that requires that book not be sold through any other outlet), the more it will become one. Arguably it’s close enough right now that it doesn’t matter. It has most of the readers and most of the authors. Amazon has enough market power it can do what it likes.

I can see the appeal in Kindle Unlimited, especially now the royalty structure has changed. I’ve never participated because I don’t like the exclusivity arrangement. But… maybe the solution, the balance between participating and maintaining competition, is to enrol a first book in a series, but not the subsequent books. It’s something to consider.