In its first six months of operation, Kindle Unlimited has lent as many books as the New York Public Library lends in a year and now looks set to pay out well over $100 million on borrows to self-published authors this year.
The Kindle Unlimited figures for January 2015 point to the service breaking through six million loans for the month, taking the total since KU launched to around 27 million.
The New York Public Library, which is the top circulating public library in the US, had a lending total of 26,976,911 in 2012.
The KU figures here are my estimates as Amazon does not reveal much in the way of statistics. They have been calculated by dividing the total KDP Select fund for the month by the payout per borrow.
They’re not likely to be very precise but they must give a clear indication of the general numbers and particularly the strong growth of KU, with borrows reckoned to be up by a million in a month from December to January.
In fact, it could be that Amazon has disrupted itself with Kindle Unlimited. Many, if not most, of those taking up KU are surely the enthusiastic readers who previously spent substantial sums on buying lots of ebooks every month, but are now shelling out just $9.99 a month to read all they want. KU members can only borrow a total of 12 items at a time but they can ‘return’ items and borrow others in a constant churn if they wish to do so.
Amazon meanwhile has had to continue raising the KDP Select fund substantially every month since the KU launch to try to maintain some semblance of a payout to authors.
In January, the KDP Select fund scaled new heights yet again, reaching an eventual total of $8.5 million, but the big increase in borrows meant that was still not enough to stop the payout per borrow to authors falling to $1.38, the second-lowest monthly payout level.
Amazon has a very different business model from most other companies (really any other company) in that it doesn’t like to concern itself too much with overall profitability, but more with entering markets and securing a major share.
In insurance companies, there is a problem called new business strain when an insurance policy is sold because they have to write down the costs of selling that policy and make an allocation of reserves in case of a claim — in real terms, it is the total cost of developing new business.
The new business strain of Kindle Unlimited must be considerable when you consider that the KDP Select fund was a mere $1.2 million in June last year, the month before Kindle Unlimited was set up. The fund’s total of $8.5 million in January represents a massive sevenfold increase. Just for illustration, in the unlikely event of that rate of growth continuing, January 2016’s KDP fund would have to be set at $60 million.
There are so many variables, including a free first month’s offer, that it’s impossible to estimate how many paying customers there are for Kindle Unlimited, but it would need 850,000 members shelling out the full $9.99 a month to break even on the January KDP fund.
That’s without taking into account the several hundred thousand dollars being paid on KDP Select All-Stars awards, the payments to traditional publishers who get paid the same rate as they would for a sale rather than the KDP Select flat rate, and the general expenses of setting up and running a new business.
Nevertheless, Amazon is intent on expanding Kindle Unlimited and has now added Canada and Mexico to the KU fold. The cost of KU might be considered by Amazon to be small change in its overall mission of dominating the ebook subscription sector.
Amazon is certainly already dominating the ebook lending market in terms of lending numbers. Scribd and Oyster Books both offer subscription services and each claim to have a million ebooks available compared with Amazon’s 750,000, but their borrows must be much lower than Amazon’s.
Neither Scribd nor Oyster divulge a great deal in the way of statistics, but in January, Scribd said that since the launch of the subscription service in October 2013, the subscriber base has grown by an average of 31% a month, with readers spending over 17 million hours reading 500,000 ebooks.
I’m interpreting that statement to mean that Scribd has seen a total of 500,000 borrows over a period of 15 months, which is under a tenth of Amazon’s borrows for January alone.
Scribd has an impressive roster of books available and recently added 10,000 comic books from leading publishers such as Marvel to widen its appeal, and it obviously has to run itself more prudently than Amazon, but this does illustrate the sheer scale that Amazon can bring to bear in this business.
Some authors have pointed to the opportunities offered by Scribd and Oyster, which both claim to pay for borrows at the same rate as for sales. But they have nowhere near the scale and borrowing volume of Kindle Unlimited and have the added competition of a wide range of traditional publishers.
The Big 5 publishers have yet to sign up for Kindle Unlimited, although they have linked up with Scribd and Oyster, so KU remains largely the domain of the self-published.
Many authors have complained about the level of monthly payout rates, but with the volume of borrowing rising so sharply there must be opportunities for writers to profit from the scheme. If the present rate of growth continues, we could be seeing 10 million borrows a month during the summer.
There are winners and losers among KDP Select authors. Writers with lower-priced ebooks in the $0.99-$1.99 35% commission bracket are gaining massively from borrows compared with sales.This chart compares the KDP net royalty rates for sales at varying price points with the Kindle Unlimited payout per borrow for January 2015. It doesn’t take into account any taxes such as VAT, which is now charged according to the location of the purchaser.
January’s $1.38 borrow rate represents a huge 294% improvement on the $0.35 that would be paid on a sale of an ebook priced at $0.99, while a book priced at $1.99 would have got 97% more revenue for a borrow than for a sale.
However, as soon as you get into 70% commission territory, the losses begin, with downturns of 33%, 50% and 60% on ebooks priced at $2.99, $3.99 and $4.99 respectively, as shown in the chart above.
But Amazon claimed last month that total earnings are growing faster on ebooks priced at $2.99 or above than for the overall average, so higher volume must be playing some part, although many authors say their sales have fallen sharply and borrows haven’t made up for the shortfall.
Kindle Unlimited probably isn’t the best place for well-established authors with a substantial backlist priced in the $3.99-$5.99 area who can maximize their sales across the widest range of retailers.
But it looks like Kindle Unlimited is here to stay and there are undoubtedly opportunities when you consider that this year, we could see Amazon paying out well over $100 million (perhaps up to $140 million) for borrows alone to self-publishers.