Whew. As a Simon & Schuster author, I have to say I’m relieved to see how quickly my publisher struck a deal with Amazon. According to several sources, the negotiations took just a few weeks and the agreement was reached with months left on the current contract. It’s a multiple-year deal, and both sides sound pleased with the results. Simon & Schuster retains the rights to set prices, and Amazon retains the ability to discount.

Everyone is speculating on the finer points of the deal and wondering why Hachette can’t come to terms with Amazon. Hints abound. In fact, the terms Amazon is seeking have been staring every self-published author in the face for years. We can even catch glimmers of confirmation in this Simon & Schuster deal.

Engadget reports that Simon & Schuster now has “a financial incentive to drop prices.”

The New York Times quotes S&S as saying that “with some limited exceptions,” the contract gives S&S the ability to dictate prices.

A financial incentive to drop prices. Limits on S&S’s ability to dictate prices. What does this deal entail?

Some commentators are hailing the deal as a return to Agency pricing, but I wonder if these are the same commentators who claim that self-published KDP authors employ Agency pricing?

Guess what? We don’t.

Our agreement with Amazon is something more like Incentivized Agency. If we set our prices between $2.99 and $9.99, we get 70%. If we set our prices outside that range, our split drops to 35%. According to our EULA, Amazon retains the right to discount our ebooks as it sees fit.

What does this mean? It means if we price our ebooks at $14.99, Amazon has plenty of meat left on the bone to discount our ebooks back down to $9.99. The customer gets a good price, and Amazon still makes a profit. That is, we the authors are punished for jacking up the prices.

Who wants to bet that this is what Amazon wants from publishers? The KDP agreement is what Amazon offers with practically zero negotiations back and forth. We should take it as their ideal agreement. The publisher (in this case, individual self-published authors) set the price. But it’s within a range that Amazon specifies, or else we lose margin.

So when Hachette cried foul back in May that Amazon was after a percentage of profits, that’s because they saw Amazon offering perhaps only 50% on ebooks priced above $9.99. Amazon has been right to say that the negotiations are about price, and Hachette has been right to say that the negotiations are about margin. That’s because margin is to be determined by price, just as it is for KDP authors.

Simon & Schuster entered into these negotiations with a greater awareness of the power of pricing. Surely they watched John Green’s THE FAULT IN OUR STARS tear up the charts at $4.99 (now higher). Or how about the fantastic HOW WE GOT TO NOW by Steven Johnson, which is new in hardback but selling the Kindle edition at $4.99? This is a Penguin book, and it’s in the top 500 at Amazon (great book, btw).

There’s another advantage to this deal for Simon & Schuster. Pressure for higher ebook prices comes from print retailers, who don’t want to be undercut. Publishers aren’t stupid; they know they can sell more ebooks at a lower price and make money doing so, but they worry about harming existing partnerships. S&S can now price some ebooks high, knowing that Amazon has room to discount, and they can go to the buyers at their major accounts with the digital list price to show their support. That is, the blame for the eventual lower sale price will fall on Amazon, which brick and mortar outlets already loathe, and S&S gets to look like a champion. Meanwhile, they are giving up a percentage of margin to help Amazon discount. Everyone wins. Especially the customer.

There isn’t a sliver of a leak about this deal that doesn’t fit the model of Incentivized Agency. S&S sets prices; Amazon can discount; there are “financial incentives to drop prices.”

The nail in the coffin comes from New York Times’ David Streitfeld. As a reporter with close ties to Hachette and its authors, Streitfeld looks for any opportunity to goad Amazon and praise the Big Five publishers. So much so that his own paper called him out for his bias. So what can we learn from his coverage of this agreement? A lot, it turns out. Pressing sources to confirm that Simon & Schuster won a major victory for all of publishers, Streitfeld no doubt wanted to hear that S&S maintained its share of income for all books sold. Any hint of this, and you can be sure he would report it. Instead, we get this sheepish admission: “While the publisher did not explicitly say the deal maintained its own share of income, a source with knowledge of the negotiations who was not authorized to speak publicly pronounced the publisher happy with the terms.”

My guess is that Streitfeld learned the split is dependent on price, but he doesn’t want to be the one to break that news. Eventually, it’ll be public knowledge that Amazon pays a higher rate when wholesalers provide ebooks at a sane price. And people will be shocked. Except for self-published authors, who have been pressured by Amazon to keep ebook prices in a reasonable middle range for years.

The one statement we have from Amazon about this deal claims: “Importantly, the agreement specifically creates a financial incentive for Simon & Schuster to deliver lower prices for readers.”

So there you have it. Congrats to both parties for putting this together.