The Glamour’s Worn Thin

by Amanda S. Green

I’m a little late posting this morning because I’ve been going round and round about what to write. Dave did such a wonderful job yesterday discussing his thoughts on Mike Shatzkin’s blog about what he thinks will happen if the Department of Justice’s possible antitrust investigation into Apple and five of the big six publishers causes the agency pricing model to disappear. I’ve already covered my thoughts on Scott Turow’s letter about the issue. Then I made the mistake of reading some of the comments from the “enlightened” on it and, well, you guessed it. I’m weighing in again on the issue.

I’ll admit, part of the reason for this post is a thread started by what I can only term a publishing troll on one of the boards I read every morning. This person posted a defense of big publishing comment that included a statement that the people “attacking” legacy publishing are doing so because they don’t have the talent to be published by a “real” publisher.

I beg your pardon? Oh, and that grinding sound you hear is the sound of the teeth of innumerable mid-listers who have suddenly been cut loose by their publishers because, even though their books are still on the shelves more than a year after publication and even though there are continued demands from their fans for more in a series, the publisher claims they just didn’t connect with the public. And that evil laugh you hear is me as I contemplate what will happen when these same mid-listers, free of the fear of upsetting their publishing masters, finally demand full audits and the publishers are caught between a rock and a hard place because of their “creative” bookkeeping methods.

So, yeah, I’m in a pissy mood this morning. I’m tired of legacy publishers thinking they can pull the wool over the eyes of authors who should know better. I’m tired of them also thinking readers, those good folks who buy their products, as so dumb they can’t see what is happening. With that in mind, I’m going to revisit Shatzkin’s blog and some of the sources it cites.

From the opening paragraph:  But if this does mean the end of the agency model, it would seem to be a cause for celebrating at Amazon and a catalyst for some deep contemplation by all the other big players in the book business.

Duh. Of course it will be “a catalyst for some deep contemplation”. The problem is, they should have been doing this “deep contemplation” years ago. Market trends and technology have been changing for the last three plus decades and yet the publishing industry hasn’t really embraced these changes. The publishers should have been concerned when the big box stores came onto the scene and forced the smaller, locally owned bookstores out of the market. But publishers weren’t. Oh no, not at all. They embraced these new stores, loving the fact they could do larger orders and write bigger checks. But now, with the economy and other trends causing these large stores to close down, publishing is running scared and blaming Amazon for the problems faced by these brick and mortar stores. But the truth of the matter is, Amazon is only one small part of the whole equation. Unfortunately, neither the big box stores nor publishers did any “deep contemplation” before things became so bad their entire companies are in danger of failing.

Agency pricing, for those who have not been following the most important development in the growth of the book market, enabled the publishers to enforce a uniform price for each ebook title across all retail outlets

Okay, pardon me while I laugh for a bit. Is he really saying agency pricing is the most important development in the growth of the book market? Sorry, but no. E-books are the most important development in the growth of the book market. If you’ve followed the sales numbers over the last few years, the only segment of the market to consistently grow, usually in triple digit percentage points, has been e-books. The only thing agency pricing has done is artificially inflate the price of certain e-books and that, in turn, has opened the market to small press published and self-published e-books.

This was Apple’s desired way to do business, and it addressed deep concerns the big publishers had about the effect of Amazon’s loss-leader discounting.

Okay, whether he meant to or not, he just admitted that agency pricing is something dreamed up by Steve Jobs and agreed to by five of the big six publishers. And, if you read the link included in the quote above, you will see this wonderful piece of logic from Macmillan: The agency model would allow Amazon to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model. Our disagreement is not about short term profitability but rather about the long-term viability and stability of the digital book market. Am I the only one to see all sorts of wrong in this statement? How in the world is lower profits for the publisher–which would mean less money for authors under most contracts–be good for the publisher? How is this sort of an agreement going to safeguard the “long-term viability and stability of the digital book”? It makes absolutely no sense. My opinion is that they went along with this because they wanted into iBooks/iTunes and the only way to do so was to accept Steve Jobs’ terms and that meant forcing Amazon, B&N and other e-book retailers to adopt the agency pricing model. Remember, the key to the agreement with Apple was that these publishers would not allow their e-books to be sold for less anywhere else. So Amazon isn’t the only market where these publishers would be making less money. Funny how folks seem to overlook this little item.

Back to Shatzkin: Although the WSJ article and Michael Cader’s follow up in Publishers Lunch make no “agency is dead” declaration and there are quotes from publishers and others indicating that there are a range of possible outcomes, including a version of agency that is modified to allow some discounting, everybody in the industry now has to contemplate what it would mean if the agency model is legally upended.

Again, why weren’t they already considering this? For one thing, the contracts signed with Amazon, B&N, etc., weren’t for perpetuity. There would soon be a time when they came up for renegotiation. For another, The European Union, not to mention more than a few states’ attorneys general, were already looking into the legalities of agency pricing. The fact that the industry hasn’t been considering “what ifs” simply shows how out of touch it is with the reality of the market these days.

To Amazon, it would mean they would be free to set prices on all books again, including the most high-profile and attractive ones that come from the big trade houses. That is an opportunity they are likely to seize with loss-leader discounting of the biggest marquee titles.

Ah, evil Amazon. Conducting its business as, gasp, a business. The ability to sell a product wanted by the public at a lower price has been an age-old tactic of shop owners and merchants. It gets folks through the doors, be they physical doors or cyber doors. And isn’t this basically what the brick and mortar stores did when they burst onto the market? They were able to price hard covers much less than the mom and pop bookstore could. That’s why the public initially loved these larger stores. It’s also why publishers loved them. These lower prices meant more units being sold. Funny how the publishers have forgotten that.

To Barnes & Noble, it would mean they have to devote cash resources to ebook discounting that they might have preferred to dedicate to further development of the Nook platform, maintaining the most robust possible brick-and-mortar presence, and improving the user experience at BN.com. 

This very well may be true. The problem with this statement is that it omits the part about BN waiting too long to enter the e-book market. It forgets that BN spent too much time selling third-party e-book readers instead of developing and putting on the market its own e-book reader. It also ignores the fact that the BN online presence is not user friendly, especially not when it comes to e-books. It also lacks the vibrant online community Amazon has built.

Unconfirmed stories abound that B&N is about to announce an international expansion. Whether that will produce cash flow immediately or require it for a while is not yet known. For B&N’s sake, it would always better if it were the former, but if they’re about to fight discounting wars, it might be critical.

I seem to be saying, or at least thinking, “too little too late” a lot as I re-read Shatzkin’s post. BN needed this international expansion long ago. The fact that it may, finally, occur probably is too little too late. I’ll note here that this possible expansion is for e-books, not brick and mortar stores. Again, why has it taken this long? I’ll also note that the source Shatzkin cites is from August of last year. So far, to the best of my knowledge, that expansion has yet to occur.

To Kobo, it would mean that they also will need to devote cash resources to subsidizing price cuts to match Amazon. With their new ownership by Rakuten, they should have the capital they need to fight this battle. They must be glad that deal got done before agency was upended.

Nope, sorry. For those of you familiar with Kobo, you know they don’t always match Amazon prices. There are a number of titles Kobo offers for substantially higher prices than the same title is offered for on Amazon. And, before you ask, I’m talking about legacy published e-book titles. So I don’t see them trying to match prices with Amazon except on certain titles.

To Google, it would mean that the bookstore service piece of their ebook business will suddenly be highly challenged. Many independent stores might be pushed out of the ebook game completely; it certainly would be extremely difficult for them to support competition with Amazon’s prices. To Google itself, with their new Google Play configuration, it means they will have to both spend more margin and more management energy to be a serious competitor in the retail marketplace. There’s no clear evidence that they have the interest at the top to do that, although they certainly would have the resources.

Yes, I’m laughing again. Google’s e-book business is already highly challenged. They’ve dropped the number of stores able to take part in their program. Their interface for authors and small presses leaves a lot to be desired. As for Google Play, why is Amazon the only reason they would have problems? Doesn’t Shatzkin remember a little company called Apple and its iTunes store? Or does he not see the parallels between Google Play and iTunes?

To Apple, it would mean that their entire iBookstore model is in question. They apparently didn’t want to take on all the normal responsibilities of a merchant, which would include setting prices. Now they may have to.

Oh, cry me a river. If Steve Jobs hadn’t presented the agency model to publishers and said “accept or else”, we’d not be having this discussion. But then, I’m just a bitter small publisher employee who can’t put our e-books directly onto iTunes/iBooks because we use PCs and not Macs, something required to use their interface. And, btw, they are the only storefront for e-books that we’ve come across that requires a certain computing platform in order to upload a file.

To all the big publishers, including Random House (the one of the Big Six not being sued, because they stayed out of agency for the first year and therefore were not considered part of the “collusion”) it would mean that they will have to painfully reverse the re-pricing and systems adjustments they went through to implement agency in the first place.

“Painfully”? How can it be painful if they can return to a pricing model where they made more money? Remember the quote from the Macmillan post above. It was admitted then that agency model pricing meant less money for publishers.

Smaller publishers and distributors might be beneficiaries if agency is eliminated, but they might not. The agency model is a great advantage for those publishers who are able to fully implement it. But that is only six publishers — the Big Six — because Amazon has simply refused to let anybody else sell to them that way.

I ask again, how is ia great advantage for publishers when these same publishers admit they don’t make as much money from agency pricing as they did before? As for Amazon refusing to let anyone else use agency pricing, good for them. It means Amazon is looking out for the economic well-being of the company and making sure it keeps its shareholders happy. It also means Amazon is looking out for its customers. But that’s a bad thing I guess because, gasp, it isn’t saving legacy publishing from the follies of the boardrooms in NYC.

That creates problems for the smaller publishers but an even more threatening one for distributors. All but the Big Six, if they want to sell to both Amazon and Apple, must operate a “hybrid” model, selling Apple on agency terms and Amazon on wholesale terms. The two are inherently in conflict. What is ultimately a threat to the distributors is that distributees that desire agency terms, and many would. might seek distribution deals from one of the Big Six. (It might be coincidental, but it is worth noting that IPG, the company having a fight with Amazon at the moment over terms, is a distributor.)

Okay, here is where I have to watch myself. It doesn’t create a problem for small publishers. We set our own prices both with Amazon and with Apple. If one lowers the price for promo reasons, the other can and does the same. As for the two being inherently in conflict, thank Apple. As noted before, Jobs required the first five of the big six to accept agency pricing or not sell in iBooks. Blaming Amazon for something it had no control over is ridiculous.

As for the threat to distributors, get real. I’ll admit distributors have a role in publishing, but not when it comes to e-books. Sorry, but there is no reason a small press has to use a distributor to get into Amazon or BN. The process is simple and relatively pain free to upload titles to either of these stores. Given the proper Apple computer, I assume it is for iTunes/iBooks as well. So I have no sympathy for IPG or other distributors moaning the fact Amazon won’t let them go to agency pricing. As an author I have even less sympathy because I know publishers take out the cost of distribution before figuring royalties. Why would I want to lower my already too small royalty payments?

Of course, we don’t know how the Big Publishers will respond if they’re forced off agency. It’s long been my opinion that the 50% discount for ebooks is unworkable. It leads to ridiculous and unrealistic retail prices. (Publishers operating on the hybrid model have to have two retail prices: one on which to base the wholesale discount and another at Apple operating agency-style. It’s crazy.) Would the big publishers, if they couldn’t do agency, keep the 30% discount and their current prices? Would they go back to the 50% discount and jack the suggested retail prices back up? If they did the former and nothing else changed, the smaller publishers could be at a much greater disadvantage than they are now.

Ah, the economic double-speak. First of all, small publishers won’t be at a “much greater disadvantage” because we will still be pricing below major publishers. Why? Because our overhead is much smaller. Also, for those of us with a limited paper-side publishing, we aren’t trying to artificially prop up the hard copy publishing arm with the digital arm. And that is exactly what the legacy publishers are doing. They are trying to use their e-book sales to keep the print side alive.

The other thing Shatzkin keeps overlooking is the fact that publishers aren’t making as much per sale under agency pricing as they did before. So, going back to the previous pricing method would actually give them more money in their pockets. How that is a bad thing, I don’t know.

Over time, the biggest losers here will be the authors. The independent authors will feel the pain first. Agency pricing creates a zone of pricing they can occupy without much competition from branded merchandise. When the known authors are only available at $9.99 and up, the fledgling at $0.99-$2.99 looks very attractive and worth a try. Ending agency will have the “desired” effect of bringing all ebook prices down. As the big book prices are reduced, the ability of the unknowns to use price as a discovery tool will diminish as well. In the short run, it will be the independent authors who will pay the biggest price of all.

This guy really should try his hand as a comedian because he’s killing me here. First of all, do any of us really see legacy publishers pricing their books under $5.99, much less as low as $2.99? And let’s forget about the fact that they already have e-books in the $7.99 range.  The loss of agency pricing will simply allow best sellers and new releases to come down in price to something more readers will be willing to pay. This will be, in my opinion, back in the $9.99 range and there simply aren’t that many self-published or small press published titles that are in that range.

With regard to his comment that the lower prices will make it harder for “unknowns” to price their titles low enough to be discovered by the average reader, wrong again. I would be very surprised if legacy publishers will price any book, much less a new release, at less than $7.99. Remember, they are using e-books to prop up their print divisions. If they price low enough to shut out these so-called “unknowns”, they will have to do some major cost cutting somewhere and that isn’t going to happen. They like their plush offices and they’ve already cut out or outsourced so much of the editorial process that it isn’t funny.

But, in the long run, all authors will just get less. They will join the legion of suppliers beholden to a retailer whose mission is to deliver the lowest possible price to the consumer.

Authors already get less. Most authors are not paid royalties based no cover price, not really. Publishers take out expenses. So, if an e-book has a price of $12.99 and the publisher gets 30% of that under agency pricing, that starts the share of the pie the author gets to look at at $3.90. Believe me, the author is not getting much of that at all. Once more, I remind you of what the Macmillan post said. Agency pricing means less money for publishers than the previous pricing plan paid. Less money for publishers means less money for authors.

Seth Godin has recently made the argument that this is simply inevitable. Perhaps it is. The laws of supply and demand would support that contention. But from my personal perspective, I don’t like seeing the government hasten the process along.

Could this be because he works with/for publishers? I am not, and never have been, one to want our government interfering in business. However, we do have laws and the Department of Justice is tasked with upholding these laws. If there has been collusion between the publishers and Apple — and I think it is pretty clear there has been — then those laws need to be applied to them.

The truth of the matter is simple. Agency pricing has hurt publishers and hasn’t done what they wanted–it hasn’t saved their print divisions. Those sales continue to fall while e-book sales continue to rise. Amazon is not the only reason for the problems publishers face. Despite what one commenter on the thread that got me started on this this morning said about publishing’s business model not being broken, it is. Until legacy publishers address ALL the issues facing them and not just try to save things by artificially inflating e-book prices, the industry will continue to flounder. Just a few of the issues they need to address are:

1. the failure of agency pricing to do as they wanted

2. low royalty rates to authors

3. cutting of mid-list authors, traditionally the work horses of the industry, as a cost-cutting means to allow them to continue paying higher advances to their so-called best sellers (note here that those advances have fallen just as have the advances to mid-listers)

4. lack of push or promotion for books

5. decline of physical bookstores (yes, Amazon has had a hand here, but so has the economy, over-expansion of the big box stores after pushing the locally owned stores out of the market, mismanagement of the big box stores, etc.)

6. decline in the quality of their product (publishers have cut their editorial staffs, often use interns to do copy edits and proofreading, lower quality bindings and paper, etc)

7. economic downturns that have people unable or unwilling to pay $10 for a paperback or $30 for a hard cover

There are a number of others as well. But agency pricing is not the savior of the industry. Amazon is not the big bad that a few outspoken publishers and authors would have us believe. Publishing is plagued by what could almost be termed a perfect storm, a combination of factors that it failed to see coming and that it has failed to effectively deal with once those factors could no longer be denied.

 

(cross-posted to The Naked Truth and here)

20 Comments

Filed under E-books, publishing

20 responses to “The Glamour’s Worn Thin

  1. This is getting old (the poor old publishers & the evil Amazon). Not blaming you for posting about it. It just makes me wonder if there’s intelligent life in the publishing world.

  2. Paul, I really hadn’t planned on doing this today. But the fact is I am tired of seeing the trolls being sent in by the publishers and certain “writers” organizations and putting a spin on the situation that is totally insane. I saw at least a dozen such posts this morning. As for intelligent life in publishing, it’s there, just not in the board rooms, imo. An example is the new CFO for BN. The guy has made a reputation for spinning off parts of previous companies he’s been with. So it is pretty clear that BN will be spinning off the Nook portion of its business. That makes no sense when it is the book section needing to be supplemented.

  3. 5- Again, given a choice I would prefer to have bookstores. When I moved here there was a new/used, a used and a new bookstore, all within walking distance. the new/used and the new stocked completely different things. I shopped there as much as I shopped online. yes, they were both independent. They went out within a year of my moving here. Only the used bookstore remains — as a much diminished side-arm of a restaurant business.
    HOWEVER let’s be honest here — Amazon sells used books too and with shipping it’s about the same price as the used bookstores. So, why do the used bookstores survive and not the new (now mostly chains.) Stock. Stock on used bookstores is erratic but not controlled by the push model. And because it spans several years, I’m not captive of NYC publishing’s latest fad, so I have a better chance of something I want to read. So, new dies but used survives.

    • Sarah, absolutely. My only issue with used bookstores, and it is a minor one because other things outweigh it, is the fact that sales from these stores don’t help the author with regard to Bookscan numbers, nor do they count toward earned royalties. However, I look at these sales like loss leaders. If someone buys a book at the used bookstore and like it, they are more apt to buy another book, possibly a new one, by that same author. They will also talk about the book, recommending it to their friends and, let’s face it, without publisher push, word of mouth is still the best advertising any author can get.

  4. Stephen Simmons

    Lunch half-hour wasn’t long enough to get all the way through this on top of checking the news, so I’ll cover most of my response later. But I wanted to get one thing out there right away.

    We need to stop citing the economy as part of thr demise of the big-box stores. Certainly it helped hasten the end, but itis NOT a cause. Borders was already engaged in tourniquets and amputation to stave off red ink back in 2007, when all rhe “experts” were *raving* about the “boom times”. The thing that killed Borders was *Borders*, not the 2008 crash.

    • Agreed, which is why I list it as one of the causes. But, conversely, the boon economy was also a cause because the suits didn’t anticipate that the boon would eventually go bust. That’s when the over-expansion occurred. Stores were open too close to one another, both of the same brand and with regard to location of their competitors. Long-term leases paying inflated per foot rates were signed. Superstores came into existence, again without taking into account that the boon would go bust sooner or later.

  5. Let’s not forget the reason why the price on the back of a hardcopy book is a RECOMMENDED retail price. There was a rather acrimonous court case that ended with the decision that publishers did not have the right to tell any business how much to charge for their books. They could only sell them at wholesale and retail would be what retail is.

    The same principle applies – or should apply – to ebooks. Period.

    • But, Kate, you forget one thing–these are the same publishers who don’t think e-books are “books”. Remember, they claim they are only selling a “license” to read the book. That’s why we can’t load them onto as many different devices as we want and why we can’t give them away or sell them.

      Do I agree with them? Hell no. And you’re right, the same principle should apply to e-books as applies to “real” books.

      • Kate Paulk

        A product is a product, and it’s pretty well established that the supplier doesn’t get to dictate anything except the wholesale price to the retailer.

        Even, oddly enough, when the product is not physical.

        I should add that even thinking too loudly sets off all the FDA sarcasm safety alarms right now. The day job has a big release going out tomorrow and let’s just say things are “interesting” for the testing team.

        • Kate, you know how much I agree with you on this and, believe me, the sarcasm safety alarms have been sounding around me all day. Especially just a few minutes ago as I read a post from one of the literary darlings bemoaning a very low double digit pirated download of a book that is no longer in print. Now, has this author considered bringing the book, or any of the others in the now defunct series out through KDP or a similar program? Nope. But they are happily condemning the pirating and, at the same time, moaning about how those few downloads might have made a difference if they’d been sales before the series was cancelled.

  6. Edward Bear

    I’ve been all e-book all the time for over ten years. “Agency” pricing dropped my eBook buying by 90% without giving me the slightest incentive to return to treeware for my fix. And the big six are stupid enough to claim that the “agency” model is the “savior of the industry”? BWA-HA-HA-HA-HA

    • EB, my question has always been, how can something that means less money to the publisher–and therefore less money to the author–be good for the industry? The fact that agency pricing takes money away and has also driven away customers ought to be a wake up call. But it’s not, at least not to the legacy publishers.

      • Edward Bear

        High prices aren’t the ONLY thing the publishers are killing themselves with. I recently made the mistake of buying the new Rick Riordan novel, “Son of Poseidon.” The eBook was literally ROTTEN with errors: words jammedtogether or inter rupted in the middle all over the place. And my attempt to contact them was rudely dismissed.

        The publishers have clearly made the mistake of confusing Wal-Mart et. al. with their customer base, which is, as always, the individual reader. If they take no steps to encourage our loyalty, they’re toast.

  7. Amanda, you’ve just chanced on last card Traditional Publishing has left to play. Back in the dark ages, they had a full hand and a full house. They had (in more or less value rank, but they’re all good cards, and without one, the rest are much reduced in value: Validation (we accepted you book, you are good, people will want to read your work), Covers, Proof-reading, Editing, Marketing, Distribution, and the ace that trumped everything: Near monopoly on Access to Retail Space (oddly at first this card needed the Validation card). Time moved on, and they got themselves into only needing the ace, as the sales happened mostly through a few big box stores. And the marketing card became ‘market to the big box stores. The rest were discarded or not worried about much. Validation? what does that matter? We got a LOCK on this baby. If your girlfriend’s little brother wants to be a bestseller… we can do it (if you, you know…) and the rest withered on the vine.

    And then Amazon (and SMASHWORDS and then a stream of others) went and broke that monopoly on Access. The card became worthless. They’d already devalued, wrecked/wasted all the rest, and without that Ace… they found the independents could match or raise them on every other card.

    Until all they’re left with is Validation, which like all the rest they’ve treated like sh1t, because they had the Ace that trumped everything. It’s the one card an independent can’t buy, and would like.

    Except… they’re wrong. Validation only means something IF it means people will want to read your work because they give it that seal of approval.

    What a joke. 1)We know what they’ve given that seal of approval to in the past. 2) Just who the hell knows who they are? I can’t name Pratchett’s publisher. But the seal of approval is his Pratchett’s name, not the publisher.

    • Dave, they forgot the one rule of cards. An ace can be the high card or the low card. It is now the low card and they can’t draw to the inside straight, nor can they hit blackjack.

      As for knowing the names of publishers, I’m with you. I can’t name most of the them. But I do know the names of the authors I like. I also know the names of the authors who have started just churning out stories to plan where they change the names of the characters and the location but, basically, the story is always the same. That gets old really fast.

      Now I’m just waiting for the dealer to call for last bets and the legacy publishers to realize they no longer hold the winning hand. Of course, they will still probably try to draw to an inside straight.

  8. Great article. You did an excellent job answering Shatzkin and did so much better than I could.

    I have talked to a few folks on the ‘other side’, authors and publishers both. One thing they mentioned that was pushing e-book prices up and causing the Agency Model was trying to set customer’s expectations of how much they should expect to pay for an ebook. The thing they were trying to overcome is the barrier a lot of readers have for paying ‘full price’ for something electronic. Basically, they want to condition readers to need to pay hardcover or, worst-case- full price paperback prices for ebooks.

    • I’ve heard that as well. However, what I keep coming up against is the comment from the big six that they wanted to raise the prices of e-books so e-book sales wouldn’t cannibalize hard cover sales. Problem is, that was never really an issue. The part of the market e-book sales have effected is the mass market paperback. Of course, the fact that publishers have never really liked mmpb hasn’t helped. Nor has the fact that publishers keep trying to tell the buying public that it costs as much to make an e-book as it does a physical book and think folks don’t catch it when they double dip with editing costs, etc.

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