Skip to content

Posts tagged ‘agency pricing’

Saturday Links

I’ve gathered some links of interest and thought I’d share. But the catch is, I’d like you guys to share your own publishing links of interest in the comments section. Of course, I’d also like to hear what you think about my links — sorry, no coffee yet and about to head out to get my car worked on. So I’m hoping this makes sense. Have I said I don’t like mornings?

Amazon is apparently the leading contender in the race to acquire Dorchester Publishing. The auction for the publisher’s assets will take place in August and Amazon has already expressed its interest. Depending on what source you read, it’s either a done deal already or Amazon is only one of any number of companies/persons looking to bid on the publishing house. I’m waiting for the howls of outrage to begin if Amazon does buy Dorchester. Will it make the brand an active publisher again — which will be direct competition to other publishers — or will it simply bring out Dorchester’s backlist? Either way, it will be another change in the publishing landscape and will begin another round of outraged cries against Amazon. I’m reserving judgment until I see exactly what happens with the auction and what Amazon does if it does place the winning bid.

I’ve been asked several times by a certain “dragon” if there is any intelligence or common sense in publishing. There is and it is on display in this discussion about what publishers need to do in the face of the Department of Justice price fixing law suit and other changes in the industry. In my opinion, Don Lin hits the nail squarely on the head and I hope there are others in the industry listening to what he has to say.

Dean Wesley Smith has a great post up on pricing. Read it. Think about it. Read it again.

Also go read Kris Rusch’s latest post. Please, read it and think about it — especially if you are a writer and have been worrying about what to do about what you see are bad reviews of your latest work — and then think about it some more.

So, what are your thoughts about these posts? Do you have other links you think would be of interest?

How the mighty might fall

I know there have already been a number of posts written about the Department of Justice filing an antitrust suit against Apple, Simon & Schuster, HarperCollins, Hachette, Penguin Group (USA) and Macmillan. Most of the posts and articles I’ve seen are all coming down on the side of Apple and the publishers. Needless to say, it’s left me shaking my head and – yes, I’ll admit it – having a bit of a laugh at them attacking Attorney General Eric Holder. But that gets into politics and I am trying not to cross that line in the sand.

When I heard the DoJ had finally filed suit, I debated whether to blog about it or not. For those of you who’ve followed my posts, you know I’ve wondered on more than one occasion why the DoJ hadn’t acted. It’s not that I particularly believe the agency model of pricing is illegal. No, I felt from the beginning there was collusion between Apple and the Big Five (later to become the Big Six when Random House finally joined the club). It was that collusion that would be in violation of anti-trust laws.

I’d just about decided to leave the topic of the suit and subsequent settlement agreement to others when Kate sent me this link: http://www.forbes.com/sites/waynecrews/2012/04/11/why-is-apple-getting-cored-in-washington/ . The more I read, the more I realized this article was crying out for a response much as Scott Turow’s letter for the Authors Guild. Of course, in the process, I read more and realized just how slanted the so-called coverage of the DoJ’s pleadings and the reasons behind the lawsuit were.

For the Justice Department’s reasoning behind why it filed the antitrust suit, I’ll refer you to the pleadings. Beginning on page 11, the history and theory of the case is laid out. In my opinion at least, a prima facie case has been made that the publishers named in the suit and Apple did conspire. Oh, they can say it was to improve the market and to prevent Amazon from taking over the industry. In fact, they do say that. But if the facts alleged in the pleading are true, then the parties did collude to fix prices and that, no matter what the motivation, is illegal.

It is important to note that the Attorney General said it is thought “consumers paid millions of dollars more for some of the most popular titles.” Greg Abbott, attorney general for Texas, in commenting about the law suit brought by Texas and 15 other states that they estimate “overcharges” paid by consumers in excess of $100 million.

From that same Shelf-Awareness article: So, in the name of antitrust, the level playing field of the past two years–agency model e-books were priced the same whether sold by Amazon, Barnes & Noble or independent bookstores–will likely revert to a situation where a near-monopoly power determines pricing and most other retailers see their already-smaller market share shrink. Although Apple and the publishers may have cooperated in ways that violated the nation’s sometimes contradictory antitrust laws, for the Justice Department to single this matter out and not address other issues in the book industry or in business in general seems misguided

Am I the only one who sees any problem with this line of thinking? If we allow publishers to fix prices for books so they are sold at the same price everywhere, what is to stop food manufacturers from doing the same? Or gas suppliers? Or any other of a myriad of producers in this country? I don’t know about you, but I tend to shop for the best buy on many items. I used to on e-books. I shop sales. But under this line of thinking, the only time there would be a discount would be when the producer/supplier approved it and then it would still have to be implemented everywhere. Sorry, but that dog just don’t hunt. At least not for me.

Now look at that last sentence.  Although Apple and the publishers may have cooperated in ways that violated the nation’s sometimes contradictory antitrust laws, for the Justice Department to single this matter out and not address other issues in the book industry or in business in general seems misguided.I guess as long as the publishers and Apple were working against the big evil Amazon, they ought to be excused for any violation of the law they might have committed. WTF?!? As for not addressing other issues in the book industry, is that a can of worms any of the defendant parties really wants? If they are worried about their financial survival, they’d better pray no one comes in and forces a full audit of royalties paid and that should have been paid. I’m afraid if that happens there will be houses that fall.

But let’s move on and look at what some of the interested parties have had to say.

All the parties named as defendants in the suit have denied any wrongdoing. Apple has alleged that its launching of the iBookstore helped “break ‘Amazon’s monopolistic grip on the publishing industry.'” The only problem with this statement is that Amazon did not then, nor does it have now, “a monopolistic grip” on the industry. What Amazon had was leadership that recognized a new trend in the industry and acted on it before the legacy publishers or the big box booksellers did. That gave Amazon the lead in e-book retail and as the popularity of e-books and Amazon’s Kindle increased so did legacy publishing’s fear of change. So, instead of adapting to the new technology and evolving their business plans, they acted to try to cut Amazon off at the knees. Again, assuming the facts alleged in the Department of Justice’s pleadings are true, the defendants said as much in their talks leading up to the push for agency pricing.

John Makinson, chairman of Penguin Group, in explaining why Penguin has not settled with the DoJ said the following:

. . .We have held strongly to this view for two, and only two, reasons. The first is that we have done nothing wrong. The decisions that we took, many them of them costly and difficult, were taken by Penguin alone.

In other words, at a time when the publishing industry is struggling, these five publishers agreed to terms with Apple that would put less money in the publishing houses’ pockets, and therefore in their shareholders’ pockets, and more in the pockets of Apple. As for being taken by Penguin alone, I’m not one who holds by coincidence and the fact that agency pricing sprang up with the introduction of the iPad and the iBookstore and that these publishers all demanded the same terms from Amazon at the same time is just one coincidence too many.

The second, and equally powerful, reason for our decision to place this matter in the hands of a court is that we believed then, as we do now, that the agency model is the one that offers consumers the prospect of an open and competitive market for e-books. We understood that the shift to agency would be very costly to Penguin and its shareholders in the short-term, but we reasoned that the prevention of a monopoly in the supply of e-books had to be in the best interests, not just of Penguin, but of consumers, authors and booksellers as well.

My first issue with the above paragraph goes to the “prospect of an open and competitive market for e-books”. How does price fixing promote such and open and competitive market? I’m assuming what he thinks is that be price fixing, they are guaranteeing that markets such as Barnes & Noble, Books-a-Million and Borders will be able to remain in business. Oh, wait, Borders no longer exists. Or maybe he’s referring to Google’s agreement with independent booksellers that allows them to offer their patrons the chance to buy e-books through Google. But that’s no longer available either. Google announced in the last week or so that it was abandoning that venture because it was not viable. So how does the agency model promote “an open and competitive market” for e-books?

Makinson goes on to admit that the shift to the agency model was “very costly” to Penguin and its shareholders. But this is justified to prevent a “monopoly in the supply of e-books”. I don’t know about you, but I know of a number of other retail outlets for e-books besides Amazon that date back to long before the Kindle. Baen has offered e-books through its webscriptions site for more than ten years. Fictionwise was offering e-books as was Smashwords. So were other sites. Amazon was not the only retailer. It was, however, the only hard copy bookseller that recognized the new trend in books as being e-books and took advantage of it. Since when has being economically and commercially astute something that should be punished?

. . .The decision we took in January 2010 to move Penguin’s e-book business to agency pricing has been vindicated by the very rapid subsequent growth in the volume of e-books sold by agency publishers, and by the benefit to consumers of the steep decline in the price of e-book readers that that has resulted from this open competition. . . .

I’ll give Makinson that their growth in e-book sales has increased. But it has across the board, not just for those publishers adopting agency pricing. But the part of this comment that really floors me is how he claims the price decrease for e-book readers is because of agency pricing. Agency pricing isn’t the key to the growth of e-books , or at least not the key here. There are a number of different reasons including but not limited to, the opening of the market to indie and self published authors, kids growing up and being more comfortable with e-books over paper, etc

Let’s also not forget that almost all tech decreases in price in time. Let’s not forget that the demand for e-book readers also brought about new models and lowered pricing as well. We have a generation of teens and young adults who are much more comfortable reading on their phones and tablets and e-book readers than they are reading physical books. Frankly, based on previous comments and actions by these publishers, it wouldn’t surprise me at all if they wouldn’t dance for joy if there was a sudden ban on e-books and e-book readers, so they could go back to the old and familiar ways of doing business.

Hatchette denies any wrong-doing even as it has entered into an agreement with the government that will settle its part of the case. In a statement explaining their position, Hatchette said it adopted the agency model that was “designed to facilitate entry by a new retail competitor [Apple] and to increase the diversity and health of retail booksellers, and we took these actions knowing that Hachette itself would make less money than before the adoption of agency.”

So, they admit to formulating this new pricing model to help Apple. According to the government pleadings, Apple had an active hand in this. Whether Hatchette and the others actually believed the agency model would help increase the “diversity and health” of booksellers, I don’t know. But I can’t imagine anyone with much business sense would. Not when these same booksellers were slowly strangling themselves with out-of-date business practices. And, again, note how they admit the agency model meant less money for the publisher. Yes, I’m shaking my head again.

The Hatchette statement goes on to talk about how, before agency pricing, consumers were basically limited to Amazon for e-books and how now there are many other outlets and formats available. Obviously, Hatchette is like others who turned blind eyes to Jim Baen and his webscription program, as well as Fictionwise, Smashwords, etc. Worse, they all seem to think the public didn’t know about them. Sorry, but I’ve been buying and reading e-books for much longer than Amazon has been selling them. So there’s another dog that don’t hunt.

Harper-Collins alleges that the e-book market has exploded after the institution of the agency model and that this has given readers a wider range of formats, devices, etc., to choose from. Well, that’s true. But the agency model isn’t responsible for most of it. In fact, there are fewer formats around now than then because of the shrinking of the device market. The main formats now are EPUB and MOBI. There are others, but they aren’t major formats, no matter what the publishers want you to think. As for devices, sorry, but the iPad came without the agency model. With it or not, Apple would have updated the iPad and brought out the subsequent models. Amazon would have brought out newer kindles. While lagging behind, I believe B&N would have brought out the Nook as well, updating it along the line.

It is interesting to note that almost all of those named in the Department of Justice’s lawsuit are now showing signs of settling with the European commission that has been investigating them on similar charges. Of even more interest is the fact that the Department of Justice has apparently been working closely with the European commission, even sharing e-mails and other correspondence that originated in France. While none of this proves wrong-doing, it does present a possible common methodology and ought to have folks asking “why?”.

As for the original article that started all this, again all I can do is wonder at the author’s reasoning. First of all, I take exception to his assertion that the agency model is only a “natural” reaction to what was going on at the time: ie, it was the only way publishers and Apple could think of to battle Amazon. Sorry, but I don’t buy it. There were other options available. This was just the easiest one and the one publishers thought would hurt Amazon.

Then there’s this comment: Now, you can actually buy an indestructible book that occupies no space, can be “written” on, highlighted and dog-eared yet not worn out; and that can be transported without being transported. Such a miracle, if we were honest, is worth hundreds and would have cost thousands were someone to have offered it a decade ago.

First of all, it shows that he doesn’t know much about e-books. They were in existence a decade ago and, with certain programs, you could do much of what he is saying. But they didn’t cost anywhere near what he suggests. He is also overlooking the fact that these five publishers aren’t “selling” the e-book. They are selling a “license”. Tell me something, folks. How many of you have read the licensing agreement when you buy the e-book? What? You haven’t? That’s because you aren’t given it. So who knows what the small print might read. Remember also that these are the same publishers loading DRM into their e-books, limiting the number of devices you can have the title on at a single time and preventing you from reselling your e-book, or even lending it in many situations.

Then there is this statement: Publishers are being antiqued; and they have a right, as voluntary assemblages of human beings (shareholders, as all corporations are) to make deals to attempt to survive. This is true, but only to a point. They do not have a right to make a deal that is in violation of the law. I could say more, but I really would be going into politics then. So I’ll save that for my personal blog later this week.

While I agree with the underlying premise of much of what the author says – in other words, I don’t like seeing the government getting involved in business decisions – there are times when it is necessary. This is one. What so many of these commenters are forgetting, or choosing not to address, is the fact that these same publishers are the ones who have said they tried to slow the spread of e-books and then have increased the price of them in order to save the print side of their business. Again, this is another example of how they are trying to cling to the old and not adapt to, much less embrace, the new.

I could go on, but you get the gist. Three publishers have agreed to settle the law suit. Two others and Apple say they will fight the charges against them. Only time will tell how this plays out. However, as a reader and as a writer, I have to wonder at the reasoning of those who are so willing to overlook violations of the law simply because of the fear of a company with the foresight to recognize a new market trend.

I’ll blog some more Tuesday about the actual settlement and any other new information that has come out. In the meantime, like it or not, welcome it or rue it, this law suit has the potential of changing the face of publishing in a profound way. For me, I think good can come of it. But, as I said, only time will tell.

If it’s Tuesday. . .

This weekend was my first vacation in a long time. Three days without trying to write, edit, read slush, etc. What I quickly discovered was that I needed the time off–badly. Even when I’ve supposedly taken time off the last few years, I’ve always had the laptop with me and that means I still tried to work some. This weekend, which was devoted to all things family at my son’s university, had none of that. It was great. The problem is, I came home exhausted, spent all day yesterday making a very small inroad into the stack of stuff on my desk and now my brain isn’t working. I think it is still in bed. Maybe that’s why my head is echoing so badly. So, the post I’d planned on for today will wait until next week because I have to be able to think to finish it. Instead, I thought I’d post links to a several articles of interest.

1. Random House’s e-book price increase for libraries. Here are two articles concerning whether libraries are or are not boycotting RH after the publisher’s exorbitant price increases. The first is about a group of libraries that are boycotting RH and the second casts doubt on whether there is a large-spread boycott.

I tend to agree more with the second article. Libraries will be cutting back on the number of RH e-books they order, but they won’t boycott. The reason is simple. It is important to remember that library patrons don’t know how much their local library has to pay for a book, be it digital or hard copy. All they care about is that they are able to check the book out. This is becoming especially important for those patrons with e-book readers. So, in order to keep their patrons satisfied, libraries will continue ordering from RH, if at lower numbers. After all, these same libraries are still having to explain to their patrons that they have nothing to do with why the patrons can’t check out e-books from Penguin, et al–the other members of the Big Six that refuse to release their e-books to libraries.

2. Hatchette on DRM

This is probably the one story I had to read several times, and from several different sources, to make sense of. The basic issue came when Maja Thomas of Hatchette called DRM a “speedbump” that doesn’t prevent e-book piracy.  Thomas went on to say: There’s a misconception that somehow the digital format of books has made piracy increase, or become logarithmically more serious. But piracy was always very easy to do, because scanning a physical copy of a book [takes] a matter of minutes. A physical book doesn’t have DRM on it.

As I read this, I was nodding, even smiling a bit, because someone at a legacy publisher was finally getting it. Could it be that Hatchette was coming to its senses? Had a cold front finally hit Hell? The short answer is a resounding “NO”.

From Hatchette CEO, Tim Hely Hutchinson: DRM (Digital Rights Management encryption, on which we insist) divides opinion. Our view is that the advantages greatly outweigh any perceived disadvantages. While DRM cannot prevent file-sharing by the most determined pirates it can and does act as a brake on the casual sharing of files and, in the overwhelming majority of cases, it works in the background without causing problems for anyone.

First off, he only sees “perceived disadvantages”. I guess I just “perceive” a problem in trying to buy an e-book from Amazon and then read it on a Nook, or vice versa. Or I just “perceive” it as a problem when I lose my Adobe Digital Editions account and can no longer legally read those DRMed titles on any reader or computer.

Second, he seems to think it is only the “most determined pirates” who are out there breaking DRM. I have issues with that statement on two levels. First, the fact he is calling everyone who breaks DRM pirates. That implies, at least to me, intent to illegally distribute a title after DRM has been broken. Now, unless you include reading a title on a different type of device, also owned by you, as piracy, then no. Most people breaking DRM are doing so in order to make viable backups of their e-books that they know they will be able to read in years to come, no matter what sort of device they own at the time. My other issue with this is that it doesn’t take a lot of determination to break DRM. Less than two minutes of googling will take you to sites with step-by-step directions or to a site where you can download plug-ins for Calibre to do it for you. It isn’t hard to find or do.

So, there is no change in policy at Hatchette and, at least for the moment, DRM is going strong among legacy publishers.

3. Department of Justice’s investigation into Apple and 5 of the Big 6 for price fixing.

Yes, I’m still smiling over this. After two years of waiting for someone in the legal system to realize exactly what Agency Pricing is, the DoJ finally seemed to be stepping forward. The news coming out about the investigation has been generally sparse and comments are usually from unnamed “persons” close to the investigation. In other words, the news may be reliable or it may not. Only time will tell.

Reuters has reported that a settlement may be reached between DoJ, Apple and at least some of the publishers in the upcoming weeks. Possible outcomes could include Apple no longer being able to force publishers to agree not to price their e-books lower at other outlets than they do at Apple. It could also shift pricing responsibilities from the publishers to retailers. In other words, it could return e-book pricing to the “wholesale model” that had been in effect prior to Apple’s entry into the market and the advent of Agency Pricing.

If this happens, it is also possible that the results will trickle down to small presses and self-published authors. Part of the contracts we agree to with Amazon, B&N, etc., when we put our e-books up for sale through them is that we will not offer our titles for less anywhere else. In other words, we are agreeing to our own form of Agency Pricing. It will be interesting to see if there will be a trickle down effect from the retailers with regard to those enrolled in the KDP, PubIt and similar programs. I doubt that there will be. However, it is something we will have to keep our eye on.

Okay, I’m off to find another cup — or six — of coffee. Then I must finish the final edits on Nocturnal Haunts. Then I have digital proofs to check before I approve ConFur (a short story in the ConVent universe by Kate Paulk), First Blood (a short story by Sarah Hoyt, writing as Sarah Marques, in her Vampire Musketeers universe), Pinked Djinn and Candy-Blossom (short stories by Dave Freer) for publication. Then it’s on to checking the digital proofs for Scytheman, book two in Chris McMahon’s trilogy begun with The Calvanni. And that’s just the tip of the iceberg.

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)