The Shatzkin Files


If the government makes agency go away


The Wall Street Journal reports that the Justice Department has notified the Agency Five (Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster) and Apple that it plans to sue them for colluding to raise the price of electronic books. I have no standing to comment on the law here. 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.

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. 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.

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.

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.

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. 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.

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.

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.

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.

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.

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. 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.)

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.

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.

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.

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.

But what about the reader? The reader gets lower prices, cheaper reading. What the reader won’t see is that s/he’s not getting what s/he won’t pay for. Some of the best books won’t get written and the biggest casualties will be in the area of highly-researched non-fiction, like major biographies, in my opinion. Twenty years ago they used to say that a conservative was a liberal who’s been mugged. I’m not about to become a conservative, but I sure see how easy it is for the government not to understand how their decisions might affect the dynamics of a business. Or, in this case, a culture.

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  • http://www.barryeisler.com/ Barryeisler

    Hi Mike, I agree that as legacy-published books are priced lower, self-published books will be less able to distinguish themselves based on price.  But I wouldn’t argue that “in the long run, all authors will just get less.”

    First, in general when a commodity costs less, people buy more of it, and as the crowds rushing Borders during its fire sale end indicate, people buy more books when they’re priced lower.  Also, from what I’ve seen, I’d say it’s not at all clear that $9.99 and higher is the sweet-spot price for a digital book — that is, the price at which per-unit revenue x volume = maximum profits.  In fact, there’s a lot of data indicating that the sweet-spot price for most digital books is around $5.00.  I’d rather sell 150,000 copies of a title at $5.99 than 30,000 copies at $12.99, and my experience suggests those figures aren’t just theoretical.It’s also possible that losing the power to collude on pricing will force legacy publishers to reconsider other aspects of their business — including their current collective insistence (surely a coincidence!) on paying authors only 17.5% of retail on digital titles.  If so, then the demise of agency pricing could lead to authors making double, triple, or even more compared to what they’re making now on each digital title sold.I think it’s important to remember that in a primarily paper world, legacy publishers have a distribution value proposition, indeed, a distribution lock; in a primarily digital world, they have no distribution value proposition at all.  So when legacy publishers collude on digital prices, they do so not to maximize digital profits; they do so to prevent digital books from being unduly competitive with paper ones and to retard the transition to digital book distribution thereby.  I can see how this approach might benefit the publishers, at least in the short term; it’s a little harder for me to see how it benefits authors.

    My two cents FWIW, as usual. :)

    • /blog Mike Shatzkin

      Bob, your conjecture is as good as my conjecture. But I don’t think there is any proven (or provable) “sweet spot” that is a universal or enduring reality. And I can tell you for dead certain that the big publishers are experimenting trying to find that precise point: where revenue is maximized. One thing that agency has focused them all on is the correct goal. That’s not the goal for Amazon. Their primary motivation is to maximize market share on the title.

      Mike

      • Chris

        Surely the ‘sweet spot’ will be elastic due to author popularity?

        I’ve always been of the opinion that ebook pricing should reflect something similar to the old format pricing. Ie, HC, TPB, MPB.

        I certainly wouldn’t release a new Grisham or Suzanne Collins novel at five bucks. Well, not until the market started drying up at that price point.

      • /blog Mike Shatzkin

        Right. It’s complicated. Always beware of any suggestion that it’s simple.
        And in non-fiction, it is sensitive to topic and specific “replacement” competition. Fiction, except for the most dedicated matchups between author and reader (which are the exception, not the rule), is highly substitutable. It’s a lot easier to find another good thriller than it is to find another good biography of Babe Ruth.

        Mike

      • Barry Eisler

        Mike, here I think you might be underestimating the power of brand.  If all a reader is looking for is a good thriller, then yes, one author might be about as good as another.  But if what you want is the newest Lee Child, then there’s only one game in town, and that game can and will be priced accordingly.  I could be wrong, but I have a feeling that brand attachment is a more potent and durable sales force than a desire for information about, say Babe Ruth.

        You could argue that, logically, brands shouldn’t matter so much, but they do.  Despite all evidence to the contrary, people still think the Washington Post is a liberal newspaper, that the GOP is the party of small government, that America is a peace-loving nation… once a brand is established, people get very attached to it.

        I left brands out of my earlier comment because I was focusing on the general sweet-spot price for most authors, but I agree there’s no one-size-fits all and that branded authors will always be able to charge a premium (same as for any other product).    Still, I think the experience of various indie authors suggests that legacy publishers are charging too much for most digital titles, and that they’re doing so because they’re less interested in finding the digital sweet-spot than they are on preserving the position of paper in the book world.

      • /blog Mike Shatzkin

        Of course, author brands count. No dispute there. The biggest winners have been, and will be, those authors who had their brands built with publisher efforts and are now in a position to take that brand to the market themselves, usually with product the publishers already paid them to write.
        And if publishers are “charging too much” that is *good* for the competing indie authors. That was my point! It will hurt them if the branded book prices come down.

        Mike

  • Emma

    Hi Mike, I really enjoy your posts and find them full of very useful insight.  I’m a PhD student researching the role of antitrust in the digital publishing sector.  At the moment I’m focusing on the EU law and current investigation of the EU Commission.  So, for me the US law is a bit alien at the moment, but if I may share my current thoughts from an EU perspective, I certainly hope that the publishers do not back down on the model.
    In Europe there is a specific regime for ‘genuine’ agency contracts, which removes them from the scope of the competition provisions (in the EU these prohibit “agreements between undertakings or concerted practices” (Art. 101(1) TFEU).  This special treatment applies where no risk is borne by the agent: if the agreements are found to be genuine agency then the European Commission cannot question any sales conditions which are imposed on the retailers (such as a minimum fixed price), regardless of whether under ‘normal’ circumstances this is deemed anticompetitive.  The explanation for this is that the agent and principal are deemed to be part of a single economic unit, so no ‘agreement between undertakings’ exists.Nonetheless, the European Commission guidelines provide an alternative avenue for the ‘agency agreements’ to be condemned if they are found to ‘facilitate collusion’.  The typical example given by the Commission is where “a number of principals use the sale agents…[and] they use the agent to collude on marketing strategy or to exchange sensitive market information between the principals.”  This is very curious, because in classing an agency agreement as ‘genuine’, it is exempted from the competition rules on the basis there is no agreement, but then *even in the absence of an agreement* the Commission may manage to find an infringement!  That said, I have problems finding an real economic incentive for publishers to collude – particularly since the structural benefits occur on the downstream market which should (in principal) be irrelevant for publishers – so long as their books are distributed and they continue to make profit then it should not matter whether this is Amazon, B&N or a smaller retailer. In fact, Amazon may be better suited than independents as they have a large worldwide distribution network, which saves on time & cost in dealing with smaller retailers… my only conclusion here is that a ‘more than economic’ incentive is at play, based on cultural arguments, but the place for this in competition law is a whole other story…!In summary, my point is this: to me (although admittedly I have never set eyes on an ‘agency agreement’!), Apple’s reason for adopting agency as you set out above (“not wanting to take on all the normal responsibilities of a merchant”) seems perfectly reasonable in the digital world- as a service, not a good, transfer of title never actually passes from the publisher so there seems to be insignificant risk entailed on the part of the agent.  This signals that it is possible for agency to be ‘genuine’, thus the price fixing element of the contracts are not at risk of being condemned directly under EU competition law.  Indirectly, if they can be shown to ‘facilitate collusion’, the EU competition rules may be applied but, in the absence of evidence of express collusion, I should emphasise how difficult it is to prove that tacit collusion occurred (the argument would go along the lines of “there is no logical economic explanation for the adoption of agency by publishers, so therefore they must have colluded”).  

    I strongly hope that publishers do not back down from their adoption of agency, not least because this provides an interesting legal ‘test’ case, but because I firmly believe that long-term non-price benefits (ex the preservation of culture) should play a more prominent role in antitrust investigations.  Citing the consumer welfare standard (nb in Europe it is still questioned whether this really is the standard) is not the be and end all – in the case of cultural markets especially, ‘consumers’ also need to be considered from a public policy perspective.  When it comes to choosing a bargain now and risking the fact that similar books might not be available in 20 years time, I reckon the consumer does not always know best…

    • Skott Klebe

      I agree that it’s correct to look for collusion.  The WSJ story isn’t about “The DOJ thinks agency is bad,” it’s about, “The DOJ thinks that the major publishers may have colluded to force agency and higher prices on Amazon, and Apple may have coordinated the effort.”  

      • /blog Mike Shatzkin

        I’m pretty sure they will *not* find “collusion.” Publishers have long been aware of the requirements of the Robinson-Patman Act. They know not to collude. If it is demonstrated that they talked to each other about what they’re doing here, I’ll admit in advance I will be *very* surprised.

        Mike

    • roy gray

      error

      • /blog Mike Shatzkin

        Won’t work, unless they refuse to let Amazon sell their ebooks. And that is really, as a practical matter, impossible.

        Mike

    • /blog Mike Shatzkin

      Emma, the publishers won’t “back down” on agency. They will either be forced to withdraw from it or modify it, or they will be permitted to continue it. But huge amounts of money have already been spent defending it.
      It was interesting to get your interpretation of European law, which was new to me. I think all readers of the blog will be glad to have gotten that explanation.

      Mike

  • sethgodin

    I was with you until the punchline.

    Industries under stress would always prefer that the government either bail them out or permit a change in the laws of the level playing field because they know that if they can just collude and keep prices high, they’ll be able to return the favor with more and better culture.

    The problem with this take is that the huge tax on consumers in terms of higher prices and fewer choices is often wasted in profit taking, not reinvestment. I’d grant you that British television might be an exception, but it is certainly in the minority.

    I’ve really been enjoying your long form pieces. It’s a generous act, and it’s appreciated.

    PS instead of linking to the linkbait headline of the Gigaom story, here’s the original interview:

    http://www.digitalbookworld.com/2012/interview-seth-godin-on-libraries-literary-agents-and-the-future-of-book-publishing-as-we-know-it/

    • http://twitter.com/emmittc emmittc

      but the “laws of the level playing field” are not  enforced equally if at all….predatory pricing and the Sherman Act???

      and i second your appreciation of Mike Shatzkin and his generous and valuable sharing…

      • /blog Mike Shatzkin

        Thanks. Perhaps a better answer than mine!

        Mike

      • Ken Prevo

         Your laws of the level playing field translate to: the old business practice of all the “media giants” have been disrupted and they haven’t a clue how to proceed.  Their standard method is to employ lobbyists and convert some of their profits to political donations.  

        What all this is is the simple disruption of long traditions that are failingd in the newer time.

        Consumers are smarter and they have a variety of tools to proceed.  That scares the crap out of your publishing friends.

        P.S. I have a friend that is an Indy.  He isn’t the greatest writer in the world but he spins a decent yarn.  He’s gotten good enough to find a nice Indy publisher that will provide the edit etc. at a far lower cost than traditional publishers.  He is successful enough that he’s quit his regular job and has a greater income.  That is a future that works for him and his associates and scares the crap out of the old line houses.

      • /blog Mike Shatzkin

        You must spend a lot of time in deep personal conversations with established publishers since you know so well what “scares the crap out of them.”

        Mike

    • /blog Mike Shatzkin

      Seth, your response doesn’t address the subtext of my story: which is that Amazon is the monopoly here that the government is apparently assisting.
      And the other point is that even when change is inevitable, the speed of it isn’t. And some inevitable changes are more desirable than others. Can we figure out how to hasten the change from oil to renewables somehow instead?
      Thanks for your kind words about the piece(s). I’m on the run watching baseball games in Florida at the moment, but we’ll make a change in that link, probably after the weekend. I’m slammed. Which is why all these responses are so late. I usually answer comments pretty much immediately after they’re made.

      Mike

      • Ken Prevo

         Amazon is not a monopoly — false premise from the start.  Amazon is a super successful business model that has placed enormous pressure on its competition.  They have done it with solid, old school business practices.  They respect each customer and it shows at every level.

      • /blog Mike Shatzkin

        You’ll never hear me say that Amazon isn’t among the very best at customer care. They are.

        And I don’t know the definition, legal or otherwise, of a monopoly. But I do know that Amazon has an overwhelming share of the sale of print online (80%? 90%?) and well more than half of ebook sales. If they aren’t a monopoly, they sure are the dominant player in both spheres able to drive the economics of the whole channel.

        Mike

      • Ken Prevo

         The term that probably applies for the moment — and that goes for both sides of the fence — is oligopoly. This is where a limited number of powerful entities control the market.

        I once worked for a former monopoly.  It was the old “Sugar Trust” and still rattled around in its own building on Wall Street.  It was in a later failing form than publishing is now.  If your clients adapt better, it won’t follow the route of The American Sugar Company — long delisted.

        X-opoly is really a way to say degree of  market control.  When control declines in an industry, reacting as in the past never works.

        BTW, the pricing issue you mentioned elsewhere, the paperback is/was the low cost price point.  Amazon mostly follows that but adds 4 for 3 promotions.  So, the $9.95 for the Kindle is way off a workable price point.  It doesn’t take a genius to note that.  I see the same pricing style on Baen Books site — I can’t attribute the disparity to Amazon machinations. I’ll add that Baen was one of the realistic publishers when Jim was alive.  Too bad he is gone when the industry needs his input most.

        Just as an aside, I am 71 and my idea of paperback pricing goes back to 25-cents.  Some of the really thick ones were 35 or 50.  :)

      • /blog Mike Shatzkin

        I’m old enough to remember the 25 cent paperback as well, although most of them were 35 and 50 cents when I started buying them. My dad pioneered higher-priced paperbacks with 65 cent Dophin books in 1957 or so.

        Agency pricing contracts, as I understand them, “legislate” price points based on what’s available in print. I don’t think there are any $7.95 listed paperbacks with $9.99 ebooks. I think all the $9.99 agency ebooks are hardcovers in print. If I’m wrong about that, some informed reader will correct me.

        Of course, there’s plenty of “competition” for most books that readers do respond to by price. Publishers don’t necessarily maximize their income by raising prices, and they are increasingly being scientific about developing an understanding of that.

        Mike

      • http://kevinomclaughlin.com/ Kevin O. McLaughlin

        Except that legally, it’s difficult to understand how Amazon could be viewed as a monopoly. They don’t control nearly enough market share to qualify.

        Put another way, if Amazon has a monopoly on ebooks, then wouldn’t Apple have one on tablet computers, since the share is very similar to that of Amazon on ebooks? Or Google, on search engine use? Owning 2/3 of a market is not a monopoly; in fact, it’s especially common in many industries. It usually lasts just long enough for the big company to get complacent, stop innovating, and some smaller company comes out of the 2/3 and eats the bigger one for breakfast.

        Since we’ve seen no increase in Amazon ebook share – but rather, a steady decline – over the last two years, isn’t it more likely that Amazon secured a strong early lead by being in with the first good ereader/good ebookstore combination? And that as others are gradually catching up, their market share is likely to diminish, not grow? It’s the iPad story, but with books instead of tablets.

  • William Ockham

    I think your conclusions are driven by (what seems to me to be) a very peculiar reality distortion field that affects people in the publishing industry. The confusion comes from not being able to see the difference between production costs and distribution costs for books. Production costs are all the costs that go into creating the first copy of a book. The inputs into production for books are almost exclusively creative work (writing the manuscript, editing, cover art, typesetting, etc.). Nothing really fundamental has changed in that end of the business in a long time. It is in the distribution end of the business that has been completely disrupted very recently.  Distribution costs for physical books includes printing costs. The distribution costs for an ebook range from zero to inconsequential. Very soon we will be in a world where the distribution costs for physical POD books will approach a penny a page in the U.S. 

    Obviously, distributors who add value will have higher costs, but the fundamental economics of the business has changed. The price of individual titles will be driven by the costs of production, not the costs of distribution. Highly researched non-fiction books will cost a lot more than romance novels (unless the research is supported by other institutions like colleges and universities). There is no other possible outcome in the long run. Charging the same price for books regardless of the acquisition costs (advances and other rights payments) is nonsensical today. Traditional publishers have substantially inflated production costs, but their distribution costs are totally insane. Their business model is unsustainable, no matter what. Amazon could disappear tomorrow and that wouldn’t change anything about the fundamental problems facing traditional publishing. The strategy of the bigger publishers is really clear. They are using their market power to engage in pure “rent-seeking”. A well-run business would be using the profits they are extracting to reform their business practices, but I don’t see much evidence that that is happening.

    Given all that, I think it is highly doubtful that the end of agency pricing will have a negative impact on indie authors as a whole. Nothing has changed about their fundamental economic position. As long as they can produce what people want and there are markets where people can find them, they will do fine. The people who will stand the most to gain, in my opinion, are the authors under contract with publishers who will likely make more money in the short run, but far more importantly, have more readers for the future when they free themselves from the broken business model imposed by publishers.

    • http://twitter.com/iucounu iucounu

      Print production and distribution costs have always been only a small proportion of the costs of making a book (say, 10% of cover price.) I don’t really get why you say ‘traditional publishers have inflated production costs’ or that ‘distribution costs are insane’. The production costs are as low as possible – that being one of the main reasons to have a publisher in the first place, for efficient bulk-buying of creative services. 

      There’s no ‘broken business model’. Our model has two main features: one, efficient buying of services, as before; two, risk management. We’re there to give money up front to authors in return for profit on the back end. In many ways it’s just a business loan.

      Neither of these features are removed by ebooks. All we remove are print logistics, and they’re the cheap bit.

      • William Ockham

        Wow, if other people in the publishing business believe that, they are doomed sooner than I thought. Anyone who is interested can find the data on how much those creative services cost on the open market. It’s pretty easy to do the math on distribution costs for ebooks via Amazon (there are cheaper ways, but with Amazon you get revenue reporting at least as good as from traditional publishing companies). So, just take your company’s total copies sold (print and ebooks) and figure out what the company’s profits would be if what you say is true.  Seriously, do the math. You are utterly wrong.

      • /blog Mike Shatzkin

        I believe publishing economics are a lot more nuanced and complex than you think. Start with this. When you take on those creative and set-up production costs, you have *no idea* how many copies you will sell to offset them with. And that number depends, of course, on how you price it and how much you spend on marketing it. I don’t think a yellow pages of production services is really what anybody in the industry needs.

        Mike

      • http://twitter.com/iucounu iucounu

        I know exactly how much creative services cost on the open market, thank you very much, as I often find myself commissioning them; and I know that it’s always more cost-effective, and less risky, to use my in-house resources wherever possible. I have to ‘do the math’ every single time for the express purpose of buying those services as efficiently as possible. 

        Again – that’s one of the main reasons publishers exist. In order to do exactly that. It’s much cheaper to hire a someone to copyedit 30 books a year than it is to hire 30 separate freelancers to do those books. Seriously, do you think we’re actually insane or just unbelievably stupid? Do you think you’re the only person in the world capable of doing a profit and loss analysis?

        I’ll reiterate the other main reason we exist: in order to manage risk. We know that not everything we publish will perform according to our expectations, so we spread the risk across our list. The author gets money in their pocket regardless of results, and in return we take a cut of the proceeds (which in terms of profit often works out around the same as theirs.)   If you prefer to actually spend money as an author, in the hope that the book will make you more in the long run, please go ahead; just bear in mind that what we’re here to do is to offer you a hedge against that. 

      • /blog Mike Shatzkin

        Thank you.

        Mike

      • Deb Kinnard

        Um, no. As a small-press published author, I can tell you from experience over several titles that the distributor’s cut of the cover price often approaches 50%. The publisher takes their sizeable percentage from what’s left, minus the discount demanded by the retailer. The residuals are mine. Sometimes it’s 5-8% of cover that comes to me, the originator of the material being sold.
         
        Call it broken? Yes, I do, on many levels. E-publishing as a whole is more profitable for me, even when I go through an established e-press. What it will be for an author with my relatively low profile, once I go direct-to-reader, remains to be seen.

      • /blog Mike Shatzkin

        It isn’t broken if the author makes more on ebooks than on print. They should It is more profitable for everybody: retailer, publisher, author, and reader primarily because distribution costs are so much less and also because inventory demands are zero.

        Mike

      • http://twitter.com/iucounu iucounu

        Deb, the ‘distributor’s cut’ you’re talking about is actually the retail discount that we sell to them at. It’s not a cost. Now that we’re largely on agency pricing, that cut is fixed for ebooks at around 30% whether you’re a publisher or an indie self-publisher. 

        That makes ebooks somewhat more profitable for a publisher than print books – we keep more of the retail price, and we save a little on print logistics. But then we pass those savings on to authors in the shape of increased royalties, which across my list average twice print royalties.

    • /blog Mike Shatzkin

      I find it funny that you see the value in differential pricing in order to pay for more expensive non-fiction (even though it’s never really worked that way; the difference in origination cost is usually covered by just selling more units, not charging more per units), but you don’t see that indie authors are benefiting enormously by differential pricing of their less expensive goods in the current market.

      It seems absolutely self-evident to me that it is easier for John Locke to establish himself with 99 cent books when Patterson and others are $12.99 than it would be if the branded books were $4.99. I am not going to try to get empirical or logical about something that is, to me, self-evident. Since the only point of a debate would be to “convince” others reading what we write, I’m willing to let it stand and assume that anybody who doesn’t see it this way is not persuadable. As you suggest in a different context, sometimes our belief systems are too strong to let in another idea.

      Mike

      • William Ockham

        I see that indie authors are benefiting from differential pricing. I also agree that in the past the difference in origination cost was covered by selling more units. I just disagree on the relative importance of those factors and why they are true. There has always been a strong incentive for new entrants into a market to price their goods lower than established entrants. There is something else at play in this situation and that is that indie authors have lower production costs. Konrath has published his production costs. There is no way that a Big Six publisher has lower costs because they have enormous overhead. The data is there for anyone who wants to look at it. There is no nuance here at all. None. A book published by a traditional publisher will always have higher upfront costs. The real question is whether or not those higher upfront costs can be amortized over enough additional copies to enable traditional publisher to compete on price. Based on what we know today, that seems highly unlikely.

        Now, let’s think about your point about how higher origination costs have been funded traditionally. As you point out, publishers have typically only published high origination cost works if they could be paid for by comparably larger sales. That reality was driven by the expense of print distribution. In the ebook world, that strategy doesn’t make sense. Because distribution prices are very predictable in the short run, it is easier to take a risk on a book with higher production costs (I’m not counting an advance here).

      • http://kevinomclaughlin.com/ Kevin O. McLaughlin

        The core difficulty for indies will rest in the loss of their pricing edge, IF that happens. I’ve been talking about this a bit since the EU first mentioned their investigation. At the moment, in each fiction genre, indie (self published) writers control a majority share of bestselling ebooks.

        That’s…astounding. We would never have expected to see something like that, even three years ago. That major publishers have lost a majority of the fiction ebook market seems likely, based on the limited available data. And I don’t believe that it’s because indie books are higher quality – although there seems in my opinion to be roughly parity of quality between traditional and indie ebooks which sell well.

        I think it’s very difficult to predict the true outcome of an ebook world where Amazon discounts the latest Patterson or King or Roberts ebook down to $4.99 – which is roughly the price point established indie writers have been gradually increasing toward. The name brands of major writers, coupled with ad budgets from publishers, should give them a very strong advantage in sales.

        On the other hand, much depends on how publishers react. If forced to remove agency (which seems likely) and return to wholesale, will they simply set the wholesale prices so high that Amazon cannot afford to discount many books substantially? On a 50% wholesale mark, just setting the ebooks at  list $30 ($15 wholesale) would make it hard for Amazon to discount below $10 or so (for many books). And we’ve already seen that customers tend to prefer $3-6 ebooks over $10 ebooks. This creates an essentially unchanged situation, from the indie perspective – major publishers will have continued to price themselves out of the market. Amazon won’t care and might simply be content to let publishers hang themselves; they’d be making just as many sales of indie books as they would have made of traditional ebooks had the big six priced more reasonably. The big six, however, would continue to lose ebook market share.

        Given that it seems likely within 3-4 years ebooks will be the only fiction market of any consequence, such a decision is probably a death sentence for the fiction arms of major publishers. But I’m not convinced they realize that yet, based on their past and present actions.

      • /blog Mike Shatzkin

        I see a lot of what you say but not all of it.

        By my (limited) understanding, what DOJ just revealed is not an instant death sentence for agency. So the return to the wholesale pricing scenario perhaps isn’t imminent. Were it to come and if the result were a required return to the wholesale model, I don’t think that necessarily means a return to 50% discounts and artificial retail prices. And even if that were to happen and happen sometime relatively soon (within the next year or so?), I don’t agree that Amazon would be deterred from deep-discounting the brands. Their motivation isn’t just to make sales, but also to gain share. The fastest way to gain share would be to force the *other* ebook retailers into deep price-cutting that Amazon can afford and they can’t. And force is best applied on name-brand books.

        I had thought about the tactic you suggested — letting publishers who set high retail prices live with the consequences of their pricing decisions — being one Amazon could apply to the indie publishers who are gaming the wholesale system now with high retail prices in expectations Amazon will shave margins and offer reasonable consumer prices. If Amazon didn’t do that, they could force those publishers to lower their suggested retail prices without curtting their discounts. I suspect that if the big publishers were forced off agency, they would try to lower retail prices and to use their market power to cut discounts to the agency level, even under the wholesale system.

        Mike

      • http://kevinomclaughlin.com/ Kevin O. McLaughlin

        Instant death, no. I suspect that agency IS going away. But honestly, as an indie publisher, I confess that I hope for a long, slow, nails-dragging-as-it-falls sort of death, if it has to happen.

        Agency pricing was painful for traditionally published writers (although I’m not sure a return to wholesale will improve their situation much at this point). But agency pricing was extremely beneficial to indies, as I gather you agree. AND, a slow switch will give publishers and retailers more time to switch over, which will benefit writers as well.

        So I’m cheerleading for the big six here, on the sidelines with my popcorn.

        I’m not convinced we would see a return to 50% wholesale; I think 70% wholesale as Amazon does for KDP is reasonable and effective. It might be a nice happy medium, letting Amazon discount some BUT giving more control over final price to publishers (higher discounts makes steep discounting by retailers more difficult). Again, since indies are likely to retain whatever wholesale percent other publishers do, I’m all for keeping 70%!

        I ALSO agree that Amazon will try to deep discount what they can. My concern (for publishers) is that the publishers may attempt to counter deep discounting by raising ebook prices substantially. If publishers know Amazon is going to discount to wholesale or near wholesale – and publishers want a $15 price on the ebook – then they could try to set list price at $20-22 (at 70% royalty) in an effort to control price.

        If publishers go that road, steepen prices to retain control of pricing and protect hardcover sales, the net impact on indie writers will be much lower. Amazon will still deep discount major “hit” novels – but those novels already sell well today, even with agency. It’s only if we see most new releases dropping into the $5-10 range (down from $10-15) that we’ll see a serious impact on indie sales.

        My read is that publishers are generally unaware how much market share they’ve lost, and are not thinking carefully about the long-term effects of so many readers a) becoming used to the $3-6 price point for ebook fiction and b) becoming True Fans of writers who do not and have no intention of working with a major publisher. Possible I’m wrong, but that’s the impression they give in public writing and actions.

      • /blog Mike Shatzkin

        There are people inside every publisher who are “aware” of the threats of people getting used to lower prices. I think all the big houses now are committed to pricing experiments and adjustments. With them, as with everything else, things will change faster and faster.

        Mike

  • EricWelch

    My apologies if this got posted twice:
    I have a couple of questions:1. Do you happen to know the status of the class action suit that was filed last year (http://arstechnica.com/tech-policy/news/2011/08/class-action-suit-targets-apple-and-five-publishers-for-price-fixing.ars). It seems the publishers could find themselves in a pickle. If they settle with the  DOJ, wouldn’t that make them more vulnerable in the class action, possibly putting themselves on the hook for millions in refunds?2. If agency pricing is such a good thing for publishers and authors to prevent heavy discounting and to preserve the integrity of book pricing, why didn’t the publishers adopt that model with B&N and Borders who were severely undercutting everyone else in price on print books and driving the smaller bookstores out-of-business?3. I don’t understand your point about authors inevitably making less money. Given the flexibility of direct marketing of ebooks, authors could certainly go that route.  And what’s to prevent the Big Six from creating an alternate Amazon? One that does it better, perhaps. Bezos started the whole thing with no more than and idea and a garage.

    I echo the others in appreciating your insights.

    • /blog Mike Shatzkin

      Eric, answering your questions properly would take another post. And I don’t have time to do that. So I’ll answer them too briefly.

      1. The class-action has been consolidated with others and moved to NY. Absolutely the course of the litigation or settlement with the government could have an impact there. I’m sure the Agency Five and Apple and their lawyers are well aware of that.

      2. Actually, BN and Borders don’t undercut everybody as much as Walmart and mass merchants do. But, in any case, agency cannot, as a practical matter, be employed for hard goods rather than virtual ones. The logistics make that impossible.

      3. See my answer above about indie authors making less money. As for the big pubs “competing” with Amazon, there are attempts on both sides of the Pond. In Britain, we have Anobii with investment from three major pubs. Here we have Bookish started by three major pubs. (Anobii is in business now; Bookish not yet.) But I doubt these things will work. Amazon is much too good at what they do, far too well-funded and -established, and much more broadly based (not just in the book business; not even just in the media business.) I hope I’m wrong, but I don’t expect either Anobii or Bookish to succeed.

      Mike

  • http://gravitationalpull.net/wp/ ampressman

    A thought-provoking post. I did want to push back on the notion that agency pricing is good for authors and a free market for ebook prices inevitably would be bad. 

    First, I’d challenge you to show that the move from free market pricing to agency pricing has benefitted authors. It seems the opposite is true (see http://www.authorsguild.org/advocacy/articles/e-book-royalty-math-the-big.html for example). Publishers regaining control of retail pricing (and raising prices to consumers) has not led them to be more generous to authors.

    Second, authors are not analogous to commodity goods except perhaps in a few genres. If you were correct, Amazon’s play to stop selling Macmillan titles in 2010 would have succeeded, as buyers would have simply migrated to ready substitues. Authors and individual books are more like treasured brands, large and small, which have been able to maintain their value and profit margins despite the desires of large retailers to squeeze them. See the recent Forbes cover story on the Spanx brand, for example. http://www.forbes.com/sites/clareoconnor/2012/03/07/undercover-billionaire-sara-blakely-joins-the-rich-list-thanks-to-spanx/

    Third, in an increasingly ebook world, even Amazon’s powert to dictate to authors is diminished. JK Rowling could sell Kindle-compatible versions of the Harry Potter books for download from her own web site, if she so chose. When tablet computers are ubiquitous, with the ease of installing any ereader, even the Kindle format won’t matter much.

    Intermediary publishers and some retailers may lose from the end of agency pricing, not authors, readers or consumers.

    • /blog Mike Shatzkin

      Sorry, I find this totally unpersuasive on all counts.

      1. You have NO data to prove that publishers have been “less generous” to authors with agency because you don’t know what they would have been in a position to offer authors *without *agency (and we don’t know in any rational way what they’re paying authors now, as a generalization.)

      2. Right that many books are not commodities. It is where they ARE, in the genres, where a) there is the most ebook action, b) the lowest ebook prices, and c) the most success by fledglings. A lot of books get sold in those categories. But I’m quite sure that even the branded authors will lose. Publishers are the ones that keep prices and revenues up. The retailers won’t do that. And most authors can’t do it on their own (even if they could fund creating the book in the first place.)

      3. Using JK Rowland, who hasn’t managed to sell anything on her own yet and just re-signed with a publisher for her next book, as an example is like using the Beatles or the New York Yankees. They aren’t typical of anything. Most authors will have an enormously hard time getting known. Particularly when they don’t have a price differential to help them.

      Mike

      • http://gravitationalpull.net/wp/ ampressman

        You’ve essentially conceded the entire argument. You demand data but there’s no evidence to support your point that authors are faring better with agency pricing (especially when I provided some and you provided none). Not to mention, when Amazon first got in the game and was able to discount, Kindle customers overall spent a lot more dollars on books, print and electronic combined, after they got a Kindle. Free market retailer pricing is a win for people who write books because retailers know how to get customers to spend more money. I’ve posted studies about Amazon’s goals and methods in pricing for you before but you seem impervious. Just looking at print books, where there is no agency pricing, is anyone doing a better job than Amazon at growing the market? Is anyone else even growing?

        You agree books are not replaceable commodities on the whole, exactly what I said, but you’re still “quite sure” brand name authors will lose. Again, as I said, if that were the case Amazon would have won the showdown with Macmillan. Readers want to read specific authors, specific series, books about specific topics and on and on. And right now, publishers have the contracts with authors. But no reader in the world cares whether Michelle Obama’s next book is published by Hachette or Random House. I think we can see who is the commodity in this equation.

        My third point was that tablets will diminish the importance of retailer-specific ebook platforms and DRMs in a few years, and you’ve gone off on a tangent about what JK Rowling is doing right now (maximizing her income in the current environment). Once upon a time, Barnes & Noble and Borders were the big threats but the Supreme Court had not overruled a century of good sense with the Leegin decision yet and even still the book industry and our culture did not collapse. I’m pretty sure smart companies, new or existing, will learn to compete with Amazon without resorting to collusion that is slowing growth (http://slog.thestranger.com/slog/archives/2012/02/28/e-book-sales-increases-slowing-down ), which in the end hurts authors.

      • /blog Mike Shatzkin

        Trying to be specifically response to you, paragraph by paragraph.

        The stats seem to indicate that Amazon isn’t “growing the market”. They are changing the market. The sales they are making are not quite making up for what the industry is losing, according to statistics reported regularly by the AAP.

        Brand name authors will lose because it will be in Amazon’s interest for them to get less when the time comes that Amazon is 50% or more of the market and in greater control of the allocation of the revenue than they are today.

        You keep citing the “growth” which is the shift of share from print in stores to print and digital online. It is not growth. There is no evidence that is is growth if that is measured by revenue. Amazon will have increasing weapons, including being able to tie up the rights to books more successfully than any platform or retailing competitor. Exactly how they’ll choose to exercise that control remains to be seen, but it is as unlikely to be in the interests of authors getting more money in the future as it is in the interests of publishers getting more money today.

        Being insulting doesn’t add any force to your arguments.

        Mike

      • http://gravitationalpull.net/wp/ ampressman

        I am not talking about growth solely as the shift but the overall sales of books. Amazon is growing in both print and ebook sales.

        For example, on their most recent call with analysts, CFO Thomas J. Szkutak said: “Another call-out that I didn’t mention is physical books. Unit growth was double digit in Q4 year-over-year, which we were very pleased with if you think about the shift to digital content and just the really rapid growth on the Kindle side.” 
        Furthermore, the AAP stats you pointed me to show both overall and “consumer-focused” book revenue up almost 6% from 2008 to 2010, during a recession. http://publishers.org/press/44/

        As to you hypotheticals and predictions of how Amazon may act in the future (versus empirical evidence of publishers squeezing authors right now), we will have to agree to disagree. As I’ve previously noted, given the structure of the market, the value of authors as brands, the power of copyrights and so on, I’m a lot more optimistic. 

      • /blog Mike Shatzkin

        We don’t disagree that those authors who *do* have powers as brands, almost all of whom got that power assisted by publishers, can possibly do well by disintermediating their publishers. But the bigger question in the future will be how authors will get that power on their own from a standing start.
        And the history of Amazon that is worth noting and projecting into the future is how they employ leverage when they have it. This is not necessarily pejorative — it is not the least bit unusual — but when Amazon has marketplace leverage they employ it to increase their margin (and, sometimes, to lower consumer prices.) I think anybody who thinks or claims they wouldn’t do that progressively to authors as well as publishers as they gain market share would have to explain the reason(s) for their faith.

        As for publishers and authors, I wrote several months ago that publishers were making a big mistake (and missing a big opportunity) by not increasing their royalties to authors on ebooks. I would totally agree with the argument that 25% ebook royalties are too low and not sustainable, although, for the biggest authors (and many of the smaller ones too), the contractual “royalty rate” is irrelevant because they don’t earn out their advance. The fact that Amazon is a threat to take over the ebook (and therefore eventually: book) ecosystem doesn’t excuse publishers for their errors and excesses.

        Mike

  • roy gray

     What happens if all the agency sellars go offshore and sell under the laws of a different country? Obviously Amazon might be left alone as the onshore etailer but would publishers have to supply them with e books or could they dictate Amazon price from offshore by setting a high price for their wares? 

  • http://asknicola.blogspot.com/ Nicola Griffith

    My hope is that if agency pricing goes the way of the dodo (I have mixed feelings about that), the way will be open for bundling. And bundling of digital and print books would be a Good Thing in my opinion.

    But I’d love to get your opinion in some future post.

    Until then, thanks, as always, for such clear thinking.

    • /blog Mike Shatzkin

      Bundling print and ebooks is definitely challenged by agency, but there would be ways to work it out. Bundling has its advocates, particularly Evan Schnittman of Bloomsbury. I think we’ll see experiments with it before long.
      Mike

  • DanielRDysson

    The muzak end play of distributors running their product creation is what the reader will get. This is inevitable and is zero creative. EBooks doing the ebook monopoly game will depend on ever greater recipe books. Books that are more and more constrained to known sales types. The casualties are, as they always have been, the PBI. In this case, original authors and the reading public. It does not matter if the process of decadence is fast or slow, the thinking author needs to understand the way through it.

    • /blog Mike Shatzkin

      Sounds like we’re agreeing, but I’m not sure…

      Mike

  • FrancisHamit

    First of all, I’m not sure that we should compete on price alone.  Books are not fungible commodities, all interchangeable with one another.  Each is unique and appeals just to certain readers, not all of them.  Small press and self published books cannot compete this way because their per-unit production costs are higher.  That drives up the cover price to meet the distributors’ demands for half of that price, so they can discount it and fool the customer.  There is an actual price and a list price and those are seldom the same.   So-called independent book stores seem to be in lock step with the publishers on maintaining the higher list price and are getting killed by the discounters, who count the dollars earned per sale times the number sold, rather than the percentage earned on list price books which remain unsold and are returned, at some additional cost for shipping.  Bookstores should not be a consignment business.  That’s a very inefficient, 20th Century business model.    And the “agency model” is designed to maintain the list price and prevent discounting, which, I believe, meets the definition of “price-fixing”.      

    • /blog Mike Shatzkin

      You are welcome to your definition of “price-fixing” and even to your own opinion about whether what we’re seeing is good for the industry, the culture, the authors, and the readers, or not. But it doesn’t square with mine.

      Mike

      • FrancisHamit

         Well, that’s okay.  I’ve been a writer for 46 years and a publisher, mostly online, since 2004, so I’ve been in the trenches. I don’t disagree with requiring list prices be observed, as they do in Europe.  I don’t think traditional publishing has served either individual authors or American literature well.  They turned editorial control over to the Marketing department about 20 years ago..  The result has been a mass-market dumbing down of the readership and the exclusion of  any narrative voice that does not fit their pre-conceived notions of what will sell.   This makes Amazon something of a hero for be willing to give these voices a channel. 

        Their aggressive discounting is predatory and anti-competitive. But it’s legal.  Colluding  to set a policy among the top six players on the other side carries all the elements needed to prove a conspiracy which would not exist if each of them had determined to follow this policy separately,, without consultation.  So the DOJ has a case, but they don’t prosecute everything, especially when the perpetrators are Big Media conglomerates..  So I don’t expect anything will happen except more conversation and dithering that will allow Amazon to gain even more power.   

      • /blog Mike Shatzkin

        I really have a problem squaring the accusation that the big pubs dumbed down the literature with the notion that Amazon is a hero for enabling the qualifty the big boys were missing through the channel it provides. As far as I can tell, none of the big self-publishing successes would fit the description of “literary fiction”. In fact, what has worked in ebooks that big guys haven’t done is genre fiction that would probably have been peddled in mass market paperback and would not have had much of a chance as $25 or $30 hardcovers. That’s not to disparage it, just to characterize it accurately.

        Mike

      • FrancisHamit

         The big publishers delegated the entire selection process to a certain class of of so-called “literary agents”.  These are sales guys on commission, so naturally they chose only the material that looked like a safe and sure sale.–which was pretty much what they had already sold. Innovation went out the window as the MBAs cut back the editorial departments in faovr of Marketing. That also hurt  the quality of the final product.  No more “over the transom” submissions.  Everything had to go through one of these agents.  That also choked that channel. I’m a self-publisher because no one would even read my stuff.  It was also “historical fiction” which had been declared a “dead genre”.  Carol Buchanan had the same experience, went through Amazon Createspace for her first novel, which won a 2009 SPUR Award.   Mass market paperbacks, I was told by a former agent of mine last year, have been replaced by e-books.   There are tens of thousands of books published every month but only about a hundred of them are “best-sellers”  Why?  Because they are in all the channels, heavily promoted and the others are not. So that hundred titles is about  95% of the total sales.  The rest of us get the scraps.  As for “literary fiction” that’s mostly a matter of self-definition. It can be anything the publisher decides it is.  

      • /blog Mike Shatzkin

        There are a LOT of literary agents. They come in many shapes and sizes. I can’t speak for all of them, but I know lots of them read MANY unsolicited manuscripts. In this day and age, very few, if any, try to live on the Big Six publishers alone. If they ever did.

        Obviously, the accessibility of distribution without the constraints of print will open the doors for lots of worthy (and unworthy) properties to see the light of day. There has been ample evidence for years that the major publishing system misses lots of great stuff. Jerzi Kosinsky apparently submitted a major book as a manuscript to many publishers and had it turned down. That story is more than 40 years old. It isn’t new.
        It is a great thing that anybody can get published and a better thing that good stuff can reach audiences that the establishment filters would miss. But most of the stuff that *sells the best *from the previously unpublished is genre, not literary by anybody’s definition (except perhaps the authors’ mothers or spouses.)

        And there will always be a limited number of bestsellers from the masses of books published. That’s a fact that “proves” nothing. It is a tautology. It couldn’t be any other way.

        Mike

      • BklnLorider

        I’m impressed by the level of discourse here. Even though the debate is often impassioned and obviously divided, it’s been pretty civil and remarkably articulate. It’s nice to see.

        There has been some mention of “editorial control” in these comments but I am concerned that the role of editors has so rarely come into play in any discussion of the agency model. What impact will lowered prices overall do to that critical element in refining a book?

        As a buyer of both “big six” and independent books in paper-print editions, and those as well as self-published books in digital versions, I have to say that I am deeply concerned. I think it’s safe to say that very rarely has a true God of literature been birthed full-grown and dressed for war. Most needed to be coddled, nudged, and guided past infancy by experienced editors.

        It’s true that in recent decades, quality has plunged as editors’ unknown finds became increasingly disregarded in favor of marketing’s big-ticket titles, and that the editorial time allowed on any average single title is now so truncated that readers can see the weaknesses and errors bleeding through, but there is still some semblance of a mentoring process. That is going to be one of the first casualties of any radical price cut, I think, as publishers (both small and large) scramble to make up the difference in production lost to distribution. Because big-name authors will want to continue getting the same royalty rates and unknown authors offered very low royalties at those or independent houses, which would likewise need to cut costs, may opt to self-publish without any editorial assistance.

        And lack of editing is already a glaring hole in the self-published category. I have downloaded many of those books, and it is often a frustrating experience to see a book that could have been so much better, but for a little help, and that now that it’s out there in the world is unlikely ever to get a chance for improvement.

        If pricing remains stable for awhile, until everyone could get a sense of the massive changes that a digital world is opening for us, it might help the situation. Self-published authors would still have a slight advantage in terms of pricing, one which could allow profits to be funneled into editorial assistance on future titles to help boost quality levels. Intuitive as it seems, I don’t think the need to compete would be the same driver to seeking such assistance, as lack of initial investment money would make that impossible for most new authors.

        My concern is that if storytelling quality plunges as whole, across all levels and genres of publishing, we will be losing  more readers than we gain by the ubiquity of devices. Because if you pick up a half-dozen books at even just a buck, and every one is disappointing, how often will you return to that media, when there are so many other options crying for your attention? And how many truly great books will be lost for lack of someone’s vision to bring out the best in that author?

      • /blog Mike Shatzkin

        I agree with all of this, particularly the praise for the level of discourse and civility.

        As prices go down, expenses will have to go down too. Editing will suffer. How that will adjust itself or change, I haven’t really given enough time to think about to speculate intelligently. Not that it isn’t worth the thought.

        Mike

  • Tod shuttleworth

    Great post Michael. Some days I feel as though we are living Ayn Rand’s Atlas Shrugged. 

    • /blog Mike Shatzkin

      Tod, there’s too big a percentage of this country that *wants* to live in Ayn Rand’s world!

      Mike

  • Jennyfrost

    It is so ironic that in trying to protect the consumer the DOJ is threatening to sue the Big Five publishers and Apple. If agency pricing disappears, then Amazon will likely become a monopoly because, as you point out, the costs of meeting their pricing will exhaust the other retailers’ capital and discourage new entrants. So the DOJ runs the risk of creatly a monopoly which will ultimately hurt consumers.

    • /blog Mike Shatzkin

      Absolutely agree. The incredible irony is that anti-trust tools are being used to protect what, if it is not yet a monopoly, is the only real threat to become one!

      Mike

      • Chris

        Personally, I think the use of agency is the least effective ‘disruptive’ business model against Amazon. Surely a more technological initiative is needed to level the playing field?

        Pricing is just not going to cut it. Amazon is so much more than ‘lowest price’.

      • /blog Mike Shatzkin

        I think the growth of diversity in the ebook retailing ecosystem since agency was created is very persuasive evidence that agency has been *very* effective
        at achieving its intentions. And the fact is that the agency-priced ebooks seem to be replacing print book margin decline, or that’s what the recent profit reports from major publishers say to me.

        Mike

      • Chris

        It’s certainly not very innovative. 

        And judging by the dominance of Amazon and Apple in their respective signature markets, I’d suggest that technological innovation will be the only real competitive advantage in the long run.

      • /blog Mike Shatzkin

        I think *effective* counts for more than *innovative*.

        And there is no doubt that Amazon’s technical proficiency fuels their economic advantage, which fuels their ability to apply that proficiency toward innovation. But B&N was in front on the color Nook by almost a year and the commercial force of Amazon seems pretty well able to cope with that.
        Mike

  • Pingback: Authors Will Be Biggest Losers if Agency Pricing Goes Away | Digital Book World

  • Jeff Dwyer

    Mike,

    You may recall that I predicted this outcome several months ago, and you accused me of being an attorney. I am not an attorney, but most business folks would agree that this outcome was inevitable. Apple and the Big Six cannot win this fight, so they must settle. I disagree with many of the conclusions of your post, but since I know your history in bookselling and publishing, most of your points were predictable. Readers will benefit, talent will benefit and small publishers will benefit from an open marketplace. Bloated publishers, distributors and retailers will need to adjust their business models to compete. They may not survive the transformation of the new competitive digital publishing environment.

    • /blog Mike Shatzkin

      Jeff, nothing is settled yet. And I have no legal opinions, only business ones. I am willing to let my arguments in the post stand up against your comment and let readers decide what persuades them.

      Mike

  • Joseph

    Mike, I don’t follow your argument that lower-priced industry books will force independents to lower their prices in a race to the bottom. If a new Patterson novel only costs $2.99, then the customer has saved $7 in their book budget, so now they can also buy 2 more books at that same low price. As reader budgets stretch farther, they are more likely to buy more books. So if industry books become cheaper, then readers will have an incentive to buy more books, including those by independents.

    In fact, when ALL books are $2.99, then customers can’t discriminate on price. They can’t say the cheaper book is the lower-quality independent publication. This levels the playing field, improving visibility and equality for independents, while also freeing up book-buying dollars for additional purchases.

    • /blog Mike Shatzkin

      They WON’T all be $2.99. And people don’t buy more books just because they have more money. They buy what they can read. So far, at least, a book being cheaper doesn’t enable anybody to read it faster.

      Mike

      • Joseph

        But our experience with ebooks has been that readers who use ebooks now buy and read more books faster than before because of easy access (you can buy the sequel from home at 2am and continue immediately). 

        So there’s every reason to think that serious readers will continue to consume even more books as budget becomes less of a controlling factor. I talk to folks all the time who used to complain about their book budgets. I hear that a lot less now.

      • /blog Mike Shatzkin

        That’s one theory, hard to prove by facts. Another one is that as people read more and more on tablets, they’ll read books less because they’ll be distracted by movies, Facebook, and solitaire.

        Everybody’s entitled to their opinion. There are no definitive facts and there won’t be for quite some time in a dynamic situation where total societal behavior is changing.

        Mike

  • http://claudenougat.blogspot.com/ Claude Nougat

    As always, Mike, this is a fascinating analysis. And a very difficult question. I would tend to agree with you that if the agency model goes, so will Indie authors’ ability to play with prices as a book promotion tool. The high digital  prices set by the Big Six were of course meant to defend their paper books profits. Inadvertently they opened the door to the self-pub tsunami.

    Take away the agency model, what will happen? First, whatever will happen it won’t be anytime soon: the DOJ may be very efficient  but even assuming that it might be, legal process is time-consuming. A minimum of two years I guess before anything really happens. 

    Second, the winners could be trad pubbed authors: their titles, pushed forward by the Big Six marketing machine, will surge forward in sales. Whether that translates into a real return for trad pubbed authors remains to be seen. The Big Six will have to revise their model of course, but it’s not at all certain that they will increase the % paid in digital royalties. Indies will probably still make more percentage wise for quite some time.

    But Indies don’t have the big marketing machine behind them. Sure they connect directly with their readers on Internet, but that is necessarily limited (and self-serving: it’s hard for authors to reach out beyond their acquired fan base and fellow authors). True, a whole new Indie book marketing sector is developing but it is far from mature. And none of the participants in this Brave New World have the clout and reputation of the New York Times and other venues used by the Big Six publishers to push their titles.

    In other words, there are no gatekeepers (yet) in the Indie world. And once the price competition tool is taken away from Indie hands, it’s hard to see how the Indies can defend their market share. Brand? Yes, that will be key, I agree with Barry. But how many Indies really have built up a “brand”? How easy is it to do that without the Big Six marketing machine? There’s no Pulitzer Prize for Indies…not yet! And probably never… 

    • /blog Mike Shatzkin

      Claude, it feels to me like we mostly agree.

      Mike

  • http://feldmanfile.blogspot.com Len Feldman

    Price-fixing is illegal, and the solution to price-fixing is to allow the market to establish prices through supply & demand. If the Justice Department forces the “Agency 5″ and Apple to abandon agency pricing, it’s doing nothing more than correcting a “thumb that’s (illegally) been placed on the scale”. That has implications, although I believe that they’re nowhere as dire as you suggest. In addition, you’ve ignored the fact that exactly the same review of the agency model is going on in the European Union, and it’s very likely that the EU will take action to end it in Europe.

    Agency pricing is most likely doomed. The best thing that the “Agency 5″ and Apple can do is get the issue behind themselves as quickly as possible. Some of them may hold out, hoping for a Republican administration next January that will ease off on antitrust enforcement, but that’s hardly a safe bet.

    • /blog Mike Shatzkin

      No Republican administration will be less favorable than this one on this question. They *love* lower prices for the consumer and they *hate* the book publishing establishment, which is mostly liberal (as they are accused of being.) They’ll delay as long as they can because agency is enormously beneficial to them. An apparently informed comment on the blog predicts this can take years to play out. I have no idea.

      Mike

      • http://feldmanfile.blogspot.com Len Feldman

        Mike, I honestly wish that your argument about Republicans was true, but it’s not. As a policy, Republican administrations pursue antitrust cases in only the most egregious situations. Here’s an example: In the 2000 election, Jim Barksdale, the former CEO of Netscape, was a big supporter of George W. Bush. Bush got elected, and shortly thereafter, the Justice Department settled the antitrust lawsuit against Microsoft that the government had pursued for years and had won twice. Barksdale testified before Congress, asking it to intervene, but of course nothing happened.

        If a Republican wins, it’s a sure bet that any Justice Department action against Apple and the publishers will be dropped.

      • /blog Mike Shatzkin

        Maybe. But I won’t vote for them anyway. There are more important.

        Mike

    • Dick Hartzell

      I’ve been gone from Barnes & Noble.com for a little over a year, but I’m pretty sure one thing hasn’t changed: BN.com’s inability to underprice Amazon.  I mean that quite literally.

      Both etailers have spiders that crawl the other to sample pricing trends, and during my last year at BN.com (2010) my boss told me that we’d tried some experimental price reductions to beat Amazon and it was clear Amazon had algorithms in place to automatically reduce its prices below whatever level BN.com set.

      Let’s face it: only a company with very deep pockets (and very patient investors) can undertake such a strategy.  Price-fixing may be illegal, but is it any worse than using your clout in the marketplace to undercut any business foolish enough to try to compete with you on price?

      Monopolists always assume they’ve reached their status by dint of efficiencies, foresight, shrewdness, and hard work.  That’s certainly the way John D. Rockefeller felt about his beloved Standard Oil.

      I have no doubt Jeff Bezos feels the same way.

      • /blog Mike Shatzkin

        Thanks. Useful info. Not surprising but worth hearing.

        Mike Shatzkin
        iPhone keyboard
        Mandates brevity

      • http://feldmanfile.blogspot.com Len Feldman

        There are two issues here:

        1) Is price-fixing worse than having an “always the lowest price” policy? By law, yes, it is.

        2) Is having an “always the lowest price” policy illegal? No, unless the company doing it is a monopolist. Wal-Mart hasn’t been charged with a monopoly, and it’s much bigger than Amazon and dominates far more markets.

        Your real point is that Amazon is a monopoly, but I doubt that any unbiased analysis of market share will back you up. Nevertheless, I invite you to encourage the Justice Department to review the situation.

      • /blog Mike Shatzkin

        There may be two *legal* issues here, but there are a helluva lot more than two issues!

        Mike

  • EricWelch

    Kristine Kathryn Rusch has a very interesting piece at her blog on the book business and  I wonder if you could comment on a couple of her points.

    1. The ISBN system has broken down so we really have no idea how many ebook titles there are out there which makes it impossible to measure sales accurately

    .2. It’s impossible to accurately count ebook sales since it’s now possible for someone to independently create and market their own books through their own websites and other independent distribution venues.

    3. While the AAP tracks sales about as well as anyone, they have only 300 members. Of those, only 77 (up from 15 in 2010)  actually report data so when they report on ebook sales, the results are wildly skewed because they represent ebooks of legacy publishers only. Many brand-name authors are bring out their own backlist as ebooks (something the legacy publishers have been woefully slow at) and selling them independently. “ Barbara Freethy alone has sold a million copies of her backlist books as e-books. She published those books herself.”  Thus her comment, “In other words, folks, it’s my personal opinion that the traditional publishing statistics on e-books are completely meaningless.”

    http://kriswrites.com/2012/03/07/the-business-rusch-lies-damned-lies-and-statistics/

    • /blog Mike Shatzkin

      The sales the AAP misses are real, but it is impossible to know how substantial they are. My guess is, in dollar terms, not very. Remember that most of the uncaptured sales are at very low prices. It would be a lot better, though, if we could correlate what publishers report to what the biggest ebook vendors (Amazon, BN, etc.) know about sales.

      Mike

      • http://kevinomclaughlin.com/ Kevin O. McLaughlin

        It’s impossible to know for sure what the indie market share is. Across fiction bestsellers, however (top 100 lists) indies appear to have captured half to two thirds of the slots. If you extend that to predict the market, that’s a very substantial loss to publishers.

        And no, such an extrapolation is by no means a given. ;)  But lacking solid data, and due to the high level of consistency in which bestseller lists are now dominated by indie books, it seems not unlikely.

        Yes, indie books on average cost much less – about a quarter of those by traditional publishers. Which means a market share of as low as 50% overall to indies would mean they own roughly 20% of total ebook revenue.

        However, it’s important to remember the importance of unit sales. If a reader is consuming a dozen books a year, and buys six indie books and 6 (higher priced) big six books, then one can see that the value in lost sales of those indie books is much higher than the percentage of total revenue would indicate.

        Again, the data is woefully incomplete, making much of this speculative based on extrapolating from what data IS available; but it seems compelling to me that substantial inroads have been made in an extremely short period of time.

  • Pingback: The End of Agency Pricing for Big Publishing | The Passive Voice

  • KenP

    Culture Club member? Grow up, Mike.

    I was looking at books on Amazon. The trade paperback was $7.95. The Kindle version was $9.95.

    Your culture is broken. Or predatory. Take your pick. What you are creating isn’t a culture; it is a reason to pirate.

    Well, have to run. The used book store closes early and I need
    something to read. Kindle is back in the drawer until I can again afford
    it. How’s them apples?

    This type of  manufacturer fixed pricing has a long history that hasn’t been to the consumer’s benefit.  It has been outlawed in it broader form and the same case law will knock down this price fixing scheme.

    As to what you suppose B&N or other might do with the enforced profit, get real.  They will meet their fiduciary responsibilities as they should.  That benefit them and not the consumer — except assuring they remain more viable which hopefully would lead to additional competition in the future.

    P.S. Random House — who didn’t go agency — is screwing over ebooks
    for libaries — trippling the price. But, anything to save a culture.
    Isn’t mold a culture?
     

    • /blog Mike Shatzkin

      Those print books cheaper than ebooks aren’t because the *publisher* priced them that way. They are because Amazon chooses to take less (or no, or negative) margin on the print books. The intention is to make readers who either don’t know or don’t care what the real issues are be annoyed at publishers and sympathetic to Amazon. It is not surprising that in most instances, it works!

      And the book culture is doing fine right now. Whether or not it would if there were really only one channel to market is the question I was posing.
      Mike

      • Ken Prevo

         If your Death Star scenario played out and only Amazon was around, publisher would still price books for a profit — no long term choice really.  To make that profit they might have to slim their bloated model.  (Won’t happen at multiple levels but what the heck.)

        Lost leaders are nothing new.  They are a part of every competitive market.  Your complaining points out that competitive hasn’t been a part of the publishing industry model — at least until now.

        There will never be a single channel market as long as markets are open.   Those that try have always failed.  There have been many attempts though.  Interesting from a historical perspective only.

        It might be interesting to note that entrenched industries often take on the appearance of being a single channel market.  I think DOJ is working on that. ;)

        Pursue the model of the past and there is another “publisher” that is ignored by predatory pricing practices — Pirate’s Bay et al.

        P.S.  I own a Nook and not a Kindle.  It isn’t a slam dunk.  I frankly don’t care for Amazon’s game plan.  But, that doesn’t make them wrong.  I will brag though and say I never owned a Betamax.

      • /blog Mike Shatzkin

        If my Death Star scenario played out and the paths to the consumer mostly led through Amazon, Amazon would be the publisher of most books that mattered commercially, revenues per unit would be reduced (because volume matters, there is consumer focus,and it protects the monopoly) and the author’s share of the revenue would be reduced from what it had been to get to that point. Intellectual efforts that would are supported in the current model would not be, but you wouldn’t know exactly what was missed. This is all what I tried to say in the piece, but which apparently didn’t get through. The fact that “publishers” such as they will be at that point will price to give them a profit is an incontrovertible fact.

        Whether something is a “single channel market” depends on how you define “single channel” and “market” and “single channel market.” I think I know what you mean. If I understand you right, I think you have a “single channel market” right now for print books online. I think we HAD a “single channel market” for ebooks in March of 2010. Agency changed that. Not perfectly, but at least enough so that Apple, B&N, Google, Kobo, and the indies that sell using Google are able to make a credible attempt. (Have you heard any complaints about agency from any of *them* lately?) Markets aren’t just opened and closed by government fiat or action; the acts of powerful players in the markets do at least as much to close them.

        Mike

      • Ken Prevo

         The single channel in part references history — gentleman’s agreements that established publisher’s pricing as selling price.  Failure to comply caused problems for business failing to conform — no early shipment of the next best seller and so on.  That was once true in many markets.  Publishing may be the last to try to maintain it.

        When I consulted in the grocery business, there were still remnants.  The attempt is the obvious attempt to counter free market principles.  When they fail, as they all finally do, you will either adopt or parish.

        I feel sorry for you fellows wanting to live again in a past that was so comfortable and predictable.  Disruption is painful.  And the rationalizing rampant. 

        The dog is out of the kennel.  You won’t corral it.  If you’re smart, you’ll avoid making it rabid.

        Think about what friends you have left.  Only the bought ones remain.  Obviously, the tea party is interested in the more Libertarian view. The occupy crowd see you as the corrupt corporation.  If you grow smart, you’ll quit looking down at “readers” as they are you only chance.  Fortunately, they are growing again. Volume makes up for pricing concessions as long as you get costs in line. The business model needs updating.

        I am also reminded of all the dire predictions of other media entities.  “TV will destroy movies.”  “The VCR will destroy them.”  Well, dire predictions are laughable in hindsight.  But, if you want to throw yours into the mix, I fear it won’t make you look like the lady from Delphi.

        P.S. I don’t know why you might be shocked that a Democratic DOJ is after them.  Republicans tend to accommodate business and would have probably ignored agency methods unless it began showing up on the news.  Counter intuitive to some.  Your PACs are backing the wrong horse.  Bush killed a lot of anti-trust action.  Don’t hope for that here.

        I’ve spent more time here than it is worth  preaching your choir.  Have a nice life.

      • /blog Mike Shatzkin

        Referencing the grocery business when advising the book business recalls a long line of misunderstanders, most recently an executive team or two at Borders.

        Windowing copyrighted material to maximize revenue is a more-or-less universal practice. It changes in its details, but anybody complaining about it on principal is just ignoring decades of reality.

        I don’t disagree that the publishing business as we have known it is going to change beyond recognition. That’s the point to the blog. But advice that equates up to “if a violation is inevitable, lie back and enjoy it” is not advice you should expect to be received as useful or relevant by most of the people that hang out around here.

        Mike

    • http://twitter.com/emmittc emmittc

       from Jordan Weissmann Atlantic article:

      http://www.theatlantic.com/business/archive/2012/03/how-cheap-should-books-be/254279/

      “But one has to wonder if, in this instance, the law is really serving
      the best interest of the public. Consider this question: are readers
      really better off in a market dominated by the whims of one large
      company, even if it means they get to pay a little less for the new Tom
      Clancy novel? “

      • Ken Prevo

         Yeah, right.  We are so much better off being dominated by the whims of six large companies.  Thank you, Jesus.

        P.S. Why are all the complaints coming from the media foks involved?  We customers seem so ungrateful for not wanting to pay more.

      • http://twitter.com/emmittc emmittc

        Careful what you wish for…..and perhaps try to see the big picture….there is a strategy and you are playing your part….dutifully…..

      • /blog Mike Shatzkin

        I love concise and forceful comments.

        Mike

      • /blog Mike Shatzkin

        I never met a customer who didn’t want to pay less except in *highly* professional
        circumstances. That is the kind of dog bites man observation that really adds nothing. Hey. eliminate copyright and you won’t have to pay anything at all! (There’s a school of thought for that…)

        One of a publisher’s JOBS is to get revenue for the copyrights the author entrusts them with. Getting revenue, in publishing, psychiatry, or the restaurant business sometimes involves convincing people to pay more for something than they would have preferred to pay. It’s achieved by persuasion, branding, positioning, salesmanship, scarcity, and other means. And it is a professional responsibility, not just a matter of simple greed.
        This blog is written from the perspective of professionals in the publishing business and intended *primarily* to help them understand the changing world we’re working in. “Readers” are welcome, but they are not welcome to expect that this is going to be an environment where “the lowest prices” are the highest value, or any value at all, really. The reason you’re hearing from publishers is because that’s who’s here. That’s whom I want here. That’s who can contribute to figuring out the challenges we’re all facing. I don’t fancy myself a social critic. I am a book publishing professional with some experience and skill at figuring out where the forces of technology are taking things.

        If that approach bores you or annoys you, I want to say, that’s really
        okay. There are lots of other bloggers, some of whom actually understand
        some things about the business, who have a “reader’s first” approach. They
        attract an audience that likes to snark in pejorative terms about
        publishers. You might be happier in those conversations than in this one.

        Mike

  • http://twitter.com/emmittc emmittc

     It is “our” culture and we all do what we think is appropriate and are motivated by different and varied goals. While I am reluctant to dignify the snark – and feel it is beneath this forum – I submit (and it should be more obvious to you) that your experience and outlook  is certainly shared by some but you are generalizing your experience. It is not as simple as you pretend.

    Some see the predator as the behemoth attempting to capture market share and power by undercutting on price and, in the process, reshaping and revamping a cultural resource that is shared by all – and not just those that may value “low priced” ebooks and e reading over other choices.

    There is a cost to low prices – whether it be in the lives of the cheap labor that enable it – or to the culture that loses diversity and choice because of the decisions enabled by the power acquired by duping “consumers” via low prices. Low prices may be the opium of the people – and many are under its spell. We will all pay long-term if we allow a behemoth to dictate, practically and effectively, and that is not a prospect many are thrilled with. I am not suggesting that the behemoth has nefarious motives or evil intent – but simply that the natural effects of the concentration of power are almost never (if ever) in the public interest.  Beware.

    • /blog Mike Shatzkin

      We seem in agreement. “Low prices” have been elevated to a core value. Too bad for us.

      Mike

    • http://twitter.com/emmittc emmittc

       to be clear – this post was in reply to KenP post beginning “Culture Club Member? Grow up….” and browser refresh had different idea evidently….

      • /blog Mike Shatzkin

        Thanks for that clarification. I will admit that I was confused.

        Mike

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  • http://twitter.com/jimnduncan J.N. Duncan

    The thing that most interested me here is the notion that if/when Amazon is back in the pricing driver’s seat, ebook prices will begin to drop. This idea that the price “gap” between self-published authors and traditionally published will close over time is important, and doesn’t seem to be getting much comment here. Maybe it’s because I’m an author, so I zero in on this kind of problem.

    It makes a lot of sense though from a consumer perception standpoint. Cheap ebooks (free-$1.99) have the biggest draw because they are viewed as a viable alternative from a price standpoint. I believe it’s along the lines of taking the risk on the “lesser” brand name of any consumer item in favor of the expensive known brand and hoping that it’s worth the money. While I like the expensive name band better and would buy it with the given resources, I settle for the more generic figuring that it’s just as good to go through 3 of the cheaper items in 3 years than buying the expensive and having it last for three. I makes sense to buy the more recognizable brand because it is a known quantity. Sometimes though you just can’t afford it.

    As the known brand gets closer and closer in price to the generic, there comes a point where the value for the money leans back toward the known in favor of the unknown. If I’ve got a choice between unknown thriller author and one who is well-branded, like say Lee Child, I’m going to go with Lee Child if the price difference isn’t enough to compensate for the perceived value difference. The new/unknown authors are going to end up losing out in the long run.

    We can say that it’s just the way the market is changing. New authors will have to work on brand to be successful, and free/$1 pricing is one way to go about it along with social media and so on. Though really, that’s the way it’s always been I believe. Publishers are always attempting to build a brand for authors. As an author I appreciate having some of this work/responsibility in more professional hands. Let’s face it, 99.9% of writers out there don’t know much of anything when it comes to building a brand. It’s not easy.

    As we move forward, the sea of new/self-pubbed authors will only grow. The ability to build brand recognition will get weaker. At some point, consumers are just plain overwhelmed with choice, and when that critical saturation point is reached, they will turn to brands they already recognize. At this critical point, the perceived difference in value between known and unknown will begin to increase. Instead of $2.99 being the point at which the name brand becomes more important than the non-name, it will be $3.99 or $4.99. At this point, self-publishing will provide almost zero ability to become a known author.

    Of course there are always exceptions. People with the skill and luck will find a way. That .1% always does. In the meantime, I think you’re right. The authors are going to be the ones hurt the most by this. It will only become more difficult, and they can only tolerate publishing for free or next to free for so long before the effort becomes rather pointless. And in the long run, the reading public will be the ones who lose out because when the tide does turn the other way, fewer writers out there will find the endeavor worth pursuing. Persistence and patience are conerstones to success as an author, but at some point, it will feel like the art of story is not perceived to have much value to the consumer, and the artists will lose faith in their ability to bring their creativity to the public. It would be a very sad state of affairs if this actually came to pass.

    In the end here, I don’t really see Amazon as really flaunting this “free market” ideal to the consumer. It’s a skewed playing field when the main player can lose money to attract the consumer. For Amazon, it’s not about selling books at all. They don’t give a rat’s ass about the art of story. It’s all about how to draw in the consumer to Amazon, because they are so much more than books. It is merely a gateway that they are funding at the expense of the publishing industry, from the author all the way up to the big six. Because people who are only in the business of creating and selling stories to the consumer do not have the resources at their disposal to fund access via other business. They may not be a monopoly (yet), but they sure seem to be skirting the legal boundaries when it comes to predatory pricing, as their loss-leading practices are driving or going to drive most publishers out of business and make it impossible for any new ones to get into the field and actually make a profit.

    One caveat to this. If the market develops an adequate method to curate this immense flood so the consumer has more trusted sources available to them to seek out stories they value, then this whole problem may yet work itself out. Ok, I’ve rambled way too much here, but wanted to put in my two cents on this.

    • /blog Mike Shatzkin

      I think you’ve got a very realistic take on the situation. I am a little surprised that *all* authors who are benefiting fro the price differential the agency model gives them the headroom to exploit don’t see the threat to them of big brand authors’ prices coming down. I think Upton Sinclair once said something along the lines that “it is very difficult to convince a man of something when his paycheck depends upon him believing the opposite.” I think a corrolary of that is that those who are able to see developments that are unfavorable to you for what they are should get some acknowledgment for your detachment and objectivity.

      Mike

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  • Ken Prevo

    You are really resisting reality.  The publishing industry is booming.  It is a growth industry.  Publishers have sprung up to service the new source that you refer to as Indies.  They edit, get artwork, market.  Equally important, they can’t dictate to authors and there is a lot of give and take.  Many even do print.  Any author has a chance to establish himself with some canned software.  Any success that accrues can lead him to a “Indie” publisher.

    I suppose we could stretch things and say that your clients have the tools to compete but we both know the reality. 

    The last couple of decades have attacked many business models.  Often streamlining them has taken place in bankruptcy court.  Your industry can either look at the writing on the wall or wait for the other inevitable crying they aren’t being understood and respected as they should.

    Your industry is bloated.  Bloated on past success that cannot sustain future bottom lines.  Adopt or parish.  I doubt its a view that will get you more business from them at this point.  Too bad for all concerned.

    There are authors who have moved from your control and are more successful. John Hartness (throw on a com) has detailed his move from a good job to being able to leave it as one of the new breed of authors. His success got him a publisher but not one on an island.   Read it.  You can watch someone fumble, experiment and finally gain a livelihood. I won’t say “only in America” as the books works has also gone global.

    If steel and automotive haven’t shown you the worst case future, you’ll drift down that path too. 
     

    • /blog Mike Shatzkin

      You obviously don’t know my history. I have been predicting most of what you are predicting for over a decade. I gave a speech at BookExpo America in *2007* called “The End of General Trade Publishing Houses”. I fully agree that the empowerment of publishing without capital will chip away at the present structure and, as bookstores fade away, essentially upend it.
      But none of that means we have to pave a path for Amazon to dominate the digital publishing future. And it doesn’t change the fact that agency pricing diversifies the publishing ecosystem (at least) two ways: it enables more retailers to exist and it opens up a pricing band where indie authors can be discovered.

      I want to quickly add here that I don’t underestimate Amazon’s enormous contributions to the ecosystem. They made the ebook revolution happen with Kindle and their dedicated efforts to push ereading: encouraging publishers to make digital editions available and heavy readers to try out a device (which wasn’t cheap when they started.) But I don’t want to see them rewarded with the whole industry funneled to their channel. (Although they may get there no matter what anybody else does; a powerful position combined with excellence in execution can do that.)

      Mike

      • Ken Prevo

         Amazon worked to get where it is.  It did it by understanding the existing, complacent market and using it to its advantage — shoestring to your idea of a monopoly.  The internet provided all that they needed to establish that.  Becoming the elephant in the room exposes them to the same nimble operation they once were.  Bezos understands reality and will keep dominance better than most.  But, like the Watsons at IBM, dynasties finally succumb.

        Look at the Microsoft/Intel “monopoly”.  It has been weakened by its success.  It will always happen.  They did that to IBM to get where they got and Apple used their success to create even greater success.  Android showed up to scare the crap out of them.  Nimble chip manufactures have products with solid, competing processors.  Success attracts sharks who start by feed on the edges and then grow.  Name an elephant and you’ll see this at work.

        You look at Amazon while ignoring history.  Forget Amazon. They aren’t on a road to failure or permanent dominance.

      • /blog Mike Shatzkin

        Lots of players in the eco-system perished waiting for Microsoft’s dominance to end. Circumstances for all manner of people and businesses rose and fell on the tosses and turns of the competition of larger players. That’s one of the new issues in our industry. We used to be pretty much stand-alone. Now books are just a pawn in a larger game being played among Amazon, Apple, and Google (primarily.)

        It would be a lot easier to read and respond to your notes if they didn’t contain such a strong undercurrent of “you’re an idiotic luddite and I’m not.” I thought you had decided to move on to a less industry-centric and therefore more intelligent and consumer-sympathetic environment.

        “Dismissive” and “involved” don’t go together very well.

        Mike

      • Ken Prevo

         Looking at your output, I don’t think shy violet would be descriptive. You are a nice guy.  But, you are consulting to and industry that can’t…with both hands.  You have no choice but to accommodate their views or end up being categorized as you do me.  :)

      • /blog Mike Shatzkin

        I think it would surprise a lot of the power structure of our industry to hear me described as somebody who “accommodates their views”. And, frankly, I work hard to forecast what will happen and, since that’s my mission, I do my best to keep my personal preferences out of it. And, frankly, very little of what I have forecast for the past 15 years has been greeted with enthusiasm by the establishment.

        And, in fact, the vast majority of our consulting revenues come from tech companies or other new propositions that want to get in front of the established publishers, not from those publishers themselves. It is true that I need their courtesies, but it would be inaccurate to suggest that most of my income comes from those people you characterize as being unable to find what you think you’re kicking. Or that I haven’t often suggested that they look for it somewhere other than where they’re looking.

        You’re right about one thing, though. I *am *a nice guy.

        Mike

      • Ken Prevo

         I imagine your view on what Amazon is or isn’t clouded my view.  If your market is so diverse you should or may be visiting the ____con venues.  They are where the self-publishing and new wave  publishers market.  They are always looking for guest speakers or panel participants. 

        And. I never thought you were anything but a nice guy. I won’t offer further adjectives.  :)

      • http://twitter.com/MindTheRant R. Hartzell

         Mike —

        Judging by the number of comments, your post on the DOJ and agency seems to be one of your more provocative — and I’m deeply impressed by your patience with the less sympathetic posters.

        BTW: When the DOJ took on Microsoft in the ’90s I believe the working definition of a monopoly was capturing 80% of the market — and MS was obviously far beyond that with Windows and Office.  I take it on faith that you don’t believe the Big Six colluded to adopt agency terms, though, frankly, I’m cynic enough that when Random House held back, then decided later to go with agency pricing, it did occur to me that its two-step decision was calculated to diminish the appearance of collusion.  Whether or not that’s true, Random seems to have benefited from its delay, no?

        Lastly, let me join Seth Godin and everyone else here who has praised you for taking so much of your time to serve the rest of us as blogger provocateur.  Even the grumpiest of these commenters have to admit that you’ve priced your views very competitively.

      • /blog Mike Shatzkin

        Thanks for all the kind words.

        I think Random House benefited sufficiently from staying out of agency for a year that no other explanation besides the benefit is necessary to explain it. I wrote a post about it at the time (April 2010? maybe May?) called “What so hard to understand about Random House’s strategy?” or something like that. I don’t think it was about avoiding the appearance of collusion. And you’re right, I believe there was NO collusion.

        Mike

      • EricWelch

        But, ironically, I think it was the publishers’ insistence on DRM that gave Amazon the dominance it now holds on the market, the very dominance the publishers decry. Had ebooks been made available as non-DRM mobi or epub they could have been used on any platform and the Kindle ecology would have become less predominant. 

      • /blog Mike Shatzkin

        I think the evidence is that Amazon has used DRM (and the Mobi format) to their advantage to create lock-in. I have come around to the point of view that social DRM (tagging) is probably the most sensible course. But publishers didn’t insist on DRM in a vacuum. Agents would have been aghast if they sold books without it. Many probably still would be.

        Mike

      • Ken Prevo

         DRM from a customer standpoint is stupid and invasive.  Of course it seems equally stupid not to have it from most publishes’ viewpoint.

        The problem with DRM was that it gave customers less than what they had previously.  I’ve always traded books with friends.  That was gone.  There is a clumsy way added recently but the fact that it was an obvious weakening of the users old right and methods and was pushed in his face with every purchase.

        The other part is that DRM is and will always be weak protection. You have alienated average customers who are a quick Google away from a program that solves the DRM problem.

        Now you have a more sophisticated user with  things like the recent premium for buying the ebook version  becomes not only alienated but mad.  You just enhance the tendency to pirate.

        I wish I could now provide a technical solution that would resolve it for both parties.  There isn’t one that I am aware of.  The counter intuitive one is mutual trust.  The only one I’ve seen embrace that is Baen. They were also giving away free ebooks long before folks started shouting foul and monopoly.

        I do agree that Amazon has used DRM and a somewhat proprietary format to it benefit.  But, in so many other ways, they market for the most benefit they can possibly obtain.  Personally, I’ll never buy one of their readers — which are all designed to their benefit; even if it is to the user’s detriment..  The Kindle Fire is the most egregious example to date. One can get a real Android tablet and install every reader format available and with the transition in CPU power get the equivalent for less.

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  • Rnjtolch

    Why don’t (or won’t the major publishers sell ebooks directly from their own web sites. Some of the smaller publishers seem to be doing that already. Instead the majors will (at least that is what you all are suggesting) be at Amazon’s mercy. Now there is a stupid business model.

    • /blog Mike Shatzkin

      Selling direct depends upon having the audience. It works if you have a real niche where customers will come back for repeat business: O’Reilly for books for tech geeks, Harlequin and even other nichier imprints for romance, Baen for science-fiction. But it doesn’t make a lot of sense for a general trade publisher because there’s no way to build a consistent audience. And nothing will change the reality in the short run that Barnes & Noble and Amazon are going to supply, by far, more customers for every major publisher’s books over the next few years, at least, than anybody else. Those relationships need to be managed.

      We will also (presumably) shortly see Bookish, an effort funded by Hachette,, HarperCollins, and Simon & Schuster which is a way of doing what you suggest.

      What the big publishers should be doing is branding more clearly by audience (blow up the old imprints) which is actually the first step to doing more direct selling. As they are configured, the opportunities are actually pretty limited and the risks, or relationship challenges the efforts create, are real.

      Also: if retailers are selling your ebooks at a deep discount (below the Big Six and perhaps all if agency is eliminated), you’re also taking on a whole complex pricing challenge that might make the effort far less profitable than one might imagine.

      Object lesson: the tribulations of getting PotterMore off the ground.

      Mike
      ————————-
      Mike Shatzkin
      [email protected]
      Founder & CEO, The Idea Logical Company, Inc.
      Conference Chair, Digital Book World
      Partner, Publishers Launch Conferences
      212-758-5670
      /blog

      • http://twitter.com/MindTheRant R. Hartzell

        Mike —

        Was Bookish established to sell both print and ebooks — or just print?  While the logistics of selling multiplatform ebooks could be a nightmare (is that what’s been holding up Pottermore?), it occurred to me recently, before the DOJ action, that agency would permit publishers to sell ebooks directly at a price advantage over Amazon or BN.com.  The side effect, of course, would be alienating those two vitally important vendors — though I assume agency has meant there’s already little love lost between the Big Six and Amazon.  Anyway, an ebook price edge for Bookish, assuming it doesn’t totally flub customer care, would be a nontrivial advantage, don’t you think?

      • /blog Mike Shatzkin

        Bookish might be e only, but it won’t be print only. I think the logistics of print are such that they won’t attempt that at all.

        I think agency contracts would prohibit publishers from selling agency ebooks at a discount and I also think it would be unwise policy to try to steal share from their established re-sellers by disadvantaging them against the consumer. I don’t think any sales agent could stand for that. In fact, I think operating Bookish will make publishers more creative about carving out ways for agency contracts to permit “deals”. They’ll want to make them, and they’ll have to enable the other resellers to make them if they want to follow through.

        Mike

      • http://twitter.com/MindTheRant R. Hartzell

         If Bookish goes e only, I’d love to know how they’re going to solve the multiplatform problem.  Shopping via a Kindle or Nook non-tablet ereader would mean using the browser, which is a watching-paint-dry experience too painful to contemplate.  I can imagine Bookish selling Bookish-branded Nooks and Kindles (especially the $99 Nook, which B&N seems to be having a hard time moving), and I can also imagine that approach being a disaster — or either vendor refusing to cooperate.  (I suppose Kobo would be happy to negotiate a deal, now that the demise of Borders has left it without a high-profile U.S.-based outlet.)  Other than that Bookish would have no alternative but produce its own ereader app (a la Copia) and promote the bejesus out of it, unless the triumvirate of publishers behind the brand were willing to develop a device from scratch capable of reading both MOBI and ePUB files, which strikes me as the least plausible scenario of all.  For the life of me I can’t see how they’d make the tech end work satisfactorily.  And without the tech end strategies like creating attractive promotional ebook pricing — or devising brilliant ebook merchandising verticals — is just wishful thinking.

      • Peter Turner

        Hi Mike:

        I used to joke around with the folks at Random House (the distributor for the publishing company I used to run) that what they ought to do was to buy Borders (to get the customer data from their loyalty program and a physical presence on the cheap) and then dissolve the imprint structure of Random, aligning content along niches with the aim to dominate select markets. As absurd as that sort of approach sounds, with every day that passes it makes more and more sense to me, at least philosophically. I wouldn’t want to be the one to tell Sonny Meta that no body gives a damn about his borzoi.

        Also, thanks for all your posts here. Feels a bit like a war zone where boundaries are being pushing in all directions while folks lob thought-grenades.

        Peter

      • /blog Mike Shatzkin

        Peter, your suggestion reminds me of one of my own. What I frequently told Big Six companies was to go down to their special sales departments and find out how *they* organized the lists. Then blow up the imprints and reorganize around the audience-centric definitions the special sales department would have created. Similarly far-fetched a few years ago; similarly sensible now.

        Mike

  • FrancisHamit

    There is so much material here now that I find I must start afresh with my comments.  There is another reason I self-publish. I’m 67 years old and no longer have the luxury of waiting for people  to get back to me.  Especially in this era of the “non-response response” where when our submission is ignored we are supposed to figure that out eventually and move on.  What a waste of time it is to try and deal with people who won’t even send a simple letter!  I just got tired of it.

    Now as for the accusation of bad editing, I have my own in-house editor and she is one of the best. Back when I did an average of a trade magazine article every week for about ten years, she produced perfect, pristine copy which we could e-mail and which could be electronically pasted up into the designated news hole.  Now she edits my books and does the same  excellent job.   We use a number of simple techniques here for copy editing and line editing, such as reading every word aloud.  Any other self-publisher can do the same and the smart ones do. So, please, do not assume just because we roll our own that we must, perforce, do it badly.    

    And as for the other part of editing, we also do okay with that as numerous four and five star reviews will testify.   I have not committed entirely to Amazon KDF, but the next novel, MELTDOWN, will be an experiment in delivering beta text to the market, the same way that software is rolled out.  As long as it is not locked in print it easy to make changes and additions and cuts. .  The time to market is much quicker and for some forms, this may be the most viable way to go. At the 70% royalty, a $3.99 price point delivers a per-unit return of $2.80 — which is the same per-unit payment that a new author will receive on a printed hardcover selling for $28.00. 

    Fiction is notoriously hard to sell.  E-books produce enough copies to satisfy all demand.  There are no real inventories to deal with and no returns of remainders. And since I have print books and deal with these issues every day, I find that very attractive.  Since I am in business for myself eliminating those costs is very attractive, but it would not be good business to give Amazon.com an exclusive.  I will also publish on B&N Nook and other platform as I have since 2004..  The biggest hassle are the different formats, but I can hire a contractor for that and I’ve discovered inexpensive sources of cover art and design.  I can do print books as good as any Big Six publisher, but I question more and more why I should bother.   

    The prejudice against self-publishing is driving authors like myself, some of who know what they are doing and produce very readable text, away from print publishing and the brick-and-mortar bookstores.    That channel is in danger of becoming nothing but a doormat for the Big Six , and we will have “bestsellers” that will overwhelm all other print books and force them out of the market, which will leave just the infinite shelf of e-books for people who want to read something other than what is served there.   Books which Amazon will still offer at low ball prices. 

    Given all that, the 30% agency model seems almost irrelevant. It will only be used by the big publishers and they are already a smaller and smaller part of the whole.   But those books will still be, by volume, most of what is sold in total sales.  Which makes collusion to maintain prices something the DOJ has a legitimate interest in thwarting, because that’s the way the current law is written.  And Scott Turow, who is, by all repute, an excellent lawyer, should know that and also know that if you don’t like a law, then you work to get it changed, not to frustrate its enforcement..

    Self-publishing is beginning to produce some “best sellers’.  “The Mill River Recluse” by Darcie Chan is a case in point, with hundreds of thousands of copies sold, which produced am amazing royalty on the 99 cent price point far in excess of what most authors receive for their first novel.   Which leads me back to my point on literary agents as gatekeepers.  They missed this one, as they have missed al ot of others because they are only interested in the “safe” sale.   If I ran a New York publishing house, I would stop listenting to the MBAs and re-open that transom to let some fresh air into the selection process. Hire some of those MFA graduates who can’t find teaching jobs as readers and editors.  Get beyond producing products and get back to to the original mission of producing literature. .  

    • /blog Mike Shatzkin

      I think it is presumptuous to say that it is self-evident that agency breaks the law and even more so to suggest that Scott Turow is being disingenuous and ignoring that “fact”. And the legal issue is apparently collusion, and we certainly have no evidence of that. I personally doubt it transpired.

      What isn’t being said about ebook-only self-publishing is all that is being left on the table with “no print”. Aside from half or more of the sales in units, no print in stores means none of the marketing exposure that provides. What I think will actually happen (and has, a bit) is that publishers can offer real value to self-published authors and will be able to sign them after they’ve demonstrated success on their own. At least as long as brick sales are important.

      Your point about the speed of self-publishing, however, is a telling one. And whenever print is involved, it is harder to match.

      Mike

      • Ken Prevo

         I think it is presumptuous for those of us without law degrees to denegrate lawyers using the courts to decide an issue at question. :)  Although, I won’t say they always get it right to our view; it is the best way we’ve come up with so far.

        I do like the thoughts of the fellow that you are responding to.  It is far more typical of what is happening in the self-publishing field than the embedded interests will credit.  Yes, there are those getting by shoddily with less.  But, the smart one are doing it right and their bottom lines can be impressive.

        What we are seeing are two business models.  The one traditional in scope and goals with the other in transition and very disruptive.

      • /blog Mike Shatzkin

        Turow has a law degree.

        Who was it without one that denigrated the right of lawyers to use the courts?

        And, as this non-lawyer understands it, the key issue is collusion. I’d like to hear one person who knows big publishers and how they behave from the standpoint of as much experience as I have express the belief that collusion occurred. I haven’t heard one so far. Robinson-Patman and some bookseller lawsuits in the 1990s long ago made publishers extremely sensitive about discussing trade terms with each other at all. And, as Michael Cader has made abundantly clear on Publishers Lunch, each publisher had a separate negotiation and different contract details with Apple.

        Yes, there *are* two business models (or more) working. And since far more than half the books sold and read still depend on the old one, pursuing a readership without it leaves out a lot of market. That’s why we have a growing list of examples of authors who achieved self-publishing success and decided to move over to traditional publishing. (I am the first to acknowledge, and have frequently said in the past, “this will not last forever.”

        Mike

      • FrancisHamit

         Collusion can be inferred from the facts on the ground.  When six powerful actors act simultaneously to attain what seems to be a policy that affects a significant share of the market, there exists  a cause, or at least a pretext for action.  But I doubt all of this posturing on both sides will actually come to a case in the courts. These big media corporations usually get what they want.  The Copyright Wars made that obvious. Self-publishing requires a certain amount of discipline and extra effort to do well, but the notion that a big publisher confers an air of legitimacy is going away.  What they confer is market power and resources to print enough copies to jam every possible distribution channel and the ability to make enough noise to monopolize public attention with a new title.  This is a method perfected decades ago before the existence of the Internet and the World Wide Web, but it is now ecologically and fiscally unsound since it expects two copies to be printed to each one sold.  The waste of resources in this method for distributing content should be obvious,  It’s not just the cost of making the extra copies, but of transporting them and storing them.  The constand skimming of the financial cream over the first few months creates a glut of physical product that competes with itself in the form of remainders which return no profit to either author or publisher. Millions of books sold as salvage and then resold to compete with new product. The savvy buyer learns to wait to get the best price. My entire 200+ volume Civil War research library consists of books published originally for 25 or 30 or 35 dollars each and purchase for five or six.  Still brand new.  
         If you want to legislate in a way that would make publishing more viable , overturn the Thor Power Tool ruling by the IRS that disallows the gradual depreciation of inventories. The requirement that books in the warehouse be carried at full value is the basis for the remainders business.  Rather than maintain a backlist, publishers now dump them by the palletload as salvage to make room for the next “bestseller”.  And that situation is simply aggravated by the sudden popularity of e-books, which have no such carrying costs.  This flips the traditional distribution pattern on its head because of  the demand that e-books, which have no p carrying costs, be priced below print.  With demand for physical copies of books compromised, any publisher is going to go with the e-book edition first to skim the cream and test the market..  As the distribution dynamic shifts, books made of paper become less and less attractive to the consumer and such demands can be fulfilled by that physical expression of the e-book, the print-on-demand (POD) edition.    The real problem with the so-called Agency Model   is that it is unfair to authors. 25 % or 30% versus 35% to 70%.  Without authors you have no books!  
        Current policies by traditional publishing seem designed to drive new authors and those who are not brand names into Amazon.com’s vampiric embrace. It may be monolithic and suck our blood, but at least we enjoy the experience.  They make ti so easy to publish with them.  Once they get over their fetish for using a proprietary system for formatting. the final product they will be the publisher of choice for most of us.  At this point the smart move for them is not to be aggressive but simply wait for traditional publishing to complete the job of destroying itself by clinging to the artifacts of the past, such as the brick and mortar bookstore that insists on the old system of consignment and return..      

      • http://twitter.com/emmittc emmittc

        you make many presumptions that are questionable – but just a few quick points……

        the old system of “consignment and return” is not being insisted upon by brick and mortar bookstores – and brick and mortar bookstores will survive as long as there is a demand for print books – new or used and with or without “consignment and return”….

        “big publishers”  don’t confer – they contribute – and much of it may be dreck and junk but many of the good ones contribute excellent books (literary and non-fiction) that edify and enhance our culture…..how and if they survive may be an open question but the compulsion to minimize and cheapen what publishers do – whether out of bitterness or ignorance – diminishes your credibility….

  • Garry Martin

    These are all great posts from within the publishing industry. My point is simply this….wake up! Amazon wants to be a publisher too…so why not turn your business model around and become an eBook retailer for your own books and just distribute. The publishing industry has always looked at retail and distribution as the ‘dirty’ part of the business and historically it was when it came to physical inventory.
    But times have changed..eBook sales and distribution simply requires a technology investment. The Publishers have the money, disrupt the industry, make it happen and start providing value to your authors both new and established. 
    My business more than anyone’s would love the Agency model to stay…we provide ‘white label’ bookstores for some of the worlds leading brands. It enables our partners to compete on level terms with the likes of Amazon. But hand on heart ‘price fixing’ is never good in any market….My prediction: The Agency Model will fall, Amazon will become more aggressive and try to monopolize the sales of eBooks. The Publishers can just stand by and see their own demise or change..Start doing what you do best, show authors how you can market and distribute their product more effectively and embrace the digital revolution. Oh and by the way….if you want to invest in a cloud based, Any book, Anywhere digital bookstore platform…give me a call.

    Garry

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  • EricWelch

    I was wondering what you think of Kristine Rusch’s piece which describes the current conflict between traditional publishers and online booksellers as one between the scarcity model (where the more rare something is the more expensive it becomes, a model derived from brick-and-mortar shelf space issues) and the online abundance model (where nothing ever becomes unavailable and the long-tail dominates.)

    http://kriswrites.com/2012/03/14/the-business-rusch-scarcity-and-abundance/comment-page-1/#comment-8313

    Her argument resonates with me especially in the light of some research done by David Gaughran showing the differences between the B&N and Amazon search engine results:  B&N results favor traditional publishers; Amazon makes no discrimination.

    http://indiereader.com/2012/03/barnes-noble-if-you-want-competition-compete/

    • /blog Mike Shatzkin

      The article was too long-winded for my ADD attention span, but I think the general point about scarcity and abundance is right. That’s precisely the “problem” for legacy publishing. Supply and demand. Supply growing faster than demand makes prices drop. The agency model is a holding action, but the tide won’t be changed.

      (I also noticed a few questionable assertions of fact in the article, including that a bookstore kept books so they didn’t have to tear the covers off to return them and that it cost $250,000 in capital to publish a mid-list novel on which the author got a $10,000 advance.)

      I have written before about the superiority of Amazon’s search over B&N’s. This is, I believe, the main reason why Amazon apparently keeps growing their market share for print sales online. As an ebook reader on an iPhone, I’d be free to use anybody’s app but I use Kindle’s because everything, including search, works better on it. Obviously, the more stuff you’re sifting through, the more important the search engine becomes.

      Mike

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  • http://twitter.com/EllenHopkinsYA Ellen Hopkins

    I happen to agree that authors are the ones who will be hurt the most here. Truly, I don’t understand why publishers shouldn’t be allowed to set e-book pricing. I’m pretty much sick of Amazon riding roughshod over the industry, and it just continues here. People who keep claiming “it will all be ebook soon anyway” neglect to recognize the fact that there are big swaths of this country, not to mention bigger swaths of other continents, that don’t own e-readers. Why limit your sales to those who do? Amazon keeps pushing the idea that everything will be digital before you can finish your next cup of coffee. Not so, IMHO. And even if/when that happens, why is it okay for this giant corporation to make decisions such as book pricing for EVERYONE because they can deep discount books, financing that decision by retailing everything from diapers to refrigerators? This reeks of monopoly, and I’m not sure why so many people celebrate that. As my father always used to say, you get what you pay for. I feel my books have a value that Amazon doesn’t care about, and maybe many readers don’t, either. But my readers do.

    • /blog Mike Shatzkin

      Ellen, I’m not sure how many authors see the danger to *them* of Amazon controlling the ebook marketplace. But we should point out that Amazon can deliver print books through CreateSpace; they just require people to shop online to get them.

      Mike

  • Peter Turner

    Reading through these comments, I have to wonder if publishers could have done a worse job demonstrating their value in delivering quality content to readers.

    • /blog Mike Shatzkin

      The soul-searching for the value proposition is hard. What publishers mostly do, unfortunately is, “put books on shelves.” That is of diminishing value. The other things they do — selection, curation, editing, packaging, etc. — are all “necessary but not sufficient” for a viable commercial entity to exist.

      Mike

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  • Ken Prevo

    All this navel gazing at the time honored business plan leaves me with little more than a headache.  Everyone talks about the way it is without realizing that it is rapidly becoming the way it was.

    The objective has been to operate in the ephemeral.  Big names get shelf life but the average, small run books have a gnat’s life.   Those are most authors.  They get their small advance and a few weeks with the spines showing or maybe grow to cover out.  The bulk get the cover torn off or returned.  Maybe they stick for another release as the next hoped wonder falls off the submissions stack.  Their months of work are around and gone in a flash. Those involved commiserate as the committee looks beyond them for the next NYT ranked author.

    E-publish is none of that.  It can live in obscurity and catch fire a year from now.  It can be a nice little income for more than a couple of months.  Nothing goes out of print which can even bugs the top end authors.  That is a game changer.  The tugs and pulls of the actors are taking on new game rules. That makes the absolute control wielded by the publishers the new ephemeral.

    Reversion of rights will be an eye opening event for many authors.  It is already starting.  When checks start looking significant to some, that is a whole new pressure that will impact the publishing sweet spot.

    • /blog Mike Shatzkin

      Cover torn off? Mass-market pbs. Never intended for long shelf life. Lots of reversions have been occurring for years. Many have already self-published. Some even make some money. This isn’t new.
      Mike

      • Ken Prevo

        No but it is driving the change and gets reactions that aren’t appropriate for the true problem which is not some nebulous monopoly.  Books are selling in a way the publisher could not envision or accept and because the outcomes are no longer in their control.   These moves are nothing more than panic on their part.  Agency is the thrashing of dieing giants and their business plan. 

        Good riddance for the last hold on indentured service.

      • /blog Mike Shatzkin

        These rants are getting increasingly inchoate and illogical.

        To say agency reflects “indentured servitude” when what it does is *raise* the revenue tapped from the public for the authors’ work is a very peculiar framing indeed.

        Didn’t you say six posts ago that you wanted to be somewhere where the poor tapped-out consumer was more respected and us money-grubbing publishing people trying to figure out how to keep revenues up were less evident?
        Mike

      • Ken Prevo

         Sorry I wasn’t clear enough.  No agency doesn’t represent indenture.  That would be the contract they shove down most new author’s throats.

        As to 6 posts ago, hell, Mike, I have trouble with 6 minutes. 

        I’d just figured the thread was getting threadbare so offered up servitude.  I have heard that complaint from a fair group of authors.

      • /blog Mike Shatzkin

        Of course, when they “shove” those contracts down new authors’ throats, they sugarcoat them with *money*!

        Maybe that’s why people sign them.

        Mike

  • Peter

    Mike, you’ve laid out an excellent case as always.

    But doesn’t this all rest on the assumption that Amazon can go back to selling ebooks at a loss even as they are simultaneously selling ereaders and tablets at a loss? 

    I think that with the agency model that business model will need to decouple- Amazon will need to try and make a little profit on both the hardware and the e-bookstore side of things.  And they will need to take on all comers in both directions.

    And at this point in time, I think the loss of the agency model would actually benefit companies like Google and Barnes and Noble/Kobo, because it would give people a reason to actually care about epub as a standard.

    One of the biggest reason I bought a nook instead of a Kindle was that I could theoretically shop around for the best price on an ebook- I didn’t think Barnes and Noble would always be able to match Amazon’s price on every title, but between Google, Kobo, independent etailers, author direct sales, etc., I figured SOMEONE would always be able to step up and deliver a deal. 

    And so far, I have actually found this to be the case- with non-agency, non-Amazon exclusive e-books.  The problem is that there simply aren’t that many non-agency, non-Amazon exclusive e-books.  The shopping-around benefit is outweighed by Amazon’s slightly longer tail.

    But, if you take away uniform pricing on best-sellers, maybe epub can work the way standards are supposed to. 

    Ebooks and ereaders can become separate markets.  And the market participants can compete against Amazon by focusing on what they are really good at, instead of everyone trying to vertically integrate and failing.

    • /blog Mike Shatzkin

      Peter, your comment depends on a premise that I don’t think is true. Amazon is as big as the publishing industry. They will always have deeper pockets than any ebook retailer they compete against. They will always be able to use price as a tool to gain market share. Yes, if all books were at wholesale, there might be some titles on which others would beat Amazon on price, as there might be now on occasion. But it wouldn’t happen often and it wouldn’t happen on the biggest titles and, driven by discounting, their share would just start to grow again towards what it was when agency was implemented.

      Mike

      • Peter

        But there are already three established ebook retailers that clearly DO have deeper pockets than Amazon- Google, Apple, and Sony. 

        And they all have strong incentives to offer, or at least match, the best price.

        But for Amazon, it’s worse than that- as the only remaining backer of mobipocket, Amazon has to not only price match deeper pocketed competitors, they have to do so SIMULTANEOUS, across every title in existence. 

        If Google offers deep discounts on titles A-P while selling Q-Z profitably, and Sony offers deep discounts on Q-Y while selling A-P profitably, and Barnes and Noble and/or Kobo are smart enough to discount just Z while offering everything else at a fat profit.  Then Amazon either needs to lose money A-Z, or people will slowly realize that the best way to save money on ebooks is by simply not buying hardware that locks you in to a single ebook provider in the first place.  Just like with every other media format.

        Remember, in 2007-2009, before the agency model came along, this epub value chain didn’t exist.  Apple and Google weren’t in the e-book game yet, and Sony used a proprietary format (they switched to epub in the second half of 2009).  The nook (first released late 2009) and kobo (first released in 2010) had yet to prove that, they too, could create decent e-ink hardware, tablets categorically didn’t exist, and there were very few reading applications available for smartphones or even computers (Kindle for PC was announced October 2009).

        So yeah, back then Amazon could bully everyone else just by dividing and conquering.  With all that has changed, that’s probably not true anymore.

        All that being said- I’m in favor of the agency model because I just think it is more efficient than watching prices be set by competitors who have no real costs and therefore no impact on the supply curve whatsoever.

      • /blog Mike Shatzkin

        Your idea is interesting, but I wonder how these companies could pull it off without “collusion”!

        Of course, Google and Apple have plenty of money, but they also have no interest in being *merchants*. That’s not what they do. There is no example of either of them entering a competitive marketplace and winning through pricing. It’s just not what they do. Apple strives for high prices and high margins. Google strives for free services that give them eyeballs and useful data. Amazon is very experienced at competing with other retailers. They’re the only one of these companies that takes its commercial cues from Walmart.

        So, yes they *could*. But *would* they? I doubt it.

        Mike

    • Garry Martin

      As a ‘whitel label’ eBookstore platform provider the Agency Contracts provide our distributors with the opportunity to protect their brand and compete with Amazon. As soon as the Agency Contracts go away Amazon will sell books at cost, which will enable them to sell more hardware, and increased market share. Although we keep being fed the story that Amazon are not making money on hardware I dispute this. We recently worked with one of the largest Asian original design manufacturers (who basically make products for all the key brands including Apple and others) and to produce a Kindle or Fire type device it is significantly less than the RRP of these products as you would expect.
      As I have said in this column before..Amazon are targeting authors for the simple reason that they believe that is where they can create a sales margin on eBooks by eliminating the traditional publisher.  Over the next couple of years I expect to see established authors either selling their own ebooks or going exclusively through Amazon. This puts the publisher in an interesting catch-22 situation, either adapt or go the same way as the dinosaur.
      Common sense tells me that sooner or later the Agency Contracts will be judged as anti-competitive here in the US and in Europe – because the courts will come down on the side of the consumer, not the companies who are trying to compete with Amazon. 
      That all being said we are living in an unprecedented times when it comes to the distribution and consumption of digital content. In a recent study by GigAom, they are predicting that the distribution of music will over the next five years move back to a growth and profitable business model. I think long term eBooks will be distributed in much the same way as music and video. We as a business are certainly looking at the Pandora and Spotify business models to see how we could potentially parallel this with eBooks (I am sure we are not alone). In the long term the eReader. Smartphone and Tablet devices will be an access point to the world’s largest content aggregation companies. Books will be consumed in the same way as TV programming and music, pay a subscription based on the content you consume. Once you have read the book, you will either decide to release it back or pay to keep it on your digital bookshelf. Royalties will then be distributed back to the publishers/authors on a per read basis.
      If I was a publisher I would be thinking very hard on how I could provide access to my digital content to the maximum number of hardware devices via a subscription or pay per read service. 
       

      • /blog Mike Shatzkin

        There are subscription plays in the market now. The problem, for all of them, is that the biggest books and biggest authors just don’t want to give up their sale-per-unit model. And I think there are many differences between books (on the one hand) and music and movies and TV (on the other) that make the subscription model somewhat more problematical for books.
        Where it *really* makes sense for books is in *professional verticals*. That’s why Safari from O’Reilly has been a big success from the very beginning.

        As for how Amazon would sell books without agency, I only disagree with one word of what you said. You said they would sell them “at cost.” Actually, they’ll sell the most popular ones well *below* cost. That’s what they did before and I’m sure it would still make sense for them if the right books would allow it.

        Mike

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