The Shatzkin Files


There’s no level playing field without agency pricing, and not in the way you think


In the 1990s, Bernie Rath was the head of the American Booksellers Association. (Bernie was not a popular man across the industry. Lawsuits about trading practices that troubled publishers really began with him.) He pushed the idea that publishers should stop printing prices on the books. Bernie’s logic was very simple. He pointed out that you paid more for a shirt or a couch if it was sold to you by a vendor in a high-rent location rather than one in a warehouse on the outskirts of town. He thought it was essential that the retailer be able to set prices so they could raise them if necessary to adjust to things like their rent. Otherwise, Bernie argued, books wouldn’t be sold in the best locations. Bernie thought the price having been printed on the book was what prevented the retailer from charging the “right” price for their sales venue.

My father (who always loved a rabble-rouser) was a friend of Bernie’s and saw merit in this argument. This was one time Dad and I didn’t agree, and I still think I am right on this.

In those pre-Amazon days, it was sometimes necessary for a publisher to sell a book directly to an end consumer. People who couldn’t find the book they wanted or a store that would order if for them (not uncommon for most of the 20th century) would, in desperation, contact the publisher. And the publisher would sell them the book. The publisher would sell at full retail price plus postage and handling. They didn’t seek that business; they didn’t actually want that business. But when it came their way, they extracted the maximum revenue from it. And in doing so, they kept stores from being unhappy with them because, after all, the customer would only buy at those prices from the publisher (and put up with the service issues dealing with a company that didn’t think much about individual consumers) if they felt they had no alternative.

The basis of my disagreement was equally simple. Whether or not it was printed on the book, there was, indeed, a publisher’s retail price. And anybody who wanted to find out what it was could do so by asking the publisher or ordering from them. That meant that any store routinely charging more than that would get found out. Even before Twitter, word could get around fast about something like that and it would create suspicion about every book in their store, including books they might be selling below publisher’s list. So, in fact, they couldn’t really charge more just because the publisher didn’t give them away with a printed price.

In addition, the publisher printing the price on the book benefited the store two ways. If the price was deemed high by the consumer, the printed price made it clear the retailer was not to blame. And if the retailer ate into his/her margin to sell it cheaper, the customer could see very clearly that the merchant had done the clientele a favor.

As we know, successful publishers unlearn old behavior very slowly. So it has taken some time for the big general houses to shed their prejudice against selling direct to end customers even though, in the digital age, it is actually essential that they do so.

Why?

Because the business of publishing digital books delivered online is entirely different than the business of publishing printed books sold through intermediaries. This was not instinctively understood by most publishers, particularly by big horizontal (not subject- or audience-focused) publishers.

But by now every publisher has learned that they have to gather names for direct customer contact. When Markus Dohle, Random House’s CEO, told me that Random House had to become an effective B2C marketer two years ago, it was a visionary statement. Now it is a common understanding.

One Big Six house told us last week that they had something over 6 million email addresses they had permission to mail to right now. And they get very decent open rates and very tiny unsubscribes. That’s not enough of a customer base to live without intermediaries, but it is a healthy start.

When you’re selling digital downloads, it doesn’t make a lot of sense to be emailing with people and not executing the transactions and satisfying the demand you’re creating. And, not incidentally, pocketing more than 40% more margin.

Of course, there are vertical publishers (like Harlequin and Ellora’s Cave and Baen Books in fiction, F+W Media in various enthusiast segments) which have already built strong direct selling operations. The key to that for them is the consistency of their offering which enables creating a community. And Harlequin and Ellora’s Cave and Baen all had direct ebook customer bases before Amazon even got started with ebooks in a big way.

The Big Six and other large publishers didn’t have that head start. They’ll be trying to begin now, building on name gathering they’ve done mostly over the past two or three years.

So selling individual titles one by one, which is what Amazon does (mostly) and which the publishers would like to be able to do as they build audiences, is a doomed exercise if the price in the marketplace isn’t fixed for that kind for that kind of transaction. If the publisher sells at the full price they’ve established, Amazon will use their power to control price to undercut the publisher and make them look foolish to their audience. If the publisher discounts, Amazon can always discount more.

But if the publisher discounts, they face another problem. Amazon (and every other retailer) would say, with ample justification, “the retail price my discount and margin should be based on is the price you sell it for.” If “publisher’s retail price” means anything, it must mean that! Just like when publishers didn’t sell direct in the all-print world before online happened, the price the publisher says is the retail price is what intermediaries would expect to see them sell the book for.

There are ways around this. A publisher can create content they don’t put into general circulation that is available only directly from them. A publisher can perhaps sell a DRM-free version of a book exclusively from its own site. The agency agreements as Apple apparently wanted them (because, without actually having seen one, it is how I understand them to be) are very inflexible in terms of allowing promotions, so bundling and even subscription programs can be difficult under today’s contracts with agency-priced books.

But if the publisher can’t control the price of the book across resellers, then there is ultimately only one general publisher that will be able to sell direct, and that’s the one with enough names in its database to live without any other resellers.

We’d have rules that set it up so that Amazon can disintermediate the publishers, but the publishers can’t disintermediate them.

If that were the principal outcome of the Department of Justice’s action, it would certainly qualify as “highly ironic”.

I’ll write soon about the great show we have coming up at Publishers Launch BEA on June 4. I also look forward to speaking at the Book Summit at the Harbourfront Centre in Toronto on Thursday, June 21. Their overall topic is about “discovery in the age of abundance” but I’m likely to mix other topics into my talk, including the one that is in this post. I am also speaking at George Washington University’s “Ethics and Publishing Conference” on July 9 (no link available yet). Since they’re interested in the litigation around agency, the topic of this post is likely to arise there as well.

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  • Seer

    I’m very unlikely to want to buy from a big 5 publisher…aka colluding publisher. These companies have made themselves known to eBook buyers through very negative means. They are even now continuing to overcharge and some are insisting their actions were justified. They have been deaf to years of complaints. No, thanks. They would have to offer something very unique and desirable before I’d consider it. Really, I’d rather they get acquired or merge with someone who knows how to market to consumers. They don’t deserve my business.

    • /blog Mike Shatzkin

      OK. That’s an opinion. I don’t agree with it, but I am no more entitled to your opinion than you are to mine.

      Mike

      • Seer

        You may want to factor in the antipathy that early adopters/avid eBook buyers have towards the agency publishers. I don’t think my opinion is uncommon among that group.

      • /blog Mike Shatzkin

        Your antipathy may not be uncommon but the actual sales results of agency-priced books suggest it isn’t doing mortal damage, at least. I think most people choose by the book, not by the publisher

        Mike

      • Seer

        Certainly, but you are proposing that big 6 can sell directly to consumers and I’m telling you that many of the most avid eBook consumers, those that individually buy the most books, are more likely aware of the history and would prefer to buy those titles elsewhere. By their actions, they’ve created significant negative consumer sentiment.
        To this day, I very rarely buy a book from iBooks, even though they cost the same, I use an iPad and I generally admire Apple. Since forcing the removal of the “buy” button from Kindle/Nook/Kobo, and bringing about Agency, I prefer to buy elsewhere. Apple has enormous customer approval, but IBooks never really took off.

      • /blog Mike Shatzkin

        Generalizing from one’s own buying habits is generally not a very effective means to calculate an overall consumer response.

        The biggest problem with iBookstore is that it doesn’t have as many titles as its competitors and, last I looked, doesn’t merchandise as well either. Publishers have enormous disadvantages building a direct sales business, but, if we were listing them, I really don’t think negative brand equity would make the top ten.

        Mike

      • Seer

        My point is just that Big publishers don’t have the appeal of Apple (who has a direct relationship with many through iTunes, iPhones, etc.), and indeed have only created a negative image to those of us who are buying ebooks. All things being equal, I think you’ll find many eBook consumers prefer to AVOID buying directly from big 6 publishers. I get the emails from them, and that’s fine for information, but I wouldn’t do business with them unless it’s compelling. I’d much rather buy from companies who have not been ripping me off.

      • /blog Mike Shatzkin

        You know what?

        Goody for you!

        What this means in the overall scheme of things I really don’t know.

        And neither do you.

        Mike

  • http://www.laureencekaye.com/ Laurie

    Spot on Mike. “A publisher can perhaps sell a DRM-free version of a book exclusively from its own site” – that’s exactly what Pottermore does with Harry Potter e-books.

    • /blog Mike Shatzkin

      DRM free is a key to Pottermore’s leverage, of course. But so was Rowling’s willingness to proceed without Amazon. She could do that for a variety of reasons that would not apply to a publisher who had the same desire to sell direct.

      Mike

  • William Ockham

    The only thing wrong with this post is that it assumes facts not in evidence. The implication is that if the big publishing houses were allowed to implement agency pricing they would be able to compete in the digital book arena. I think that is pretty clearly not the case. The problem that the big publishing house have is that they are the highest cost producers in a competitive market.

    The underlying assumption that the DoJ sued the Price-Fix Six for using agency pricing is just wrong. They sued them for colluding to fix prices in the ebook market to protect their higher margin hardback business. Here’s the analogy I’ve been using. If I come over to your house and hit you over the head with my iPad, you could call the cops and have me arrested. If a bunch of my friends then went on the internet and posted that I had been arrested for using my iPad, they would get a bunch of people up in arms, but it wouldn’t be true. I would have been arrested for assault and battery.

    Amazon is not the problem. The DoJ is not the problem. The problem is that the publishers couldn’t compete on a level playing field and decided to cheat. They were such incompetent cheaters that they left a lot of evidence around. Collusive price-fixing is usually really hard to prove. This case is not going to be hard to prove.

    • /blog Mike Shatzkin

      You seem not to have noticed that I didn’t take any position on the collusion question. I don’t know enough about either the facts *or* the law to do that. Everybody knows more than I do about the law. You apparently believe you know more than I do about the facts.

      Whether publishers can take advantage of selling direct in a competitive way is a speculative question, even though you seem to think it is a settled one. What is *not* speculative is that an insistence that ebook price-setting must be handled by each individual retailer would be crippling to any publisher’s ability to compete and would lock in the advantage of one publisher — Amazon — that they gained by being a retailer selling the books of companies that were once not their competitors, but now are.

      There was no level playing field. Whether or not the publishers cheated is an open question, but that the playing field was tilted against them is easy to see by anybody who wants to.

      Mike

      • AlNorman1

         Sorry, but no. If the playing field was ever uneven, it was slanted against Amazon. What advantage in the rules or reality did Amazon have that led to it achieving its position? If anything, the publishers had a longer head start in this business, thus the playing field was slanted in their favor.

        A level playing field does not mean the outcome must be equal. What it seems to me that you really want to say is that a handicap should be applied somewhere or against someone because Amazon has a dominant position. Just don’t claim that the publishers never had a chance, which you imply when you say the playing field is not level. They had their chances; they blew them.

        Such is business.

      • /blog Mike Shatzkin

        Sorry, I seldom say this, but yours is a totally bogus response.

        Amazon was a retailer. Publishers were not. And Amazon built its advantages with a huge amount of Wall Street money invested in that had nothing to do with the book business.

        This is not to suggest that Amazon “cheated” or did anything illegal or even unethical. But they are now in a position where, because they are much larger than the book business, they have what amounts to an unfair advantage over everybody in the book business: publishers, retailers, agents, and authors. The entire book business is being pressed into service on behalf of their retailing operation.

        That isn’t a level playing field and it also isn’t good for society, to the extent that a diverse book business is in the interests of society.

        Mike

      • AlNorman1

        You say this: “Amazon was a retailer. Publishers were not.”

        Then you say this: “In those pre-Amazon days, it was sometimes necessary for a publisher to sell a book directly to an end consumer.”

        From the Miriam-Webster dictionary: Retail-to sell in small quantities directly to the ultimate consumer.

        Once again, the publishers had a head start. That they chose not to exploit it at a greater level does not slant the playing field toward those who did. The game started, and it is ongoing. And the term “level the playing field” has origins in fair sporting competitions. Because one team appears to have control of the outcome does not mean the playing field was not level. There are winners and losers in sports and business.

        As you state, “Amazon is in a position…” Their position is not unfair, it is dominant; these are different terms. It doesn’t matter how Amazon funded itself, and it was not unfair unless you can demonstrate that such type of funding was available to no one else. Hence, the field was level. Practically any statement to contradict this would be speculation.

        Now that the game has started, a forced resolution that seeks to bring the teams back to parity is handicapping. Those are the words that should be used: parity and handicapping.

        There is competition for the book market on the retail and wholesale levels. What the publishers wants is parity in that market. They seek this through handicapping.

      • /blog Mike Shatzkin

        You’re playing games with reality AND you’re avoiding the important question, which is what the reality is going forward.

        Selling print and selling digital are entirely different businesses. That’s a key point you’re ignoring. But you’re not alone; lots of others are eliding the two.

        And *only *an aggregator selling books of all publishers could possibly have built a direct-to-customer business on the Net in the world of print. So that was never a possibility for publishers.

        It doesn’t really matter how we got here. We’re here now. And you haven’t challenged my core point. Because you can’t.

        If it becomes or remains the case that pricing control is in the hands of the retailer, we know for sure that Amazon can discount however it wants and publishers won’t be able to sell direct. Since Amazon is now a publisher they will be the *only* general publisher than can sell direct. And since selling direct *in an ebook world* is critical to a publisher being able to survive, Amazon will be the only general publisher to survive.
        If that’s okay with you, that’s your business. It isn’t okay with me. I don’t think it will be okay to most people. And I even think, ultimately, it might not even be okay with the government.

        Mike

      • AlNorman1

        Yes, I understand that ebook retail is an entirely different animal than print book retail. For a few thousand dollars, I could set up an ebook store front.

        However, saying that a publisher cannot set up an online store front and succeed in selling its own print titles is pure speculation. They may fail; many businesses do. But they may also succeed.

        Yet they will never win or even act competitive in that environment if they never take the field. A loss by forfeit is still a loss, but how do you blame the other team, accuse the other team of having an unfair advantage if you never picked up the ball?

      • /blog Mike Shatzkin

        You know, all the team and sport metaphors are cute, but they really aren’t apt.

        It never made sense, and still doesn’t make sense, for general trade publishers to sell printed books direct. They are much better off selling them through Barnes & Noble and Amazon and other aggregators. Selling print online only makes sense for a publisher at higher price points and, usually, to professional audiences. It’s not about experiments. They’ve all been conducted. There’s a long history of direct-sales book publishers; they did different kinds of stuff (like Time Life Books) and they’re now, logically enough in the Internet-Amazon era, out of business.

        Ebooks are a completely different story. A world where general publishers can and should have direct contact with their customers is also a completely different story. That wouldn’t have made sense five years ago; investing in it then would have created very little advantage for now.
        I really don’t understand this apparent need on the part of many to find somebody stupid or chicken for not having “played the game”. I don’t know where your partisanship or resentment comes from, but it isn’t shedding much light on the realities.

        Right now, I see three possibilities:

        1. Amazon can take over the whole general book business and what will get
        published will be what will work in their ecosystem. We’ll have lots of
        cheap novels. We won’t have Steve Jobs by Isaacson or George Washington by
        Chernow.

        2. A marketplace where ebook prices are set by the publishers would allow a
        multi-player retail market, with Amazon still by far the strongest player
        because they’ve got a long headstart at being the most competent.

        3. An enforced breakup between publishing at scale and retailing at scale,
        not allowing anybody to do both. This would force Amazon into a position of
        caring about the success of publishers because they’d depend on publishers
        to provide them product. Lawyers tell me that if (I’d say when) the day
        comes that Amazon really has a monopoly of the business (maybe when B&N is
        half or less its current share and a couple of Big Six publishers have
        merged with others and everybody knows author advances are plummeting…)
        that’s what the DoJ will make them do. The tricky part of that is the
        author-service business. Drawing lines will be very difficult.

        That’s the real world. All this stuff about winning teams and having the
        courage to take the field is, uh,* *let’s say, strictly irrelevant metaphor.

        Mike

      • AlNorman1

        1) Speculation. Who’s to say Amazon wouldn’t publish that book? Who’s to say some other small company wouldn’t? If there is a market for it, someone will typically fill that void.

        2) This is the argument I’ve never bought into. If the agency model allowed others to enter the market and stopped Amazon from keeping others out, then why did the Nook come out before agency? Why did Kobo announce their reader before agency? Why did Sony enter the market and keep releasing ereaders long before agency?

        Who came in after agency that otherwise couldn’t come in before agency? Wikipedia has a nice article comparing ereaders, Look at the release dates. The vast majority entered the market when Amazon was controlling the market. Sorry for this sports analogy, but the publishers didn’t want competition–it already existed–they wanted parity in competition.

        3) I doubt this will ever happen, although stranger things have occurred. Anti-trust regulation enforcement, in this day and age, is more slanted toward the customer. Screw the customer, even if the perception is only in the customer’s mind, then feel the wrath of the DoJ. This is because the DoJ is intertwined in what is an otherwise political system (politicians wish to get re-elected, and what better way to help that cause but by standing up for the customer?). If Amazon brings that wrath down on itself, then it would have to do something against the customer that would open the market wide for someone else. It would be a double-edged sword, the chasm in which the market typically heals in time.

        In this internet age, information travels fast. If Amazon begins to screw the customer, the customer will know rather quickly.

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  • http://about.me/PeterTurner Peter Turner

    You commented that it has become a common understanding among publishers that they have to be effective at B2C marketing. While I totally agree, I have found that most publishers have no clear idea how to develop a D2C marketing strategy, that is, no clear idea how to deliver value to their prospective direct customers. There are exceptions, of course, and you mentioned a few, but by-and-large the skill set and, more importantly, the mind set, of direct marketing doesn’t seem to be in their DNA. They’re going to have to bring it on from outside and go to school double-quick. One suggestion I’d make is to not even think about competing on price, or at anything else that Amazon already does excellently. Instead, publishers need to look at their content, consider closely their potential direct customers–specifically what they would value most–and come up with a marketing strategy that focuses on what the publishers can uniquely deliver. It’s doable, as publishers have something that Amazon doesn’t: the ability to discern for readers what content is of quality, why, and how best to develop it further. It’s doable, but it will require a thoughtful and maybe radical reallocation of priorities and resources.

    • /blog Mike Shatzkin

      It is extremely difficult to develop a coherent consumer proposition without a coherent list. If you publish all over the lot, you can’t win except by being a super-aggregator and a price-competitor (in today’s marketplace.)

      Publishers who are developing direct customer contact (even without sales) will find that it is most successful in niches (verticals). They’ll find pockets of interest where they’ve got names and attention and can develop something larger. It will take time.

      The direct selling for a general trade house would be of modest importance for quite some time (although even if a publisher sold 5% of the books direct, that 5% would yield margin like 7% by saving the agency payment) but you have to start somewhere. There will be no somewhere for them to start without price uniformity.

      Mike

      • http://about.me/PeterTurner Peter Turner

        Well, Mike, I think we’re going to agree to disagree on this one. Price uniformity won’t in itself make much difference if the product and customer experience is the same. Amazon has too much of a jump on customer data. Content providers will have to find other ways to build direct relationships, price aside.

        On the advantage of orienting content in niches we’re in agreement; further, it opens many doors in to delivering value to customers in a wider variety of ways.

        Peter

      • /blog Mike Shatzkin

        Peter, I am not suggesting the publisher can complete with Amazon in any significant way in anything like a near term. But the general publisher can hardly sell any books *at all* to customers without price uniformity. They can’t even begin. They’ll have to do a lot more, of course, to get customers and make them want to purchase from them. But they aren’t going to replace Amazon so if they can’t sell books for as good a price as Amazon they can’t really participate at all.

        It would be meaningful if a publisher could get 5% or 10% of an author’s sales direct. It would immediately boost that author’s income, among other things.

        Mike

      • http://about.me/PeterTurner Peter Turner

        I agree, Mike, I don’t think general publishers will be able to compete in any meaningful way any time soon. In the niche world, however, I do know from direct experience that price is only one customer consideration. Cultivating value other than competitive pricing seems a more fruitful way to go overall. But, in order to do this, general publishers have to create new niche brands and redirect their marketing resources. I have a feeling we agree on this. In any case, thanks for another though-provoking post.

        Peter

      • /blog Mike Shatzkin

        Peter, I suspect (and I’d appreciate your insight on this) that Amazon’s intelligent and selective discounting policies might leave lower-profile books less vulnerable to that kind of pressure from them. What I’ve been thinking is that if things go as they might, there will come a time when they’ll as systematically attack the pricing of smaller niche players as the next round of low-hanging fruit. Agreed that community and extra value offerings woudl be a defense.

        Mike

    • stonetools

      It seems clear to me at this point that we move to toward a mostly ebook world, the publishers will have to dis-intermediate Amazon by selling D2 C.I’m not sure I like this-I think publishers should stick to just publishing- but if the alternative is that Amazon by becomes the one major channel to the consumer , then I see no other option.
      What’s interesting is that the digerati strongly resist this conclusion. The favorite digerati example of a publisher who does things right is Baen. Well, Baen is not only an example of a publisher who sells DRM free-its also an example of a publisher that’s it’s own book store. It doesn’t need Amazon , except as a source of referrals.
      That said, the publishers will have to change an awful lot to be good at D2C. Heck, Baen ain’t that good-their website is much less consumer friendly that Amazon’s- by an order of magnitude. It can be done, though and the publishers have a good template-called Amazon..

      • http://about.me/PeterTurner Peter Turner

        Stonetools: I agree with your comments. All I’d add is that in order to have any chance of “dis-intermediating” Amazon will involve book publishers and other content creators NOT competing with Amazon, by delivering value in other ways. The opposite of Amazon is highly curated, social, with free and paid content–just for starters. 

      • /blog Mike Shatzkin

        Good formula, Peter.

        And a hard one for the big publishers to follow.

        Mike

      • stonetools

        I’ts difficult to figure out what you have in mind -a “Facebook” for books? FWIW, another approach maybe the “app-centric” approach-hat tip to The Cynical Musician , who is working on an app-centric model for music on his site. For authors and publishers, you create a down-loadable app and do most of the interaction with your customers through the app ( There are already publisher apps in the iOS App Store).
        What’s clear is that there is going to be a lot of experimentation in the ebook marketplace in the next few years and that its going to driven by the publisher’s attempt to escape the Amazon bear hug. 
         

      • /blog Mike Shatzkin

        If price can be ignored, then it is possible to build a useful “front door” only curating a few thousand titles from a sector of publishing. I can see that happening on apps or on the web.

        In my own personal case, if anybody would do a proper job curating baseball history content, I’d shop for that material from them. That’s perhaps the biggest single chunk of my reading. I think that’s the kind of thing that Peter meant when he said that the way to beat Amazon is in the niches. Nobody can do “everything” as well as they do but lots of people can do particular things better.

        Mike

      • /blog Mike Shatzkin

        I once had the thought that all publishers should sell all publishers books online. Might have written about it. Of course, Ingram could enable it (and for some publishers, they already do!)

        The *cost* of managing pricing is one of the most significant expenses of being an online retailer. If that goes away, it really does become possible for any place you land to sell you any book or ebook you want. Obviously, every site would have a different path to what would ultimately be generic search screens (you start at a knitting site, and it curates for you pretty effectively through many crafts but by the time you get to the baseball history section you’re getting one that’s canned, and the same one you’d get if you started in a movies site…)

        Now, that’s a cool world…

        Mike

  • http://twitter.com/KOMcLaughlin Kevin McLaughlin

    Mike, I had a thought as I was reading your post. I’m not at all sure it would work, but it’s my knee-jerk reaction to the situation, so I thought I’d run it by you.

    Right now, Amazon and other retailers have clauses that say they can discount from agency if they see the book for cheaper elsewhere. But that, of course, is going away as part of the settlement (it seems to be one of the key things the DOJ is focusing on). No more “most favored nation” clauses, so prices will be able to be different at different stores.

    OK, so suppose a publisher scraps agency entirely? Goes back to the wholesale model. Sets a suggested retail price and a wholesale price that is 70% of that.

    Then, that publisher starts its own very good webstore for ebooks, selling all their work.

    Then they use the same sorts of web-crawler Amazon and other retailers use right now to scan major retailers for their prices. And discount on their own webstore to $1 lower than the lowest priced competitor.

    If Amazon wants to take a $14.99 ebook and discount it to $9.99, OK. They’d still owe the publisher $10.49 per sale. And the publisher would simply set the system to automatically price the book to $8.99. But here’s the key; books not discounted by other retailers below suggested retail, the publisher just leaves at suggested retail.

    Would Amazon like it? Not at all. Would Amazon suck it up? Probably; they still need those books. Indie books are now a HUGE part of the market – in fiction, over half of ebooks Amazon sells, by every measure I can make. But losing those super-popular books produced by various publishers would be immensely damaging to Amazon. I don’t think they’d kick the publisher out for doing it. Maybe I’m wrong. But how big a hit in sales would Amazon take if suddenly they could no longer sell Patterson books? Or ANY Harlequin lines? I think a lot of customers would just go elsewhere. So I think it would be a rock and hard place setup for Amazon.

    It would presuppose the publisher being able to hire a good enough team to build an awesome ebookstore, which so far no major publisher has accomplished. And I’m sure the idea needs polish; but I think something along those lines could work.

    • /blog Mike Shatzkin

      You know, your idea is a good one. And it raises the point that one of the prior mistakes agency was correcting was the far too generous margin allowance of 50% from suggested retail. Wholesale makes a lot more sense the way you describe it because, unlike agency, the wholesale price doesn’t adjust down as the retail price gets

      Of course, you start with a huge chicken-and-egg problem (no publisher today has anything like the online presence necessary to pull this off). And I’d add some wrinkles, including a notification to all ebookstore accounts that sign up for it that you have found this price on the Web and are taking that action (so they can decide what, if anything, they care to do to address it.) And the effectiveness of the strategy would be spotty. More people shop Amazon by far than will shop any publisher site. So they’ll see Amazon’s low price but won’t know about the publisher’s.

      Worthy of further thought…

      Mike

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  • William Ockham

    Reading this posts and the comments has left me very confused. I think that Shatzkin is arguing that for publishers to suceed, they must be able to control the retail price of ebooks. But as a factual matter, that isn’t going to happen. Whether you think the DoJ lawsuit was justified or not, the fact is that three major publishers have agreed not to do that for the next two years at the very least.

    There are a couple of assertions being made that I find very questionable. One is that publishers have to control their prices across resellers to survive. Why is that true? Many industries manage just fine without controlling retail prices and don’t devolve into a monopoly. The other assertion is that publishers must sell direct to consumers to survive. Again, where is the evidence for this? This hasn’t been true in digital music or games? At one level, this argument seems to be that the publishers need to ape Amazon to succeed, but I don’t see that as persuasive.

    • /blog Mike Shatzkin

      What I said is that publishers can’t sell direct unless retail prices are controlled. I think my reasoning, that they will be undercut by retailers if they try until they stop, has not been challenged.

      It is a next order of projection to say that if they can’t sell direct, they can’t survive. Whether that’s true or not is a question we can leave open, but they will be competing against the one publisher that can sell direct without being undercut, and that publisher is Amazon. Why? Because they already have an adequate direct sales base from 17 years of retailing so they can sell their ebooks without offering them to anybody else. Publishers don’t have the luxury of disintermediating Amazon the same way.
      I don’t think publishers can “compete” with Amazon today as a general retailer under any circumstances. But they have a millstone around their neck competing even as a specialist if the highest-profile titles they have will always be cheaper at the intermediary’s store than it is at their own.
      As for your examples, “other industries” aren’t comparable for many reasons, including the number of SKUs, the virtual nature of the goods, and the complexity of the selection, which includes some that are highly substitutable and others that are totally unique. The games and music point is a good one. The difference I see is that Amazon is becoming a publisher. That means that selling direct becomes part of a publisher’s tool set. The others have to match it.

      Mike

  • Jimnduncan

    I think publishers could succeed in niche markets as well, but I wonder just how they will draw the attention of the general reading public to the fact that they are selling a particular niche direct? If they leave the aggregating retailers like Amazon out of the selling loop for particular types of books, how do they get the public to know they can get their titles from them? General readers don’t usually know what publisher publishes what kind of book (and maybe that’s one of the main problems they have). So if they aren’t going to find them in places like Amazon where they can do broad searches, how exactly are they going to find and be drawn to these niche sellers? At least in any kind of time frame that would allow this to be financially feasible for publishers to attempt.

    • /blog Mike Shatzkin

      I don’t disagree with you, Jim. That’s why I think publishers need uniform pricing to sell direct. They can’t afford to give up selling through the intermediaries and they can’t do that *and* sell direct unless there is uniform pricing.

      You’re right. No matter how successful a publisher is at building a niche audience, there will be people in the niche they won’t have and people outside the niche that would be interested in any particular book that can only be reached through a more general retailer, and/or through more general search.

      Mike

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