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.
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.