Publishers complain that agency pricing leads to lower revenue

petard Publishers who insisted on agency pricing are starting to be hoist by their own petards—but unfortunately, authors and agents are being hoisted right up there with them. This is the message that a Wall Street Journal article Paul mentioned a few days ago (from another publication) brings us, and it’s one worthy of revisiting.

As most of the comments on Paul’s post point out, this article has a number of problems—most notably that literary fiction as a genre has already been in trouble for some time now, and the lower per-unit income from e-books may just be another nail in the coffin rather than a silver bullet. And there’s also the “cheap digital-music downloads have meant that fewer bands can earn a living from record-company deals” groaner.

Still, in a way it is deeply satisfying to see publishers beginning to express this “woe is us!” attitude in response to a situation that they have created themselves. Perhaps if they had been willing to keep letting Amazon give money away to them they might not be in this position. Though I will grant that the eventual outcome of that path might also end up being suboptimal from the publishers’ point of view.

I find it interesting that another piece Paul mentioned a few days ago claimed that “genres such as science fiction and romance are ‘overperforming’ thanks to the tastes of early adopters of e-books.” How do they know that those genres are overperforming? Perhaps people’s tastes are simply changing. Perhaps literary fiction is simply underperforming. (Though in fairness, I must also admit to feeling a sort of savage glee that genre fiction is trouncing the “mainstream” fiction beloved of those snooty types who look down their nose at genres and declare them to be trash.)

But not all publishers are quite so bearish on the future of the book. FutureEBook has a report on a recent publishing industry roundtable on the future of the book, featuring execs from Amazon’s Kindle division, Macmillan, and Google, and a Writer’s House agent.

The agent, Simon Lipskar, noted that Kindle book buyers should “feel guilty” (from the point of view of giving money to the author) for buying an e-book rather than a pricier hardcover (but not rather than a paperback). (Feel guilty? Really, Simon? It wasn’t consumers’ decision to chop the amount of royalties authors get from an e-book.) But he also said that selling at an affordable price was the key to fighting piracy.

Macmillan’s John Sargent noted the problem that “the value proposition goes ever downward when on screen”—in other words, people don’t think e-books should cost as much as paper books because there’s no physical artifact there. He also said that determining what customers want (and not building what they don’t want) is going to be a challenge publishers will have to face.

I believe that beyond just trying to figure out what customers want, publishers really need to start working on becoming more efficient, being able to survive on less revenue, if they want to be able to price books at the levels consumers are demanding and stay in business. Their competition isn’t just Amazon underpricing their books, it’s Amazon (and potentially other outfits) offering writers a 70% royalty rate to publish exclusively through them and bypass the publishers altogether.

8 Comments on Publishers complain that agency pricing leads to lower revenue

  1. I’ve never understood why I should feel guilty for buying a Kindle book, but no one ever tells me I should feel guilty for buying a used book or borrowing a book from a friend (no royalty to the author, no payment to publisher); in fact, I’m told that I’m “buying” a piece of next to worthless trash because I can’t resell it or loan it to someone else. Could everybody make up their mind as to whether I’m evil or stupid?

    Seriously, I think it will be next to impossible for publishers to get it. They are too big and bloated and used to the margins on hardbacks. I’m sure they feel that they’ve already cut to the bone, but the bone is smaller in the digital world. It’s very hard for a company to transform itself to one that can operate in significantly smaller margins.

  2. “…people don’t think e-books should cost as much as paper books because there’s no physical artifact there”

    I am really tired of this. Did he ask actual readers why they think ebooks should be cheaper than physical books? (BTW, there is actually a physical artifact, an electronic file.)

    Does he think readers are stupid? The format doesn’t make any difference, it’s the fact that ebooks provide less value to the reader, that is the difference.

    If I buy a physical book, I own it outright and can do anything I want with it, even read it 100 years from now (if I live that long). I only lease ebooks. I can’t share them, I can’t sell them, I can’t lend them, and I can’t give them away. 10 years from now, I may not be able to read them because formats and devices will have changed.

    Less value = lower cost.

  3. I do find the approach of telling people to feel guilty is a bit silly. That is like the oil companies should say we should feel guilty about buying cheaper gas since their share holders won’t get as much money. I think that if the publishing companies can’t get their act together soon there is going to be a collapse of some of the publishers in the next 5 or so years. Those publishers that are truly offering a service to their authors beyond their name will be able to survive. Editing is very important, but editors can be hired on ones one if needed. And it looks like the publishers aren’t really putting much PR out for anything but the biggest authors.

  4. I don’t feel guilty. Publishers should pay a higher royalty rate for ebooks. Amazon is giving 70%.

  5. I’m curious what people’s thoughts are in regards to Random House. It seems that they are constantly overlooked when discussing company approaches. They are, in fact, Non-Agency and doing just fine at the moment. Thoughts?

  6. This agency pricing distortion is the result of Amazon attempting to sell below cost for a few years to take over the ebook market. After that they’d be in the position to dictate what the public, publishers and authors get paid. That’s classic, robber baron behavior. We saw it in steel, rail, and oil in the late nineteenth century. IBM tried to do something similar in the 1960s and 1970s with high-priced accessories to their mainframe computers.

    That was bad and has been partially mitigate by the arrival of Apple and the iPad. But the alternative was worse and Apple’s commitment to its iBookstore has yet to be demonstrated. (Remember what Steve Jobs said about ‘nobody reads any more.’) Apple has yet to produce a version of iBooks for Macs (much less PCs) and the iBooks app won’t run on older iPhones and iPod touches. Apple may not prove a good counter to Amazon’s 800-pound gorilla.

    Now, a new distortion is being introduced as the big online distributors attempt to distort the market in their favor by draconian rules that prohibit an author or publisher from selling a book for a lower price elsewhere, even when it makes perfect economic sense to do so.

    It’s not hard to see why authors and publishers might want to set different wholesale or retail prices for different retail distributors.

    * One format of ebook costs more to create than another. For example, Mobi books are only sold by Amazon and have to be created in special software. In contrast, ePub books can be created in a few minutes from the same InDesign file as the print version. Cheaper cost of production should mean a cheaper selling price.

    * One online distributor might be willing to spend money promoting a book and for that it deserves a lower price to recoup its expenses. And a popular author might want to reward his fan sites by giving them a better deal for all the promotional work they do.

    * The inclusion or non-inclusion of DRM by the distributor is a factor an author or publisher has a right to take into account.

    * This is the most important. Different distributors pay different percentages of the retail price to the author or publisher. Why should a distributor who only pays 50% of the retail price get an ebook with the same retail price as one who pays 70%?

    I could go on, but the real problem is that there’s a lack of effective middlemen who sell to any and all like there is in the print market. As a writer, I don’t care what Amazon is selling my ebooks for, but I do want to set the retail price and wholesale discount for myself.

    I also want to be free to give discounts in cases where it’s in my best interest or in the interest of something I believe in. It’s my book and I get more than a little ticked off when corporations (I’m looking at you Apple and Amazon) treat me as if I belong under their thumb, selling only under a nasty set of conditions they have set.

  7. I think one thing we have to keep in mind is this:

    Yes, cheaper production should result in a cheaper selling price. But let me qualify that by saying: ONLY MINIMALLY. Enough so that the author gets paid no less, and the publisher gets paid no more (or less). Keep it on an even playing field, the way it was when only print was around.

    Ultimately – what we are selling are IDEAS. The content itself. Regardless of the medium, there should still be a premium for content alone! We forget the amount of months, the amount of YEARS (Franzen’s Freedom, Hillenbrand’s Unbroken, etc) that authors put into their works.

    My father is an author and works tirelessly every day, into the night, harder than most people I know. I am making the possibly dangerous assumption that all authors work extremely hard, but I think it is true. Also, in defense of publishers vs. Amazon: publishers establish a much more personal relationship – a dining relationship, so to speak – with authors. A relationship I doubt Amazon will have the ability to recreate anytime soon with authors they’re slowly picking up.

    Also, to Michael’s point regarding DRM. Publishers themselves do not encrypt files with DRM, they leave that up to the distributors and retailers…their direct accounts. They (both publishers AND authors) would never choose to have their files non-DRM, or else why would they go through the ordeal of getting “published” in the first place? Because if you send out a non-DRM file into the internet, you will probably see that file move FAST, copied FAST, redistributed by the average reader FAST, and zero profit will be made. I would imagine the author would want some kind of compensation for the amount of work he put into his book.

    People make comparisons to music being digitally pirated all the time. I would wager that many bands are finding a decent – albeit insufficient – amount of profit from live shows. What do authors have?

  8. First, I have trouble believing Simon Lipskar’s clients want their readers to feel guilty for buying any version of their book. Such an attitude suggests that the reading public owes the author some specific recompense, when in fact all they really owe authors is respect for their intellectual property by not pirating their books. Authors, in turn, don’t owe their readers anything specific– not publishing on a schedule or writing a particular book or anything else.

    Second, and this is a total nit pick, but it’s actually “hoist WITH their own petards”, not “hoist BY their own petards.” A petard was a primitive sort of bomb that could not hoist anything, although it was often hoisted into the air in order to toss it over a city wall during a siege.

    Sorry. Pet peeve.

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