The ebook-related interwebs are buzzing with news that Mark Coker and his Smashwords ebook-publishing site is adopting the anti-competitive, price-fixing “agency model” favoured by publishing monoliths everywhere.
He wrote a long and detailed missive on the Smashwords blog the other day, justifying the move, and if we didn’t know any better, after reading it you’d say his explanation makes sense. But of course he can justify the move. In practice, when buying directly from individual amateur authors, it won’t make much difference. They set their own prices then and now, and would see “discounting” rarely, and on tiny turnover it wouldn’t have a huge effect.
But this is about the higher-turnover “name author” sales through third parties such as Kobo, Sony, B&N.
You can argue back and forth until the cows come home as to whether “agency” is better than “wholesale” retailing (the old publishing paradigm), by how much and for whom. But in my view it boils down to a few salient points:
Any reduction of competition (especially in a retail tool as powerful as price) in any industry is a bad thing. Countries have whole organisations attempting to maintain and extend competition. In Australia it’s called the ACCC, in the US it’s the FTC. Q: What happened to the free market? Why is price-fixing OK now? A: it’s not. And we know the publishing industry knows it’s not because they’ve called it the “agency” model, rather than the “price-fixing model”.
Arguing that the old publishing model was broken (all the power in publishers’ hands, low returns for authors, waste, inefficiency) is fine, but replacing it with a model in which all the power is in publisher’s hands and returns to authors are slightly better is not a fix.
Decrying the fact that the big bad retailers were able to discount a poor author’s books, reducing their cash return, ignores the fact that the whole point of discounting is to increase sales, and therefore the return to the author. Price down, sales usually up. Americans are fond of calling it the “free market”. Ironic that this all started in New York.
Coker has argued that, hey – price isn’t the only retail tool out there, don’t get hung up on price – we can still compete on service and … um. Give me a break. You’re selling electronic goods that are delivered automatically from a website. Please. The decision is made on price for the vast majority of consumers. Don’t insult our intelligence, Mark.
I was interested to see a comment by Coker on Teleread … Coker: “Jim, I hear what you’re saying about these big books by big authors. I tend to take a long view of some of these things. In the end, market forces and readers will decide the outcome.” Hard to see how consumers can effectively wield their consumer power in a price-fixed market.
Strange that during Coker’s long justification blog post he doesn’t refer to the effect on the price that readers will pay for ebooks, except to say that Smashwords prices are low. That may be true, but from bitter experience we consumers have seen that the agency model forces ebook prices higher. (No, save you isolated examples. It just does.) So we buy less. What have the authors (or publishers, for that matter) gained then?
In his blog post, Mark himself makes the best argument against the agency model, “Previously, most Smashwords authors and publishers didn’t care that their books were discounted, because the discounting only helped sell more ebooks, which benefited authors, publishers and readers.” Yeah. Too bad they can’t do that now.
Finally, Mark, goes on to say “Every once in a while I’ll see people suggest authors should only sell their ebooks direct on their own websites, as if all intermediaries between the author and the reader are to be excised. Those folks are smoking opium.”
Well, Coker, in justifying price-fixing, you clearly are a toker.
Editor’s note: Jason Davis is an Australian journalist and also runs the Bookbee, EbookAnt and AuthorDirect ebook websites. PB
Ahh, the power of Amazon strikes again. Just makes me want to rush out and buy a holiday gift for Bezos. Go ahead and bash me all you want, but just as we saw a rise in pricing in titles from the Agency 5, so we shall see a rise in pricing in indie titles because eventually Amazon will demand it.
I don’t know when it will occur, but someday in the not to distant future, Bezos will realize that low-priced indie books, especially free ones, are hurting his bottom line and he will impose a new contract clause setting a minimum price at which ebooks can be sold on Amazon. And all the sheep will follow, and all the Amazon supporters will praise the wisdom of Bezos and tell me yet again how good it is to support Amazon’s monopolistic tendencies.
Richard, Amazon already does impose strong pressure on indies to keep the price above $2.99. (you only get 35% for prices below 2.99 or over 9.99). So in fact, 2.99 is the minimum price for most books.
Now Amazon has a lot of market share in ebooks, but it has a seriously defective ebook format with limited layout and design options.
It wouldn’t kill me to avoid offering titles on Amazon and instead do it through B&N or Lulu. If people want to get it for Kindle, I would gladly provide information about how they can convert it into mobipocket using Calibre. Amazon now has the leverage, but I find it hard to believe that owners of no-name ebook readers or tablets would want to go to amazon to get the ebook in a specialized proprietary format.
For those of us who don’t have a major platform to bring in readers, which pretty well describes most Smashword authors, most of our books are handsells through our own promotion efforts off and online.
It’s really rough to discover all those books you’ve sold through hours of work have been drastically discounted to the point of insult without your or your publisher’s permission.
I’m not a Smashwords author, but I know that I decided my promotion time was better spent elsewhere when I discovered that my 140,000 word bestseller-for-me had been reduced to under $2 from an already reasonable price by the Kindle bookstore.
And, no, the lower price didn’t sell more books since my book is one of many lost in Kindle’s backlist. Only readers who know of its existence buy it.
To see if it had better placement in their lists by being cheaper, I narrowed downed their list of books by genre and subgenre and lowest price and began to try to find my book. After 30 pages, I got tired and gave up so I knew my book would never be found by those browsing for bargains.
Also, my publisher was finally able to get Kindle/Amazon to bring up the price of my book to what is was, and my sales figures improved since I went back to promoting it.
The other authors with my publisher who had also seen a major reduction in price and then a return to a normal price got the same results so my books weren’t an anomaly.
It reads as if you decided to stop promoting because the price was lowered, and you started promoting again when the higher price was restored. If so, I don’t think you can compare total sales when the marketing support is altered as a result.
With e-books, whose marginal cost approaches zero, the goal is maximize total revenue. It may upset you to have a book you’re written selling for $1,99, but if you sell 10,000 copies at $1.99 and only 1,000 copies at $7.99, you’re $12,000 better off. You’d also have 9,000 more readers who could become fans.
Of course, you have to promote the book in either scenario.
Keep in mind what Smashwords has actually done. The online ebook stores with which Smashwords worked out this agreement were paying percentages of the price that they chose to sell the book, not the fixed wholesale price you find in traditional, non-agency pricing. If you were a writer and they chose to heavily discount your book, your royalty went down very quickly.
Put in actual numbers, that meant that if Sony priced the (still cheap) $3 book you had spent three long years writing at 99 cents, you got about 42 cents (42.5% royalties) rather than $1.26 you had planned when you set the retail price. There was nothing you could do about that but gripe.
Now, under the new Smashwords contract, if you set a $3 price, you’ll get not only a royalty based on the price you set rather than the selling price, you get even more. Rather than 42.5% of that retail price, you now get 60%. Before, Sony might pay you 42 cents per copy (42.5% of 99 cents). Now they are now paying you $1.80 (60% of $3), over four times as much. The author is now in control of what he is paid and not the online store.
Those who want to get books free or very cheap may complain about this, claiming that the “agency model” is some great evil. But they’re forgetting that authors have to eat and put shoes on their kids. This new contract will be a big benefit for them and it’s why Mark Croker said it was time for writers to celebrate. And keep in mind that, if you like to read, you should want authors to be adequately compensated. The time your favorite writer has to spend making lattes at Starbucks is time he can’t spend writing his next book.
I also think that the wrong parties are being demonized. The agency model as it was used by large publishers against Amazon was to keep Amazon from using its deep financial pockets to destroy competitors by selling below cost, after which it would dictate fairly high prices but low royalties. It’s classic monopolist behavior.
This new Smashwords contract is a successful effort by writers to set up something approximating a wholesale price model for ebooks. When an author’s book sells, he gets a fixed amount of money, not what Kobo, B&N, and Sony have decided to pay him.
My own suspicion is that most authors are not that taken with the agency model’s fixed retail price. If an online bookstore wanted to sell their books at 99 cents but pay them $1.49 per copy, they wouldn’t complain. It’s the online stores that benefit from fixing the selling price once the price they have to pay is set as a fixed percentage of retail price. They’re the ones who benefit from the fact that competitors can’t undercut their price or sell below cost.
Finally, remember, most of these companies don’t have Amazon’s deep pockets or its urge to dominate and control. They simply want to have a large selection of ebooks and make a modest profit on each. If Apple can make a profit on 30% of a fixed retail price, they can make a profit on 40%.
I love the wholesale model. I’m fine with sellers discounting my books–as long as they pay the full wholesale price. The problem comes when they discount and only pay on their net. The problem gets worse when Amazon looks at those discounted prices and says they won’t pay full royalties on those books either. So, in effect, you have two choices–either to stop dealing with retailers who discount (which doesn’t help price competition) or to find some way to avoid this (and so far that way is the agency model). I’d prefer a simple model of us setting our MSRP and basing wholesale payments on that with retailers discounting but that isn’t the option we have.
Rob Preece
Publisher
What my numbers prove is that a vast majority, if not all, of my sales are made because I hand sell it to the reader who looks for and buys it specifically.
My sales disappeared when I stopped promoting the book.
Price had absolutely nothing to do with sales numbers.
I meant to add that my books were too cheap to promote for almost a year, they have been available for years, and it’s been about six months since they returned to a reasonable and promotable price so the numbers aren’t one-time flukes.
About fifty other authors with this publisher had the same problem with incredibly cheap backlist, and they saw no improvement in sales at the cheaper price whether they promoted or not.
In other words, cheap may improve sales but only if the consumer can find it while browsing, and a vast majority of backlist books are about impossible to find while browsing.
I have to step in and defend Mark Coker and Smashwords here. They only did this because many of their authors (including me) complained to them, not as some anti-competitive practice.
The irony is that, this move to agency model was necessitated by AMAZON’S decision to include terms in their 70% royalty contract allowing them to discount prices to match any lower price they found online, and pay royalties based on that discounted price.
The problem is, B&N might decide to discount a book by 10%, or Sony by 20% — my Sony sales are a microscopic fraction of my Amazon sales, well under 1%, yet now SONY gets to control my pricing at Amazon? Sony doesn’t know anything about my Amazon sales, or how they’re affected by price. And now a $2.99 book is $2.39 or whatever. But there’s a reason why everything is priced at $X.99 — $2.39 looks the same as $2.99 to most purchasers. I found — as did many other authors — that we sold the same number (or even fewer) books at the lower prices, which just means we got a 20% pay cut because Sony decided to have a sale. When most indie authors aren’t even making minimum wage or anything approaching a living to begin with, losing 20% hurts.
At one point, Amazon pulled my books from sale because I updated the price to $2.99 on Amazon and they were still $0.99 through other retailers, who take longer to update prices. So I lost over a week’s worth of sales and royalties and sales rank — Amazon called it a “glitch” and offered only an apology.
I’d love the wholesale system where the retailer pays me a set price and then they can discount my books all they want. But that’s not how the system works now, due to Amazon’s price-matching.
Coker: “…In the end, market forces and readers will decide the outcome.” Hard to see how consumers can effectively wield their consumer power in a price-fixed market.
— This is how consumers can/will “effectively wield their consumer power in a price-fixed market”: When the product is a digital file that is (essentially) exactly the same no matter where you get it from, and when you fix prices & eliminate the possibility of a “free market” with various retailers competing on price (every retailer has to charge the exact same price for the exact same digital file), then only one form of “market forces” is left: The ‘black’ market, aka piracy.
The natural tendency of “free enterprise” is concentration and monopoly. Competition only enters the picture either on the small-scale or as the result of government intervention, in which case it is merely cosmetic and short-lived. It was the natural tendency of “free enterprise” which wiped out the world of independent bookstores, beginning with Crown Books in the 1980’s and continuing through Border’s, Barnes and Noble, and, in the end, Amazon. It was the tendency of “free enterprise” which, even before then, wiped out the world of independent book publishers, resulting in the vertical integration of book/products within the cultural dominance of corporate America.
“Agency” pricing, or “price-fixing” as you call it, is no surprise and no great tragedy. For Smashwords authors, insignificant as we are in the overall scheme of things (and yes, I am a Smashwords and Feedbooks author, and I give away my books for free, except through Amazon, which won’t let me), it at least guarantees that they will get the price they set themselves – a minimum of control at best.
Whether the price of ebooks rises or falls as a result of this non-competitive market is, and always was, entirely in the control of the major players in the publishing industry, and the deals they work out amongst themselves. To pretend it could be otherwise is really putting the blinders on, and ignoring the big bad world and the way it works. Who sets the price of oil? Who sets the prices of stocks? Only those who have the controlling influence – who dominate the industries – really have any say in these matters. The rest of us – workers, consumers, authors, publishers, distributors and so on – have to get along as best we can.
Personally, I’m not worried about the future of books in any form. There’s no shortage now, and there never will be. It’s like worrying about the future of music. It’s going to be there.
David and Robb,
The method you want is what was in place before the Agency pricing at least for large publishers. The publishers set the msrp and Amazon gave them the guaranteed 50% or so of that publisher-set price. Then Amazon sold the books for whatever would work well for sales depending on all the stats they have and using enticing more-general discounting, which they can’t now.
That gave the publishers more, which they admit, but they have said often that the idea is to take back ‘control’ so that a (paper) book is not ‘devalued’ by the lower e-book pricing.
I saw, on forums, that the authors (sometimes sent by the publishers) did not know how the traditional wholesaler arrangement worked between Amazon and publishers. Others and I have laid out the numbers and how the former situation benefited authors more by guaranteeing the publishers (and therefore authors) more while Amazon took a loss on the most popular books but adjusted with older books and of course that was subject to what other stores were charging. While a good business strategy for Amazon, it scared publishers that Amazon would have too much power.
This new plan is about slowing e-book sales in favor (it’s hoped) of paper sales and to keep as much control as possible with the publishers in the new digital age. Figures for the first 9 months indicate this approach isn’t working that well for larger publishers.
The theory has been that if Amazon has too much power, then they are free to raise prices later whenver they want . Never mind the large publishers had guarantees all along.
The ‘solution’ for Big5 or Agency publishers then has been to force Amazon to raise prices NOW rather than later.
Since customers already are blaming Amazon for the higher prices (see the forums — new Kindle owners always assume Amazon chooses these prices), and because Apple’s requirement was that no other online stores be given lower selling prices, Amazon was forced to follow that higher-pricing model to keep those publishers. Is it any wonder that Amazon insists on language that says if another online store IS permitted to sell at a lower price then they are too?
The Agency model is what allows the pricing to be fixed at a higher level so that no online stores that have contracts with the Big5 (encouraged by Apple and using that leverage) are allowed to sell at lower prices.
Random House, the largest publisher of this kind, chose not to go along with the Agency plan and therefore their books are not allowed in Apple’s iBook store.
In other words, the “Buy” button and books don’t exist at the iBook store for Random House.
Had Amazon done this, I’m sure the NYTimes would have been up in arms about Amazon wielding their power in a horrendous way.
According to a recent report, though, RH did well the first 9 months of this year while other large publishers saw losses in sales growth of paper books.
There are no angels – not the publishers, not Amazon. But there are heads in the sand.
Andrys, I am well aware of everything you say; in fact, I devote a fair amount of time to researching that info and disseminating it on my blog, for example:
http://www.davidderrico.com/cost-breakdowns-e-books-vs-printed-books/
As Tom points out, small fish like me can only go along with the flow — it’s not our choices that are raising e-book prices above $9.99. In fact, I price my books between $0.99 and $2.99. And I’m not a fan of the agency model imposed on Amazon by the Big 5 — I blogged about that as well — but under the current circumstances and Amazon’s current terms, when other retailers discounted my books, it cost me money. As you point out, the retail model used before the inception of the agency model in April allowed retailers to discount to their hearts’ content, and I for one used to welcome any such discounting, I never cried about “maintaining the value of e-books” as an excuse to jack up prices. But Amazon’s current terms to indie authors is a hybrid worst-of-both-worlds: Amazon can discount (even worse, Sony or some other minor retailer can decide to discount and Amazon will match), and my royalties get reduced. The decision is taken out of my hands (which is fine under the retail model, since I get paid the same anyway), but the ramifications are passed on to me.
The new Smashwords system is better. Many authors were pulling their books entirely from Smashwords’ retailers, to avoid losing Amazon royalties. If my research tells me that my books sell better or net more income at $1.99 or $2.99 or whatever on Amazon, I need to act on that info, not have the decision taken out of my hands and the book end up at $2.84 or $2.39 or whatever random number Sony decides that day.