EBooks and Agencies

The big publishing news this week is the US Department of Justice bringing an anti-trust suit against the major book publishers and Apple for allegedly colluding to force the “agency model” of ebook pricing on Amazon and other retailers, resulting in higher prices for consumers. I already links dumped an article about the detailed charges, and three of the six companies involved have agreed to a settlement that will change the way their books get priced. A couple of the publishers, particularly Macmillan, whose nasty public spat with Amazon kicked this whole thing off, have decided to fight it, seeing the prices Amazon wanted to charge as having apocalyptic consequences for the industry.

I’m kind of torn about this whole business. On the one hand, I’m an author (buy my books! Quantum physics! Relativity!), and have gotten a significant amount of income from the publishing industry over the last several years. I’ve enjoyed the process of writing books and getting paid for it, and would like to continue to write books and get paid for it, so I have some interest in the publishing industry continuing as a viable entity. And having been through the writing and editing process twice now, I find a lot of the arguments that publishers don’t actually provide anything of value to be somewhere between disingenuous and insulting.

On the other hand, though, I’m also a consumer of ebooks, and one who definitely balks at some of the pricing that has come out of the agency model. While I understand that editors and publishers add a lot of value to books beyond just converting the files into a readable format, I still have a hard time with the idea of paying $17.99 for a 100kB digital file containing a new release book. And a lot of the arguments in favor of the agency model strike me as just as flawed as the arguments against it– a lot of publishing people were crowing about this SmashWords article showing their average ebook price has dropped since the shift to the agency model last week, but it strikes me as largely irrelevant to the main concern of the anti-agency argument. SmashWords is a self-publishing outfit, with their catalogue consisting of a mix of books by small-time authors who can’t or don’t want to have their books published by a traditional publisher and backlist titles from established authors who have retained or recovered electronic rights. This is a very different market segment, and I don’t think there’s much relationship between the pricing of those books and the pricing of new releases.

But then, that’s relatively easy for me to say, because I’m not depending on my book income to make the rent. If deeper discounts from Amazon make commercial publishing less profitable, well, I still have my day job, so I don’t have as much of a stake in this whole thing as a lot of other people.

Which is a long way of saying “Enh. I dunno.” I can see arguments for both sides, and none of them seem really conclusive. Which means this is ideal for a lazy “What do you think?” fishing-for-comments blog post…

(Make sure to keep a civil tone, though. I know that tempers run high on this issue, so choose your words carefully. I will not hesitate to delete or disemvowel comments that seem to me to cross the line between expressing an opinion and attacking people personally.)

Comments

  1. #1 Clay B
    April 12, 2012

    While I love getting cheaper e-books, I’m not quite sure if government intervention is needed here. Are they really selling a lot of $17.99 e-books?

  2. #2 SM
    April 12, 2012

    In terms of pricing, you might be interested in some essays by Charles Stross explaining why most authors and publishers can’t afford to make ebooks drastically cheaper than hardcopy. Summa summarum: the expensive thing in a novel is labour, not paper, and until you send it to the printer an ebook requires just as much labour as a hardcover. http://www.antipope.org/charlie/blog-static/2010/04/common-misconceptions-about-pu-1.html

  3. #3 Chad Orzel
    April 12, 2012

    While I love getting cheaper e-books, I’m not quite sure if government intervention is needed here. Are they really selling a lot of $17.99 e-books?

    There aren’t that many at $17.99, though some nonfiction books go that high. The more typical price point seems to be $13-14, at least from scanning the prices on the front page of Barnes and Noble’s web store. Which is considerably more than the $9.99 Amazon used to charge.

    (As an aside, does Amazon have a patent on the concept of a useful web-based retail store, or something? I thought the Sony Reader store experience was awful, but B&N’s web store isn’t a whole lot better. It’s next to impossible to browse– their “new releases” feature spots are limited to nine books per category, and they stay the same books for weeks at a time.)

    As to whether the government needs to be involved, I could go either way. If the publishers really did collude as blatantly as that complaint suggests, then they totally deserve to be smacked down. If the choice were between this and bringing the full weight of the law to bear on Wall Street, though, ebook prices wouldn’t be my first concern.

    In terms of pricing, you might be interested in some essays by Charles Stross explaining why most authors and publishers can’t afford to make ebooks drastically cheaper than hardcopy

    Yeah, and I’m sympathetic to that argument, to some degree, as I said above. Putting together a book takes the efforts of a number of trained professionals, who need to be compensated at a professional rate, and the price will ultimately reflect that.

    However, I’m pretty sure that, back when Amazon was selling books for $10 and people were bitching that that was too expensive, I saw other people go through a similar calculation that ended up showing $9.99 as an absolute floor on ebook prices. Which makes me suspect that you can construct a perfectly reasonable sounding argument for why book prices have to be whatever they happen to be at that particular moment.

  4. #4 Brian Ledford
    April 12, 2012

    I find it hard to compare ebooks and paper ones, costwise. In my case, my wife, a friend and I share a kindle account, which allows up to 6 copies (at least) of a book to be read on an account, so for certain books I’m getting effectively at least 3 simultaneous copies, more if you count phones and the like as well. so ebook = more copies = more cost. On the other hand, it does seem weird that the pricing structure that works so well for text in paperbooks is so impossible for ebooks. And it also seems like an agency model for paperbooks might have saved or at least helped independent bookstores. I can’t see agency pricing helping anyone beyond apple and B&N vs. Amazon and it’s not like any of them is particularly sympathetic.

  5. #5 Brian Ledford
    April 12, 2012

    I find it hard to compare ebooks and paper ones, costwise. In my case, my wife, a friend and I share a kindle account, which allows up to 6 copies (at least) of a book to be read on an account, so for certain books I’m getting effectively at least 3 simultaneous copies, more if you count phones and the like as well. so ebook = more copies = more cost. On the other hand, it does seem weird that the pricing structure that works so well for text in paperbooks is so impossible for ebooks. And it also seems like an agency model for paperbooks might have saved or at least helped independent bookstores. I can’t see agency pricing helping anyone beyond apple and B&N vs. Amazon and it’s not like any of them is particularly sympathetic.

  6. #6 Dale Sheldon-Hess
    April 12, 2012

    You might be interested in fellow writer/professor Clay Shirky’s take:

    http://blog.findings.com/post/20527246081/how-we-will-read-clay-shirky

    “Publishing is not evolving. Publishing is going away. Because the word “publishing” means a cadre of professionals who are taking on the incredible difficulty and complexity and expense of making something public. That’s not a job anymore. That’s a button. There’s a button that says “publish,” and when you press it, it’s done. …”

  7. #7 Eric Lund
    April 12, 2012

    As an aside, does Amazon have a patent on the concept of a useful web-based retail store, or something?

    They do, in fact, have a patent on one-click shopping. Per Wikipedia, the patent was issued in 1999. Some of the claims were rejected on re-examination, but many of the claims were upheld.

    That doesn’t fully explain why other retailers’ Web sites suck, but it does give Amazon a definite advantage.

  8. #8 Craig Moe
    April 12, 2012

    My idea of “fair e-book pricing” has always been that an e-book should be somewhat cheaper than the cheapest hard copy version available (After all, you are reducing some costs by going electronic). So yes, I can see it being reasonable to charge $17.99 for a new nonfiction book, if six months to a year from now it’s $9.99, and maybe $5.99 a year or so after that. Basically the same pricing strategy that worked for DVDs in their heyday.

    Of course, with the state of e-books in such a flux right now, I have no idea where things will actually end up. Ideally, the e-reader manufacturers wouldn’t be controlling the primary method of selling e-books, but I don’t see that changing anytime soon.

  9. #9 Jeff
    April 12, 2012

    Not that I think you have any agency in the process (pun intended), but the pricing of your first book is a classic example of jacked up ebook pricing.

    No real point, other than that the agency model has led to some crazy pricing schemes – almost as if they just forgot to lower the ebook price at some point in time. My way of thinking is in line with Craig’s above – physical copies of books should cost a touch more than ebooks, but not that much more, considering most of the cost of books is various forms of labor. I don’t know where that leaves us once paper books go the way of the dodo (stuffed and displayed on shelves, but never seen in the wild).

  10. #10 Sherri
    April 12, 2012

    My unhappiness with the agency model is not so much about price (though I’m not thrilled with the price) as it is about why the publishers put it in: to slow down the adoption of ebooks. Rather than innovate in a new form, the publishers tried to preserve their print business model. For example, it was completely obvious that electronic publication was friendlier to shorter forms, yet none of the publishers did anything about it, while Amazon set up the Kindle Singles program.

    I don’t think publishers are valueless, but I think they’re exhibiting a lot of stupidity, and I’m not particularly interested in propping up corporations that seem more interested in making it harder for me to read ebooks than making it better. They’re increasingly unfriendly to libraries, they cling to DRM, they overprice their books and on too many books, the price doesn’t drop even after the hardcover has been remaindered and the trade paper has disappeared off physical shelves (and the ebook price is higher than Amazon’s discounted paper price.)

    I’m all in favor of supporting writers; less in favor of supporting middlemen like these.

  11. #11 RM
    April 12, 2012

    The “they should cost the same, as the majority of the costs are labor” argument falls a little flat, not because of any technical fault to it, but due solely to psychology.

    It’s the converse of the wedding dress effect – a gown bought as a “wedding dress” is going to cost a heck of a lot more than a production-cost-equivalent dress sold for non-wedding events. People are willing to pay much more, not because it costs more to produce, but because you’re also getting the “weddingness” of the dress.

    For ebooks, it’s flipped. The ebook is less tangible than the hardcover – it’s lost some essential quality, so you feel that you *should* get it at a lower price than the hardcover, even though the costs to produce might be equivalent.

    Argue all you want about pricing with respect to marginal cost, but the Economics 101 point still remains – people will only pay what they think something is worth. If they don’t think an ebook is worth $17.99, they won’t buy it, even if it doesn’t make sense to the rationalist that the identical-production-cost hardcover sells well at $17.99. — Perhaps that just means ebooks aren’t as economically viable as hardcovers. (Where is it written that ebooks *have* to be successful?)

  12. #12 JM
    April 12, 2012

    For those who buy ebooks–

    Can an e-book owner re-sell it … as one can sell and buy a used book.

    And, can one lend or share an e-book… i.e. transfer one’s copy to another person’s e-reader

  13. #13 Pam
    April 12, 2012

    E-book pricing aside, if the facts of the DOJ’s case are correct, and Apple and the publishers did engage in illegal price-fixing, then in fact, YES THEY DESERVE TO BE PUNISHED FOR IT. The fact that most of the defenses of the publishing industry’s actions (or alleged actions) in this case totally ignore this fact really irks me. Especially since many of those defenses are coming from people who, in any other circumstances, would be lambasting big corporations for illegally conspiring to screw consumers over.

    On the topic of e-book pricing: At some point in the past, I had some sympathy for the publishing industry and the people working in it, but at this point, it has been expended. In the long run, however, I think it will be a self-correcting problem as new business models take form. In the meantime, there are more books for sale in electronic format than I have time to read, anyway, so I spend my money on ones that aren’t overpriced.

  14. #14 Ric Locke
    April 12, 2012

    The issue is canvassed all over the place. One good source is The Passive Voice, a blog by an IP lawyer with knowledge of publishing.

    Several commenters above have noted precisely what is going on: established businesses are trying to head off a major change in the way they will have to do business, and may very well have slid over the line into antitrust law violations in the attempt.

    The Sturm und Drang comes from the fact that the publishing business has gradually morphed from a service, bringing writers and readers together, into something resembling what some economists call “rent-seeking”. Since they controlled the only way a writer could reach his or her audience, they little by little started taking more out of the stream, then more, then more. At the same time they began exhibiting elitist and/or political bias, insisting that only books that fit a particular mold or philosophy could pass the gates. One-sided contracts and bizarre, opaque accounting schemes sucked more and more of the revenue stream into publishers’ coffers, without returning more value to either authors or readers. When it became possible to bypass all that, writers and readers leapt upon the ability — leaving the distinct possibility that publishers would no longer have access to the golden teat.

    We’re not talking buggy whips here. Publishing does, in fact, add real value. It does not have to be done on the “submit to New York” model, though. Editing is necessary; there are many people who do good work and offer their services outside the normal channels. The book must be designed, typography and layout and a hundred tiny issues, and again that service is on offer. Covers must be designed, and artists are eager to do so. An author can contract such of those services as he or she isn’t capable of performing (for whatever reason) for lump sums, rather than a percentage taken forever. The net return to authors can be much larger going that route, even though the price charged for the book is the same or less. If my (fiction) book were published traditionally it would be a $9 paperback, and I would get roughly $0.75 per copy sold. As a $2.99 Amazon ebook, I get $2 a copy; more copies are sold at the lower price, I get more money (yay!), and no publisher gets anything (Amazon isn’t a publisher, it’s a retailer).

    What that means is that the classic publishing route is only needed if the writer can’t afford to pay up-front expenses (very common) or simply doesn’t want the bother, and is willing to accept less return. The stubborn or impecunious can reach their audience without the help of a publisher or distributor. This will inevitably mean a smaller role for traditional publishing, and consequent less income for publishers. Naturally they resist.

    To the commenter puzzled by the B&N web site: it is a conscious attempt to precisely replicate the bookstore electronically. Publishers pay extra for promotion, the equivalent of end caps and the tables in front, and the books so favored are easy to reach. For everything else, dig through the stacks. Amazon aren’t so foolish.

    Regards,
    Ric

  15. #15 Craig Moe
    April 13, 2012

    My unhappiness with the agency model is not so much about price (though I’m not thrilled with the price) as it is about why the publishers put it in: to slow down the adoption of ebooks.

    I’m not sure that’s entirely fair to the publishers. By most accounts, Amazon was selling its $9.99 ebooks at a loss, both to hasten the adoption of the Kindle and lock in that price as the standard, so they could in the future negotiate rates with the publisher to get the books wholesale for less than that. If publishers truly believe they can’t exist selling books at that low of a price point, they’re going to fight and claw to come up with another way of pricing books.

    It’s worth noting that the DOJ settlement prevents Amazon from selling a publisher’s total catalog at a net loss, implying they were free to do so before.

  16. #16 Jim Cook
    April 13, 2012

    Publishers can adapt to reality, lower e-book prices, or they can go away. I rather reluctantly will pay $7 or $8 for a book in a series that I enjoy, Star Trek for example. Other wise there is a veritable flood of low priced e-book for $3 or less. Many authors are discovering the doing the first novel in a series as free is the best way to money.

    Admittedly this applies more to fiction. The selection of nonfiction title is less, the prices are higher in general, but the lower price for e-book verses paper books still applies in general.

    As to the specific case, did the publishers and Apple collude to set prices and a pricing policy just to try and put Amazon at a disadvantage, of course they did. Under the current law that is not allowed. This is nothing new to Apple which has always relied on strict policies of controlling prices and terms. No one is allowed to change Apples prices and everyone must pay them their “cut” for doing business. Not illegal, but that policy does prevent some people for doing business with them.

  17. #17 MRW
    April 13, 2012

    JM,

    Ebooks cannot be resold. *Some* can be lent, if the publisher allows, but then generally only once and only for a period of two weeks.

    I’ve been hearing that Amazon sells/sold ebooks below cost in order to sell more Kindles and that Amazon sells Kindles below cost to sell more ebooks. Something doesn’t add up there.

    My problem with prices on ebooks being close to those of paper books is that they simply aren’t worth as much. Yes, there is the convenience factor, and that adds value, but that’s only part of the total.
    1) I’ve found that ebooks, even from major publishers, are prone to fragmented words, repeated sentences, and typos at much higher rates than paper books.
    2) You can’t sell an ebook when you’re done with it.
    3) Many (most in my collection, last I checked) ebooks cannot be loaned, and those that can (on Amazon, at least) can only be loaned once and only for 14 days.
    4) Paper books are stand-alones. Everything required to use them is included. This is becoming less and less of an issue as readers become cheaper and other ways to read them become more common (although I still dislike reading ebooks on my iPad or computer).
    On top of all of that, some of the cost of a paper book really is printing, binding, storing, and distributing it.

    When I can be confident that the ebook I buy has proofing as good as the hardcopy, and when I can transfer the book to someone else, then I’ll be willing to pay the same for it as a paper book.

  18. #18 pjcamp
    April 14, 2012

    OK, I hate to point this out since you seem to be a smart guy, but discounting the retail price has NO EFFECT ON THE WHOLESALE PRICE AT ALL! So it is simply not possible for Amazon to damage the publishing industry in any way whatsoever so long as they continue to charge wholesale prices commensurate with what they were (profitably) charging before the advent of eBooks.

    It is, however, possible for Amazon to damage the publishers’ desire to experience the same radical margin increase that the music industry experienced with the advent of CDs over LPs. Amazon’s corporate needs do, after all, meet those of the publishing industry at an angle.

    But please don’t say that the publishers have been damaged. Being exactly where you were before is not damage.

  19. #19 JM
    April 14, 2012

    MRW- Thanks for answering my questions. And, your POV is basically why I asked about re-selling & lending.

    As for your comment about Amazon and the Kindle Fire– I think Amazon and its Kindle Fire are to this turn-of-the-century what Sears and its catalog were to the turn-of-the-century, a century ago. The Fire is a direct link to products sold on Amazon; just as one used the Sears mail order catalog to buy Sears products.*

    I doubt the intent behind the Fire was just to buy e-books. I would not be surprised to learn that if one were reading a magazine on the Fire, became enticed by an advertisement, and clicked on its link, one would end up at Amazon’s website.

    *As an aside, Sears retail stores came decades after their mail order business began. How will on-line shopping ultimately affect retail stores and shopping malls?

  20. #20 Kaleberg
    April 17, 2012

    My understanding is that Amazon is willing to pay the publisher whatever the publisher demands, but to have the right to sell the book at whatever price they want. If they want the book to be a loss leader, that is not at the expense of the publisher or author. In fact, a low price might mean more sales and more money.

    Book selling used to have an agency model with a strictly enforced “suggested” retail price until an anti-trust settlement in the 1960s. In France, books are still sold that way and the list price is enforced by law. It appears that the publishers see ebooks as a way of bringing back the old pre-antitrust decision pricing model, and the DOJ is not all that keen on it.

    Unless Amazon is setting the prices that the publishers receive rather than just the prices that consumers pay, then the issue isn’t about money, it is about price fixing. The publishing industry, like the movie and music industries, seems to be more concerned with controlling the market than with making money.