Nathan Bransford, Author

Thursday, March 15, 2012

Why the DOJ's Potential Lawsuit Over the Agency Model is a Really Big Deal

It's difficult to overstate how big of a deal it is to bookselling culture that the Department of Justice is reportedly planning to sue five publishers and Apple for colluding over e-book prices*.

In order to understand why this is a big deal, here's a brief recap of what led us here (this summary is described in greater detail in my post Why Some E-Books Cost More Than the Hardcover).

Wholesale vs. Agency

At the time Amazon kicked off the modern e-book market with the introduction of the Kindle, e-books were sold according to the traditional wholesale model. Essentially, publishers set a cover price and they got half, the bookseller got half. If a book was listed at $25, publishers got $12.50 on an e-book sale, the bookseller got $12.50.

Problem was from publishers' perspective, Amazon was selling some e-books at $9.99 and taking a loss on those sales, all the while locking readers into their proprietary format. Not only did this devalue what consumers felt a book "should" cost, publishers were worried that competitors wouldn't be able to enter the e-book space because they wouldn't be able to compete with Amazon's prices. No competitors would mean a virtual monopoly for Amazon, and publishers were presumably concerned about Amazon's ability to then dictate terms.

Along comes Apple and the iPad. Steve Jobs talked the publishers into the agency model - publishers set their own prices and they get 70% of the proceeds.

The irony is that the agency model actually meant publishers received less money per copy sold. Napkin math for wholesale: $25 cover price, they got $12.50. Agency: Price that e-book at $14.99 and they get $10.50.

Publishers then turned around and imposed that agency deal on Amazon, which is the subject of the DOJ investigation. The end result: There really is more competition in the e-book world, but prices are higher than they likely would be if Amazon and others were able to discount as they saw fit.

Competing on Price

I don't presume to know what the end result of the current discussions will be and it appears that there are a range of possible outcomes. But if it ends up meaning the end of the agency model this will have massive, massive repercussions across the book business.

Up until now, conscious or not, consumers have grown accustomed to the idea that e-books cost what they cost. The decision of what e-reader to buy or which app to read on has largely been driven by user experience preferences.

Do you like the feel of the nook? The ease of the Kindle app? The pretty iBooks page animation? Those are the decisions people have been basing their decisions on - the reading and buying experience.

But if the agency model is dismantled in whole or in part and Amazon and others can go back to pricing as they see fit, suddenly price is going to be at the forefront of consumer choice.

It doesn't take a genius to see that Amazon and their deep pockets are going to have a big advantage in that environment.

Who wins?

The irony of returning to the wholesale model is that publishers may actually make more money per e-book copy sold even as prices go down for consumers.

This sounds like a win win for publishers, but it ignores the big losers: traditional bookstores, who will be even less able to compete with cheaper e-books. Publishers are not eager to lose those outlets and will be forced to wind down huge print operations as print continues its (inevitable in my opinion) decline. Print won't go away entirely, but it will be a tough transition for publishers, which is why they may have tried to slow down e-books with higher prices.

This is the point that author and Authors' Guild president Scott Turow made in a recent post:
Given the chance, any rational publisher would have leapt at Apple’s offer and clung to it like a life raft. Amazon was using e-book discounting to destroy bookselling, making it uneconomic for physical bookstores to keep their doors open. 
That said, it's also worth considering author Barry Eisler's rejoinder to Turow:
Maybe Scott would also argue that Apple is destroying computer-selling by selling so many computers, but logically, it’s pretty hard to see how someone could destroy bookselling by selling tons of books. 
What about authors? Well, if agency goes away, in the short term they may make more per copy along with publishers since most e-book royalties are based on the publishers' net. But in the long term they'll also have to contend with an inevitably shrinking pie. And as Mike Shatzkin points out, self-publishers who have banked on getting attention through low prices won't stand out as much if all prices are low.

So who wins?

In my opinion: Readers. Yes, there are dangers to publishers, which may result in collateral damage to authors. There are certainly dangers to non-deep-pocketed e-booksellers. It would be chaotic to say the least to have lots of different e-book prices and to have to contend with different formats and standards and try to decide where you're going to buy your e-books.

But if the agency model is dismantled, e-books are getting cheaper and the book market will steadily get more efficient.

More books for less money?

As a reader: sign me up.

*Disclaimer: I am an employee of CNET, which is owned by CBS, which is the parent company of Simon & Schuster, which is one of the companies named by the DOJ. I have no direct connection to Simon & Schuster or any knowledge of its operations. The opinions expressed herein are entirely my own and do not necessarily reflect the views of CBS or anyone else for that matter.


Mr. D said...

It's OK with me if Readers are the winners. After all, we want them to keep on reading!

Alexa O said...

I so appreciate being educated on how all of this works by this post and your previous one about the agency model.

I also think the decline of print is inevitable, and while it makes me sad in some ways (who doesn't love an indy bookstore?), I'm optimistic that the benefits of ebooks (esp to the environment) will make up for the loss of print.

One of the things that's been fun for me about ebooks (and, I admit, Amazon in particular) is the rise of the self-pubbed author.

Don't get me wrong, I still LOVE traditional publishing. There's no doubt there are many, many advantages to it, for the reader and the author. But I also love that someone can write a book--especially one with a niche market--get it out there, and make some money.

Any ideas on how this decision will impact self-pubs?

Bob said...

I prefer Publishers stick with their Agency pricing because, as Mike Shatzkin notes, as an indie author it gives me great leverage to price my eBooks between $2.99 and $4.99.

The reality is, print will continue to shrink and Turow does not represent the majority of authors, but rather those privileged few that are treated like royalty by publishers. That is why the term "authors guild" is an oxymoron. The Authors Guild no more looks out for the majority of authors than publishers do.

Matthew MacNish said...

I knew we could count on you.

Personally, I think good books are worth more than what they often cost (as e-books) right now. For example, I would always be willing to pay more for a good book than I would for the price of admission to a good movie.

The trouble is, how do you know for sure if a book is good before you pay? That's part of why the 0.99 and 2.99s are so tempting.

Anonymous said...

Let this retarded agency model die. Readers pay more. Writers make less. And publishers get to gloat over messing with Amazon's pricing. Cut the agency model's head freakin' head off.

Yesterday, I went looking for a Neal Stephenson book to buy for my Kindle. They were all priced way too high, around $10 a book.

Tomorrow, I'm going to a used book store to buy one of his books. I really have a hard time spending $10 on an eBook.

Thomas Pluck said...

They've colluded for decades. They seem to think they can fix prices, royalty percentages and all be HQ'd in one town and somehow it's not collusion.
I don't mind paying $9.99 for an e-book, when it rises above that, it begins to chafe. I can lend a book. I can donate it to my library, or sell it at a used bookstore. When I buy an e-book I am licensing the content and due to DRM and I can rarely lend it. And the majority of books will be read once. So the e-book, in exchange for convenience, gives you less than a physical book. It should be priced lower than a physical book.

The mass market paperback is being phased out so they can charge $12-18 vs. $8-10, when the books (according to a friend who works for Macmillan) cost the same to make, whether it is hardcover, trade or mass paper. There is a cost savings with e-books, even though they do cost money to properly design. This should be reflected in the price.

I want the big publishers to survive and thrive. To do that, they will have to enter the 20th century, maybe the 21st. They are fighting change tooth and nail.

Example- I'd buy more hardcovers if I got an unlock code for the e-book with it. Even if it had DRM. (As long as it's not that Adobe Digital Editions crap, and I can read it on my e-reader.) That's one easy way to get me to pay $15-30 for a book, publishers.

Vinyl records often come with a CD or a link to a free digital download. Wise up.

Peter Dudley said...

This may be the first post where someone has claimed that readers will be the winners. Most arguments for or against [agency model|self publishing|Amazon|etc] start off with, "Who's going to suffer? Readers!" No one ever really explains how readers will suffer, beyond vague claims of decrease in product quality.

Regardless, from what little I understand of how publishers pushed the "agency model" on Amazon, it's essentially price fixing. Which, as I understand it, is illegal.

I think I agree with most of your analysis and conclusions. It seems we both believe that, ultimately, innovation-friendly markets lead to better consumer experience.

Kerry Gans said...

I think my biggest worry is the future for authors. If authors make less and less per book, at what point do we start losing authors who decide that spending years on a book, only to receive pennies on every sale, is no longer worth the effort?

Certianly, most authors already have a day job as well as write. I don't see this changing as the prices fall. Falling ebook prices will also favor those authors who have the time, money, and talent to be tremendous marketers.

I worry that economic pressure will push those authors who today are midlist authors but not natural marketers out of the market altogether, leaving us with the powerhouse marketers/authors and those publishing for "fun" who don't really care how much money they make.

Susan said...

I guess I'm in the minority as someone who is deeply concerned about the potential monopoly developing with Amazon, and who thinks that consumers - and readers - should define "choice" as more than just "cheap." What is going on now is a truly disturbing consolidation of power in our literary culture, and I'm disappointed at how many in the tech press seem to think this is no big deal.

Beth said...

Well, I never accepted an e-book should cost more than a paperback. They cost the publisher less, I cant get them signed, & I cant donate them when Im done. I wont pay more than $10

Doug said...

Competition is not the same as low prices. And tactics aren't the same as strategy.

Using low prices as a tactic in order to destroy competition is a powerful strategy. Do we really want to have Amazon be the only e-publisher and the only e-bookseller? What do you think will happen to prices once that happens?

For the traditionally-published mid-list writer, Amazon's "$9.99 bestseller" pricing was a big problem. Who's going to buy a $15.99 e-book written by a relative unknown when they can pick up a Big Name bestseller for $9.99?

There are way more aspects to this issue than "publishers raising prices". And there is, of course, no solution that optimizes everything.

Mira said...
This comment has been removed by the author.
Kelly Barnes said...

I don't usually say this when the DOAnything has to get involved, but -- Yaay.

Yaay because if the media does its job, Publishers and Booksellers both, will have to respond to other matters of the public's confusion and dissatisfaction.

If and when (closer to the latter) I buy a reader, I want to be able to shop any bookseller -- there's a lawsuit I'd like to see.

Mira said...
This comment has been removed by the author.
LK Hunsaker said...

I'm not for anything that helps Amazon with its monopoly attempt, but I'm also not for big companies price fixing. I'm for free market and consumer choice.

As an indie author, I'm a bit concerned about price lowering for the 'big' guys that could make indies less competitive. On the other hand, if they price lower, it makes us look more on the same scale when we price low. There's a little chip in the human brain that says cheap equals lower quality, so indies who price so cheap are saying they aren't worth as much. Often that's true. From what I've seen, too often it's true.

If indies want to be competitive, they should worry more about book quality and less about pricing cheap.

Amazon is the Walmart of stores. *shrug* Many people will go there for cheap while others will go elsewhere for appeal. We don't all have kindles, or want one. We don't all have iPads and such that can use a kindle app. That means we buy elsewhere. (I only buy ebooks I can put on my Sony Reader, and I will not spend $10 on an ebook that I can wait and get in paperback for $7-8 or less. I sure won't pay $15 or more!) Those booksellers who want to compete will open their formats to make it easier for readers to read their ebooks on whatever they please. That's their advantage. They need to grab it.

Carmen Webster Buxton said...

Just one point about the "deep pockets" comment. The player in this game with the deepest pockets is not Amazon; it's Apple.

Kristi Lea said...

I predict that any change to the current pricing mess will ultimately drive technical innovation in the publishing industry. Not necessarily innovation for the end-user, but innovation on the back end.

The reason I suspect that print publishers are clinging to their current business models that support print publishing is that they have no (or little, or insufficient) back-end infrastructure to support ebooks. Servers, system administrators, software to support the b-to-b needs (distribution, etc), technical support staff. I think the reason why Amazon scares publishers is because they already have much of this in place.

Granted, I'm a software engineer who has worked for 15 years (gulp) in engineering and IT, designing and configuring this kind of thing for other industries. When I started writing fiction and learning about publishing, I was horrified to hear that many editors want paper printouts of manuscripts (sometimes in Courier font). That edits are sometimes done by hand. In ink. That you should "never" use italics in a manuscript because a typesetter (presumably a human typesetter) can easily miss them.

The business process changes needed are huge, and probably cost a lot at the outset. For a start-up digitial-first publishing "company" of just a couple of people, its not a big deal. For a corporation of hundreds (maybe thousands) of employees and existing processes and business culture, its massive.

I sympathize with the publishers, although I don't agree with their choices the past few years. In the end I think the winners will be the ones who embrace change, not the ones who fight it.

Kristin Laughtin said...

Thank you for providing a description of the process that's easy to understand for those of us not versed in legalese. I'm also pleased (I guess?) to see somebody agree with my thoughts that readers would probably benefit, at least price-wise. Given my interest in publishing, though, I'm not sure how worth it this will be overall. It'll be interesting to see what happens. It's something of a scary time to be a writer, but every era is filled with its uncertainties.

JDuncan said...

I posted about this on my blog, but it deserves comment wherever I see it.

I believe the loss of agency model will have some serious effects, spoken of already. Readers and Amazon are the only winners here. Authors across the spectrum will lose to varying degrees. Publishers will lose. Bookstores will lose.

No matter the winner, I have a difficult time supporting anything that benefits Amazon's predatory pricing practices. More annoyed the DoJ isn't going after them as well, because beefing up Amazon's ability undercut every bookseller out there is the last thing we really need to be doing. This isn't free market competition, it's a financial behemoth using it's massive resources to destroy competition.

And my biggest issue with this is that Amazon doesn't give one iota about books, whereas booksellers do. Amazon is not in the business of selling story. Amazing literature or total crap, it's all the same to them. Books are a meaningless widget to them, a sale item to get the consumer in the door. It's a gateway product, meant to entice you in to buy other things. I imagine they could discount books down to zero and still come out ahead due to the money spent by consumers drawn in through books.

I read books, and I like to spend as little as I have to, but I'm also an author, and seeing my work, the hours upon hours work, pouring my creativity into a story get turned into a meaningless item to wave at consumers, really, really bothers me.

Don't get me wrong. I want as many people to read my stories as possible. I like having people read them. It's very satisfying to know that my work is appreciated, that I can bring a few hours entertainment to several thousand readers. But I don't want to do it at the expense of the art of storytelling. Art is far to significant a cultural element to be relegated to the bargain bin at the dollar store. It's worth more than the cup of coffee bought to sip on while reading it.

So, regardless of who benefits or what those benefits might end up being, these economic forces that are driving book values toward zero are just wrong.

Doug said...

I nominate JDuncan for Comment of the Week.

"Art is far to[o] significant a cultural element to be relegated to the bargain bin at the dollar store. It's worth more than the cup of coffee bought to sip on while reading it."

Mira said...

Doug, I like Jim and think he's smart, but I think both of you may be misunderstanding something here about authors and money.

Let me give it a shot.

First, Amazon pricing something at 9.99 is not giving it away for free, and that's what Amazon was doing prior to the agency model.

Second, self-publishers are the ones pricing their books for free or at a dollar cost. Most do this temporarily as a marketing tactic. In addition, more money is made this way due to Volume of units sold. The concept behind lowering the price of books is to sell more and therefore make more. For example, Amanda Hocking sold her book for about a buck, sold a million of them, and made a million (details not accurate, but close enough).

Also, in terms of predatory pricing, Apple is well able to compete with Amazon and lower their prices as well. They will, if the agency model is over-turned.

In terms of bookstores, I agree with Nathan in the post, the decline of print is inevitable. It has nothing to do with Amazon or Apple, and everything to do with the e-reader itself.

Finally, if you are interested in making money as an author, it is really important to examine royalty rates. Legacy publishers lock in e-book royalty rates at 17% whereas Amazon offers royalty rates at 70%.

I don't know if legacy publishers really care about books or not. I also don't know if Amazon cares about books or not - just because they price them lower doesn't mean they disdain them. I think these are assumptions.

Although if you do use price as a measure of caring, I think it's safe to say that legacy publishers, with their outrageously low royalty rates, couldn't give a fig about the authors on their list, with the small exception of best-selling authors like Turow.

Maya said...

Currently, choice is also influenced heavily by price, not necessarily solely by taste. Publishers were keeping the price of ebooks artificially inflated. Why should an ebook ever cost more than a physical book, when ebooks have no printing or distribution costs? Right now price swings toward physical books, but if the DOJ wins their case, consumers driven by price will be more likely to buy ebooks--which only makes sense. Physical books and retailers will remain but economically they should cost more and cater to those who want to pay a premium for a physical book. Publishers have been afraid of the future (and so have I) but you can't stop the inevitable, and the inevitable is economics.

Maya said...

Also, I'm no fan of Amazon either, but I'm not sure why people believe Amazon would be the only beneficiary of this change. I own a Nook, and I think a plethora of third party ereaders are in the market now. Yes, this will hurt physical bookstores, but I think a lot of internet companies may benefit.

Anonymous said...

Maya, people say Amazon will be the only beneficiary, because it's the only company with the resources--and the proven desire--to eat losses on every ebook they sell to move more ereaders.

(Apple has the cash reserves to do so, but gauging by their entire history as a corporate entity, they have no interest in using loss leaders to push their products. Apple isn't Dell, and doesn't want to be Dell. And they have the numbers to back up that approach.)

If the agency model is disassembled, Amazon will go back to crushing all competitors with cheaper prices, and all those 3rd party e-bookstores and ereader manufacturers won't be able to match the prices Amazon can squeeze out of publishers.

Ereaders only became competitive after the switch to the agency model. Prior, there was the Kindle, and a swathe of niche readers with no penetration.

Natalie Aguirre said...

Thanks for explaining it all. Personally I really like the printed book. I enjoy reading them and the fact that I can share them with others. That is a huge plus for me because I love sharing books with my daughter and giving them away on my blog.

And lots of kids who are poorer are not going to buy e-readers or e-books. So it's going to limit their choices of books.

I hope print books do not go away for those of us who like them. I'm willing to pay a bit more for them so I can share them legally.

Elizabeth Burton said...

I'm sorry, Nathan, but your argument that price will become a factor in ebook purchases ignores the fact that price has ALWAYS been a factor. That's why Amazon did the $9.99 price in the first place.

This is yet another discussion based on on erroneous premise, which is that ebooks didn't exist until the Kindle appeared. Which is absolute rubbish. Hard Shell Word Factory was selling ebooks in 1996, and Ellora's Cave, the biggest publisher of ebook erotica and erotic romance in the US, started in 1999. And ebooks were priced between $3 and $8. And money was made by both publishers and authors, who received 40-50% of net sales.

Amazon knew this, because unlike the latecomers who followed them, and the traditional publishers who sneered at ebooks until they didn't dare to anymore, they did their homework. They had staff on Yahoo Groups and other places where ebook readers gathered, and they LISTENED when those readers said they wouldn't pay hardcover prices for ebooks. Ever.

So, the traditional publishers crying that selling ebooks for $10 and under will devalue the merchandise are just making up another excuse to cover up the fact they screwed up and ignored reality for nearly a decade. By which time, the value of ebooks had already taken root in the minds of many, and will not be dislodged because they once again are determined to bail out bookstores instead of letting them succeed or fail like any other business.

Because bookstores, too, could have set up to sell ebooks ages ago, but they, too, sneered and insisted nothing would ever take the place of those lovely pages and that wonderful new-book smell. Until it did.

Nathan Bransford said...

Wow, Elizabeth, strong words. That's why I said the "modern" e-book era - sure, there were e-books for sale but they weren't being sold in large numbers. There were quite a few people trying to sell e-books in the years before the Kindle, but e-book sales were a tiny, tiny fraction of print until the Kindle.

Anonymous said...

I would have read far more when I was younger (and today) if books weren't so expensive. I've always had to limit what I buy because of finances. And I've never EVER bought hardcover -- who reads those things anyways except maybe libraries?

I say let the prices fall, stop cutting down so many trees, make low-priced e-books available, and if bookstores fold or authors have to keep their day job -- that's just the law of supply and demand.

But maybe people will read more, get excited about new authors, and more debut and mid-list authors will grow their own fan base.
~ Laura C.

JDuncan said...

Mira, I do understand the economics of it. There is money to be made the way things are now with some luck, perseverance, skill, resources, etc. We see stories all of the time about the rise out of obscurity for an author who didn't or couldn't get in through the legacy path. It's entirely possible I could be relegated to following that path. Some authors who weren't making it now are. This is a good thing as far as that goes. Writers deserve to be compensated for the work that they do, the stories they bring to people.

My issue is what the change is doing to the perception of books. My concern is that the future is driving public perception to believe that months worth of work, of creative enterprise, of several hours worth of sparked imagination, is only worth a buck or two.

It doesn't really matter to me that we can sell more copies and make more money selling at $.99 on our own over 17% royalties from a publisher. I'm not lamenting the loss of traditional publishing. There's problems for authors there too. What I am lamenting is the fact that this new environment is eroding the value of story, and Amazon is doing us no favors in this regard. It's not that I think Amazon disdains books. I just don't believe they see them as stories, of something valuable in and of itself, but a mere means to the end of drawing in consumers to buy stuff they will actually make money on. If they cared about making money on books, you would see an entirely different focus on how they go about selling them. You might actually see them attempting to cultivate an environment that makes consumers actually value them more, not less.

In the long term, I honestly don't see this change working out well for anyone. Because as the perceived value degrades toward zero, the creators of the product will lose interest in making them actually have any value. The art of story-telling will die a slow death.

I'm being a bit extreme here to make my point, but not by much. This DoJ thing is just the start of whole chain of issues that go nowhere good. Doom and gloom I know, but I don't see much positive here for the vast majority of authors.

Anonymous said...

I don't see any difference between the big publishers and Amazon besides the fact that Amazon chose to innovate and the big published didn't. They are both in business to make money.

As for all the nonsense about Amazon being the big bad monopoly, I haven't seen any antitrust charges filed against Amazon. However, we did the DOJ file against the big publishers.

At the end of the day, Amazon pays authors more and wants to provide readers merchandise at good prices.

The big reason why print books cost so much is because the big publishers cannot manage their costs. Why should authors pay for bad management?

Amazon isn't the big, bad wolf. Stop letting the spin doctors make you think otherwise.

Fight the battle worth fighting: demand larger advances and larger royalties or move on!

Mira said...

I took down my first two posts, because they were harsh and a reflection of my troubled mood this morning. Sorry, Nathan.

I didn't give enough credit to this post. You do an extremely nice job of presenting complex material in a very understandble, balanced way. I completely agree with your conclusion that readers are the big winners, and I really appreciate your point that this is such a big deal. It is. And it's easy to miss that.

But if the agency model falls, everything will change, and I hadn't really thought about that before you pointed that out. So, thank you!

Jim - I think I understand your point. Let me know if I'm wrong, but it's not really about making money for you, it's the idea that a writer can work for three years on a story that then sells for a dollar.

I get it. I don't want that either.

But I guess I'm alittle more optimistic that as things fall out, there will be price scaling. In other words, a new author might charge a dollar for a book, but a well-known, sought after author could demand higher prices.

I also have faith in the corporate desire to make money. They may be willing to price a song at a buck, but to make that the default price for a book? I guess I don't see Amazon or anyone doing that. Good books are not as plentiful as good songs. They take tremendous skill to craft, and that skill is rare. I just don't think it would make sense for a corporation to devalue books to that level. They'd lose money.

I could be wrong, of course.

But again - it's not Amazon that's charging a dollar for a book. It's self-publishers. They are experimenting with pricing as a means to draw customers. Once they have a customer base, they tend to raise their prices.

I'm not going to argue about Amazon not valuing a story because they use business tactics - I still don't see how you get that conclusion, exactly, but what I do think Amazon doing is letting the writer take the driver's seat, which includes pricing their own books.

So, I appreciate the discussion because I respect you, Jim. One more thing, I guess sometimes I feel as though I just want to cheer people up. I think this is a wonderful time for authors and cause for celebration. And I like to convey my optimism about it. :)

Bryan Russell said...

I really have no idea what the future of books is going to look like, and that is both exhilirating and terrifying. What will we gain? What will we lose? It's a bit like playing Russian roulette for a million dollars and literary immortality. I just don't want to be the last one with the gun in my hand...

Mr. D said...

I just came back to read everyone's comments, and was particularly interested in some comments from people who were wondering about what the future of books will look like.

I think the original Star Trek series had it right. If any of you recall, in the episode, "Where No Man Has Gone Before," Gary Mitchell, played by Gary Lockwood was reading books on a monitor. Bingo, there is it.


In another episode, "Court Martial" the lawyer who represented Kirk in his court martial trial was an old-fashioned dude, and he had no use for computers or reading books on monitors. He only read books that were real books, and he made that point very clear.

So, I think that digital formats are the future,like Star Trek envisioned in the sixties, but print books will still be available for those of us who prefer them.

And for that, I am grateful.

Anonymous said...

Interesting. Eisler isn't the brightest bulb on the Christmas tree. Apple IS destroying the personal computer market with its introduction of the iphone and ipad. It makes me wonder what else he's got wrong...

The wholesale model doesn't make sense when it comes to electronic products because there isn't a physical product taking up warehouse space. The agency model makes much more sense with the sale of electronic products because there is no warehouse storage space limit on the number of ebooks you can sell.

Amazon uses the agency model to pay authors who self-publish through the Kindle Direct Publishing branch. Why would they complain about publishers asking for the same thing for their authors?

Heidi said...

Great conversation. Here is a letter from Scott Turow, head of the Author's Guild, addressing the situation:

Anonymous said...

I've always thought that if publishers wanted control over the retail price, they should be selling retail instead of wholesale. Nothing was stopping them from being a vendor to Amazon's customers instead of Amazon - like the gazillion indy and small presses have done, upload it and price it themselves.
It's a bit like shooting yourself in the foot to prohibit your distributors from promoting your product with discounts and such when it doesn't cost you a thing.

Myne Whitman said...

I say, sign me up too :)

Bob Fleck said...

Understand that Amazon's purpose in pricing some books (primarily major bestsellers, certainly not all books) at $9.99 was not to sell more books. It was to lower the toughest barrier they had to get people to decide to buy a $300 device to read books: the fact that you still had to pay about the same amount for the actual book as if you hadn't bought the Kindle in the first place.

The "pricing war" was and is, in the case of both sides, about sales in a secondary arena.

Anonymous said...

The main point has nothing to do with readers winning or losing. It's about justice. The main point of the DOJ investigation is whether or not *they* colluded and if anything illegal transpired. There are, and always have been, laws to protect consumers from things like this. And if the DOJ finds that it did happen, it's going to bring more than a few people back down to earth. Martha Stewart went to jail over nothing compared to this. I know small businesses that colluded in the same way to fix prices and they were fined heavily. If the allegations are true, someone needs to pay for it.

Shaun Hutchinson said...

Sadly, I think this type of thinking is really short term. Returning to a wholesale model might benefit publishers and readers and authors in the short term, but it will consolidate the pricing power over the e-reading market into the hands of just a few key players. Once Amazon controls both the pricing on the content and the method of delivery, they will be able to force the publishers to accept less favorable terms. They'll be able to poach authors for their own publishing arm, thus turning their war on bookstores into a war on publishers. When they control most of the content and delivery systems, they'll systematically raise prices again.

I think that taking away a retailer's ability to price books as they see fit is the correct solution either, but any scenario that provides an avenue for one or two major players to eliminate the competition is bad for consumers in the long run. All you have to do is look at the telecom industry if you need an example. Because we lack real competition between the major wireless and internet providers, we lag behind many countries on price and speed. Allowing Amazon to control the pricing of the content so that they can dominate the delivery system will create that same kind of stagnation. Maybe not right away, but it will happen. History proves it.

Anonymous said...

All makes sense except for the Amazon part. If Amazon is losing money on their pricing of books, they will end that pricing at some point. For a while, the taking the loss was logical, while they tried to lock people into the Kindle. I don't think there's much further to go with that. There are too many other readers out there, and the iPad.

Barry said...

Hi Nathan, thanks for the well-reasoned piece, and salute for focusing on what matters most: readers. One of the interesting things about arguments like Turow's is they all boil down to, "Sure, Amazon's low prices, high royalties, and high volume are good for readers and authors today, but we have to discard all that because if legacy publishers weren't around to thwart readers and mistreat authors, Amazon might do it instead!"

Which is a pretty strange way to look at the world. A species of "the devil you know" argument, I guess.

Anonymous said, with regard to my suggestion that if Amazon is "destroying" book selling, Apple must also be destroying computer selling:

"Apple IS destroying the personal computer market with its introduction of the iphone and iPad."

I guess that's one way to look at it -- that Apple is "destroying" computer selling by inventing innovative new products that consumers demonstrably want even more. This is in fact pretty close to what Turow is accusing Amazon of doing, though of course he can't say so plainly, because "Amazon is destroying traditional paper book infrastructure by inventing new ways to distribute and read books that consumers demonstrably want even more" just isn't a sufficiently scary sounding call to arms.

"It makes me wonder what else [Eisler] got wrong…"

As wrong as that? Pretty much everything, I hope... :)

"Amazon uses the agency model to pay authors who self-publish through the Kindle Direct Publishing branch. Why would they complain about publishers asking for the same thing for their authors?"

It's not Amazon complaining, it's the Department of Justice, and not about the agency model as such, but about collusion, instead.

BTW, Joe has an epic follow-up to a recent interview Turow did with Salon, an interview which made no more sense than did Turow's Authors Guild blog post.

Anonymous said...

Let's stop throwing Amazon to the fire.

Really. Are the big publishers spin doctors so good that their fearmongering has you convinced to throw Amazon to the fire?

It's classic redirection. They pay you less or spread your advances out and then tell you that Amazon will destroy publishing. Instead of being angry at the publishers for paying you less, you start blaming Amazon for your pay cut.

If Amazon is the big great monopoly, a term that gets thrown around a lot from publishers and crazy writers, then where's the antitrust lawsuits?

Also, think about what Turow is saying:

"Our concern about bookstores isn’t rooted in sentiment: bookstores are critical to modern bookselling."

Does this really make any sense?

It's like saying the horse and buggy are crucial for travel while the automotive becomes more promising every year. Eventually, people switched. Innovation happens.

If the publishers wanted, they could sell their books for more to Amazon, but they don't. Has anybody asked why?

All of this craziness makes me think of one of those conspiracy shows about disinformation. I feel like I'm in the middle of one waiting for someone to get a clue.

I'm going to put on my little tin hat now and watch how many authors fall for the bait.

Mary Anne said...

No matter the format the e-book is read in they should cost a fraction of the hard copy price. Once the author or publisher had created and formatted the file and put the e-book on a server there are very few costs in selling or distributing those copies. There is no paper to buy or type to be set or presses to be run. There are no boxes to fill with hard copies that then need to be shipped to bookstores.

Publishers and writers need to understand that the great percentage of the reading public is under the assumption that most popular writers are like John Grisham and are rolling in their royalties. I've learned that's not the case due to contact with independent authors on facebook but I have yet to buy a book from an indie author that I thought was overpriced.

There's a book I want being released on Amazon on the 27th and the e-book is priced a about $1.50 less than the hardcover price. I think that is highway robbery. And as disgruntled as I am I'll pay that price cause I'm hooked on the book series. I will look at future purchases though and will avoid that publisher.

Authors are worth their weight in gold and deserve the fruits of their labor. Maybe they should all go indie.

Unknown said...

I wonder, though, about the effect of libraries. If print declines to nothing, and the publishers try not to let libraries loan e-books,
does that mean the end of libraries? I love libraries!

Other Lisa said...

First, I suspect the motives of anyone who refers to "legacy publishers." thoughts may be somewhat tangental to the discussion here, because they are largely about the whole notion that eBooks will reign supreme and print books will experience a huge die-off.

I may be wrong.

But things I've been reading lately, about discoverability, and more to the point, about the resistance to eReaders that has increased as the devices have become more popular, have me wondering if the future of books really is all about the screen.

I hate to analyze by anecdote, but here's how I've come to use an eReader: I generally buy books that are cheap (free) or unavailable in print format. If there's a book I really want, I almost always buy it in paper. If I have a choice between reading a book on my Kindle or a paper book, I almost always chose the paper book.

i am far from a Luddite. I work on a computer all day. I may be inappropriately attached to my iPhone. I do all of my writing on computer and my editing too. I never print out a paper copy and only work with one from the publisher at the very end of the process. But for those reasons, I tend to associate work with screens. I associate a paper book with relaxation. With being able to escape. (in part because I feel like if I'm reading something on a screen, I should at the very least be editing it). I focus better on paper books. And I don't think this is purely generational (I know people a generation older than I am who love their Kindles and Nooks and iPads).

My guess is, and this is based on intuition as much as evidence, that as more and more of us lead more and more of our lives on a screen, paper books will be seen as an alternate form of entertainment that have value because they are not on a screen.

I read an interesting editorial, I think in the WaPo, that said this whole DoJ lawsuit was a matter of picking your monopoly. That whatever collusion occurred between the Big 5 and Apple encouraged competition, because it enabled Barnes and Noble to regain its footing and helped prevent Amazon from using predatory pricing to gain even more market share and driving out competition.

For all of these reasons, I hope the DoJ's suit fails. Yes, traditional publishing needs to change and to adapt, but they have all kinds of incentives to do that now. The agency model is only a temporary dike against an onrushing flood, but one that gives some shelter to paper books and to brick and mortar bookstores while some of these larger issues get sorted out. I think it's worth it, for the health of the book business, for publishers, book stores, authors and ultimately readers. Because I think at the end of the day, we may have come to the conclusion that physical spaces and paper books have some real value that eBooks and online markets do not.

Also, what JDuncan said.

Mira said...


"First, I suspect the motives of anyone who refers to "legacy publishers."

Well, Lisa, since I'm the only one on this thread who used the term "legacy publishers", I can only assume you're talking to me....?

Which is a darn shame, because I was hoping to get away with it. But darn it all, you caught me. My motives are dark and devious indeed. Terrible, furtive happenings in the night, and who knew it would all be revealed by the phrase "legacy publishers."

This should be a lesson to me, one can not hide forever. All dark secrets will come into the light.

Although...I'm not exactly sure what my dark motives are exactly, but I use that phrase ALL THE TIME, so they must be just awful. If you ever want to let me know what this all means, I'd be grateful.

Other Lisa said...
This comment has been removed by the author.
Other Lisa said...

Take Two:

Actually, Mira, no, it wasn't you. I didn't even notice that you used the term. But it is something that has bothered me for a long time. I think the people who use it tend to see traditional publishers as eeeevil dinosaurs who need to go ahead and die already, and the sooner the better so they can dance on their graves. I think a lot of people using it are angry and resentful about traditional publishing, whether because they were mistreated by it or excluded from it.

I realize that not everyone who says "legacy publishing" feels this way, but I think it's very loaded language.

I think there are a ton of problems in traditional publishing and in the business model and all of that, and I have my own list of suggestions/grievances, but referring to an entire industry as being outmoded and largely irrelevant (which is the inference of this term) does a huge disservice to a lot of really great and dedicated people working in the business, who are publishing a lot of great and worthwhile books.

Other Lisa said...

As a further clarification, I think without "legacy publishing," we'd have no brick and mortar bookstores, at least not until some new channels of production and distribution have sorted themselves out. As per my earlier comment, I think it's more than worthwhile for us as a culture to preserve these actual physical spaces, where people go to discover, buy and discuss books.

I am published by what I guess you'd call a mid-sized publisher in the States, one that's a true independent but that's big enough and has enough infrastructure to get its books out there and into the larger public eye. I'd love to see more smart, nimble publishers emerge who are able to get their books into bookstores and whose books also help support bookstores. I mean, I would love it if a lot of the imprints that were bought up by large corporate entities were independent again and able to compete in the marketplace. I just think whatever needs to be done to cushion the blow of this transition, to make sure that the important parts of the infrastructure and ecology aren't destroyed, we ought to think very carefully about that. Because I really do believe that people still want paper books and that they will continue to want paper books, and that there's a value in physical spaces to distribute them.

It's sort of like, well, the US largely dismantled its steel industry. Literally dismantled plants and shipped them over to China. As oil prices and the cost of transporting goods across oceans continues to rise, and the implications of not having a thriving manufacturing sector and what that has done to middle class wages becomes clear, a lot of people are saying, we need to start doing that stuff in the States again. It would make sense. But we no longer have the infrastructure or the expertise to do it, and if we want to do it, we're going to have to rebuild all that.

I'd rather preserve the useful parts of the infrastructure for when we want/need it again.

Barry said...

Just a quick thought on the term "legacy publisher." I don't mean it to be pejorative; I just think it's dead-on accurate. Here's Wikipedia's definition of "Legacy System:"

"A legacy system is an old method, technology, computer system, or application program that continues to be used, typically because it still functions for the users' needs, even though newer technology or more efficient methods of performing a task are now available. A legacy system may include procedures or terminology which are no longer relevant in the current context, and may hinder or confuse understanding of the methods or technologies used."

Whatever you want to call it -- traditional, Big 6, New York, mainstream -- old-style publishing still works and is still used, even as more efficient means have become available. This is the very definition of a legacy system, and that's why I use the term.

Mira said...

Lisa, thanks for the clarification. I realize now that Barry used the term "legacy publishers", too, so, despite my usual assumption that everything is about me, you might have been more referring to Barry or others, etc.

First, I appreciate Barry talking about why that term has been coined. I would add that I partly use the term "legacy publisher" as a shortcut for the Big Six. Not sure if that's accurate, but I don't include independents in my mind when I use that term.

However, in terms of underlying motives, you're right. My stance toward the Big Six is pretty much what you said. I was abit surprised by that. :)

But I am definitely one of those people who would toast marshmallows as the New York corporations burned to a crisp. I believe that the Big Six are manipulative and exploitive in their business relationship with the writer, and I can't state that too strongly. So, I would feel great joy at seeing that power structure either dissassembled or (even better) morphed into something responsible and worthy of power.

That is different from wanting harm to come to the people who work in publishing, who are most likely wonderful, talented people. My concern is with the company they work for and the way it deals with writers, not them.

In terms of the future, we may need to agree to disagree, because I believe the decline of paper is inevitable.

So, I don't quite see this as industry outsourcing so corporations can save money, but more a transition to a new industry, which will involve a new infrastructure. All of the wonderful, talented people will find jobs in the new infrastruture - and I have no personal knowledge of this - but I have to wonder if those might be better jobs. I'm not sure if the Big Six treat their employees much better than they treat writers. But I don't know.

So, I see movement of resource rather than loss of resource, to a new infrastructure where the writer is treated with respect and compensated appropriately. And I will be very happy to see that happen.

And if we disagree, that's okay. I know that people have great stake in the future, which can make this emotional, but ultimately, we're all facing the future together. :)

London Crockett said...

In the end, I think the big loser is everyone except the online retailers that manage to control the majority of the market (aka, Amazon or perhaps Apple).

Only a tiny group of readers consume enough books that price is a significant factor for them, and in the current system, anyone who is price-constrained can go to this place where they have lots of books available for free, the library.

What readers lose is quality writers who have been able to make a living writing who will no longer be able to do so. One of the "inefficiencies" of the traditional publishing model is supporting mid-list authors because nobody can predict who will be a big seller. That system keeps many writers who have spent decades honing their skills creating novels.

I don't see the winnings for readers if their favorite authors can no longer afford to write.

Marilyn Peake said...

For years, Amazon took losses on their experiments with innovating. They still do when they decide they should lose money in order to invest in innovation. It’s boggled my mind for years that brick-and-mortar bookstores and publishing houses haven’t invested in the digital age and set competitive prices. No one stopped them from hiring inventors to develop their own eReading devices. No one stopped bookstores from setting up cozy reading areas for customers to read eBooks on eReader devices. Bookstores were willing to add coffee shops to their buildings and celebrity books to their shelves, but invest in the inevitable digital revolution? No, they couldn’t do that.

In regard to the deep pockets of Amazon, Amazon’s deep pockets are nothing compared to the deep pockets of the umbrella organizations that own the big publishing houses. The big publishing houses have repeatedly said they can’t compete with Amazon’s deep pockets, but that’s complete and utter nonsense. Rupert Murdoch and Bertelsmann AG own a huge number of the big publishing houses. In 2011, News Corp. and all the businesses it owns were worth between $62 billion and $72 billion. I searched online, couldn’t find the net worth for Bertelsmann AG, but did find that from January through September 2011, their revenues were $10.7 billion. According to Forbes, as of this month Jeff Bezos is worth $18.4 billion and is $300 million richer due to the Kindle.

The weird thing is that the big companies own nearly all traditional book publishing and news outlets, so they can get a near mantra going for things it’s in their best interests to have the public believe. I cannot tell you how many places I’ve now read that Jeff Bezos’s deep pockets will take down and destroy the entire world of publishing and literature. The same thing in the realm of politics – there is an incredible amount of false information circulated as truth every single day in the news. If a handful of billionaires own all the traditional news outlets and it’s in their best interest to have the public believe something, it’s very easy for them to just print it up in multiple news sources. For example, 97% of reputable scientists report that global warming is real. However, despite rising seas, obviously warming temperatures, and tornadoes wiping entire towns off the map, the public at large kind of believes that the research on global warming is completely inconclusive.

DISCLAIMER: I’m published by Amazon’s KDP Select Program (and am very happy with both their royalties and the seriously respectful way in which Amazon treats their authors).

Marilyn Peake said...

I just finished reading everyone’s comments, and am so sorry I didn’t discover this discussion until today. I hope the discussion hasn’t ended.

I wholeheartedly agree with Barry Eisler and Mira. Also, I’m truly baffled by so many people complaining that Amazon’s low prices will convince readers that books are worthless. It seems to me that people don’t understand how Amazon is experimenting with digital sales AND (gasp!) how they’re actually allowing authors to run a lot of their own experiments. For example, authors who sign up with Amazon KDP Select are only required to sign up for 90 days at a time; and within each 90-day period, they are entitled to five days on which they can price their book as a free giveaway. KDP Select authors whose books are "purchased" like wildfire during the free days are added to popularity lists on Amazon which offers higher visibility to those books, but only for as long as the book continues to sell. Authors can experiment with changing their book covers, changing their prices, etc. any time they choose in order to see if that sells more books. When three of my books were downloaded thousands of times for free and then started selling at 99 cents each, I raised the price to $3.99 each, and am now selling more copies at $3.99 each than I did at 99 cents each. And there’s incentive to price books higher. Whereas Amazon only gives authors 30% royalties on 99-cent Kindle books, they give 70% royalties on higher-priced Kindle books. Do the math: 30% of 99 cents vs. 70% of higher prices, and a number of authors have reported selling more copies at the higher prices. I’m not sure how any of that translates into Jeff Bezos lowering the true value of books. He’s experimenting with sales offers, not unlike my neighborhood bookstore having bargain bins or the low price of mass market paperbacks that publishers used to sell. People hardly think of music or computer games as worthless now that digitally downloaded music and computer game apps are so cheap.

And Jeff Bezos hates books? Oh, please. He’s a graduate of Princeton University. He gives away a lot of his money to charity. He’s also established Blue Origin, a company that’s developing new technology for spaceflight, in order to pursue his lifelong interest in space travel. NASA has actually invested $22 million in Blue Origin. Bezos is hoping to offer paying customers the opportunity to travel into space. Is it wrong that this could conceivably, if the price of spaceflight eventually becomes manageable for the average person, cause the car industry or the cruise ship industry to lose customers?

Colluding to keep prices high is against the law. Period. Laws may be changing to protect big businesses and special interests, but thank God many laws still protect consumers. That’s why the Big Six are being sued, but Amazon isn’t. I agree with Nathan that Amazon is a dream come true for customers who love books.

Anonymous said...


What is the picture? Is that a type of e-reader?

Ivy Reisner said...

I agree completely with your post. There are really five options for dealing with technical progress.

One. Ignore it. Generally, the Borders solution.

Two. Resist it. The buggy industry tried to defend itself by pushing for laws against gas stations in certain areas.

Three. Actually drive it. The Kindle.

Four. Get out in front and pretend to lead the parade. DC Comics new digital inititative. Heck, see Baen.

Five. Capitalize on it. See Amanda Hocking.

I want to see publishing survive, but the Agency Model looks frighteningly like option 2 to me, and I don't see too many horse-drawn buggies at the supermarket these days.

Shoaib said...

E-readers can have the significant impact on the kids, especially a color model like Kindle Fire. In a device that weighs under the pound user can collect hundreds of children’s books...
Read full article here,

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