An American Editor

April 4, 2012

eBooks: Is Agency Pricing Good or Bad?

Recently, there has been a lot of focus on the “conspiracy” between 5 major publishers and Apple regarding agency pricing and whether these 6 entities have violated antitrust law. The focus is not on whether agency pricing is good or bad, but whether the parties colluded. That question I’ll leave for the US Department of Justice.

I’m more interested in whether agency pricing has been good for me as a consumer. Various forums have been discussing this and Mark Coker, president of Smashwords, has written an excellent piece defending agency pricing (see Does Agency Pricing Lead to Higher Book Prices?) Mark Coker makes several salient points, but they are points from the author and distributor perspective, not the consumer perspective.

(Mark Coker does make, however, one interesting observation: Before agency pricing, there was the wholesale pricing model. A publisher would set a book’s list price at say $30 and wholesale to booksellers for $15. The booksellers were free to sell the book for any price they wanted, be it $5 or $10 or $25 or $30. The reality was, however, that no bookseller could sell all books at less than cost and survive, not even Amazon. At some point, a bookseller has to turn a profit or at least cover costs. Consequently, the wholesale price was, in effect, an agency price; that is, a minimum price at which a book could be sold without putting the bookseller out of business. In other words, there really isn’t much difference in effect between the wholesale scheme and the agency scheme as far as consumers are concerned. For retailers, the agency scheme ensures that the retailer makes a profit on every ebook sold.)

But what about from the consumer perspective, and even from the indie author perspective?

In the days before ebooks (i.e., my participation in the ebook marketplace), I spent, on average, $5,000 a year on pbooks, mainly hardcover. I am now into my fifth year of ebooking and each of those years has seen a steady decline in the amount of money I am spending on books overall. Combined, my pbook and ebook spending doesn’t exceed $2,000 in a year, and is often quite a bit less.

One reason, if not the major reason, for this is agency pricing. The traditional publishers, namely the Big 6 (Random House, Hachette, Simon & Schuster, Penguin, Macmillan, and HarperCollins), are overpricing their ebooks via the agency pricing. Consequently, I am simply not buying agency ebooks published by the Big 6. The newest James Patterson novel simply isn’t worth $12.99 or higher to me. They are good reads, but let’s face it — classic literature that I would read again and again and savor each phrase they aren’t. They are formulaistic books that provide entertainment but do not evoke a lasting passion.

Consequently, I consider agency pricing to be a positive for the consumer. It helps dissuade ebookers from spending excessive amounts of money on books that in an open marketplace, and without publishers setting a retail price that bears no correlation to the true value of the book, would not command such high pricing in perpetuity. It might command it for weeks or months, but not years.

Agency pricing has had another benefit for the consumer. It has made the rise of the indie ebook distributor, like Smashwords, possible along with the rise of the indie ebook author. It is not that these entities didn’t exist before; they did in the form of vanity presses for the pbook crowd. Rather, they have become legitimized, something the vanity presses never were able to accomplish.

Because the Big 6 agency pricing is so high, readers like me began to explore alternatives. And now I buy primarily indie authored ebooks at places like Smashwords. The competition among indie authors to get noticed and read has been such that ebooks are often priced at $2.99 and less, all the way down to free. Even here, however, agency pricing is beneficial because I can buy those books at Smashwords or Barnes & Noble or Books on Board or any number of outlets and not worry about price — it will be the same at every store.

I’ll grant that if my only interest in reading is today’s popular books by big name authors, what we used to call the New York Times Bestsellers but which name is no longer appropriate, agency pricing is a problem. After all, Amazon demonstrated that it was willing to sell those ebooks at a loss in order to gain market share. (Which raises another interesting observation: When Amazon was able to sell the bestsellers as $9.99 or less ebooks, it cornered nearly 90% of the ebook market. With the advent of a more level playing field, introduced by agency pricing, its market share has dropped to about 60%.) Amazon had the fortune to be able to sell at a loss because other product lines were making a profit and could support the ebook losses; most ebook sellers did not have that option if they wanted to remain in business.

Agency pricing doesn’t ensure the lowest price; the Big 6 demonstrate that daily. But from my perspective as a consumer, the advent of agency pricing has made ebook selling more competitive. Not because the ebooksellers are being price competitive but because the indie authors are being price competitive. Agency pricing has also ensured that there won’t be one supplier of ebooks, which is also important to me as a consumer.

In balancing the scale of good or bad, I think agency pricing is good for me as a consumer. It has saved me scads of money by limiting the number of expensive ebooks that I buy to a handful. It saves me money because I no longer spend as much on pbooks; I have too many ebooks to read in my to-be-read pile, so I buy fewer pbooks. It has broadened my reading. Before agency pricing I did as many readers and bought reasonably priced ebooks by name authors. Since agency pricing, I browse the indie author ebook offerings and buy indie ebooks at very reasonable prices.

One last observation: Even if the Department of Justice pursues the collusion matter, there appears to be nothing inherently wrong with agency pricing. I expect that at worst the 6 parties being investigated will pay large fines but I think agency pricing is here to stay.

What do you think? Is agency pricing good or bad for the consumer?

9 Comments »

  1. Great post, Rich, and a bit of a surprise for me. Adam Smith’s Invisible Hand strikes again!

    Comment by EditorJack — April 4, 2012 @ 9:59 am | Reply

  2. My experience with most indie/self-pubbed books has been disappointing, since too few are professionally edited. I’m at the point where I don’t care if they’re cheap or even free, I no longer bother downloading anything from Smashwords or its ilk. Instead I buy from reputable medium-sized publishers, whose ebook prices are more reasonable ($5-$10). When I want to read a book whose price is too high, I’ll check it out from the library. That’s not to say that I won’t ever pay more than $10 for an ebook, but in most cases I’ll want to be sure it’s a keeper first.

    Comment by Dera — April 4, 2012 @ 5:27 pm | Reply

  3. Good post i dont now that agency pricing doesn’t ensure the lowest price, i presume that ebook are the lowest price.

    Comment by Catia Marques — April 5, 2012 @ 7:24 pm | Reply

  4. “Consequently, I am simply not buying agency ebooks published by the Big 6. The newest James Patterson novel simply isn’t worth $12.99 or higher to me.

    Ditto. I struggle to understand the reasoning behind the pricing. Or at least not when it comes to Amazon. At $9.99 the publisher would earn $6.99 (70%) in royalities, instead of the $4.55 (35% for books over $9.99) for a book priced at $12.99. The expression “cutting off your nose to spite your face” springs to mind.

    Happy Easter.

    Comment by Vicki — April 5, 2012 @ 7:45 pm | Reply

  5. [...] An American Editor considers whether agency pricing has been good or bad for him as a consumer. He did what I did – simply stopped purchasing books from agency publishers – although part of my reason was deciding not to purchase any ebooks with DRM. [...]

    Pingback by Stumbling Over Chaos :: Welcome to Linkity Land! — April 6, 2012 @ 3:18 am | Reply

  6. I found your link from Stumbling over chaos and your post very interesting. My reading has changed completely over the last few years. I now buy completely different books and genres, hate DRM and love Calibre. But it took a few years to explore what was available, and all the different formats caused me havoc initially. I completely fail to understand how an ebook can cost more than a paperback as I find on so many sites for the big 5. Because of the amount of money I spend on books I spend a lot of time hunting for the best price, try to take advantage of discounts wherever possible. Fictionwise was (and still is to a great extent) my very favourite bookstore, but the combination of agency pricing, geographical restrictions (**!??!**) and selling it to Barnes and Noble have done it enormous damage. It was because of the discounts at FW that I expanded my reading into a lot of new areas, found lots of new authors and still devote Monday evenings to ebook buying.

    Comment by Avalie — April 6, 2012 @ 1:59 pm | Reply

  7. [...] eBooks: Is Agency Pricing Good or Bad? [...]

    Pingback by Ebook Price Fixing, Good For Consumers Or Not? | eBookanoid.com — April 8, 2012 @ 9:17 pm | Reply

  8. [...] eBooks: Is Agency Pricing Good or Bad? [...]

    Pingback by The Agency Pricing System For Ebooks – A Good Idea Or Not? | Ebooks on Crack — April 9, 2012 @ 12:28 am | Reply

  9. You have an interesting perspective. Many consumers have gone the same route you have, buying less expenisve ebooks and more of them. But still, many other consumers are angry that they haven’t been able to buy “big-name” books for $9.99. I think agency pricing has been a mixed-bag for consumers, but it’s been great for indie authors like me. Because readers like you will now try my books at $2.99 instead of spending $13 on James Patterson. Thanks for that. :)

    Comment by L.J. Sellers — April 12, 2012 @ 9:33 am | Reply


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