A Book Is a Book — Or Is It?

If we look back to the beginning of the agency model in ebooks, which began a little more than one year ago, we can find the publishers’ claimed rationale for changing models (which occurred with a mighty push from Apple): to protect ebooks from becoming mere commodities and to prevent consumers from establishing a mindset that $9.99 is the right price point. Okay, that was the rationale, coupled with a fear of Amazon becoming too powerful, that was bandied about. The question is: Were publishers successful in preventing the commoditization of books?

The reports from the Agency 6 indicate that ebooks are rapidly becoming a significant source of revenue for publishers, perhaps even their primary growth area. Latest reports show growth in ebook sales (Barnes & Noble reports 140% rise in digital sales; Hachette reports ebooks as 20% of U.S. sales and 5% of worldwide sales; Penguin and Simon & Schuster report digital as 14% and 15% of revenue, respectively; Bertelsmann/Random House reports digital sales in the first six months of 2011 as exceeding all digital sales in 2010);  and a significant decline in mass market paperbacks (down 14%). Profits are up slightly, even though volume appears to be down somewhat. All of which seems to favor the notion that the publishers did the right thing.

What we don’t know, of course, is how the sales are breaking down by price point. I can relate anecdotal evidence that the agency pricing scheme is a failure on several levels, but no data has been released that enables a careful analysis.

I’ve mentioned it before, yet it is still true: Whereas before agency pricing I bought a lot of hardcover books and ebooks from the Big 6 publishers, my purchases have declined since the institution of agency. Whereas I used to visit my local Barnes & Noble at least once a week and buy a few books each time, it has been nearly five months since I last visited the store and bought an Agency 6-published book.

If the Agency 6 intended by their action to make me accept spending more than $9.99 for an ebook, they have failed — and failed miserably — because I am pretty unwilling to accept even $9.99, let alone a higher price point, as the sweet price point. Instead, I’ve gotten used to the indie author price points of $5 and less, with less being the dominant word.

I still occasionally “buy” an Agency 6 book, when they offer it for less than $5 or offer a bundle, such as three ebooks for $9.99, but more often when they offer an ebook for free. Agency pricing has backfired not only with me but with nearly all of my acquaintances who buy ebooks. The principal hurdle for the Agency 6 to overcome is the lack of physicality of the ebook.

Even though I and my friends have transitioned to ebooks and much prefer reading on our electronic devices to reading the pbook version, we have not made the price transition, and it is that transition that the publishers need (want?) us to make. Yet it is the publishers who have made the problem worse.

Publishers do not accept the idea that a book is a book is a book, regardless of whether it is electronic or print. In contrast, consumers like me have always thought that a book is a book is a book, regardless of form. We understand the difference between a hardcover and a paperback because we can both see and feel those differences; consequently, over decades we have become accustomed to paying more for a hardcover than for a paperback, perceiving — rightly or wrongly — greater value in a hardcover than in a paperback. (In fact, it was this perceived disparity that brought about the rise of the trade paperback. The trade paperback is perceived by consumers as offering less physical quality than a hardcover but more than a mass market paperback, and thus worth a price between the two.) But we continue to have difficulty wrapping our heads around the idea that, even though it lacks physicality, the ebook is worth more than the paperback and the hardcover (ever note how many times the ebook price is higher than the hardcover price or so close to it that there is little price differential?) at worst, and worth more than the paperback and only slightly less than the hardcover at best, or that it is worth the same as the trade paperback.

Because we have difficulty wrapping our heads around the agency pricing continuum, we have spent more time and money buying indie books, which seem to be priced more logically. Thus, I suspect that our experience is the experience of many ebookers; that is, we buy more indie ebooks than agency ebooks (with some exception).

The Agency 6, however, can point to the rise in revenues, and sometimes even in net income, they are experiencing, which is occurring even in the face of declining volume numbers and is attributable to increased ebook sales at the higher agency price. It is mixing, I think, apples and oranges in the sense that I suspect the biggest growth in volume and dollars is occurring in the indie/non-Agency 6 ebook market, not in the Agency 6 market. So the question not being asked or answered is this: What would the Agency 6 ebook sales volume and profits be if they had let the market do the pricing? Would their growth be significantly higher than what is being reported and would their net income be more marginal?

Also not asked and answered is what effect the commoditization has on consumer buying habits. Ultimately, will this cause even hardcover sales to decline significantly? This takes us back to the questions raised earlier in Clashing Perspectives: Coming Home to Roost and leaves us in the same place.

I used to “revere” books that I purchased. After all, I paid a lot of money for a hardcover and I treated it reverently. Take one off my library shelf and it appears in virtually the same condition as when I bought it. I wouldn’t let my children borrow one of the books until they learned how to handle them gently and carefully. None of this matters with my ebooks. Even if an ebook is accidentally deleted and the bits and bytes written over, I can replace it for free from my backup and have it in the same condition as when I bought it. There is no need to be reverent. Thus, the ebook is viewed as a commodity — a book is a book is a book.

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Waiting for Common Sense — Not: The Agency 6

It used to be the Agency 5, now it’s the Agency 6 as Random House has caved and instituted agency pricing. This further changes my book-buying habits.

Let me start by saying that I am not outright opposed to the agency system. What I am opposed to — and appalled by — is the pricing. Granted that Agency 6 pricing clearly demonstrates lack of competition bordering on price collusion (Isn’t it amazing how similar the Agency 6 ebook pricing is across the board?), but that isn’t the primary problem I have: The primary problem is that the selected price points are extortionate considering the restrictions imposed in the license (and note that it is a changeable, revocable license). Compound this with Rupert Murdoch’s greedy ploy, through his HarperCollins subsidiary, aimed at libraries, the last bastion for education of the poor, and what you have is a devil’s cabal.

(In an interesting aside, Murdoch’s Fox News has been denied access to Canadian TV because of its lack of impartiality. See Regulators Reject Proposal That Would Bring Fox-Style News to Canada. Maybe that is why he feels he needs to bleed American libraries — to make up for lost revenues and bias outlets.)

In the past I have spent significant sums of money building both my hardcover library and my cache of ebooks. It wasn’t so long ago that I could be counted on to spend $5,000 or more in a year on such purchases. The Agency 5 put a big dent in that spending. I felt compelled — if not honor bound — not to buy books, p- or ebooks, published by the Agency 5 (except where necessary because I already had several volumes in an ongoing series). So I focused my purchases on self-published, indie presses, academic presses, and Random House books. The consequence was that my expenditures on new releases dropped by more than 50% last year.

With Random House now part of the Agency cabal, my habits will shift yet again. If I want a new release in hardcover, I will wait to buy it on the remainder or the used book market, when I know that neither one of the Agency 6 nor their author will receive any compensation. But my ebook buying will (and has been) change even more dramatically.

A good example of the change occurred yesterday. Yesterday, the long-awaited second volume in Patrick Rothfuss’ Kingkiller Chronicles (the first volume was The Name of the Wind; the second volume is The Wise Man’s Fear) was released. My previous practice was to buy both the hardcover and the ebook versions; not this time, however. This time I bought just the hardcover because of the agency pricing (the ebook is virtually the same price as the hardcover and no ebookseller can sell it for a price lower than $14.99, which is exorbitant).

That is but one example. Increasingly, I am only “buying” free ebooks and ebooks that cost $2.99 or less, and those I am buying from Smashwords. The reason I buy from Smashwords is that most authors let you sample their work before you buy, some offering up to 75% of the ebook as a free sample. I admit that in the case of the free ebooks I don’t sample them, I simply download those that seem interesting, but for those that do cost some money, I generally read a portion of the sample before buying.

At Smashwords I discovered several self-publishing authors whose works are excellent. Granted they do not have the cachet of a Stephen King, J.D. Robb, or Robin Hobb, but they do know how to write a compelling story. A good example is Safina Desforges’ Sugar & Spice, a 99¢ mystery/thriller that compares well to any P.D. James novel.

The point is that the setting of exorbitant pricing by the Agency 6 has compelled me to look elsewhere for book purchases. Money that I previously spent supporting the traditional publishers is now going elsewhere — and it is costing me less yet giving me comparable enjoyment.

Yet there is one more thing that has to be said about the agency system. Currently, it is limited to ebooks. But that doesn’t make a lot of sense to me over the long run.

Under the more traditional wholesale system, the publisher sets a retail price for a book and the bookseller pays to the publisher approximately 50% of that wholesale price for each copy sold, regardless of the price that the consumer pays. (Yes, there are more wrinkles in the system, but I’m simplifying it for this discussion.) This is how it started with ebooks. The excuse for going to the agency system where the publisher sets the retail price below which no ebook can be sold and which pays the bookseller a fee for each sale was that low ebook pricing devalued the book and its content.

If that is a valid and sustainable argument, how does low pricing of the hardcover not devalue the book and its contents, too? Logically, there can be no difference. After all, a book is bought for its content, not for its package, and supposedly the content of the p- and ebooks are identical.

What this means to me is that we are the road to a major shakeup in the book industry. I think the agency system is only beginning with ebooks and will either have to be abandoned for ebooks or spread to pbooks. Although agency pricing has not been a big win so far, spreading it to pbooks could solve a major problem for publishers — the problem of returns, which would also solve the problem of excessive book print runs and remainders, and minimize the secondary market.

With the Agency 6 controlling more than half the publishing market overall and probably 75% or greater of the nonfiction market, the path they take could well become — and quickly — the path that smaller publishers take. The bulwark against the spread of agency pricing is the self-publishing market, but that market has to find ways of uniformly increasing its standards before it will supplant the traditional publishers.

In the end, it is clear that the Agency 6 lack common sense. At the same time that one or more of the Agency 6 publishers expects ebooks to grow to as much as 20% of all book sales in 2011, they try to thwart the one avenue of growth by imposing extortionate prices and limiting competition. Simultaneously, they allow the wholesale model to continue for pbooks, thereby devaluing their product and its content. Some day they will get it together; unfortunately, when that day comes, I expect it will not be to the consumer’s advantage.

In the meantime, I’ve changed my buying habits significantly and may well represent an unrecoverable customer loss for the Agency 6.

Never Give a Sucker an Even Break!

In 1936, in the movie Poppy, W.C. Fields tells his daughter, “If we should ever separate, my little plum, I want to give you just one bit of fatherly advice: Never give a sucker an even break!” It appears that Apple has adopted it as its motto for the 21st century, at least in regards to ebooks and publishers.

I’ve got to give credit where credit is due, and Apple deserves credit for great design. Apple’s approach is like wrapping a Volkswagen Beetle in a Lamborghini shell and proclaiming the new car to be a $100,000 car. Apple gives you a great shell but the components are often mediocre at best. And when a design flaw is caught out, the usual response seems to be it’s the customer’s fault — never give a sucker an even break!

Let’s face it — the iPad is really a so-so device. Pretty to look at, but not a great computing experience, especially when compared to notebooks that permit multitasking. Perhaps this will be cured in the forthcoming version 2, but even if it is, Apple still will be a company that treats its customers and partners as suckers — suckers who will part with hard-earned dollars in exchange for good design, mediocre performance, and anticonsumer restrictions. Just consider Apple’s recent insistence on getting a cut on all ebook sales.

The initial culprit in the current ebook fiasco was Amazon who spread its tentacles to far too quickly, giving Apple the opening it needed to give false hope to publishers and consumers that there would be another, better way. Regular readers of my blog may recall my post from 9 months ago, The Decline & Fall of the Agency 5, in which I wrote:

April 2011 is the month to prepare for armageddon in ebookdom. It is when the 2010 agency model pricing scheme will be buried by publishing’s 2010 savior, Steve Jobs and Apple. You read it here first.

All the stars and moons and planets will align and the caterwaul of panic will be heard throughout ebookdom, because that is when the Agency 5 — Macmillan, Simon & Schuster, HarperCollins, Penguin, and Hachette – will realize they have been snookered by the snooker master.

…

In April 2011, publishers will discover that the iBookstore is a losing proposition. Oh, Apple will have sold many millions of iPads, fulfilling expectations for a successful tablet, but the buyers, it will soon be discovered, either aren’t buying ebooks at all (maybe 1 or 2) or what they are buying they are buying from Amazon or Barnes & Noble or Smashwords.…

Well, I wasn’t spot-on, but pretty darn close. iPads did sell millions and the iBookstore is a loser. iPad owners who are buying ebooks, emagazines, and enewspapers are buying them through the Amazon, Barnes & Noble, Kobo, and publisher apps, not from the iBookstore. But Apple has moved to close down any pipeline that bypasses the iBookstore by making it impossible for those apps to remain in the Apple iOS system.

So, tell me again how much of a friend Steve Jobs and Apple are to publishing and to readers. How did Apple become the publishers’ white knight? How did Apple save publishers from the clutches of Amazon?

Publishers certainly have had their comeuppance. What was supposed to save the industry has turned out to be less a saving grace and more of another poke in the eye. The Agency 5 can sit back and be satisfied that what ebooks they are selling they are selling at their dictated price. But if they look at Random House’s ebook sales (remember that Random House was the only one of the big 6 not to embrace agency), they must look with jealous eyes.

So how did Apple’s “generous” offer in April 2010 help the Agency 5? It appears to have put them against the proverbial wall and offered them a rotten carrot — never give a sucker an even break! The Agency 5 will have to pay yet again (i.e., in addition to lower sales for going the agency route) for siding with Steve Jobs when the various ebook apps, including the Amazon, B&N, and Kobo apps, disappear from the iOS. Because of their greed and reluctance to embrace ebooks, the Agency 5 have shot themselves in the foot yet again. They bet on Apple and the iBookstore and the only winner was Apple.

The harder it is for people to buy ebooks, the fewer ebooks they will buy. Yes, I know the Agency 5 would prefer to sell fewer ebooks, but they are already doing that. This latest Apple move simply makes it more difficult for a large segment of the reading market to buy ebooks, a segment that no publisher can afford to ignore in the long run. It seems that no matter what the Agency 5 do in their attempt to thwart the rise of ebooks or to control pricing and sales, someone is waiting to prove to them that they really are fools for not embracing ebooks and trying to exploit the new market to its fullest — never give a sucker an even break!

On many levels I am glad to see the Agency 5 suffer from this blow; it seems to be fair payback for Macmillan’s and Simon & Schuster’s refusal to sell ebooks to libraries and for HarperCollins’ new change to library licensing terms that restrict the number of times an ebook can be lent even though libraries are paying 60+% more for an ebook version than for the hardcover version of the same book. (One example: A library can buy John Grisham’s The Confession in hardcover for $17.37 and lend it out hundreds of times. In ebook, a single license costs $28.95 and if the new HarperCollins license terms were applied, it could be lent only 26 times. In addition, while libraries have to pay $28.95 for an ebook version, the consumer, whose taxes support libraries, can buy the ebook version for $9.99.) It also seems fair payback for the outrageous pricing the Agency 5 have imposed on their ebooks.

It is clear to me that with each misstep that the Agency 5 takes, the more likely it is that increasing numbers of ebookers will remove DRM and share ebooks. When you make an enemy of someone whose good wishes you need, you invite them to retaliate as best they can. In the case of the Agency 5, the best way to retaliate is to not buy their books, or if you buy them, to remove the DRM and share them.

When will publishers ever learn?

The Decline & Fall of the Agency 5

April 2011 is the month to prepare for armageddon in ebookdom. It is when the 2010 agency model pricing scheme will be buried by publishing’s 2010 savior, Steve Jobs and Apple. You read it here first.

All the stars and moons and planets will align and the caterwaul of panic will be heard throughout ebookdom, because that is when the Agency 5 — Macmillan, Simon & Schuster, HarperCollins, Penguin, and Hachette — will realize they have been snookered by the snooker master.

“Why is April 2011 so important,” you ask? Because it turns out that Steve Jobs did the Apple version of bait and switch on the big 5 — the agreement for agency pricing was/is only for 1 year. Come April 2011, I’m willing to bet that Jobs will drive the final spike into the agency pricing system for ebooks. Not necessarily the agency model, just the pricing — $9.99 (or less) will become the Jobs mantra.

In April 2011, publishers will discover that the iBookstore is a losing proposition. Oh, Apple will have sold many millions of iPads, fulfilling expectations for a successful tablet, but the buyers, it will soon be discovered, either aren’t buying ebooks at all (maybe 1 or 2) or what they are buying they are buying from Amazon or Barnes & Noble or Smashwords. (By the way, nothing could be worse for the Agency 5 than if Smashwords is a bigger success on the iPad than the iBookstore, because that success would be price based.) If the iBookstore is a flop for Agency 5 books, the Agency 5 are out of the catbird seat and Amazon is back in.

Not only does it matter that the iBookstore may be a flop in terms of Agency 5 sales, but if Steve Jobs determines that agency pricing is hurting his income or the iBookstore, he will scrap agency pricing in a heartbeat — or even quicker if he can (again, pricing parameters not the model for the split). eBookers know who to blame for the high pricing, and if they don’t, Amazon reminds them constantly and Amazon controls (or so it is claimed) 80% of the ebook market.

Even if Amazon’s share of the ebook market drops to 50% by April 2011, it won’t have dropped enough to salvage the agency pricing system. To salvage it, the iBookstore has to command at least 35% of ebook sales and probably 50% of Agency 5 ebook sales — plus there can’t be much dropoff in sales of Agency 5 ebooks from pre-agency levels. The Agency 5 are already losing a significant percentage of money on the agency split as compared to the traditional wholesale split, so a drop in sales will compound the problem.

So what’s the backup plan? My bet is there isn’t one. It will be more of the same crying and complaining from the Agency 5, a wailing lament about how ebookers simply do not value ebooks. And then the moment of truth will come — that moment when Apple and Amazon each pressure the Agency 5 to lower prices; that moment when Amazon decides that the Agency 5 needs Amazon more than Amazon needs the Agency 5; that moment when authors decide it is better to cast their lot with Amazon than with the Agency 5; that moment when the Agency 5 realize they have doomed themselves to oblivion unless they take immediate, bold steps.

Jobs and Apple have demonstrated repeatedly that they are no friend of anyone but Jobs and Apple. (Do we need to go any further than the raid on the reporter’s home at the behest of Jobs because one of Jobs’ minions lost his cell phone?) Apple proclaims an open system as it closes its doors; it offers a carrot to publishers while hiding the stick. And there is no doubt that Jobs and Apple will decide on “proper” ebook pricing based on what is good for Jobs and Apple, not for anyone else’s survival.

April 2011 will be the moment in ebook history that historians will be able to point to as the turning point. If the iBookstore succeeds in eliminating Amazon’s dominance of ebook sales and in selling a lot of Agency 5 ebooks, then agency pricing may have a longer life. But if Apple fails to topple Amazon and if the iBookstore sales of Agency 5 books aren’t spectacular, agency pricing will die. The clock is ticking. If I were one of the Agency 5, I’d be working on a new plan and doing a lot of heavy public relations work in preparation for doomsday. Will Google be proclaimed the next industry savior?

Gift Cards in the Agency Age

As most ebookers know, the big 5 publishers, conspiring with the consumer’s “best friend” Apple, have instituted the agency pricing model — they now set the selling price to which all retailers must adhere. Why did they jump at this pricing scheme? Because they thought their ebooks were being devalued when they were sold at $9.99. I wonder what the big 5 think now.

So, how do you buy agencied books at a discount? U.S. Sony users have the answer this week: buy $25 Sony eBookstore Gift Cards at Target stores for $15 — a 40% discount. How does this thwart agency pricing? Well, if the agencied ebook price is $14.99 at every ebookstore, using the Sony Bookstore Gift Card reduces the effective price to $9.00 — even less than the dreaded $9.99.

I don’t know who is absorbing the loss on the gift card, whether it is Sony, Target, or a combination of the two, but I do know that the deal is great for anyone whose ebook reading device can handle ePub with the Adobe DRM, which is most devices. I bought 10 of the gift cards and am thinking of buying another 10 before the end of the sale.

If this works as well as I think it will, Sony should see a significant increase in sales. I know it will see a significant increase in purchases made by me. A 40% discount is mighty enticing, especially when it is on any ebook, not just New York Times bestsellers that I don’t read. But more importantly, this could turn into a wave of me-toos from other ebooksellers.

How can they get away with this? Well, I admit I’m just speculating, but here are my thoughts. First, the agency publishers cannot control the price that an independent retailer like Target can sell a gift card for; similarly, they can’t control the price that Amazon can discount gift cards.

Second, gift cards represent cash — unspent cash. So a $25 gift card, whether it cost $5 or $50 to buy, was bought with cash and represents $25 cash and can be used to purchase $25 worth of goods. State and federal regulations govern this.

Third, the ebooks are being sold at the agency price; they are not being discounted. When the ebooker buys that $14.99 agency priced ebook, $14.99 is deducted from the $25 credit that the gift card represents. The agency publishers have nothing to complain about and no agreements (to the extent I have knowledge of them, which is to the extent of what I read in the press) are violated.

So who wins with the discount gift cards? The gift card ebookstore who gets my money in advance and who now knows that I will buy at least $X worth of ebooks from it because the gift cards aren’t usable elsewhere. Plus I am now encouraged to look at, in this instance, the Sony Bookstore whereas before I only occasionally looked for a book there. In addition, because people who own ereading devices other than Sony but that are ePub-with-Adobe-DRM capable can also buy books at the Sony Bookstore, Sony gains access to more ebookers.

The gift card seller (i.e., in my case Target) who lured me into its store, a store I rarely go to, to buy the gift cards and hopefully something else.

eBook authors and publishers because I have now committed to buying ebooks that I would not otherwise have bought. The Sony gift cards I bought are not redeemable for anything but ebooks at the Sony Bookstore.

With only the Sony Bookstore gift cards currently available at such a discount, ePub and Adobe are winners, too, because devices that aren’t hampered by being unable to read (without stripping DRM, which most ebookers either cannot or will not do) ebooks in ePub with Adobe DRM can make use of these gift cards — that’s a lot of ebookers.

And me, the ebooker, who is able to buy ebooks at a discount. In this case, I am the big winner because a 40% discount is a bigger discount on an ebook than usually offered once you look past the New York Times bestsellers.

The only losers today are the international ebookers who live outside the United States who do not have access to the gift cards; they need to be bought in person at Target. But this might be the first breath of wind in a brewing storm where the ebookstores begin competing by discounting gift cards. Will Amazon and Barnes & Noble join the fray?

Agency in eBooks: Just the Start?

With all of the hullabaloo lately about the shift to the agency model of pricing brought about by Apple and 5 of the big 6 publishers, the question of what this means for the future of all publishing has been sidestepped. (For those unfamiliar with the model, essentially it means this: publishers set the retail price for an ebook and every ebookseller sells the ebook at that price. The ebooksellers aren’t really sellers in this scheme; they are simply conduits — a funnel for money to go from buyer to publisher and for delivery of an ebook to the consumer. For their efforts, the ebooksellers receive a commission.)

Let’s assume that the publishers (and Apple’s) motive for the agency model in ebook pricing is pure as the driven snow before the dog is let outside. Let’s also assume that the move was necessary to preserve “quality” publishing by ensuring that publishers and authors receive a fair return for their work effort. And let’s further assume that publishers play and will continue to play an important role in getting “quality” manuscripts from the oven to the table.

Yes, I know that for some of you these are mighty big assumptions and that it goes against the grain, like a fingernail scraping across a chalkboard, to give any credence whatsoever to these assumptions, but their credibility really doesn’t matter in the real world. What does matter is what the agency model for ebooks portends for publishing as a whole, and here is where publishing may well meet its Waterloo (further discussion of publishing meeting its Waterloo is found in Will Apple’s iBookstore be Publishing’s Waterloo?).

If the agency model works for ebooks, why won’t it work for pbooks? What separates the ebook and the pbook in terms of preserving the value of the work? Why should one be treated differently?

Logically, there is no difference between an ebook and a pbook. Yes, there is a form difference and yes, there is a slight production cost difference, but there is no difference in the content — and isn’t content what is really being sold? If the sale is really the format and not the content, then why pay authors? Why not just sell gibberish? Every reader, every author, and every publisher knows that content is king — it matters greatly whether that novel was written by me or by Stephen King and it matters greatly how the same words are strung together (presumably Stephen King strings them better than me).

If the agency model is designed to preserve the value of the content of an ebook, shouldn’t it be used to preserve the value of the identical (except for format) pbook? (Further discussion of value is found in Valuing a Book: How Do Publishers Decide on Value?) Isn’t this where we are heading now that the floodgates have been opened?

The ramifications of the agency model haven’t really been thought out by any of the players. If it works for ebooks, it will work for pbooks. If it is imposed in pbookland, publishers will, in one fell swoop, eliminate their largest headache — returns (for a discussion of returns, see It’s Raining, It’s Pouring: Returns in an eBook Age). It will also stabilize pricing — no more battles based on price between Wal-Mart, Amazon, Target, and Barnes & Noble, for example.

If agency pricing works with consumers (still unknown), publishers will be able to raise pricing on paperback books — after all, if an ebook that the buyer leases sells well at $14.99, why sell a paperback that the buyer owns at $7.99?

And if agency pricing works, why not further consolidate and eliminate booksellers altogether? Oh, that can’t be easily done tomorrow because consumers like the one-stop shopping that bookstores and ebooksellers provide, but it is only a matter of putting some thought to the problem to figure out a solution, a way for the publisher to reap 100% of the money — no need to split with an agent who provides minimal service.

Apple is one culprit here. Blinded by its dislike for Amazon (among other companies that Jobs seems to have a fetish about), Apple offered publishers what seems to be the ideal solution to Amazon’s power grab. Amazon is the other culprit in this story. Blinded by its desire to dominate the nascent ebook market like Apple dominates the emusic market, Bezos made several strategic blunders, each inflaming the publishing industry and fanning a belief (a well-founded belief, I think) that the enemy is Amazon and it must be brought to its knees. Unfortunately, the ebook consumer became the first casualty in this war and, ultimately, all readers are likely to become book war casualties.

The ultimate question for publishers, however, is will the agency model actually work to the industry’s benefit? What benchmarks have the big 5 set to evaluate the effect of the agency model on ebooks? How dedicated to book buying is the reading public? Have ebookers become so enamored with pricing wars that they will forsake agencied ebooks? There are lots more questions that need asking and answering, but I suspect that the big 5 are unprepared to either ask or answer them — at least not objectively. In the end, I think the near-term winners will be Random House and those indie publishers who forsake the agency model.

Which leads to the final question to be answered: What will publishers who have agreed to the agency model do if the iBookstore turns out to be a small molehill at the foot of a mountain rather than the expected mountain? Someone who buys a Kindle or a Sony Reader buys one because they are a reader; who knows why an iPad was bought. It’s the difference between buying a dedicated device and a multifunction device. Hard to tell which of the multifunctions was the impetus for buying the device and which functions are secondary or tertiary considerations, if considerations at all.

The eBook Wars: Agency & Winners

As the dust continues to rise from the dispute that originated with Macmillan’s demand to Amazon to switch to an agency relationship, and to which Amazon quickly caved, I began wondering who are the winners and whether there are any losers. Contrary to popular perceptions, I think ebookers are the winners.

There was, of course, an instigator to this mess. That award goes to Steve Jobs and Apple. Seeing an opportunity to give Amazon a black eye, returning the favor from the music days, Apple grabbed it, offering publishers the “agency” model. Although Macmillan and cohorts portray this as a battle for the soul of publishing, it really is a game of comeuppance between Apple and Amazon. But in doing so, I think Jobs, unwittingly, gave power to ebookers for the first time — a power that may ultimately haunt him and Apple, at least if they are serious about becoming a major player in the ebook-selling world.

I know that seems counterintuitive, but let’s look at the situation carefully. Before the agency model publishers were insulated from consumers by interveners, the wholesale distributors like Ingram and the retailers like Amazon. In one fell swoop, that protection, those insulating layers, were swept away, creating a direct link between publishers and ebookers. Now when ebookers squeeze, publishers will squeak.

When the intervening layers existed, consumer complaints about quality and price were directed at the bookseller, who could do nothing about the former and little about the latter. The idea of an ebook being unreturnable for any reason was tenable because the seller with whom the ebooker had a direct connection had no way to warrant anything to the ebooker. Retailers were insulated other than hearing low-key griping because there was nothing they could do; publishers were insulated because their “customers” were the retailers, not the ebookers.

This has now been turned topsy-turvy. Now it is the publisher who is directly warranting (even though impliedly rather than directly in so many words) to the ebooker that the product is reasonably fit for the purpose for which it is intended — not that the story is one that the ebooker will enjoy, but that there are minimal numbers of errors and that the ebook is readable and properly formatted. There are now implied warranties of merchantability and of fitness for use that go directly from the publisher to the ebooker, warranties that didn’t exist before because there was no direct connection between publisher and ebooker.

It won’t be long before a sharp lawyer sees the class action possibilities and starts circling. And even if this doesn’t become a matter of litigation between ebookers and publishers, raise enough noise on the viral Internet about how poorly edited or formatted a particular book is and you will see the author and the author/agent circling, because the publisher owes a duty to the author to produce a quality product.

Will this happen overnight? No. But it will happen because of the viral nature of the Internet. No publisher can afford to defend against the deadly combination of poor quality and unreasonably high price, when the combination spreads across a publisher’s line. Poor quality and high pricing seem to be more the rule than the exception in ebooks; it is easy to defend an exception but not rules — just ask Toyota.

Publishers defend high price by pointing out the extraordinary quality of the book; but when one is lacking the other has to give. Publisher margins are thin to begin with; imagine how much thinner they will be when the publisher has to start answering directly to ebookers about pricing and quality disequilibrium. Returns will become acceptable, although some mechanism will have to be worked out for it to occur. After all, the idea of a return is that the buyer gives up all possession of the returned item, something that is not so easily done with a digital file.

eBookers are probably less unified about pricing than they are about quality. I am more elastic about pricing than about quality. I am not opposed to paying a price higher than $14.99 for a high-quality ebook that I want, although I am unwilling to pay $5.99 for a poor quality ebook regardless of my interest in it. I believe that is true of most ebookers. There will always be a group who cannot be satisfied, but most ebookers are more middle-of-the-road — that is, more elastic about pricing than about quality.

Of course, as long as ebooks are greatly burdened with restrictions and as long as there is no assurance that the ebook purchased today will be readable on tomorrow’s ebook device, pricing is not as elastic as publishers would like (and it doesn’t help that publishers constantly ignore ebookers and refuse to address in open dialogue ebooker complaints).

eBookers are the winners under the agency model. They now have a direct connection with the publisher and can insist that price and quality be in equilibrium. Under the previous model, booksellers like Amazon didn’t care whether a particular ebook sold or didn’t sell — they had no investment in it. Under the agency model, the publisher who does have a direct investment in whether an ebook sells or not is the decision maker and is directly connected to ebookers and subject to ebooker pressure. Publishers need look no further than Toyota for a wakeup call.