Why Aren’t Kindles Free-Marketed?

In all the hullaballoo over agency ebook pricing and how terrible it is to not allow ebooksellers like Amazon to discount ebooks and sell them at whatever price they want, even if it is at a loss, ebookers haven’t questioned the lack of dynamic pricing of ereaders themselves, especially that of Amazon’s Kindles.

Consider this: Every store that sells an Amazon Kindle sells it for exactly the same price as Amazon and every other retailer. And when one retailer has it on sale for $20 off, so does every other retailer. (This is also true of the Sony, Kobo, and Nook devices.)

Why aren’t ebookers complaining about this price-fixing? No, I’m not suggesting there is collusion between the companies to prohibit discounting of the devices. Rather, I find it disingenuous that agency pricing, which is a form of price-fixing, is so disliked among some ebookers that they complain about it and want it banned, yet no one has complained about the lack of price competition when it comes to the device to read the ebooks. Why is it OK for Amazon to price fix but not Macmillan?

I’m sure the immediate response will be that there is no complaint because the prices on these devices have dropped to where they are now half or less of the original cost. If that is the key to salvation, then all Macmillan needs to do is drop the price of an ebook from $12.99 to $10.99 and ebookers should be satisfied — after all a drop in price is a drop in price — but I know that would not satisfy. Why? Because the argument would be made that the ebook price would be even lower if true free-market competition were allowed.

So why isn’t that the ebooker argument when it comes to the devices? I could see, for example, Staples offering a free Kindle with the purchase of a $150 paper shredder, or Target offering a 50% discount on a Kindle with the purchase of Stephen King’s newest novel. But we don’t see those sales because Amazon is not ready to sell at those prices itself and no one is allowed to undersell Amazon.

If the argument against agency pricing is legitimately one against price-fixing, why doesn’t the argument carry over to the devices? What makes it OK in one category of product but not in a related category of product? When agency pricing is attacked, it is usually on the basis that it has caused ebook prices to rise.

There has been no comprehensive pricing study done, that I am aware of, to determine whether the cost of ebooks has risen, fallen, or stayed the same since the introduction of agency pricing across the entire spectrum of ebooks published by agency-pricing publishers. I know, for example, that many of the ebooks I buy cost less under agency pricing and I also know that the prices of bestsellers that Amazon sold at $9.99 have risen under agency pricing. What I don’t know is whether across the spectrum of agency-pricing publishers’ ebooks, as opposed to niches, prices have risen, fallen, or stayed the same. I think this is important information to have so that we can intelligently determine whether agency pricing is consequential or inconsequential.

It seems fairly clear to me that opponents to agency pricing fall into a few groups. There is a small group of ebookers who are free-marketers and believe everything should be priced elastically, based on demand — the libertarians of the marketplace who oppose agency pricing because it is controlled pricing. A second group of opponents are those whose reading now costs more because they only read/buy books that fall into the niches where agency pricing has caused prices to rise, such as the Amazon bestseller niche. It isn’t so much that they are opposed to agency pricing as they are opposed to the increase in pricing and assume that Amazon would, if it could, charge a lot less for the books they want to read and buy in the absence of agency pricing. The third group assumes that because prices in one niche increased under agency pricing that all prices increased and thus are opposed to agency pricing because it caused a rising tide of prices.

These same arguments can be made when it comes to the devices: In the absence of Amazon price-fixing its Kindles, WalMart would sell the Kindles for less; there would be a Kindle price war between WalMart and Target; Staples would offer package deals; and so on. On this, I would think all of the anti-agency-pricing ebookers would unite to lambast the device price-fixing. But here silence reigns.

I’m sure someone will point out to me how different these products are; how one doesn’t have to buy a Kindle to read an ebook bought from Amazon; how, instead, one could download a free app and read the ebook on one’s computer or tablet. I’m sure the point will be made that you don’t need the Kindle but you need the ebook in order to read it. It’s all true, but doesn’t change the fundamental points:

1. There are no objective data to demonstrate whether agency pricing overall has raised, lowered, or done nothing to ebook prices except in niches.
2. There are no objective data to demonstrate that in the absence of Amazon’s device price-fixing that the Kindle would not be available for less, even free.
3. Whether price-fixing is OK or not OK should not be dependant on who is doing the fixing; that is, OK if Amazon is doing it, not OK if the big publishers are doing it.

Never discussed are what obligations the price fixers have, if any, to the consumer. Do publishers have an obligation to sell ebooks at price points that consumers want? Does Amazon have an obligation to free-market its Kindles?

Isn’t it interesting that without meeting ebooker demands as regards agency pricing the sales of agency-priced ebooks steadily grow? Isn’t it interesting that the freedom Amazon wants to price ebooks as it wishes Amazon isn’t willing to give to retailers of its Kindles? Isn’t it interesting that ebookers see no conflict in their demand for the end of agency pricing and their willingness to accept Amazon’s control of Kindle pricing?

We live in fascinating times!

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?

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.

Frustration in eBookville: Will There Be a Rubicon for Publishers?

I’m one frustrated ebooker! I recently purchased several books in hardcover (The Eichmann Trial by Deborah E. Lipstadt and Bismarck: A Life by Jonathan Steinberg), which is (supposedly) what the publishers prefer I do. But although I bought hardcover versions for my library, I would like to do the actual reading on my Sony Reader.

I already own (and read years ago) Hannah Arendt’s 1963 book on the Eichmann trial, Eichmann in Jerusalem: A Report on the Banality of Evil, and I would like to read it again but this time as an ebook. I am particularly interested in comparing the Arendt’s contemporaneous account (who also attended the trial) with Lipstadt’s hindsight account. The reviews of Lipstadt’s book indicate she comes to a conclusion opposite from Arendt regarding Eichmann’s role in the Holocaust.

All three books are available as ebooks. One would think, then that the problem is solved. Just buy the ebooks. Alas, it isn’t solved because of the exorbitant ebook pricing.

I purchased The Eichmann Trial for $16.20; the ebook costs $12.99. I purchased Bismarck: A Life for $21.25; the ebook costs $14.97. Arendt’s Eichmann in Jerusalem was originally published in hardcover in 1963 (I own a first edition of the book). In 2006, Penguin released a paperback version. I can buy the paperback today for $10.98, but the ebook costs $12.99. Based on the ebook price, one would think Arendt’s book had been released for the first time yesterday, not that it is nearly 50 years since its publication!

The publishers of these books are playing a dangerous game. It is readers like me, that is, readers who want both hardcover and ebook versions of a book, that publishers and authors should be trying to find ways to accommodate. We are interested in buying a book twice.

Alas, it appears that neither the publishers nor the authors are able to wrap their heads around the concept of a decent package price. It is certainly obvious that publishers are fixated on a single remedy to cure all ills, with that remedy being high ebook pricing — even on a book first published 48 years ago. What happened to the promise of lower prices the further away from the initial hardcover release we are? How much farther away than 48 years do we need to be?

As it stands now, the ebook pricing scheme is forcing me to consider the darknet route for the ebooks. Truthfully, I’m not sure that I’d even consider, in this instance, darknetting as piracy, as I bought the version the publishers wanted me to buy — the hardcover version; after all, preserving hardcover sales was/is the rationale for high ebook pricing.

What the publishers should be doing is thinking up schemes to entice me to buy both the hardcover and ebook versions. The first step to accomplishing this is to come up with a realistic ebook price when the hardcover has already been purchased or as a package price at the time of the hardcover purchase. This latter approach would work easily.

Give me the option to buy the hardcover alone, the ebook alone, or the hardcover-plus-ebook combination. In the combination package, charge me $5 more than the hardcover alone. Because I value having hardcovers in my permanent collection but want the pleasure and ease of reading the book on my Sony Reader, I, for one, would readily pay a $5 premium for the package. Publishers should learn from the movie companies, which increasingly are offering DVDs in two packages: DVD alone and a combination of DVD plus Blu-Ray, with the combination package costing only a few dollars more.

With all their complaints about piracy and the threat the darknet raises to their existence, the reality is that publishers are their own worst enemy because they refuse to address honestly what the marketplace wants. Instead of complaining about their problems and doing nothing productive to solve them, publishers should be devising creative solutions to those problems — and packaging the hardcover and the ebook together, although not a final solution, is one interim solution that would increase sales and revenues yet preserve the hardcover that publishers seem to be focused on preserving.

If publishers do not take such steps, they will have met their own Rubicon. They will turn ebookers like me into darknetters, the opposite of what publishers want and need to happen. It is time for publishers to meet head on the challenges of the eBook Age and not continue to try to hide them beneath the carpet.

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 Internet and Free: A Problem That Will Grow

Cook’s Source magazine has been the topic of conversation in recent days for grabbing a copyrighted article written by Monica Gaudio off the Internet and publishing it without permission or compensation. When Ms. Gaudio complained, she was told that she should be thankful Cook’s Source “improved” the article by editing it and then publishing it with attribution. Cook’s Source‘s editor wrote:

But honestly Monica, the web is considered “public domain” and you should be happy we just didn’t “lift” your whole article and put someone else’s name on it! It happens a lot, clearly more than you are aware of, especially on college campuses, and the workplace. If you took offence and are unhappy, I am sorry, but you as a professional should know that the article we used written by you was in very bad need of editing, and is much better now than was originally. Now it will work well for your portfolio. For that reason, I have a bit of a difficult time with your requests for monetary gain, albeit for such a fine (and very wealthy!) institution. We put some time into rewrites, you should compensate me! I never charge young writers for advice or rewriting poorly written pieces, and have many who write for me… ALWAYS for free!

Ignoring the grammatical errors in the Cook’s Source response, which, considering he thinks Ms. Gaudio should pay him for his editing, adds insult to injury, the real question is whether Cook’s Source is simply reflecting a viewpoint that is becoming more commonplace among Internet users.

There has been a lot of uproar in recent years regarding software, book, music, and video “piracy.” On one side of the argument are the copyright holders whose works are “pirated,” and on the other are the consumers who do the “pirating.” (We need to be careful about using the term pirating or piracy because its use implies that the act is wrong. I want to use it here in a more neutral sense, the sense that it is simply a descriptor of action not a conclusion as to whether the action is right or wrong.)

Are the Internet and the posting of material online changing expectations? From what I observe of “consumer” attitudes, the answer is yes. Increasingly, Internet users expect these things to be free and freely usable — a phenomenon that seems to have an inverse relationship to the user’s age; increasingly, copyright has only meaning between companies and not between copyright holders and consumers.

The situation is exacerbated, at least in ebook world, by agency pricing and DRM. I suspect that there is less piracy of books that fall closer to the low-price-DRM-free side of the curve than of books that fall closer to the high-price-DRM side of the curve. The situation is also exacerbated by such things as YouTube and Wikipedia, both of which encourage sharing and free use. Consumers become accustomed to free use of intellectual property. There is also the problem of a decline in understanding among the general population of what constitutes intellectual property that is protectable and why it should be protectable. Is there any reason other than corporate greed to keep extending the protection life of Mickey Mouse?

Ask a teenager whether the sweater in Macy’s is free (or should be free) and the response usually is no, it costs money. Ask the same teenager whether the text on the Internet is free (or should be free) and the answer turns 180 degrees. The major difference, at least for books and text, is that to the upcoming generations words shouldn’t cost because no one owns them. When the discussion turns to copyright, they are either befuddled or they are familiar enough with copyright to say that it was OK to protect words when the protection was limited but with today’s extensions that make the protection nearly permanent, copyright has no meaning. Besides fair use is in such a state of disarray that few people have any understanding of where it ends. (I know of several publishers who unilaterally declare that x number of words constitutes fair use, with x changing depending on the book and the publisher. Of course, x applies to words quoted from books from other publishers, not from their books.)

If you think about it, the protection extensions in copyright law are contrary to capitalism and free market thinking. Society is willing to tolerate a limited extension, but not an extension that makes it more or less a permanent monopoly. Although Monica Gaudio is right that her work is protected by copyright, Cook’s Source is simply reflecting the capitalist-free market position that when copyright exists into absurdity (i.e., forever), it should be viewed as not existing at all.

This dilemma will never be resolved absent a recognition by the producers of copyrighted material that they are encouraging consumers to pirate their work by their demand for never-ending and increasingly restrictive protection. Consumers look at the ever-narrowing of their rights and take the only tack they can — they ignore the restrictions. The Republicans say that the midterm elections demonstrate that the Democrats don’t hear the people, perhaps the Republicans should listen to the voice of the consumer and reverse course on the DMCA and copyright laws — instead of pushing for increased protections and more onerous burdens on the consumer, they should push for a return to the original limits and a more relaxed view of fair use and what consumers can do with material they have legitimately bought.

Smashwords is the Real Threat to Agency Pricing of eBooks

Smashwords and ebooksellers like Smashwords (such as Books for a Buck) are the real threat to agency pricing and the Agency 5 (Macmillan, Hachette, Simon & Schuster, Penguin, and HarperCollins). The reason is simple: the combination of quality and low price.

I find it hard to justify paying $14.99 for a fiction ebook unless I am absolutely enthralled with the author, and even then I am more inclined to pass on the ebook than spend that kind of money on a read-once-throwaway ebook. No need to repeat all the reasons; they have been bandied about the Internet and the magazines for months. And if I don’t know the author, I certainly wouldn’t pay the agency price. Amazon may have had it right when it set a top price of $9.99.

But look at Smashwords and similar sites. They sell ebooks in many categories from authors with whom I am not familiar for a reasonable price. I’m much more likely to spend $3.99 on an unknown author than $14.99. Of course, that isn’t enough to be a threat to the Agency 5. The Smashwords threat comes by Smashwords’ authors also being available in the iBookstore and Amazon, but primarily in the iBookstore.

It is in the iBookstore that the Agency 5 are face to face with competing books that cost significantly less. In publishing, it isn’t the publisher who sells an ebook; it is the author, the story synopsis, the ebook itself. No one goes around and says “I bought a great Hachette ebook yesterday.” Publisher branding value among ebookers is nearly nonexistent and I suspect noninfluential in the decision whether or not to buy an ebook.

For agency pricing to succeed, by which I mean the Agency 5 at minimum do not see a decrease in ebook sales from the pre-agency days, ebookers have to equate quality reads with the names of the giant publishers. Otherwise, all that will happen is that the blockbuster bestseller from the Stephen King-/Dan Brown-recognition-level authors will sell at the agency pricing and less-recognized authors down to unrecognized authors without the Oprah kick will have less-than-stellar ebook sales.

It is these second- and third-tier authors who have to compete against the Smashwords authors and for whose readers price is a major component of the decision to buy or not. In a bricks-and-mortar world, the Smashwords authors stand little chance, but in the Internet world they stand an equal chance — the Internet is the great sales leveler.

The playing field is level because all books display a cover, offer a sample read, have similar story blurbs. The differences are price and publisher name, but the latter has little, if any, swaying power, especially when you get down to the subsidiary names with which few readers are familiar. (Can you tell me who owns Ballantine? DAW? Basic? Do you care?)

The advantages that the Agency 5 do retain really relate to the level of professionalism in putting together the ebook — the professional editing, the professional cover design. But that advantage is easily eliminated by Smashwords authors who could hire these services independently [see, e.g., Professional Editors: Publishers and Authors Need Them (Part 1) and Professional Editors: Publishers and Authors Need Them (Part 2)], and with the right pricing, is readily overlooked by ebookers. Even though I am an editor and find amateurish errors annoying (see On Words & eBooks: Give Me a Brake!), I am more forgiving of them in a $1.99 ebook than in a $14.99 ebook, where I won’t forgive them at all. (Perhaps the Agency 5 should rethink offering a warranty of quality; see A Modest Proposal II: Book Warranty.)

The big gamble that the Agency 5 is making is that ebookers will associate quality reading with their brands and be willing to pay an inflated price for that quality. The reality that will strike home eventually is that such thinking is delusional. eBookers do not equate quality with the Agency 5 brands; if anything, the Agency 5 have done such a poor public relations job with every aspect of ebooks that any association of their brands with quality have long disappeared. eBookers, as is true of most readers, look first for an interesting and seemingly well-written story. Then they look for pricing and production quality.

Combine an interesting and seemingly well-written story with a reasonable price and you have an ebook sale. The ebooker doesn’t care if the ebook is from Smashwords or Hachette. Consequently, Smashwords-type ebooksellers are the real threat to agency pricing and the Agency 5. The more Smashwords and its companion ebooksellers, like Books for a Buck, do to increase quality of the books they offer and the lower the prices they offer those books for, the more in trouble agency pricing and the Agency 5 are. I’ve yet to meet an ebooker who only buys Simon & Schuster ebooks. And we haven’t even touched upon the all the places that offer free ebooks, such as Feedbooks.

Smashwords, Books for a Buck, Feedbooks, and other smaller, independent publishers or ebook outlets are squeezing ebook pricing. eBookers want a good read at a reasonable price, which is what they get from these alternatives. The Agency 5’s plan to force ebookers to “value” ebooks by keeping pricing artificially high will not withstand the assault. Yes, the very top authors — the most popular authors — will probably be able to command the Agency 5 ebook prices, but they are not enough to sustain traditional publishers. There are too few Stephen Kings and JK Rowlings to build a business around the popularity of their books.

If iBookstore sales aren’t significant for the Agency 5 at the higher end of the agency pricing scheme, and if iBookstore sales for the Smashwords-type publishers/sellers show growth, the Agency 5 are doomed. Of course, it doesn’t help the Agency 5 that Random House is sitting on the sidelines. Imagine if its ebook sales continue to grow while the Agency 5’s sales decline.

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?