The Value of eBooks: Is $2.99 The New Value

One excuse the big publishers used for going to the agency model of pricing was that Amazon’s $9.99 price for certain bestsellers was undervaluing the books and would establish expectations in ebookers regarding maximum pricing. So, if that is true, how do these very same publishers justify putting certain ebooks on sale for $2.99 or less?

This question popped to mind when Little, Brown, a subsidiary of Hachette, put City of Veils by Zoe Ferraris on sale for $2.99. This is the second mystery book by Ferraris featuring the same Saudi Arabian investigative team. (Although this is not a review of the book, it is worth mentioning that it is a 5-star book that offers both a fascinating insight into Saudi culture and a great mystery.) City of Veils is neither the first nor the last ebook by one of the Agency 6 to be put on sale for $2.99 or less; such a sale seems to be a regular happening. (The first book in the series, Finding Nouf, is listed as discounted to $11.16 from the list price of $13.95, with neither price being a price I would pay for a fiction ebook.)

Which makes me wonder about the “value of ebooks” and whether we are seeing the erosion of price to where, eventually, Agency 6 fiction ebooks will be regularly priced at $7.99 or less and frequently on sale for $2.99 or less.

There has to be something magical about this $2.99 price point. Why $2.99 and not $4.99? Or $3.99? Both prices would be substantial discounts off the list price and even off the standard 20% to 25% discount price. I suspect the answer lies in what experience is rapidly showing as the price point for maximizing volume of sales. I also suspect that publishers are finding that ebookers are unwilling to pay more than $2.99 for an introduction to a previously unknown author. Yet, I don’t see any evidence that after the introduction to a new author, ebookers are running to spend $11+ for other ebooks by the same author — I know I am not.

But regardless of the motivation, isn’t this $2.99 price point setting an expectation among ebookers as to what the correct price for an ebook should be? I find that it cements my belief that ebooks should be both DRM-free (which Tor, a Macmillan subsidiary, will be doing shortly) and list priced at no more than $5.99 and frequently discounted to $2.99 (or less). These Agency 6 discounts are also cementing my belief that I will only rarely pay more than $2.99 for any ebook.

The price point problem is exacerbated by other steps publishers are taking. I recently preordered Spycatcher with a bonus excerpt by Matthew Dunn, published by HarperCollins, one of the Agency 6, for 99¢. (The bonus excerpt is from Dunn’s forthcoming new novel Sentinel, which can be preordered for a whopping $12.99!) At the same time, Spycatcher without the bonus excerpt is available for $9.99. This type of discounting with bonus material included happens regularly. My question to publishers is this: Why would I ever consider buying Sentinel for $12.99 or Spycatcher for $9.99 — neither book nor the author being previously familiar to me — when I expect that at some future date I will be able to buy them for significantly less?  Doesn’t your offering one of the books for 99¢ create an expectation in me, the ebooker? And even if I can’t buy them in the future for $2.99 or less, why would I buy them at all — regardless of how good a read the introductory book is — at a price that has already demonstrated as far too high?

If there is any validity to the complaint of Amazon’s $9.99 price point setting consumer expectations at a price that is unsustainable by the publishing industry, how are publishers fighting that expectation by offering ebooks for $2.99 or less? Why is the publisher’s tactic sustainable but not Amazon’s?

Valuing of ebooks is difficult. Yes, there are costs that can be objectively measured but those per-unit costs diminish with volume sales. I grant that each ebook cannot be looked at in isolation as best-selling ebooks need to subsidize those that do not sell well so that overall there is an industry profit. Yet, where previously the argument was that no ebook should be sold below a price that sustained the industry, which price was somewhere north of $9.99, Agency 6 publishers belie that argument by demonstrating that at least some ebooks can be sold for significantly less without damaging the industry. That action reraises the issue of what is an ebook worth?

The industry has put itself into a straitjacket of its own making. Originally publishers planned to window ebooks. Windowing of ebooks allegedly would let publishers subsequently publish the ebook version of a pbook at much reduced price, more in line with ebooker expectations. But after much protesting from ebookers, publishers ultimately went to simultaneous release. Unfortunately, with simultaneous release, publishers decided they could not price the ebook much lower than the pbook for fear of cannibalizing pbook sales, losing money, and devaluing the book.

Then to shore up the value of ebooks, agency pricing was instituted. It was touted as necessary for the health of the publishing industry — from author to publisher. Now, within the past year, these same publishers are regularly pricing some ebooks at $2.99 or less, shattering the justification for the higher agency pricing.

In the end, I think publishers will find that $2.99 is the magic price point for ebooks. The combination of the self-publishing phenomenon that ebooks have produced, the use of the $2.99-or-less price point by self-publishers, and the apparent willingness of at least some of the Big 6 publishers to discount ebooks — even if for just a limited time — to that price point, will create an expectation in ebookers that publishers will be unable to combat. We may be a few years away from seeing that magic price point, but I suspect it is coming on fast.

And Then There Was One: Barnes & Noble’s Lack of Customer Service

For a long time I have advocated buying ebooks from Barnes & Noble. Not because B&N was the cheapest or had the very largest selection (although I admit that I consider the argument that Amazon has more titles than B&N to be a specious one; after all, does it truly matter that one has 1.3 million titles and the other has 1.1 million titles, as long as the store where I shop has the title I want to buy? How likely is it that I will read even 10% of the available titles — or, more importantly, even have an interest in 90% of the titles that make up those numbers?), but because I do not want to see a retail ebook world that is essentially Amazon only.

Alas, B&N seems to be doing its darndest to give the ebook world to Amazon on a silver platter.

In recent weeks, I was given a Nook Tablet as a gift. It is an excellent device and works smoothly with the B&N ebookstore. I think B&N’s hardware is excellent and even many of the critics rate the B&N devices as the better devices.

Between the Amazon and B&N ebookstores, I prefer the layout of the B&N store. Whenever I visit the Amazon store, I feel like I am being assaulted by an infomercial for some unneeded and undesired product that shows at 2 a.m. on local TV. I know that Amazoners praise the one-click buying system at Amazon, but I don’t find the two-click system at B&N overtaxing.

The bottom line is that I think B&N has a lot going for it, yet it is handing over to Amazon a little bit more of the ebook world daily. B&N has a significant flaw, one that it appears unwilling to address, or perhaps it is simply unable to address. That flaw is customer service.

As I reported in an earlier post (see The Tablet and Me: The Nook Tablet), the impetus for giving me the Nook Tablet was the deal combining a New York Times subscription with a discounted Tablet. Those of us who read the Times know that it is a morning newspaper — it is meant to be read at the start of the day, not at the end. When I had the print subscription, the paper was usually delivered by 4 a.m. and no later than 5:30 a.m., allowing me to read the Times at breakfast (I am an early riser). This delivery schedule was met day after day, year after year, the exceptions generally being when Mother Nature intervened and prevented timely delivery. If the Times was not delivered on time, a quick telephone call resulted in a credit to my account. No-hassle customer service.

What I get now from B&N is the electronic version — bits and bytes sent over the Internet — that is, when I get it. Some days it arrives by 5:30 a.m., but never earlier; some days it arrives by noon or later; some days, it doesn’t arrive in a timely way at all. So when it doesn’t arrive by 5:30 a.m., which is already late as far as I am concerned, what can I do? Turns out: nothing.

You can’t contact B&N customer service because it isn’t open; it has banker’s hours. When it does open and you do get someone, as helpful as the initial reps may want to be, they are hamstrung by B&N policies, at least as communicated by the customer service representatives.

On one occasion, when the Times hadn’t arrived by noon, I called and asked for a credit. The customer service rep tried to give me one but couldn’t, and so very politely passed me to a supervisor. At first, the supervisor told me I’d have to take the matter up with the Times. I replied that it was B&N that sold me the Times, it is B&N that I pay every month for the subscription, and it is B&N that delivers the Times to me, so why would I contact the Times?

The supervisor then told me that it was my problem, not B&N’s; that B&N doesn’t give refunds even when it doesn’t deliver the purchased item; that there would be no credit of any kind; and I “had to eat it.” I suggested that not only was this theft, but more importantly to B&N, it was giving paying customers another reason to abandon B&N for its arch-rival Amazon.

I understand that we are not talking a lot of money — about 40¢ — but it is the idea that B&N simply doesn’t care that matters (and I’d be less concerned if this happened once rather than several times over the course of a few weeks). After the incident, B&N sent me a satisfaction survey. I wrote of my dissatisfaction and even gave my telephone number so B&N could followup. I’m still waiting for that followup. In my business, if I get a hint of dissatisfaction, I’m on the telephone trying to do damage control. It doesn’t always work, but I try. B&N seems impervious to the idea of customer satisfaction.

(This disinterest in customer satisfaction goes back to the beginning of B&N’s latest foray into ebooks. You may remember my complaints about how B&N treated its club members when it introduced the original Nook. B&N refused to give members the 10% discount on the Nook, claiming that, even at $250 per Nook, it was losing money. Not long thereafter, the price dropped to $150 before going even lower. I had wanted to buy two Nooks and ended up buying none.)

Is Amazon better? I only know what I read and what I read is that had I had the same problem with Amazon, something would have been done. I also suspect that Amazon would deliver the newspaper on time. But it really begs the question to ask if Amazon’s customer service is better — it can’t be worse! And this is what B&N doesn’t seem to understand. Customers will put up with a lot if they think they are being fairly treated; if they think they are not being fairly treated, they will put up with little to nothing — and will let others know of their dissatisfaction.

The point is that it is these little slights to customers that build into major frustrations, and it is these little things that should be taken care of immediately. You are better off putting out the fire while it is still in the BBQ than waiting for it to ignite the forest — a lesson that B&N sorely needs to learn.

I am happy with my Nook Tablet; I really cannot say enough good things about the device to express my pleasure with it (I like it so much that it has been a month since I last used my Sony 950). I enjoy shopping at B&N’s ebookstore (although I dread what customer service I will get should I buy the wrong ebook or an ebook that is missing material). I especially like that I can automatically download ebook purchases to my Nook Tablet, as well as download those purchases to my desktop computer for storage (and that it is easy to strip the DRM from B&N ebooks so they can also be read on my Sony 505 or 950). All of this is to the positive.

Yet the problems with customer service, the limited hours of operation, and the attitude that the customer is to blame is irritating. I’m gradually getting closer to leaving B&N in the dust; each time I call customer service and am told I need to “deal with it,” and am displayed B&N’s indifference to customer satisfaction, I get closer to saying “Enough already!” What holds me back is my unwillingness to give the ebook market over to a single gorilla ebookstore. But what I want may be of no matter as B&N seems to be working diligently to turn another customer into an ex-customer.

Ultimately, whether B&N survives the ebook wars will rest on its customer service. So far, it is losing.

The Tablet and Me: The Nook Tablet After a Couple of Weeks

A couple of weeks ago, my wife bought me a Nook Tablet. I related that experience, and my initial impressions, in The Tablet and Me: The Nook Tablet. Now that I have used the Tablet for a couple of weeks, I thought I would update my experience. (Note that I have not used or seen a Kindle Fire or Kobo Vox. Consequently, I cannot compare the Nook Tablet to either of those devices. My comments are not intended to imply that either the Fire or Vox cannot provide the same or similar experience. This is simply about my experience with the Nook Tablet.)

My primary ereading device has been my Sony 950, a 1.5-year-old eInk device that is no longer available except on the used market. My wife uses my Sony 505, which is now 4.5 years old, my original eInk device. Unlike the Sonys, the Tablet is an LCD screen, which means that it will be troublesome to read in sunlight and one does get some glare on the screen. There is no question in my mind that for straight reading of fiction, the eInk screen is more versatile at the moment.

But I have discovered something else — actually, several somethings else. First, contrary to my original thought that I would not like to read on a LCD screen after spending all day reading on LCD monitors, I actually do like reading on the Tablet. In many ways, I find it more enjoyable than reading on my Sony. This is possible because of the ease with which I can modify the screen brightness. Although I cannot literally mimic the eInk screen, I can make the contrast such that it is very comfortable to read for long periods.

Second, the Tablet weighs significantly more than the 950, although both are of the same 7-inch screen size. Add a cover, which I did, to the Tablet and the weight really climbs, or at least seems to when compared to the Sony 950. At first I thought I would find the weight annoying, but with use, I have found that I no longer notice it — unless I pick up my 950 between sessions with the Tablet.

Third, although both the 950 and the Tablet use touchscreen technology, the Tablet’s screen, when the device is off, really shows fingerprints (you don’t notice them when using the device). I find that I regularly am cleaning the Tablet’s screen. In contrast, the 950 doesn’t show the fingerprints and I clean the screen occasionally just because I know it needs it, not because I can see that it is needed. But the Tablet’s touchscreen technology is great. A very light, almost nonexistent tap on the screen changes the page; with the Sony, a swipe is needed.

Fourth is the excellent reading experience. I am slowly coming to prefer to read ebooks on the Tablet. Everything works to make my reading experience better. I can easily enlarge the font size, something I need to do as my eyes get older, and although I can also do the same on the 950, the Tablet gives me more choices.

The Tablet also gives me two other reading enhancements: the ability to select how the book should appear (e.g., narrow, wide, or very wide margins; and single, 1.5, and double line spacing; and whether the publisher’s default settings should be used or not) and the choice of typeface to display the material (e.g., Century School Book, Dutch, Georgia, Gill Sans). (There is also a “theme” option that lets me choose the background color.)

Overall, the control of the reading experience is much greater on the Tablet than on the 950 and the more I use the features of the Tablet, the more I am inclined for it to be my primary reading device.

Being an Android tablet, the Tablet also offers the kinds of features that would be found on more advanced tablets. I decided to try the apps feature. It comes with the Netflix app, so I entered my account information. I watched about 30 seconds of a movie just to try it. It works well and I can see possibly using it when I go on vacation. I bought a weather app (HD Weather, 99¢) so that I can get the local 5-day weather forecast.

That was pretty much it with the apps until about a week ago I decided to explore what apps are available. I found four that I grabbed immediately. The first is called The American Civil War Gazette (free). It provides daily newspaper articles from Northern and Southern newspapers regarding what was happening on the same date during the Civil War. It is a chance to relive the Civil War through the eyes of the newspapers of the time, day by day. A great app for anyone interested in the Civil War or just interested in trying to live history as if experiencing it personally.

The second app was Buddy Books (free). The app looks for ebooks available from B&N by category and/or price. I have played with it and it could be a better app, but it will certainly help me find ebooks when I’m ready to shop for them (which won’t be for a while; I have 200 ebooks in my Nook library already and hundreds more that I bought from Smashwords and Sony.)

The third app was the Smithsonian Channel (free). I am a long-time subscriber to Smithsonian magazine; I’ve been a subscriber since the 1980s and my current subscription runs through 2022. So I thought this would appeal to me. The app brings the Smithsonian Channel TV programs to the Tablet for free viewing at a time of my choosing. The problem is that I never watch TV and although I have the app, I still find I am disinclined to watch the TV programs. But you never know, and for free, I didn’t think I could go wrong.

The fourth app, is Audubon Birds (purchased for 99¢ on special sale; regularly $14.99). I bought this app for my wife who is a birder. It is the electronic version of the Audubon field guide and is absolutely wonderful. This app will get a lot of use. You can zoom in on the bird photos for more details; you can play their songs. It is packed with information that is easy to find and use.

As I wrote in the initial article on the Tablet, the Tablet was bought as a way for me to electronically read my daily New York Times. At first I thought that would likely be the limit of my use of the Tablet except when traveling. Even though I have had the Tablet for only a couple of weeks, I am finding that it is rapidly becoming my preferred ereading device, which is what I do 99% of the time I use the device. The Tablet has flaws, such as the need to clean the screen regularly, the glare/washout when used in the sun, and the inability to obtain Android apps from places other than B&N and install them, but I find these to ultimately be minor inconveniences the more I use the Tablet — especially when you consider the price I paid: $149 (for the 16GB Tablet) plus a 1-year subscription to the electronic edition of the New York Times.

If you are going to buy only one utilitarian device, I do not think you can go wrong buying the Nook Tablet.

The Department of Justice vs. eBooks II

As I noted in the first part of this article (see The Department of Justice vs. eBooks I), the settlement proposed by the DOJ raises a lot of issues but doesn’t attack the central premise that agency pricing is okay.

I mentioned in part I that publishers could raise the list/wholesale prices of not-yet-published ebooks. But there is another option that could prove to be even more effective: Publishers are not obligated to give ebooksellers a 50% or higher discount as the wholesale price. Publishers could limit the wholesale discount to 30%, which would reflect the current 70-30 split that comes from agency pricing.

And there is nothing preventing publishers from limiting the format that an ebook can be sold in.

The point is, publishers do not have to think of themselves as helpless. I expect publishers will look at the situation as if they are helpless. They aren’t, but they need to be creative, something they are not known for. As the current debacle demonstrates, publishers are being led, they are not leading.

Let us not forget that the settlement proposed by the DOJ effectively separates book sales into two distinct markets: pbooks and ebooks. This could be important because one of the reasons the publishers gave for agency pricing is that they want to keep the brick and mortar stores alive. (It is worth noting that recent data show that even with the growth of ebooks, pbooks sales still account for 80% of all book sales.)

Well, the b&m stores rely on pbook sales, not ebook sales. Even Barnes & Noble relies on pbook sales. The only major bookseller of pbooks that doesn’t have b&m storefronts is Amazon. If publishers want to help ensure that the b&m stores continue to be competitors to Amazon, the simple way to do so is to not only insist that every bookseller get the same wholesale discount (there is no law that requires volume discounting) but then to supplement the b&m stores with higher co-op payments for displays, which would enable them to have additional funds for discounting to compete pricewise with Amazon.

The law requires that similar parties be treated similarly. So if Amazon wanted co-op money, it would have to open b&m stores. In other words, publishers could help level the playing field without straying from the requirements of the DOJ settlement.

It has been stated on numerous blogs and forums that the key to fighting Amazon is to do away with DRM. Without DRM, people would navigate to the ebookseller with the best pricing and service. I do not think that is true in the absence of devices that can handle different formats. Most Kindle owners will continue to shop at Amazon because Kindles can’t handle ePub in the absence of conversion and side loading. Similarly, Nooks can’t handle Amazon’s proprietary format without conversion and side loading. The question isn’t whether converting and side loading are hard to do — they aren’t — but whether most ebookers would do so to save a dollar or two. I think not.

What Kindlers and Nookers always cite in defense of buying from Amazon or B&N, respectively, is the ease of buying and then seeing their purchase appear on their device effortlessly. Right now they could buy a lot of the indie books that they buy at Smashwords in the DRM-free format of their choice. But they don’t because then they would have to side load the ebooks; they aren’t automatically loaded onto their device. Why would habits change?

Ultimately, the real keys to ensuring competition remains are a single, uniform format that is device agnostic (and if DRM must be, then the DRM also be uniform) and agency pricing.

I can hear the uproar as I write about agency pricing, but consider that many of the electronic items we buy are either agency priced or have the same effect through resale price maintenance agreements. Every ad I see for an Apple iPad gives the same price. Every ad I see for a Kindle Touch lists the same price. Yet no one complains that there is no price competition for these items (where is the DOJ’s proconsumer department in these cases?); the complaints are all directed at ebooks.

Of course, the answer is that Kindles don’t compete with Kindles, they compete with Nooks and each vendor independently decided to set the prices. But it is the blind person who fails to see that there is really no difference in effect for the consumer and the purpose of the antitrust laws, ultimately, is to protect competition for the benefit of consumers. Whereas the DOJ recognizes that the Kindle and the Nook are not the same, it insists that the Stephen King and the Dean Koontz novels are the same, at least in book form.

And if the DOJ were really focusing on the effect on the consumer, it would take a look at the various formats and DRM schemes that lock most consumers into a particular eco system. How much more anticompetitive can one be than to capture an audience and make it difficult for them to stray elsewhere?

Here is another question: Where are the authors in this dogfight? The Author’s Guild has come out against the DOJ settlement, but where are the indie authors? Based on comments I read elsewhere, most indie authors are pleased by the settlement because it will make Amazon even stronger and the majority of their sales are at Amazon.

In the short-term view, the stronger Amazon is, the better it is for the indie author. But is that true for the long-term? I can only speculate, but based on Amazon’s attempting to squeeze publishers for more money, I think it is fair to expect that eventually it will turn to squeezing indie authors. The more dependant an indie author is on Amazon, the less the indie author can refuse whatever terms Amazon wishes to impose. And it must be remembered that Amazon owes its obligations to itself and its shareholders, not to its suppliers. Amazon is the Walmart of ebooks.

There is also one other potential negative effect to the settlement. If Amazon succeeds in establishing the $9.99 price point, indie authors who have not yet found a large audience for their books will be squeezed into even lower pricing than currently. More of their ebooks will be priced at 99¢ and free because the reading public will not see them as being worth more when one can by the well-established and well-known author for $9.99 or less.

How this will all turn out is of great interest to me. I am pleased that Macmillan and Penguin have the moxie to fight the DOJ settlement, as I do not think the settlement is in anyone’s best interest over the long-term. It may be of benefit over the short-term, but somewhere along the continuum, in the not-so-distant future, publishers, authors, and consumers will face a different reality.

What do you think?

Worth Noting: One Bookseller’s View of Amazon as a Soul Sucker

Thanks to Nate Hoffelder’s blog The Digital Reader (one of my favorite blogs), I came across Matt Blind’s article at The Rocket Bomber blog, “Amazon is a soul sucking leech on the book business.” This is one bookseller’s perspective on the value of the physical bookstore and the problems of competing against Amazon. It is worth reading.

The Department of Justice vs. eBooks I

As most of you already know, the U.S. Department of Justice (DOJ) has filed a lawsuit against Apple and 5 of the Big 6 publishers alleging collusion in the establishment of agency pricy pricing (see “Justice Dept. Sues Apple and Publishers Over E-Book Pricing; 3 Publishers Settle”). In several of the forums I participate in, ebookers are celebrating the expected lower ebook prices.

Yet, there are several things worth thinking about and noting. First, Random House, one of the Big 6 publishers, and Smashwords, the leading indie author distributor, both of which have agency pricing, are not named defendants in the DOJ lawsuit. That signals to me that the problem is not with agency pricing, but with the collusion aspects.

Second, the 3 publishers that settled with the DOJ, which settlement, it is worth noting, is not effective until approved by a court, are restricted from instituting agency pricing for 2 years, after which they can reassert agency pricing as long as they don’t agree over dinner to do so. This, too, indicates to me that agency pricing is not contrary to the law or necessarily thought to be anticonsumer by the DOJ.

The third notable matter is that the publisher with the greatest moxie, the one that first stood up to Amazon, Macmillan, is not settling with the DOJ and intends to fight, as do Penguin and Apple. That means that the DOJ case is not so strong that it cannot fail once tested. And should it fail, so will the settlement agreements with the 3 settlers fail. It appears that in Macmillan’s case, CEO John Sargent is alleged to have attended only 1 meeting with his fellow CEOs, which means that the DOJ will have to demonstrate that it was at that meeting that the collusion occurred, not an easy task unless the settlers will testify that that is when the collusion came to fruition and that Sargent was present when the decision was made. Hachette, one of the settlers, claims there was no collusion, so it makes me wonder how the DOJ will sustain its burden of proof. Allegations are one thing, proof is another. Simply that there was an opportunity to collude doesn’t prove there was collusion.

There are other problems with the lawsuit. It has been too many years since I last practiced antitrust law (last time was nearly 30 years ago), so I’m not current on the state of the law and I admit that I’m not sure exactly what the DOJ must prove to prevail, but it is clear to me that the Republican-dominated U.S. Supreme Court doesn’t look favorably on these lawsuits. It was a Republican court that upheld resale price maintenance agreements, which has the same effect — setting a floor price below which goods cannot be sold — as the agency pricing system.

An interesting legal question, which may or may not be relevant to the DOJ lawsuit, is this: What constitutes the market? If all ebooks constitute the market, then ebooks are interchangeable commodities, an idea that is resisted by publishers and authors and even by many consumers. If the market is an individual title because you cannot substitute Dean Koontz for Stephen King, then wouldn’t the DOJ have to prove collusion among publishers to set the price for Stephen King, not collusion to set the mechanism for pricing of all ebooks? Of course, there are numerous variables to the market scenario, but they make for a fascinating legal chess game.

But all of this aside, the bottom line is that agency pricing is not illegal even in the eyes of the DOJ. Which leaves a lot of questions. For example, will Random House abandon agency pricing or continue with it? What about Smashwords? (Smashwords has already announced it will retain agency pricing and oppose the settlement agreement during the comment period.)

A more important question is this: Several of the Big 6 have — so far — refused to sign renewal contracts with Amazon because of demands made by Amazon. In the absence of agency pricing, will some or all of the Big 6 refuse to renew agreements with Amazon? Would such a refusal affect both pbooks and ebooks or just ebooks? If they do not renew the agreement, what can Amazon do about it?

The settlement agreement says that publishers cannot prevent a retailer from discounting the publishers ebooks except that it can require the retailer to make a profit across the publisher’s line. I find that an interesting proviso. Consider how secretive Amazon has been about how many ebooks it really has been selling. Amazon has only been forthcoming with broad numbers and in a few cases announcing that an author has joined the millions club. Will Amazon, who is not a party to the proceedings, voluntarily share sales information? I doubt it.

Yet the sharing of that information is necessary to make the exception meaningful. If the wholesale price, that is, the price the ebooksellers have to pay the publisher, of the new James Patterson ebook novel is $13 and Amazon sells it for $10 and sells 1 million ebook copies for a $3 million loss, somehow Amazon must sell enough other books in that publisher’s line to overcome the loss. How is that going to work?

Will Amazon offer the first 10,000 units of Patterson’s ebook for $10, the next 10,000 units for $16, the next 10,000 units for $13, and so on? Customers will be thrilled. Especially if they can buy the same ebook someplace else for $13 when Amazon wants $16.

Another problem with the settlement is that it does not — and cannot — establish a wholesale price for not-yet-published books. The DOJ could say that current agency-priced ebo0ks’ wholesale price is 70% of the current agency price, because that is what the publisher has been willing to accept. But what about future ebooks? The DOJ is not in a position to dictate individual pricing, so there is no reason why publishers cannot raise list prices to $30 and set wholesale prices at $15. The settlement speaks to discounting, not to setting of wholesale price.

There is more to say, but it needs to be said in another installment of this article, so this will be continued in my next post.

Worth Noting: One Small Publisher Says Enough!

An article in yesterday’s New York Times is worth noting: “Daring to Cut Off Amazon.” It seems that Amazon is squeezing where it can. At least this one small publisher, who only has pbooks, offering none of its titles as ebooks, is taking a stand. This article, combined with the recent expose in the Seattle Times about Amazon’s tactics, and the revelations regarding the squeeze on the Independent Publishers Group, make me think that the Justice Department has its head in the sand.

Also worth reading in the Times is David Carr’s article, “Book Publishing’s Real Nemesis.” At least one other person, aside from me, thinks the Department of Justice is trying to slay the wrong dragon.

I know that the popular view is that consumers will have lower prices, but (a) that is not assured once Amazon gains monopolistic power and (b) it ignores the loss of jobs to fellow Americans, jobs that will be either eliminated or foreign-sourced, depriving local communities of revenues and increasing the costs to those who are employed.

I’ve noted that it is easy to be for low prices at all costs as long as one is still employed, but that low prices at all costs mantra rapidly fades when one’s job is lost to a third-world country because labor costs are so much less.

Anyway, I highly recommend both articles to you.

The Amazon Conundrum: Competition in eBooks

On several forums that I visit, there has been ongoing discussion about Amazon and monopolies and how no one need worry because if Amazon were a monopoly and did raise prices, a new competitor would instantly appear. The discussions often also evolved to criticising anti-Amazon posters for not having a solution to the problem, just whining about the problem.

I think those who do not see a potential problem with an Amazon ebook monopoly for authors, publishers, and consumers are simply fooling themselves. The ebook market is not like the TV market. Unlike TVs which all meet certain standards so that a Sony can be substituted for a Samsung, which can be substituted for a Panasonic, ebooks do not meet a set of standards and a Kindle-compliant ebook cannot be substituted for an ePub-compliant ebook without some finagling and without removing any DRM.

Consequently, should Amazon drive out of the ebook business its primary national competitors, the likelihood of someone coming along and overnight becoming a major competitor is nearly nil. Consider the cost of duplicating Amazon’s already-in-place infrastructure. Plus, how would a new competitor break the Amazon eco system? The only way competition might have a chance at surviving would be with Department of Justice intervention.

Picture the ebook marketplace with Sony, Apple, Kobo, and Barnes & Noble gone, leaving just Amazon. If Amazon raised its pricing to insure profitability (or, alternatively, followed the Walmart practice and instead kept pricing stable but squeezed authors and publishers), what could be done about it? Not much. To say that a new competitor would see an opportunity and exploit it is naive.

The new competitor would have to build a business from the ground up. How likely is it that Amazon would sit back for a few years to give such a company a chance to gain a foothold? How likely is it that venture capitalists would be willing to fund the necessary billions for such a venture? And if the new competitor was ebook focused, for how long do you think they could underprice Amazon? Remember that Amazon has other, well-established divisions that could support a money-losing book division, something that a new competitor wouldn’t have.

To think that with the fall of the current crop of competitors new competitors would rise that could compete with Amazon nationally is simply wishful thinking with no basis in reality. The response is that Walmart didn’t raise prices, but ignores that Walmart has strong national competition in companies like Costco, Kmart, and Target — once you eliminate Sony, Kobo, and B&N, Amazon doesn’t. Apple is currently a weak ebook competitor and no one thinks much of the Google ebookstore’s competitive status.

This problem with Amazon was brought about originally by publishers who didn’t look beyond their noses when giving Amazon significant product discounts in the early years. The problem is being compounded by the same publishers’ inaction and by authors scrambling to join the Amazon exclusivity club. If publishers and authors do not take steps to halt the rise of Amazon, there soon will be no outlet but Amazon for national exposure.

The question is what can publishers and authors do? For authors, the only option is not to give Amazon exclusivity and to actively promote other ebookstores where their books can be found. If you promote Amazon primarily, you are feeding the problem, not starving it.

Publishers really are in the stronger position to halt Amazon’s dominance; they just lack the willpower to do more than whine. Agency pricing (which is legal; the Department of Justice is investigating whether there was collusion to impose agency pricing, not whether agency pricing itself is legal) was a first step but as done by publishers, insufficient.

What really needs to be done is for publishers to decide that their ebooks can only be sold in the ePub format and only with Adobe adept DRM (i.e., essentially social DRM like B&N uses). Once you break the Amazon closed eco system, everyone can compete on the same terms. Combine this with correct agency pricing, and the playing field becomes perfectly level. Now ebooksellers will have to compete on other factors, such as customer service.

If Sony’s ebookstore went under, it would go under because of other factors, factors that were within its control, rather than because of format wars.

The forcing of ePub and one type of DRM doesn’t directly address the exclusivity problem, but it could do so obliquely. If competitors to Amazon began to increase market share, the incentive to be Amazon exclusive would diminish.

One other thing to consider: I see no reason why, now that Amazon is a direct competitor of traditional publishers — it has established its own publishing houses to sign on authors for Amazon exclusives — traditional publishers can’t simply refuse to sell their books — both p and e — to Amazon. It seems to me to be illogical to require them to provide the means to fund their own funerals.

The longer the publishers dawdle in taking action against Amazon, the more power they devolve to Amazon. The point will soon arrive when publishers will be able to take no effective action against Amazon and we will be writing their obituaries.

The same is true of authors who sign up for Amazon exclusivity and who promote Amazon. There will soon come a time when the only game in town will be Amazon and you will be at Amazon’s mercy. You will find that no one will stand beside you should you decide to fight at that late point in time — publishers won’t because they will be powerless; consumers won’t because all they are interested in is lowest available price; other ebooksellers won’t because they will be nonexistent.

The time to fight to prevent monopolization of the ebook marketplace is now. The way to do it is to encourage publishers to only permit the sale of their ebooks in ePub format with a standard DRM and for authors to not give Amazon exclusivity. In the absence of such action, we can wear the lemming label.

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?

Amazon’s Assault on Intellectual Freedom

Several weeks ago, I wrote Breaking News: Amazon vs. IPG, which was followed by Worth Noting: Amazon is an Author’s Friend — Or Maybe Not. The first article was picked up by other blogs and at one of those blogs, Bryce Milligan, publisher and editor of Wings Press, as well as an award-winning poet and author of books for children and young adults, posted a comment that caught my eye. I asked Bryce to write a guest article expanding on his comment. That article follows.

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by Bryce Milligan

There is an undeclared war going on in the United States that threatens the linchpins of American intellectual freedom. In a statement worthy of Cassandra, Noah Davis wrote in a Business Insider post last October, “Amazon is coming for the book publishing industry. And not just the e-book world, either.” When titans battle, it is tempting to think that there will be no local impact. In this case, that’s dead wrong. Amazon’s recent actions have already cut the sales of the small press I run by 40 percent. Jeff Bezos could not care less.

One recent battle in Amazon’s larger war has pitted it against a diverse group of writers, small publishers, university presses, and independent distributors. It is a classic David-and-Goliath encounter. As in that story, however, this is more than just pitting the powerful against the powerless. In this case, the underdogs have the ideas, and ideas are always where the ultimate power lies.

Wings Press (San Antonio, Texas) is one of the several hundred independent publishers and university presses distributed by the Independent Publishers Group (IPG), the second largest book distributor in the country, but still only a medium-sized dolphin in a sea of killer whales. In late February, IPG’s contract with Amazon.com was due to be renegotiated. Terms that had been generally accepted across the industry were suddenly not good enough for Amazon, which demanded discounts and practices that IPG—and all of its client publishers—could only have accepted at a loss. Yes, that does mean what it sounds like: To do business with Amazon would mean reducing the profit margin to the point of often losing money on every book or ebook sold.

IPG refused to accept the draconian terms and sought to negotiate further. In what can only be seen as a move to punish IPG for its desire to remain relevant and healthy, Amazon refused to negotiate and pulled the plug on all the Kindle ebooks distributed by IPG, marking them as “unavailable.”

Not a big deal? Imagine that Walmart controls everything you eat, and Walmart decides to stop selling fish because it thinks that fishermen are making too much profit. Amazon is the Walmart of online bookselling. The dispute between Amazon and IPG will affect every literate person in America. It is a matter that goes to the heart of what librarians have termed “intellectual freedom.” In other words, the resolution of this dispute, one way or the other, will affect every individual American’s access to certain books. It will affect your ability to choose what you read.

Restrictions on access to literature generally have more politically motivated origins. The banning of certain Native American and Mexican American authors and books in Arizona, for example, is purely political. Attempts in the past to ban literature based on its “moral content” were largely political in nature. This dispute is purely capitalistic, and is much more difficult to fight.

A single practical example. Wings Press had offered up one of its Kindle titles, Vienna Triangle by California novelist Brenda Webster, for the Amazon daily deal— a limited time offer of 99 cents per download. The book zoomed to the top ten of one of Amazon’s several bestseller lists. While it was still listed as a bestseller, Amazon suddenly marked the title as “unavailable.” The trail of loss increases in impact as it descends the food chain: Amazon doesn’t notice the loss at all. IPG sees it as one of its 5,000 Kindle titles that vanished. Wings Press sees it as one of its 100 Kindle titles that vanished. The author sees it as the loss of her book, period.

Lest one think that eliminating a single ebook novel is a loss of little consequence, Wings Press also publishes the works of John Howard Griffin, including Black Like Me, one of the most important works of the civil rights movement and widely considered an American classic. Amazon’s refusal to sell the ebook of Black Like Me should be of serious concern to every American.

Ebook sales have been a highly addictive drug to many smaller publishers. For one thing, there are no “returns.” Traditionally, profit margins for publishers are so low because books that remain on shelves too long can be returned for credit—too often in unsalable condition. No one returns an ebook. Further, ebook sales allowed smaller presses to get a taste of the kind of money that online impulse buying can produce. Already ebook sales were underwriting the publication of paper-and-ink books at Wings Press.

It has been increasingly obvious to independent publishers for the last two years that Amazon intends to put all independents out of business—publishers, distributors, and bookstores. Under the guise of providing greater access, Amazon seemingly wants to kill off the distributors, then kill off the independent publishers and bookstores, and become the only link between the reader and the author. The attack on distributors like IPG and on some larger independent presses is only part of the plan. Amazon has also been going after the ultimate source of literature, the authors.

Having created numerous (seven or more) imprints of its own, Amazon has begun courting authors directly by offering exorbitant royalties if the authors will publish directly with Amazon. Among the financial upper echelon of authors, Amazon is paying huge advances. Among rank-and-file authors, not so. Here they are offering what amounts to glorified self-publication. The effect is to lure authors away from the editors who would have helped them perfect their work, away from the publishers and designers and publicists and booksellers who have dedicated their lives to building the careers of authors, while themselves making a living from the books they love. Even the lowly book reviewer has been replaced by semi-anonymous reader-reviewers. All these are the people who sustain literary culture.

For Amazon to rip ebook sales away from independent publishers now seems a classic bait-and-switch tactic guaranteed to kill small presses by the hundreds. Ah, but predatory business practices are so very American these days. There was a time not so long ago when “competition” was a healthy thing, not a synonym for corporate “murder.” Amazon could have been a bright and shining star, lighting the way to increased literacy and improved access to alternative literatures. Alas, it looks more likely to be a large and deadly asteroid. We, the literary dinosaurs, are watching closely to see if this is a near miss or the beginning of extinction. Fortunately, this generation of dinosaurs is a little better equipped than the last one to take measures to avoid such a fate.

One can choose to buy ebooks from Barnes & Noble (bn.com) or from almost any independent bookstore rather than Amazon. One can buy directly from IPG. A free app will allow one to read those books on a Kindle. The resistance has already begun, and it starts with choice. I invite you to sign the petition at Change.org.