An American Editor

June 18, 2012

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.

April 4, 2012

eBooks: Is Agency Pricing Good or Bad?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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