Are Free eBooks Killing the Market?

Every day I find another traditional publisher is offering free ebooks. Amazon has made a business out of offering free ebooks. And let’s not forget the many indie authors who are offering their ebooks for free.

What is this doing to the market for ebooks?

I admit that I may be atypical in my buying and reading habits, but I do not think so. I have watched my to-be-read (TBR) pile grow dramatically in the past couple of months from fewer than 300 ebooks to more than 1,100 ebooks. If I obtained not another ebook until I read everything in my TBR pile, at my current average rate of reading two to three ebooks per week, I have enough reading material for between 367 and 550 weeks or 7 and 10.5 years.

How has this impacted my buying of ebooks? Greatly! In past years, I bought ebooks regularly. Granted, I was buying mainly indie and low-priced, on-sale traditionally published ebooks, rarely spending more than $6 for an ebook, but I was spending money.

That has all changed. Now I rarely spend any money on an ebook. In the past three months, the only ebook I paid for was Emma Jameson’s Blue Murder, which is her sequel to Ice Blue (which I reviewed in On Books: Ice Blue), at $4.99. Otherwise, all I have done is download free ebooks.

I understand the reason for giving ebooks away for free. How else are authors to attract new readers? This is particularly true when one considers how many ebooks are published each year in the United States alone — more than one million. Some how one has to stand out from the crowd. But with the ever-increasing number of free ebooks, giving away ebooks is less of a way to stand out.

The problem is that too often all of the ebooks in a series (or at least many of the ebooks in a series) or older, standalone titles by an author are given away. All an ebooker need do is wait. Giving away the first book in a series makes a lot of sense to me. If I like the first book, I’ll buy the subsequent books. But when I see that if I have patience I’ll be able to get the subsequent books free, too, then I don’t rush to buy.

The giving away of the free ebooks has brought about another problem: the decline of the must-read author list. I’ve noted before that my must-read author list has signficantly changed over the past few years. In past years, I had a list of more than 20 authors whose books I bought in hardcover as soon as published; today that list is effectively two authors. My must-read ebook author list has grown, but that is a list of indie authors, not traditionally published authors.

Again, the problem is free ebooks. As a consumer, I like free. However, free has so radically altered my book-buying habits — and I suspect the book-buying habits of many readers — that I find it difficult to see a rosy future for publishers, whether traditional or self-publishers. It is because of this that I wonder what lies behind the thinking of publishers who give their ebooks away, especially those who do so in one of Amazon’s programs.

Publishers who participate in Amazon giveaways double hex themselves. First, they undermine their own argument that ebooks are valuable. Second, they antagonize ebookers like me who do not own Kindles or are not Amazon Prime members and thus unable to get those ebooks for free. I have seen so many ebooks available for free on Amazon that are not available to me for free as a Nook or Sony or Kobo owner, that I have simply resolved, with some limited exceptions, not to buy ebooks. Either I’ll get them for free or not at all.

The Amazon giveaways also tempt me to join the “darkside,” that is, if there is a book in which I am interested, to search for it on pirate sites. The publishers, by their action of giving away the ebook on Amazon, are enticing people to pirate by not making their ebooks free at all ebookstores. When publishers degrade the value of ebooks, their message is received by all readers and is acted on by many readers.

This is a no-win situation for everyone. Ultimately, even readers lose because the incentive to write disappears when there is little to no hope of earning any money for the effort. And even if authors continue to write, the quality of the writing will suffer because no one will see the sense in investing their own money in a product they are going to give away.

It is still early in ebook revolution, so no one really knows what eBook World will look like in a decade or two. But it is pretty clear to me that freebie programs like Amazon’s are detrimental to the overall health of the book market. Authors and publishers should rethink the giving away of their ebooks, other than, perhaps, the first book in a series, before they establish in concrete the reader expectation that “if I just wait, I’ll get it for free, so why pay for it now.” If nothing else, the giving away of ebooks is helping to depress the pricing of ebooks and perhaps driving some ebookers to the pirate sites. My own experience as a buyer of ebooks demonstrates this.

I know that ebooksellers like Amazon are reporting rising ebook sales, but the data I want to see are sales numbers without the one-shot blockbusters and the price levels. The current problem with sales data is that we are seeing only the macro information and so do not know what the real effect free ebooks are having on the market. We are also still in the era of growth in the number of ebookers. When that growth stops, we may get a clearer picture. In the meantime, I know that my spending on ebooks has declined from the thousands of dollars to the tens of dollars and is getting close to zero. I’m sure I’m not the only one who has experienced this decline in spending.

The Business of Editing: Evaluating a Manuscript

One of the most difficult tasks an editor has is the evaluation of a manuscript to determine how much time it will take to edit the manuscript, and thus how to charge for the work. There are multiple ways of doing this, some of which are dependent on who the client is (i.e., a publishing company or an individual author).

For most editors, it is the author-client whose manuscript is the most difficult to evaluate.

As I have noted in previous posts, most recently in The Business of Editing: Language Pet Peeves II, different rules apply to fiction and to nonfiction, particularly in regard to use of precise language. When I evaluate an author’s manuscript, I keep the differences in mind.

I know that an author who hires me to edit his or her manuscript wants the best possible job for the lowest possible price, with an emphasis on lowest. Yet this same author often makes my job more difficult than it has to be by not carefully preparing either the manuscript or the materials that should accompany it (see, e.g., The Business of Editing: What an Author Should Give an Editor) and by not knowing precisely what type of edit the author wants me to perform (see, e.g., Editor, Editor, Everywhere an Editor). This is compounded by the result of my evaluation of the manuscript itself.

The very first thing I do is determine the true number of manuscript pages. It is not unusual for an author to tell me the manuscript is 150 pages when in reality it is closer to 400. Authors should remember that manuscript pages are not the equivalent of printed pages.

The second thing I do is search the manuscript for the use of certain terms, including due to, since, about, and over. These terms are very often misused in nonfiction, less so in fiction, but getting a count tells me how “lazy” with language the author has been. The higher the count, the lazier the author has likely (this is not always true and it does depend on other factors) been grammatically, which means it will take more time to edit the manuscript.

The third thing I do, but only with nonfiction, is check the references. Are the citations consistent in style or does each reference have its own style? Are the references complete or incomplete? Inconsistent styling of the references by the author and incomplete references are another sign of a lazy author. That’s okay, professional editors have lots of experience fixing references, but doing so is very time-consuming and runs up the cost. It is less expensive to fix references that are consistent in style, even if the style is incorrect, than if there is little to no consistency.

The fourth thing I do is check for consistent spelling of names and terms. Again, what I am looking for is laziness (or sloppiness) because the less consistent spelling is, the more time-consuming the project will be.

Fifth, I search for common homophone errors (e.g., where/were; your/you’re; there/their; too/to/two; here/hear; bear/bare; forth/fourth; principal/principle). When I find a lot of this type of error, I know that time will be needed. It is also a clue that the author may have a great story to tell but needs a lot of help with fundamental grammar.

Finally, I skim the manuscript to see if I can get a clue as to how much effort the author put into the manuscript’s preparation. Some manuscripts demonstrate that the author has self-edited and revised several times, making for a more polished, even though imperfect, manuscript; with other manuscripts, it is clear that the author sat at the computer and pounded out a manuscript without going back through it more than once.

This skim is also a way to get a handle on the author’s language skills. I expect the manuscript from an author for whom English is a second language to have more issues than the manuscript from an author whose first language is English, but that is not always true. I am looking for what I call grammar patterns, which are author idiosyncracies that are grammatically incorrect but done consistently and repeatedly throughout the manuscript.

With the above information in hand, I have a pretty good idea about how difficult the edit will be. Some factors weigh more heavily than others when trying to figure out how much editing time will be needed, and thus how much to charge, but it is also true that some of the problems could have been fixed by the author before sending the manuscript for editing.

If an author has provided the correct information with the manuscript (again, see The Business of Editing: What an Author Should Give an Editor), it will reduce the time needed for editing. If the information is not supplied by the author, it will take me time to assemble the information, time that has to be paid for by the author. Similarly, the type of edit that the author wants (again, see Editor, Editor, Everywhere an Editor) influences the cost.

There is no way to determine precisely how long it will take to edit a manuscript. The best any editor can do is guesstimate based on prior experience, but experienced editors are fairly accurate with their guesstimates. The quandary for the editor is whether to accept a flat fee or an hourly fee.

Whether to accept a flat fee or an hourly fee requires one more evaluation: an evaluation of the author. That is, how much author contact and back-and-forth between the author and editor is likely to be required by the author? Personal contact tends to eat up a lot of time and interrupt the editing process. Some authors require more contact than do other authors.

Some contact and back-and-forth is necessary and expected. How much becomes excessive is hard to know in advance. But in a professional relationship, which is what the relationship between the author and the editor should be, some trust on the part of each party that the other is doing his or her job competently is important and necessary.

The bottom line is that both an author’s manuscript and the author need to be evaluated by the editor to determine an appropriate fee. Once the editor has determined what an appropriate fee would be, it is up to the author to decide whether he or she wants to hire the editor.

Why Aren’t Publishers Pushing eBooks?

In a post discussing a twit from author Brent Weeks, Nat Hoffhelder of The Digital Reader wondered, in his blog post “Not All of Us Drink a $4 Coffee, Mr. Weeks,” why publishers aren’t “trying to convert paper book buyers to ebook buyers,” considering that publishers make more money on ebooks than on mass market paperbacks. Setting aside the question of whether publishers make more money on ebooks than on mass market paperbacks, the question is truly piercing: Why aren’t publishers trying to convert readers to ebooks?

We can begin with the proposition that ebooks are clearly the tsunami of the future for reading. It is not that the demand for pbooks will disappear entirely, just that ebooks will become greater than a majority share of the book market. One would think that publishers would want to grab the brass ring early while they can still steer the market.

Under the current scheme of things, ebooks are a much better investment than pbooks for publishers. If I buy a pbook, I can share it with an infinite number of friends, none of whom has to buy his or her own copy as long as they are willing to wait. In contrast, assuming I don’t pirate the ebook, every one of my friends who wants to read the ebook has to buy a copy.

OK, I realize that I cannot just shunt aside the pirating problem as if it didn’t exist, but there is a certain reality to pirating — the very vast majority of readers do not pirate ebooks. Instead, they buy a copy and if they share it, it is shared only among immediate family, often by letting the family member borrow the reading device. It is a small number of readers who post pirated copies of books and a small number who go to the trouble of finding them and downloading them.

Offsetting, I think, what believe the cost of pirating to be — or at least a goodly portion of that cost — are that with ebooks, publishers have no physical inventory to maintain, no cost of returns (unsold and overinventoried pbooks are returned by booksellers), errors can be inexpensively fixed (i.e., books do not need to be destroyed and entire print runs lost; with ebooks, the errors can be fixed and the ebook replaced very inexpensively), and sales are certain (under the pbook wholesale model, the publisher sells pbooks to a bookstore but doesn’t know how much it will ultimately be paid for the pbooks because they are subject to returns by both the consumer and the bookseller; contrast this with how the ebook market works). I’m sure there are other offsetting features of ebooks.

The publishers have been focusing, I think, on the wrong numbers when they discuss pirating. They seem to focus on the number of books available rather than on the number of downloads. Haven’t the Harry Potter ebooks demonstrated the problem with piracy numbers? Before the release of the ebooks, pirated versions were available. But their availability doesn’t seem to have affected very much sales of the official-release versions.

Publishers should be pushing ebooks, trying to convert pbook readers to becoming ebookers. In fact, if publishers wanted to twist Amazon’s nose a bit, they could subsidize Barnes & Nobles’ Nook: Buy a Nook for $99 and receive $99 worth of popular books of your choice (not the publisher’s choice) published by XYZ Publisher. Yes, the publishers would probably lose a bit of money to start, but once people get in the habit of reading electronically, few, I think, would stop.

Electronic reading done on an ereader is addictive, or at least I, my wife, and our ebooker friends have found it so. We are reading at least twice the number of books we previously read, and we read a lot. What we are not doing is reading more of the Big 6’s books — in fact, we are reading significantly fewer of those books. The reasons are simple: the big publishers, often called the Agency 6, are not pushing us toward their ebooks but away from their ebooks by their overpricing and their use restrictions.

Yes, pricing is an old argument that keeps coming back, but the bottom line is that it is an argument that cannot be avoided. Brent Weeks’ new novel — regardless of how much time and effort he put into its authorship — simply is not worth $14.99 to many of us. He is not a must-read author. Each reader has his or her own set of must-read authors, that handful of authors for whom we will pay $14.99. But the kicker is that for many of us, we’ll spend that $14.99 on the pbook version, not the ebook version, because that is the way publishers are pushing us.

This is a strategic mistake. It would be better to push us to the ebook version at a significantly lower price so that we become accustomed to buying the ebook version at a “reasonable” price. I have found that my list of must-read authors has dwindled considerably over the past several years. The more ebook reading I do, the less pbook reading I want or am willing to do. Consequently, when a must-read author’s new book arrives, I rethink how “must-read” the author really is.

The more time I spend with my ereader, the less willing I am to pickup a pbook. Yet that unwillingness does not convert to a willingness to substitute the ebook for the pbook when the ebook costs as much or more than the hardcover pbook. Increasingly, I find that I just pass on that “must-read” book and the author becomes a former must-read author. My list of must-read-traditional-publisher authors has dropped from more than 20 authors to 4 — David Weber, Robin Hobb, Harry Turtledove, and L.E. Modesitt, Jr. — although I expect Hobb and Turtledove to be dropped from the list over the next few months. (I also have a list of ebook-only indie authors, like Emma Jameson, Michael Hicks, Vicki Tyley, Shayne Parkinson, Rebecca Forster, and L.J. Sellers, among others, who I consider must-read but whose ebooks are at bargain basement prices compared to what the Big 6 and Brent Weeks want.)

By not pushing ebooks, the Big 6 are shrinking their market rather than expanding it. They are losing a significant number of sales that they (and their authors) should be making. More importantly, from the publishers’ and the authors’ perspectives, they are causing must-read author lists to shrink. As I noted earlier, it is clear that growth in the book marketplace lies in ebooks. pBooks may have some small growth, but not enough to sustain the industry.

Interestingly, I think that if the Big 6 changed their focus and pushed ebooks, they could easily pickup some of the best indie authors and publish them in ebook-only versions. The biggest problem that the indie authors have that the Big 6 could solve for them is getting the word out that they have a new book available.

I think three changes need to be made. First, publishers need to wrap themselves around ebooks as their future and start pushing them and doing so by pushing readers toward ebooks.  Second, they need to come up with a way to make brick-and-mortar bookstores relevant as showrooms for ebooks. Failure to make these changes is likely to exacerbate the decline of the Big 6. Agency pricing at current levels is really only a stopgap measure, not a sustainable plan for the future. Third, the Big 6 have to change their attitude toward indie authors and start looking to become the publisher of the better indie authors by offering intensive, high-quality marketing (along, of course, with better royalties than the standard pbook royalty scheme).

On Books: Value in an eBook World

eBooks have changed the way we think of value in regards to books. For myriad reasons, ebookers think that the price of ebooks should be no more than the price of a mass market paperback, and often less. Price is a reflection of value.

Much of the thinking revolves around a central point: unlike pbooks, ebooks are intangible — just a collection of bits and bytes. Yes, there are other reasons, too, such as the lack of secondary market value, lower production costs, restrictions on usage, and the like, but the reality is that most of the conscious and unconscious reasoning revolves around the matter of intangibility.

When I buy a pbook for $15, I have something solid to hold in my hand. I can put it on a shelf and admire its cover beauty; I can open the book and feel the pages as I turn them. An ebook lacks all of the sensory qualities of a pbook — it is intangible. The sensory experience lies with the reading device itself, not with the ebook.

I am aware that many ebookers pooh-pooh the sensory argument, but it really is not so easily dismissed. Many of the things that ebookers complain are restrictive about ebooks are not restrictive about pbooks because of the sensory experience. More importantly, it is difficult to become enamored with bits and bytes, yet the beauty that a pbook can project addresses the needs of multiple senses.

I think it is this sensory deprivation that drives the value argument. eBooks are of less value because they provide less of a sensory experience. We pay $100 for an ebook reader without a great deal of thought because it appeals to multiple senses; we complain about a $14.99 ebook price because it appeals to a limited number of senses.

Think about a rose. Do we value the magazine photograph of a rose the same as we value the physical rose in our hand? The photograph will last longer than the physical rose, yet we value the physical rose more than the photograph rose because the physical rose provides a more complete (and better) sensory experience.

Or consider this. Many more ebookers are willing to pirate an ebook — regardless of the rationalization given for doing so — than are willing to steal a pbook from a bookstore. Why is that? If the value is the same, the willingness to pirate/steal should be the same, yet it isn’t. I think it is because ebooks are intangible and thus viewed as of little to no value — ebooks simply do not ignite the same sensory experiences as pbooks.

Of course all of this ignores the fact that real value of a book — p or e — lies in the writing, not in its physical structure or presence. Yet when we talk about the value of books, the value of the content is rarely addressed. There is good reason for this. If we were to address the content value, then ebooks and pbooks should be equivalently valued. After all, the word content is the same, only the physical wrapper is different.

Another problem with addressing the content value is that the content value is not altered one iota by production costs (excluding editorial). If we value the content, we should value the content identically whether it cost $1 or $100 to produce. The production (excluding editorial) costs are wrapper costs, not content value.

eBooks have upset the valuation process. Prior to ebooks, value was determined largely by content. With the rise of ebooks, the wrapper has come to dominate the valuation argument and there is little to no discussion of content value. And this has consequences for the pbook world. This is what lies, I think, at the heart of the fear of the publishing industry: the idea that content will have little to no value, only the wrapper will determine pricing.

This tension between content and wrapper valuations is further fueled by the rise of the indie author. Readers are unwilling to gamble large sums on indie-authored ebooks from authors with whom they have little to no familiarity. If an indie author publishes a pbook and prices it similarly to other pbooks in its genre, readers are willing to pay that price even if they do not know the author because the price is aligned with what they expect to pay.

Yet this does not translate to indie-authored ebooks, where there is resistance to paying the higher pricing found with traditionally published ebooks. Consequently, indie-authored ebooks tend to be drawn to the lower end of the pricing scale. With the large number of ebooks found at that lower price point, that lower price point becomes a standard for the ebook. Again, valuation is based on the wrapper, not the content.

The next few years will be interesting as regards ebook pricing. Will the valuation of ebooks change so that content is the decider or will the wrapper valuation continue to dominate and also make inroads in pbooks? Although it is often heard that content is king, ebooks appear to be the exception. For ebook valuation, the wrapper is king.

On Books: The Agony of Reading Franz McLaren’s Clarion of Destiny

One thing I hate about article titles is that they are length limited and thus tend to sweep with broad strokes. Such is the case with this title.

This is the partial saga of my encounter with an 8-volume fantasy series called “Clarion of Destiny,” written by Franz S. McLaren. The series begins with Home Lost, which is available free at Smashwords and Barnes & Noble, as well as at other ebooksellers. I admit that I enjoyed Home Lost. I found the characters interesting and the story engrossing. Alas, I also found the repeated misuse of words distracting and annoying. But given that the book is free, it is still worthy of 4 stars.

The agony arises with the second volume, To Save Elderon. As soon as I finished Home Lost, I logged into my B&N account and looked for the next book. I found To Save Elderon, but was a bit taken aback by the price — $3.99. It is not that the price is high; rather, it is that it is high if this volume suffers from the same problems that the first volume did. The higher the price of the book, the less tolerant I am of fundamental spelling and grammar errors, errors that would have been caught and corrected by a professional editor.

Yet I had enjoyed the first book enough that I really did want to continue with the story, so, after hesitating over the price for a few seconds, I took the plunge and bought the book. After having read the second volume (which I rate at 2.5 to 3 stars), I was simultaneously sorry and pleased — the all-too-often agony and ecstasy of the indie book. Again, the story is intriguing, the characters interestingly developed, and I want to go on to the third book — yet I am not. I have decided that at $3.99 I should not be continuously insulted by language misuse.

How do I know I will be so abused? Smashwords offers sample previews of each of the volumes. Every volume suffers from the same illness: an author who seems not to know what either a dictionary or a grammar guide is for or how to use it. The only thing that could make this worse is if it turned out that McLaren was a public school English teacher.

How many times can I accept, for example, forth for fourth, there for their, were for where, then for than? McLaren writes disburse when he means disperse, to long ago when he means too long ago, that when he means who, cloths when he means clothes. And the list goes on, almost without end. I’m not convinced that he knows what purpose the apostrophe serves, because so many possessives lack one (e.g., the mornings work rather than the morning’s work) — perhaps a better way to say it is that too few (what should be) possessives include an apostrophe. And let’s not delve too deeply into the missing hyphenation in compounds or the missing commas, both of which ensure a struggle for readability and comprehension.

I need also mention that the author does a sloppy job of remembering his own characters’ names. The fairy Uwi becomes Renee before returning to Uwi; Niki becomes Nike and then Niki again. This problem of getting character names wrong happens several times with several characters throughout the series.

This is a case study of a good series that desperately needs attention from a professional editor. The story is intriguing and for a fantasy buff like me, even compelling, except for the necessary slogging through illiteracy. For free or 99¢, I can accept a lot of insult; for seven volumes at $3.99 each, my tolerance is very limited.

I grant that for a good story, $3.99 is not a lot to pay. I wouldn’t hesitate to pay it, but there has to be a convergence of good writing, good editing, and good story for me to shell out $3.99 seven times just to get a complete story. (It is not that each of the first two volumes cannot stand on their own; they can. Rather, it is that each tells only a part of the adventure and all eight volumes need to be read to get that complete adventure.) Those of you who have been reading An American Editor for a while know that I praise the writing of some indie authors, such as Vicki Tyley, Shayne Parkinson, and L.J. Sellers. I would not hesitate to buy one of their books at $4.99, let alone at the $2.99 that they charge, because their books are well-written, well-edited, and well-told stories. They use the correct words and understand the importance of punctuation.

It is the well-edited that is the missing leg in McLaren’s “Clarion of Destiny” series, which, when combined with a “high” price, causes the discerning reader to agonize over whether or not to read indie books. Unfortunately, it is books like McLaren’s that give a bad reputation to all indie books — at least among readers who care about grammar, spelling, and word choice. The most common statement I see on various forums regarding indie books is that the commenter won’t buy them because the quality too often is poor. I buy them knowing that of 10 indie books, only one or two will be readable or worth reading. I don’t mind having to separate the wheat from the chaff, but that is also why I won’t spend more than 99¢ on an introduction to a new indie author and I prefer that the first book from an unknown author be free.

What I do mind, however, is to find an author who spins a good story — a story worth reading and recommending — but who is so careless with language, yet wants a higher price for his or her stories, that the story cannot overcome the barrage of insults the reader needs to absorb. The point is that the lower the price the author asks, the more tolerant the reader should be; conversely, the higher the price the author asks, the less tolerant the reader should be!

So, now I am in a quandary over McLaren’s “Clarion of Destiny” series. I am inclined to reward the author for writing a good story, one that holds my interest. Simultaneously, I am disinclined to reward the author for his apparent indifference to the fundamentals of good writing — correct language use and grammar. The asking price of $3.99 is probably the fulcrum point where the competing inclination and disinclination are at balance. I am certain in my mind that were the asking price $4.99, I would not have even considered buying the second book in the series; at $3.99 it was an OK gamble, albeit a gamble that I lost as the misuse got worse. It is also clear to me that because the story is as good as it is, were the price $1.99, I would hesitate but I would buy.

I am aware that $2 is not a lot of money in the scheme of things. For me, it is not so much about the $2 as it is about the message I send when I spend that $2. Buying the seven books at the $3.99 price tells the author that his misuse of grammar and language is OK. Is that really the message I want to send?

As I said, $3.99 is, for me, the point of balance between inclination and disinclination. I am undecided as to what I will do. For now, I will set aside McLaren’s “Clarion of Destiny” and move on to other books and series. In a month or two, if I still remember the series, I’ll revisit the issue. If I remember the series, it will be a sign that I should spend the money; if I forget about the series, my not spending the money was a wise decision for me.

Regardless of what I ultimately do, I think the time is rapidly coming when indie authors who do not want to simply give all their work away for free need to encourage readers to buy their books by ensuring that they are well-written, well-edited, and have a compelling narrative — the three legs that form the support for success.

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!

Should Internet-Only Retailers Pay a “Showroom Tax”?

Not so long ago, Amazon encouraged consumers to go showroom shopping at local stores and then use a smartphone app to connect to Amazon to see if the item the consumer was interested in was available at Amazon for less. Essentially, Amazon was using brick-and-mortar (b&m) retailers as auxiliary showrooms. Needless to say, this didn’t go over well with the b&m retailers, especially the small, independent bookstores, and for good reason.

Of course, there is no practical way to prevent such comparison shopping by consumers. A b&m retailer can fight back by no longer carrying any Amazon-branded merchandise, which is the approach Target took, but that will, for the most part, be an exercise in futility — how many Amazon-branded products are there and how many are sold by the b&m retailer? Perhaps a smarter approach would be to assess a “showroom tax” on products sold by Amazon (used here as a euphemism for Internet-only retailers) and passing the tax receipts on to the b&m retailers either directly or indirectly. Such a “tax” (I am using the term tax very loosely; a term such as surcharge or fee or service adjustment or other similar-concept euphemism works just as well) would have Amazon contributing to paying the costs of maintaining a b&m store without chasing customers away because they openly are comparison shopping (which, it has been reported, some independent bookstores have done).

There are a couple of ways that a showroom tax could work. (Although I use Amazon as the example, the idea is for any Internet-only retailer to be charged the tax, not just Amazon.) I think the easiest way it could work would be if the wholesalers/manufacturers of goods that are sold to both Internet-only and b&m retailers charged and collected the tax and either used the proceeds of the tax to lower the wholesale price of the same goods sold to b&m retailers or provided b&m retailers with a rebate equivalent to the amount of tax collected.

Essentially, it could work like this: If Amazon buys/sells 100 Sony TVs, Sony would collect the tax (say $1 per unit) from Amazon in addition to the wholesale price. Then when Target buys/sells 100 Sony TVs, it would either have $1 deducted from the wholesale price of each unit or it would pay the same wholesale price but receive a rebate of $1 per unit.

The alternative would be to really make it a national (federal) tax that is collected by the government and then distributed to b&m retailers by way of a tax break that is available only to b&m retailers.

I realize it is not as simple to do as I make it appear, that we are talking about a fixed pool of money that would have to be divided equitably, and the per-unit tax would need to be of a sufficient amount so as to be meaningful, but it could be done. I don’t want to nitpick details; it is the broader concept that is of interest at the moment.

The argument will certainly be made that b&m retailers are not worth saving if they cannot compete effectively; after all, there is a cadre of ebookers who currently take that position as regards b&m bookstores. Many of those who make that argument see nothing wrong with Internet-only retailers making use of the b&m stores as free showrooms; a few ebookers have boasted that that is exactly what they do: visit a local b&m bookstore to check out an item and then order it online because the price is less or they save sales tax.

The problems with the ineffective competition argument are that it (1) compares apples with oranges, that is, the playing field for b&m and Internet-only businesses is not — and cannot be, as currently contrived — level, and (2) it assumes that if all retail went Internet-only the consumer would be better served, a proposition that has neither been field-tested nor proven and on its face strikes me as inherently incorrect. It is easier to accept with certain products, like books and music, than with others, such as TVs. (If you couldn’t showroom shop TVs, how would you determine whether you like the picture and features better on the Panasonic than on the Samsung or Sony LCD TV?) Even companies like Apple and Leica have found that showrooms are important sales tools.

Companies like Amazon are able to reduce their costs, and thus offer a lower price to the consumer, because they do not have to support b&m storefronts in order to sell their goods — someone else already has a b&m storefront where those goods are displayed, and that someone else absorbs all the costs of the b&m store. I’m not suggesting that this advantage of the Internet-only retailer is illegal or immoral; instead I’m suggesting that even Internet-only retailers recognize the importance of showrooming, as witnessed by their encouraging consumers to showroom shop locally but buy online to save money.

Such consumer behavior cannot (and should not) be forbidden, In fact, it probably should be encouraged, but only if the playing field is leveled. It is impractical to devise methods to force currently Internet-only retailers to become also b&m retailers. Besides how many more b&m retailers selling the same merchandise do consumers need? The issue isn’t purchasing options, which now exist in abundance; the issue is spreading out the costs of showrooming among all those who rely on it.

Local b&m retailers would be able to compete better with Internet-only stores if their overhead costs weren’t burdened with the extra costs that are part and parcel of having a physical presence that is open to the public. Because the Internet-only retailers rely on the ability of the consumer to see the merchandise at a local b&m, the showrooming effect, it seems appropriate that the Internet-only stores should share the cost burden of maintaining the b&m showrooms.

In a way, Amazon demonstrates the correctness of this approach of cost-shifting/sharing. When a consumer buys an ebook from Amazon, Amazon charges a delivery fee to the author. Unlike some other ebook sellers, Amazon doesn’t absorb the costs of delivery as a cost of doing business; instead, it takes ancillary costs like delivery off the top and then does its split with the author/publisher. The consumer doesn’t directly see this, but it is a factor that goes into (or should go into) the author’s calculation of the ebook’s price. Whether fair or not, by not absorbing all of the delivery costs, Amazon is able to charge less for ebooks than competitors who do absorb some or all of the delivery costs.

Similarly, by not needing to have b&m showrooms, Amazon is able to sell products for less because its costs are less, yet it is able to also take advantage of the showroom effect because it can encourage consumers to check out a product hands on locally and then buy for less online.

It seems to me that under the circumstances, Internet-only stores should pay a showroom tax to help support the b&m showrooms they rely on and to help level the playing field from a cost/price perspective.

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.

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?

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.