Publishing/Writing: Insights, News, Intrigue

04/08/2012

A Compelling Case for the Agency Model or Reasons Why the Agency Model Will Not Lead to Higher Book Prices


 

Will blind justice kill the agency model?

Tonight a little hard data showing that the free market ecosystem would not allow the agency pricing model to cause book prices to rise.

Why not? One main reason is because authors and publishers would use price as a competitive tool, and this would naturally lead to lower prices.

Mark Coker, founder of  e-book distributor Smashwords, gives up some inside numbers on the Smashwords official blog  — data he has also shared with DOJ: 

Does Agency Pricing Lead to Higher Book Prices?

According to a March 9 story in the Wall Street Journal, The U.S. Department of Justice is considering suing Apple and five large US publishers for allegedly colluding to raise the price of ebooks.

At the heart of the issue, I suspect, is concern over the agency pricing model. Agency pricing allows the publisher (or the indie author) to set the retail price of their book.

Although Smashwords is not a party to this potential lawsuit, I felt it was important that the DoJ investigators hear the Smashwords side of the story, because any decisions they make could have significant ramifications for our 40,000 authors and publishers, and for our retailers and customers.

Yesterday I had an hour-long conference call with the DoJ. My goal was to express why I think it’s critically important that the DoJ not take any actions to weaken or dismantle agency pricing for ebooks.

Even before the DoJ investigation, I understood that detractors of the agency model believed that agency would lead to higher prices for consumers.

Ever since we adopted the agency model, however, I had faith that in a free market ecosystem where the supply of product (ebooks) exceeds the demand, that suppliers (authors and publishers) would use price as a competitive tool, and this would naturally lead to lower prices.

I preparation for the DoJ call, I decided to dig up the data to prove whether my pie-in-the-sky supply-and-demand hunch was correct or incorrect. I asked Henry on our engineering team to sift through our log files to reconstruct as much pricing data as possible regarding our books at the Apple iBookstore.

We shared hard data with the DoJ yesterday that we’ve never shared with anyone. I’ll share this data with you now.

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04/04/2012

Looks Like the Agency Model May Survive DOJ as a Valid Business Model


The Right Decision on Agency Model ?

Signs emanating from news sources point to the agency model (backed by the big six publishing houses) being judged a valid business model by The Department of Justice.

With one alteration — Apple must drop its MFN (most favored nation) designation. MFN status meant Apple could not be undersold by other retailers.

What does this mean?

To me it means that all the best content, known authors, bestsellers, etc. will probably be available only through sites employing the agency model. Why? Simply because authors/creators can make more money with the 70%/30% revenue split — and at a price set by the author/publisher not a third-party retailer.

This also means that all the best new content, authors, bestsellers, etc. will probably leave Amazon with its cheapo book model, unless they make some changes.

That some of its titles in iBooks are uncompetitive probably won’t worry Apple much. It cares a hell of a lot more about upholding agency terms and MFN with magazine and newspaper publishers, where the market structure is totally different. 

What tomorrow may look like:

    For quality content go to Apple iBooks and other agency model sites.

    For lesser, second-rate, cheapo content go to Amazon.

More details here by  at Digital Book World:

Breaking Down the Apple-DoJ-Agency Five Saga and Its Ramifications

What could the actions of the Department of Justice mean for e-books? Here’s a breakdown with some scenarios as I understand the situation. 

Apple’s Agency Model

Publishers selling through Apple can only do so through an agency agreement (a uniform 70%/30% revenue split across all categories and digital products). That is true for all assets – games, music, video, movies, etc. – sold through Apple.

Based on the recent news reporting, the DoJ might accept agency as a valid business model. In an interview with the Wall Street Journal, Sharis Pozen, the top antitrust official at the Department of Justice states “we don’t pick the business model”, and is focusing its efforts on a settlement under which Apple drops the “most favored nation” clause form contracts according to a report by Reuters.

This means Apple’s business model for iTunes – including iBooks – may remain largely untouched. Apple does not have to worry about price-matching, does not need buyers or merchandisers to come up with the right price, and does not need to change its technical or e-commerce infrastructure. 

Most Favored Nation

To be competitive under its retail model, Apple originally insisted on a Most Favored Nation (MFN) clause to make sure its goods (and its processes for pricing these, where the publisher set the retail price) were competitive (i.e. Apple would not be undercut on the same goods in the marketplace).

Being forced by the DoJ to drop the Most Favored Nation (MFN) clause means that Apple could no longer insist that the retail price agreed between Apple and publisher is the lowest in the market at all times. 

Agency and the Big Six (Penguin, Macmillan, Hachette, Simon & Schuster, Random House and HarperCollins)

The big-six publishers (except Random House, which followed the “agency five” to this business model one year later) had agency agreements in place with Apple when iBooks launched and more importantly were able to force these agency agreements (RH included) on Amazon, too. Due to their market position and the popularity of their books (and authors), the big-six publishers prevailed in negotiations with Amazon (remember the outcry by authors and customers when Macmillan books disappeared from Amazon? Amazon caved inside of 3 days.)

It is likely that nothing will change for the big six if Apple is forced to drop MFN. It will be agency terms as normal with all retailers be they Apple, Amazon, BN, Google, Kobo or others. This is probably a very happy outcome for the big six.

However, at the same time, the big six are less constrained when doing short-terms promotions and will only be able to do these promotions selectively, i.e. only in certain channels and on certain titles. Regardless, I think the big six would be very happy with this outcome. 

Agency and the Second Tier

Many publishers in the “2nd tier” (all those outside big six – this in no way refers to quality of the output, it is just a reflection of size and market-share) have agency agreements with Apple, but wholesale agreements with Amazon, because Amazon had the upper hand in negotiations along the lines of “you are not willing to sell on wholesale terms? O.K. we will not sell your books” and swoosh these publishers would have lost the potential of selling to 60% to 70% of the now very large e-book market (as much as 50% of the total market for many titles).

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03/18/2012

An Example of the Convergence of the Old and New Publishing Models


One of the main advantages of the new digital age publishing model is being able to streamline your work directly to publication without the months, years and forever waiting periods to even an interest nod from a traditional publisher 😦
 
In good old Downunder Territory, Linda Morris writes this revealing and incisive piece for The Canberra Times that details how the latest romance e-book bestseller, Fifty Shades of Grey, made it big digitally but never would have gotten off the ground under the old TP publishing model: 
 
Steamy yet discreet: an e-book revolution
 
If the future of books looks like a horror story, electronic publishing may help provide a happy ending.
 

There is an internet meme called Rule 34 which states: ”If you can think of it, there is a fetish for it.” Rule 35 follows: ”If no such porn exists, it will be made.”

The publishers of the electronic-book arm of Harlequin, that grand dame of the paperback romance, understand these immutable laws better than most. Carina Press sells e-book romance in 11 categories and 17 spin-off niches – including Amish, dragon, angel and demons, space opera, paranormal, fantasy and time travel – reaching to the edges of cyberspace to corral a readership of the most eclectic kind.

The personal tastes of Carina’s chief executive, Angela James, run to steampunk, cyberpunk and a discreet touch of BDSM (bondage, discipline, sadism, masochism) and she jokes online she’s still looking for the author who will write her a space cowboy book in the vein of Joss Whedon’s Firefly.

But love stories laced with buffed blokes and sexually game heroines are the genre’s current hot ticket.

Fifty Shades of Grey is an erotic romance novel written by an obscure British author and mother of two, featuring college student Anastasia and her millionaire beau who hides a secret sexual predilection for whips and floggers.

This month the trilogy made the jump from underground fan-based fiction to mass market, landing a seven-figure advance for the US rights from Vintage/Random House, and a six-figure sum for the British and Commonwealth rights.

”I certainly see why readers find it compelling,” James says, ”though it’s certainly not the most well-written or original book, especially given its start as Twilight fan fiction.

“But clearly there’s a perfect storm of story elements that make it attractive to a commercial fiction audience, and anything that increases the profile of romance, books and publishing is a win for all of us.”

While fans argue over the ethics of a storyline spun from the Twilight franchise and critics dispute its literary merit, Fifty Shades stands as a remarkable example of the convergence between old and new publishing models. Its author, E.L. James, started without a major publisher and marketing machine behind her, her re-imagined tale of the Bella and Edward love affair being published by an unknown Sydney amateur fiction publisher.

A US fan base loyal to Twilight promoted the books on Facebook, Twitter and book review sites such as goodreads.com, generating a word-of-mouth buzz that eventually went viral.

Without the changes brought by the digital age, Fifty Shades would probably never have made its way out of a publisher’s pile of rejected manuscripts, a Macquarie University media studies academic, Associate Professor Sherman Young, says.

Digital proved itself the perfect low-cost vehicle for bringing the experimental, risky story to market while social media substituted for the literary critic and the publicist.

It was Young who in 2007 wrote The Book is Dead, Long Live the Book, a prescient prediction of the migration of the physical book from page to screen. Young’s observations were made before the advent of the Kindle and iPad.

Publishing is not dying but it is in the midst of enormous upheaval not seen since the invention of the Gutenberg press.

The arrival of the internet retailer Amazon and its aggressive strategy to sell e-books at a loss to build market share has benefited consumers but undermined the very business model of the big publishers. In some eyes, its platforms for self-publishing have rendered the entire author-agent-publisher relationship obsolete.

Publishers are making e-books available simultaneously with p-books and are converting backlists. Only one big Australian publisher, Pan Macmillan, has established its own straight-to-digital imprint although others are soon to follow.

The agency model, the means by which the six major US publishers have effectively limited Amazon’s deep discounting, is under investigation by the US Justice Department and the European Union.

The effect of publishers setting a cover price for e-books is more expensive books, but authors such as Salman Rushdie argue that to break this system would be to ”destroy the world of books”, denying a fair return to story creators and their editors.

The digital world is a riotous jungle, publisher Henry Rosenbloom of Scribe concedes, posing all sorts of technical and practical challenges for traditional publishers. But the structural changes under way may be the least of the publishers’ problems.

Rosenbloom has warned of a precipitous drop in the value of Australian bookshops’ print-book sales, as measured by BookScan. Down 17.5 per cent in December last year, compared with the same period in 2010, the sales trend is accelerating.

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03/14/2012

Publishing Intrigue Con’t: Is Government About to kill Real competition to Save Appearance of Competition?


Gov't Killing Competition?

Hopefully not!

The jury is still out. While the Justice Department is weighing the past, present and future course of the publishing industry (in trying to tame the nefarious price-setting practices of e-books — and by extension of all books), opinionated speculation is running rampant!

This digital-era-caused publishing shipwreck upon ‘conscience island’ could just be the best thing that has ever been visited upon the publishing empire.

Why ? Because the forced dealing with recent ethical questions like price-setting below profitable margins just to run peripherals out of business and create a more monopolistic advantage, will hopefully lead to a clearing up of abuses and unethical practices that existed under the old traditional publishing business model as well!  

But, in order for this to take place, the DOJ must put it’s best foot forward with a real commitment to create a publishing landscape that fosters open and fair competition. Good prices for all concerned will then follow — based on fair market value — not cookie-cutter, one-price-fits-all, dip-shit prices (that will be raised, without any recourse, in the future when the true monopoly is firmly established).

This from Carolyn Kellogg of the LA Times:

Scott Turow: Apple didn’t collude, it offered an e-books life raft

Last week shivers shot through the world of publishing when news broke that the U.S. Justice Department warned Apple and five major publishers that it was investigating them for alleged collusion, the Wall Street Journal reported. At issue was the price of e-books: When Apple launched the iPad, five major publishers adjusted their pricing schemes from a wholesale/retail model to an agency model.

In December, Justice Department official Sharis A. Pozen told a House subcommittee that the antitrust division was investigating e-book pricing. A source told the New York Times that the department hopes to decide by the end of April, when Pozen is leaving, whether to file suit against Apple and publishers  Simon & Schuster, Hachette, Penguin, HarperCollins and Macmillan.

That would be a mistake, writes Scott Turow, a bestselling author, a lawyer, and head of the Authors Guild. In an update on the Authors Guild website, he writes:

We have no way of knowing whether publishers colluded in adopting the agency model for e-book pricing. We do know that collusion wasn’t necessary: Given the chance, any rational publisher would have leapt at Apple’s offer and clung to it like a life raft. Amazon was using e-book discounting to destroy bookselling, making it uneconomic for physical bookstores to keep their doors open.

Just before Amazon introduced the Kindle, it convinced major publishers to break old practices and release books in digital form at the same time they released them as hardcovers. Then Amazon dropped its bombshell: as it announced the launch of the Kindle, publishers learned that Amazon would be selling countless frontlist e-books at a loss. This was a game-changer, and not in a good way. Amazon’s predatory pricing would shield it from e-book competitors that lacked Amazon’s deep pockets.

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03/11/2012

Is the Justice Department’s Antitrust Division Allowing the Buying of Publishing Monopolies ?


Buying Publishing Monopolies?

It’s publishing intrigue time again 🙂 This time in the form of the wholesale model versus the agency model in digital publishing — OR, in other words,  Amazon versus Apple. 

Both models are monopolistic. The wholesale model allows the e-book retailer to fix a below cost (to them) flat price of $9.99 (very suspicious for future price gouging). The agency model allows the publishers to price-fix a higher, colluded price range. So, pick your poison or your monopoly. 

Which is better for the industry as a whole ? For the consumer ? For the financial sustainability of good writers and attracting future talent ? Etc., Etc., Etc. 

There are points on both sides of this issue, but one thing should remain clear while the Justice Department is trying to sort it all out:

Open and aggressive competition always promotes ingenuity, improved products, promotes quality industry growth AND  is the only safe and fair way to set prices. Something we have forgotten in a greedy rush to set or protect an unfair advantage or status quo.

 Washington Post columnist   gives an in-depth explanation of the publishing wholesale and agency models along with an insight into the industry politics and nuances involved in this flushing out of the new publishing landscape: 

Pick your monopoly: Apple or Amazon

As a general rule, we don’t prefer monopolies. We know that, over the long run, monopolists tend to raise prices, reduce choice and stifle innovation.

But are monopolies so bad that we might want to tolerate a little price-fixing by customers or suppliers in order to break them?

Could a little anti-competitive behavior actually be pro-competitive?

That is what five leading book publishers are arguing in explaining why they simultaneously accepted an offer from Apple, just before the release of the iPad, to change the way e-books are priced and distributed. Their actions moved the industry from a “wholesale” model, in which they sold e-books to retailers and let them set the retail price, to an “agency model,” in which the publishers set the retail price and pay the retailers a fixed commission on every sale. In the process, they managed to break up Amazon’s e-book monopoly and raise the price of online books by 30 to 40 percent.

Now you might ask at this point why breaking up a monopoly would raise prices rather than lower them.

The answer has to do with how Amazon went about building its e-book monopoly in the first place — namely, by setting a price that was lower than what Amazon was paying publishers for the book. What looked to consumers like a great bargain at $9.99 a book looked to others in the industry suspiciously like predatory pricing, or selling below cost today in order to gain a monopoly and raise prices in the future.

So which is better: a market in which Amazon uses low prices to maintain its e-book monopoly and drive brick-and-mortar bookstores out of business, or one in which the major book publishers, in tacit collusion with Apple, break Amazon’s monopoly and raise prices?

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