Sep 16 2012

Ebook prices are rising…and falling but the consumer’s in the driver’s seat

By Jane • Ebooks •

Within days of Judge Cote approving the settlement in the price fixing case, HarperCollins abandoned agency pricing and retailers started discounting.  To Mike Shatzkin, industry consultant (here); Michael Cader, publisher of PublishersMarketplace (here, registration required); Rich Adin (here); and so on, the fall of agency pricing is leading to increased ebook prices.

Given the hue and cry that the fall of agency pricing would result in the ruination of publishing world through Amazon predatory pricing, these pieces are fairly ironic.   Remember the 800+ comments rejecting the settlement that would remove restrictions to pricing on ebooks?  Placing the control over pricing back in the hands of retails would increase apace the destructive predatory pricing of Amazon resulting in the decline of brick and mortar stores, but it threatened the very foundations of publishing itself.

The ABA wrote the following, exhorting all its members to write to the Department of Justice protesting the settlement:

As ABA made clear in a meeting with DOJ on March 19, we could not believe more strongly that the agency model has been good for our channel, good for all bricks-and-mortar bookstores, good for publishing, and, most importantly, good for readers and book buyers. Since its introduction, the agency model has corrected a distortion in the market fostered by below-cost pricing, predominantly led by Amazon.com, the ultimate result of which is, we believe, to reduce or to eliminate competition among both retailers and publishers.

First, let’s be clear about what has happened with the settlement because, as a reading of Rich Adin’s piece is clear, there is a fundamental misunderstanding about what the settlement does and does not do as it relates to pricing.  The settlement does two basic things in regards to pricing for the settling defendants.

1)  Disallows restrictions on retailers for two years

2) Disallows most favored nation clauses.

Adin and perhaps others felt that the Judge Cote required the retailers, who are not parties to the suit, to accept a certain type of agency pricing wherein the aggregate amount of discounts cannot exceed the aggregate amount of commissions.

 As Judge Cote wrote (p. 10 of the Opinion & Order filed September 6, 2012), the publishers, although they cannot use agency pricing, which presumably means a return to the wholesale pricing of the preagency days, can “enter into contracts that prevent the retailer from selling a Settling Defendant’s e-books at a cumulative loss over the course of one year.”

This retailer price protection is only voluntary and we simply do not know what terms publishers were able to come to with Amazon or other retailers.

Apple further argues that the provision will unfairly benefit Amazon, because Amazon’s larger annual sales means that it can engage in more discounting. Apple suggests that the decree should instead limit discounting on a per unit basis.The Government notes that it included this section in the proposed Final Judgment at the behest of the Settling Defendants, who were concerned about Amazon’s discounting practices. The provision is entirely voluntary. Accordingly,if any Settling Defendant wishes to take advantage of the provision it can do so by negotiating the requisite contractual terms with e-books retailers, including provisions for monitoring and enforcement.

The price constraint is entirely voluntary and clearly dependent upon the parties involved.  Why is this important?  Because others are essentially arguing that the publishers will now increase list prices of books so high that Amazon will not be able to effectively discount books to appeal to readers. Instead, ebook prices will rise to such a level as to deter ebook readers.  Is this possible? Of course it is possible.

If publishers do this, readers will move to lower priced substitutes.  According to the DOJ papers, Random House enjoyed an increase in sales during the time in which it was selling books wholesale while the other publishers were engaged in agency pricing.  Mark Coker of Smashwords has data that shows that the price of self published books have been trending slightly downward.  Other data does indicate that ebook prices, as a whole, have decreased but it’s likely due to the influx of self published books.

But beyond whether publishers will continue to try to kill themselves by punishing 30% of the reading market and growing is this.   I don’t know that any consumer believed that across the board every book would be cheaper once agency pricing was eliminated.  What readers are appreciating now is that we have some say in the price of our books.

What I mean by this is that consumers have relationships with their retailer whereas there has been no relationship with the publisher. Since the rise of Agency, we have been told repeatedly that these publishers are the gatekeepers who are fostering our literary heritage and are keeping alive literary culture in our communities through the support of independent bookstores.

Literary heritage? Publishers have had a history of supporting chains over indies.  How many independent booksellers were able to sign agreements with every agency publisher since 2010? How many independent booksellers actually went into business of selling books since agency was imposed?  In Judge Cote’s decision she wrote that publishers could subsidize these brick and mortar stores to the extent that those establishments had value to publishers.

As for literary culture, these are publishers who publish books by Snooki; buy fan fiction and sell it as original; and have their own quality control problems.

The one thing that publishers have tried to get across to readers is that we just do not know what we are doing. We need their help to find the right book, need their help to preserve literary culture, determine the true amount that we should pay for a book.

Most of us who are buying books earn money which means we are adult enough to make a living; buy a car or a house; vote; enter into contracts.  We make important decisions about our life and those around us. We may decide to buy a book today at $14.99 or we may decide to wait until we have a coupon.  Agency pricing took choice away from the consumer.   The settlement cedes control back to the retailers who have to care about the consumer.  Even if book prices for some books are higher, the consumer is back in the driver seat.

It makes me think of the “Sisters” song in White Christmas.

Many men have tried to split us up, but no one can

Lord help the mister who comes between me and my sister

And Lord help the sister, who comes between me and my man

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By • Ebooks • 30