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

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

Jane Litte is the founder of Dear Author, a lawyer, and a lover of pencil skirts. She spends her downtime reading romances and writing about them. Her TBR pile is much larger than the one shown in the picture and not as pretty. You can reach Jane by email at jane @ dearauthor dot com

30 Comments

  1. JewelCourt
    Sep 16, 2012 @ 09:08:08

    I primarily read ebooks, and I only buy them from Amazon. I can’t remember the last time I stepped foot in a bricks and mortar bookstore. I only buy from Amazon because 1) I have a Kindle and it’s convenient, and 2) I like to collect reward points from various bank/credit card/ etc. programs and redeem them for Amazon gift cards.
    What this means is that, like a lot of ebook readers I suspect, I don’t pay attention to the publisher. I only go to my purchase site of choice, never to the publisher’s website. I am not loyal to a particular publisher and I certainly don’t need their help to find books. I have plenty of books in my Amazon wishlist thanks to sites like DA and SmartBitches, so if a particular ebook is priced too high I’ll pass on it and buy a cheaper one. Need to stretch those giftcards.

  2. LG
    Sep 16, 2012 @ 09:56:43

    @JewelCourt: “What this means is that, like a lot of ebook readers I suspect, I don’t pay attention to the publisher.”

    I pay attention to the publisher, but only because I refuse to by DRM-protected books.

  3. Colton Joseph
    Sep 16, 2012 @ 10:41:11

    I posted this on a few blog posts this morning already but… perhaps the stabilization and lower cost of eBooks may come about once readers and authors discover my new site. Not to trump my own horn, but we offer FREE self-publishing and NO ROYALTY FEES. We are the first eBook store of our kind. Check it out… we’d love the support:

    [links removed by Jane]

    Colton Joseph (CEO & Founder)

  4. Maddie
    Sep 16, 2012 @ 10:56:47

    I do not care about who published the books I purchase. For me its about the author and the story.

    I also do not mind about the pricing now, at first I did but I figure I would pay the same as a paper book.

    The only stink I have is I have noticed the price of some books going up after they have been picked up by a NY? publisher.

    Lisa Renee Jones book just went up in price from 4.00 to 7.99 . Same with Beautiful Disaster and Bared To You.

    I will buy from books from my auto – buy authors no matter the price of the book, but that is with paper books only.

    I have all of Beth Kerry’s trade side books in paper but will buy the ebooks when they are at 7.99 each. But will buy her new book in storm in Nov. Weird I know.

  5. Darlynne
    Sep 16, 2012 @ 11:48:38

    Sing it, Jane! (My sister and I watch White Christmas every year without fail.)

    Thank you again for explaining this matter in a way that makes sense. I had no expectation of ebook prices dropping significantly, but I do hope we’ll be able to use retailer coupons or discounts again at some point. It would be a good move, imo, on B&N’s part to include digital books in their membership program, so the same discounts in print books would apply. I hope Fictionwise can get back in the game as well. Possibility is out there for the publishers and retailers smart enough to capitalize on it.

  6. LisaCharlotte
    Sep 16, 2012 @ 14:34:47

    I’m with the first commenter, Jewel. I have a kindle and I only shop at Amazon. I don’t care about DRM. I won’t pay 9.99 for a book that’s cheaper in print. I don’t have the time nor inclination to figure how to get books on my kindle using other retailers or software. I have a lot of other interests that eat into my reading time as it is. The only exception to any of the above is Ilona Andrews. There used to be more authors on that exception list, but it’s whittled down over time to one.

  7. joanne
    Sep 16, 2012 @ 15:17:31

    @Colton Joseph:

    perhaps the stabilization and lower cost of eBooks may come about once readers and authors discover my new site.

    hmmmm, well that’s certainly questionable and debatable but since you’re still in the beta stages of your site I’ll say no more about your post.

    @JewelCourt: Love the way those points add up for gift cards. Of course I generally give them to me but still it’s a little something back on my book costs.

    I follow the deals and the coupons if I can get them, I don’t feel any loyalty to any site but I have found Amazon to be my best bet most of the time. Publisher’s sites offer nothing but blah, blah, blah about the book as though I would go looking for it if I wasn’t already interested. And a full purchase price. I pass until or unless I see a discount somewhere else.

  8. Colton Joseph
    Sep 16, 2012 @ 15:49:40

    @joanne

    I don’t see what is to question? If eBook authors are receiving more for their books (because of no royalty fees) they may charge less overall… and STILL come out with more of a profit than other sites.

  9. Jane Litte
    Sep 16, 2012 @ 16:13:08

    @Colton Joseph: Your post is very nearly spam and I think that is what @joanne may be referring to.

  10. Colton Joseph
    Sep 16, 2012 @ 16:14:51

    Yet, it’s not spam, it’s completely relevant to the situation and I provided information about what I’m talking about for those who are interested. If it were spam I would not care to reply.

  11. Jane Litte
    Sep 16, 2012 @ 16:21:08

    @Colton Joseph: Yet, it really is spam. Nearly 50% of your post was about your product, asking for support. That’s not providing a thoughtful comment about price, movement in the industry, affect on consumers. Further, your comment makes little sense. You don’t want to “trump” your horn? Trumpet you mean? There are no “royalty fees’? What exactly is royalty fees? That’s an almost oxymoronic statement unless you are saying that retailers receive “royalty fees.”

  12. Colton Joseph
    Sep 16, 2012 @ 16:29:59

    Jane, I’m afraid I don’t follow much of your argument. My discussion of my business is a potential SOLUTION to the blog post’s presentation of the problem of eBook price fluctuations. Forgive me for adding information to viewers about HOW my business is a solution. Additionally, me attempting to gather a following is not spam. And since you’ve decided to correct grammar issues, “What is royalty fees” needs a once over. Royalty fees are fees that authors pay to eBook stores when they sell their books. This is common knowledge if you understand the most basic level of how eBooks are sold and how companies earn money from their sales. Additionally, royalty fees is a very common term among any business.

  13. Ros
    Sep 16, 2012 @ 16:36:58

    Colton, your new site has absolutely nothing to do with the subject of the post which is the pricing of ebooks published by the Big Six publishers, not self-published ebooks. Self-publishers have always been entirely free to set their own prices for their books without any other website to help them.

  14. Ros
    Sep 16, 2012 @ 16:37:26

    Colton, your new site has absolutely nothing to do with the subject of the post which is the pricing of ebooks published by the Big Six publishers, not self-published ebooks. Self-publishers have always been entirely free to set their own prices for their books without any other website to help them.

    I think Jane has been more than fair in not deleting your post entirely.

  15. Jane Litte
    Sep 16, 2012 @ 16:39:59

    @Colton Joseph: Flogging your business on my blog isn’t contributing to the discussion. It is spam.

    Edited to add: “royalty fees” has to be the most messed up business term and if it is used regularly in the self publishing business, I wonder about those businesses.

  16. Colton Joseph
    Sep 16, 2012 @ 16:43:11

    If it’s spam, delete it. I apologize for commenting on this blog post. Best wishes!

  17. Fionn Jameson
    Sep 16, 2012 @ 20:11:42

    WTF (excuse my strong language) is royalty fees? *_* (coming from someone who selfpubs)

  18. Meoskop
    Sep 16, 2012 @ 20:32:41

    @Colton Joseph: “This is common knowledge if you understand the most basic level of how eBooks are sold and how companies earn money from their sales.”

    Mansplainer of the week!!

    Someone took a course in how to alienate the public.

    Back to the point – Books On Board was instantly less expensive on many titles than Amazon. As I started buying Avon again when they dropped their ebook prices I didn’t take advantage. I’ve got a list of books from other pubs, but the long march to fair market means I culled it down to 20% of what I would have purchased.

  19. Colton Joseph
    Sep 16, 2012 @ 20:36:11

    @Meoskop Thanks for the rude comment

    @Fionn Jameson

    Royalty fees are the fees eBook authors pay to companies who sell their products (i.e. Amazon, Apple, Smashwords, etc.)

  20. Patty
    Sep 16, 2012 @ 20:52:35

    I just saw a new kindle book for $16.99…what is happening?

  21. joanne
    Sep 16, 2012 @ 21:10:34

    @Patty: A mystery? I ask because although a large percentage of my purchases are romance books I buy a lot of mysteries too. I’ve been flummoxed by how high the prices are no matter whether they’re self-pubs or mainstream publishers. Some I have to pass on but with others, when I’m invested in a series, I just bite the bullet and hit buy now.

  22. Ridley
    Sep 16, 2012 @ 21:36:47

    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.

    But is it possible without collusion? I don’t see how it could be.

  23. meoskop
    Sep 16, 2012 @ 21:57:24

    @Colton Joseph: Dude, you are so welcome. And may I say, anytime. Anytime at all.

    @Ridley: They’d have to set their MSRP so high as to drive off paper buyers as well. Of course, they could decide to set sky high base prices only on the e versions, but I think their authors would eventually balk. Pre-Agency one of the pubs was holding their e-books well over their MSRP for the MMPB (Penguin?) for an extended period of time. Windowing can happen without collusion.

  24. Kaetrin
    Sep 16, 2012 @ 22:10:51

    Sorry Jane – I’m feeling a bit dense today. Are you saying that the bit about the total discounts not being able to exceed total commissions is voluntary in the sense that a retailer *may* be able to contract with 1 of the settling publishers and leave that part out? Does that mean that they *may* decide to let say, Books on Board offer whatever discounts they want, but be a lot more strict with Amazon? I think maybe I read it wrong…

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  27. Richard Adin
    Sep 17, 2012 @ 06:18:09

    Thanks, Jane, for citing my article — I just wish the link had been to the original rather than to a reblog :). But on to the topic at hand.

    I have not tracked all of HarperCollins’ pricing since the entry of the settlement order, but it is being reported on Mobile Read that HarperCollins has been steadily increasing the wholesale prices so that the discounted price approaches what would have been the agency price. Is this true? I do not personally know; I am just rumormongering here by repeating what is being said.

    But what I have personally noted is that the difference between the agency pricing and the postagency discount pricing of HarperCollins ebooks that I am interested in ranges from 40 cents to 1 dollar. I think that if the discounts that I am seeing are the types of discounts others are seeing on the books in which they are interested, then how much have consumers really benefitted? Nominal discounts, especially if it is true that the wholesale price is being increased, seem to me to not be particularly worth celebrating.

    One thing that I have noticed is that the list price of new books is increasing. Whether backlist titles will also see an increase in list pricing over the next couple of years will be worth watching. We may well end up with discounts but discounts off of higher wholesale/list prices so that the effect is that consumers are paying the same or more than what they would have paid under agency pricing.

    Finally, although to date in the world of agency pricing this has been an empty promise, publishers claimed that eventually ebook pricing on older titles would decline. I agree that this has yet to occur, but it in the absence of agency pricing, it is unlikely to occur. It is more likely that we will see maintained or increased pricing as list prices (and thus wholesale prices) rise.

  28. Jane
    Sep 17, 2012 @ 06:57:52

    @Kaetrin – yes, that was one type of “agency” pricing or restriction on retailer discounting allowed but the retailers aren’t required to agree to those terms.

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