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What Kind of Competition Has Retail Price Maintenance for Digital Books...

Last week, news came out that the Justice Department was readying a petition to sue five of the largest publishing houses in North America along with Apple for colluding together to maintain artificially high prices for digital books.

This was initially instituted in January 2010 after Macmillan pulled its entire digital catalog from Amazon unless Amazon concede to these new terms. Under the new terms, Macmillan would set the prices for digital books and Amazon and every other retailer would not be allowed to discount. This became known as Agency pricing, but the term “Agency pricing” is a misnomer. What the publishers are doing is engaging in retail price maintenance, not Agency pricing.

Amazon had been discounting popular front list digital titles heavily, marketing their nascent digital book program as having most of its digital content priced at $9.99 and under. Discounting is commonplace for paper books with large wholesalers like Costco and Sam’s Club pricing hardcovers at 40% or more off. Barnes & Noble also heavily discounts print bestsellers.

However, publishers worried that low digital prices would speed up the adoption of digital books, create large losses for print books, and wreak havoc with their current business model. Further, allowing Amazon to undercut prices would imperil others attempts to enter the market.

William Lynch is quoted as saying that agency pricing helped Barnes & Noble achieve its 25-27% of the market.  I’ve argued as much here.  Much discussion around Agency pricing involves the issue of competitiveness. It appears that the publishers (not Apple) are going to argue that without agency pricing, market competitiveness would decrease.  They will point to the decline in print sales as an example.  The goal of publishers will likely be to get a broad definition of the market such that it includes both paper books and digital books; trade fiction and non fiction; and academic works.  This likely works both for and against them.  First, Amazon only has market dominance in the trade fiction and non fiction categories in digital works.  It does not have market dominance in the digital textbook market, the print textbook market or even the print trade market.

The publishers will point out that Amazon’s aggressive digital pricing is dooming independent bookstores and contributing to a decline of print book sales and a decline in businesses selling print books.  The question that publishers will not be able to answer, however, is how Agency pricing helped to increase competitiveness at the increased price to customers.  First, there has not been an attendant rise of independent brick and mortar bookstores since 2010 when the publishers impose retail price maintenance on print books.  Second, there has not been an attendant rise of independent digital bookstores since 2010.  In observing independent digital bookstores on the internet, the move toward RPM was dismay not jubilation.  Kobo Books had to discontinue consumer oriented programs as did Fictionwise and All Romance eBooks.

Lori James of All Romance EBooks shared her thoughts on this matter.

1. We at All Romance appreciate the publisher’s desire to control pricing. We have direct relationships with hundreds of publishers and since the day we opened our contract has stipulated that we will not change the sale price of their work without permission.

2. Under the Agency model we can not offer incentives. We do offer incentives from time to time for Non-Agency, but that is our cost, not the publisher’s cost. In those cases, customers still pay full price for the Work. So, for example, we can spotlight a non-Agency publisher like Harlequin and offer customers a 30% rebate to purchase Harlequin titles for a two week period. Those purchases are for the full list price and Harlequin get’s paid based on the full list price. The cost of the promotion is completely ours and Harlequin enjoys increase sales and tons of brand advertising for free. As things stand we can’t offer that to Agency Publishers. It’s the same with our loyalty program and our bookclub. I understand they don’t want the offering of incentives to dilute pricing. But I don’t think a flat-out policy that they can’t happen is best either and it’s placing Agency titles at a disadvantage.

3. There was much talk originally about how Agency would level the playing field for the little guy who couldn’t hope to engage in the kind of loss leader pricing Amazon was doing. Instead, we could compete based on “service”. Yeah! We’re great at service. It sounded good. Then the content was pulled. It was many months before contracts were even available for initial review. Meanwhile – it’s back on Amazon and B&N. It’s on Apple. Getting Agency back was a priority but it took over a year to get those titles back due to numerous delays. And, this also required significant IT build-outs.

Meanwhile, fortunately, our customer base found many other titles they were interested in and continued to purchase. The loss of Agency didn’t end up really impacting our bottom line because we were in a unique position, having strong relationships with Indies who were supplying our customer base with a steady stream of delicious romance. Would we have done even better with Agency during that year? Yes. It’s hard to compete without content.

I have to wonder how many of the bookstores that were getting content prior to Agency are approved and still getting content today. And, it would be interesting to know how many new Indies have entered the arena. From where I sit, the numbers seem to be shrinking.

Agency pricing (aka Retail Price Maintenance) was designed to slow the adoption of ebooks, bolster print sales, and move marketshare away from Amazon.  It was not designed to increase competitiveness in the market.   I don’t think any one disagrees that one publisher and one retailer of books is a bad idea.  No one, not even a card carrying Amazon Prime member like I am believes that.  As Amazon becomes larger, it pushes for more concessions from its suppliers.  Publishers are getting squeezed and it would not surprise me in the least if Amazon reduces the self publishing royalties using exclusivity as the modifier.   But artificially maintaining a higher cost of a good isn’t increasing competition in the marketplace.  No one will leave Amazon until something better comes along and in this case, with prices being equal, you can’t beat Amazon’s service.  The question will be what will?  My ideas include Loyalty and rewards programs.  Better search and filter options.  More targeted recommendation services.  What are yours?

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

33 Comments

  1. Mikaela
    Mar 11, 2012 @ 04:51:09

    I’ll admit it. Since I live in Sweden, I haven’t been affected by Agency pricing, but then I avoid Amazon and BN. Instead I buy from Kobo and Booksonboard, since they give me discounts and coupons on all books.
    I used to buy more books from Allromance, but I recently I only buy backlist Samhain titles, and indie titles. The main reason isn’t that they don’t discount, but the lack of sorting by price and their geo-restriction methods . They use a pop-up ” Sorry. not available in your territory,” which annoys me.

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  2. SAO
    Mar 11, 2012 @ 05:05:01

    I’d think you could support book clubs, by genre, getting some community/social networking in to books. Connections to magazine/TV articles. But these aren’t must have features, for me.

    If the publishers wanted to neutralize Amazon, all they had to do was to sell only open format books. Sure, they’d have to stare down the 400 pound Amazon Gorilla for a month or two, but they’d eventually win, particularly if they stepped up advertising the latest bestseller and released tons of press releases about how they were on the side of openness and competition.

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  3. SAO
    Mar 11, 2012 @ 07:40:49

    What I’d love is targeted information e-mailed to me about sales. As in this author you’ve rated as 5 star has a half price sale this week, not a deluge of offers like 2 dollars off on the Justin Beiber autobiography, A Bad Hair Day; $5o off on the entire Newt Gingrich oevre; and three cents off every thing in the store!

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  4. Lisa J
    Mar 11, 2012 @ 08:17:48

    I have a Sony reader and never buy books at Amazon or BN. My books come from ARe, BoB, Diesel, Kobo, Fictionwise, or the publisher. I shop based on price and who has the product I am looking for.

    It’s frustrating to me when a publigher offers a free copy of a book, but only for Kindle and/or Nook. Why not for all formats? Also, my rewards dollars at BoB can only be used on non-Agency titles which usually have a high reward on them and you lose it when you buy with reward dollars.

    ARe’s newsletters highlighting their sales are the best way to get me to access their site. Their newsletter also highlights new books and I have found many new authors because of it. I also like ARe’s publisher sales and buy quite a few books especially during their 50% sales.

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  5. Nadia Lee
    Mar 11, 2012 @ 08:30:55

    What made me abandon FictionWise is agency pricing. I no longer have any incentive to shop there or anywhere else and use Calibre to convert files, etc. when I can buy the same stuff from Amazon at the same price and not bother w/ conversion, etc. So agency pricing hurt small non-Amazon e-book retailers, as far as I’m concerned. (I’m not sure about BN.)

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  6. Lisa J
    Mar 11, 2012 @ 08:36:42

    I forgot to say, the 100% micropay discounts at Fictionwise were the best way to get me to buy. I bought books by new to me authors using it and ended up with authors I love.

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  7. Cindy
    Mar 11, 2012 @ 08:44:59

    I seriously resent the fact that they (to me) are penalizing me for wanting to read an ebook by allowing discount on print and not e. So unless it’s a book I REALLY want, I wait for the agency book to hit the used book store. So I’m helping an indie/local business, but the publisher gets nothing from me.

    I don’t believe price is solely what is driving people to read digitally. It is, to me, the desire to maintain the environment/natural resources, storage space and downsizing. If you’re someone who may be moving in the near future (or tends to move multiple times), a computer file/cloud file/ereader file is much easier to move than multiple heavy boxes of books. And as apartments/homes become smaller (or filled with other things), it’s just making more sense to me.

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  8. readerdiane
    Mar 11, 2012 @ 09:56:14

    I am so frustrated with ebooks costing the same or more than a print book. You will never convince me I am getting equal value. I won’t buy those books for my Kindle but will wait to buy them used, then the publisher is not getting my money. It may be a small protest but it is my money.

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  9. Anne V
    Mar 11, 2012 @ 09:56:33

    I resent publishers colluding with Apple, a company that has obscene cash reserves, to raise prices for customers so that they don’t have to adapt to a rapidly changing market. I think making ebooks unavailable to libraries is ethically revolting. I was really distressed when I heard that certain publishers (hi, Penguin!) had made getting customer information part of the conversation with Amazon. Also, I think publishers are being dumb – did they not notice what happened to the music industry? the arrogance behind assuming they were bulletproof leaves me reeling. (and not in the strong arms of a dude in a goretex kilt, alas)

    My love for the ebook is based on a couple of things: first of all, my vision is jacked, and e-ink makes it possible for me to read as much as I want without eyestrain/headaches/dizziness/nausea etc – especially now that the pages turn at a reasonable rate. secondly, I read fast – very fast – and I travel a lot. even before airlines started charging for bags, I regularly paid overages even on short trips, just to keep myself in books. last time I moved there were 294 boxes of books. next time, there will be 20ish at the outside. yay, says my back, YAY!

    A couple of months after agency pricing hit, a group of friends and colleagues got together and pooled an amazon account. Sat down and figured out how much we each spent a month on keeping our kindles stocked, where there was overlap in reading habits, and agreed to share. Everyone kicks in the same amount, there are ground rules about purchasing and it cut my spending by ~60%. So while this is a win for me, it’s a loss for the publishers. I know of 11 other shared accounts like this. Pretty much everyone in them reports similar levels of savings.

    Is this a good model? No, not really. Some of my friends are *really* uncomfortable with erotica, and so I maintain 2 kindles. I effectively have 3 accounts at amazon: stuff + original kindle, sharing kindle, my kindle, and the kindle recommendations are basically useless. I hate having multiple accounts, and I resent the publishers for breaking a system so badly that gaming it becomes a necessity.

    Like Cindy, if I am desperate to read something when it first comes out, I wait 3 weeks and pick it up at the local used book store. And then I send it off and get it scanned in, get the document back as an unlocked pdf, and convert as necessary. I don’t know how many people do this, but think about it: not only did the publisher not get paid for the resale purchase, for a nominal fee I have a drm-free ebook.

    What would make me willing to pay more: a great recommendation engine. I worked at multiple bookstores, and a good handseller is a cash cow for the store and a gift to the customer. Amazon’s engine is pretty meh (and was even when I didn’t have 2 separate accounts). Apple’s is frightful. Goodreads recs are pretty good, but I have to manually enter all of my books there, and that’s a big timesuck. Open format would be good. I would really LOVE a model where I could both buy and rent books – buy the keepers for $10, rent paperbacks for $2, hardcovers for $8 and then if I want to buy them, get $1 off the purchase price. some sort of publisher funded digital punch cards.

    Regardless of the pricing model, I will continue to do business with Amazon, based on customer service alone. I consider the level of customer service they offer (handwritten thank you notes!) to be worth it.

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  10. Courtney Milan
    Mar 11, 2012 @ 10:05:00

    @Lisa J:

    It’s frustrating to me when a publigher offers a free copy of a book, but only for Kindle and/or Nook. Why not for all formats?

    I’ve done this, and the answer is: Because most other retailers make it nearly impossible for me to make things free in a reasonable fashion on their site. If I had the kind of control on Kobo that I get on Apple, I’d be delighted.

    When it comes to Kobo, I’m delighted if I end up with line breaks in my product description.

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  11. Helen
    Mar 11, 2012 @ 10:06:46

    @SAO:
    I agree!

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  12. Ros
    Mar 11, 2012 @ 10:12:46

    If they are serious about breaking Amazon’s dominance in the eBook market (and, as Jane has pointed out, Amazon are not dominant in the paper book market), publishers need to make it possible for customers to buy kindle-formatted books at other booksellers. That’s it.

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  13. LG
    Mar 11, 2012 @ 11:37:44

    I have a Nook but haven’t purchased a single book from BN. From Amazon, I only buy print books – those tend to be Big Six books I can’t find on the shelf at Walmart or my local entertainment store or manga.

    My decision not to buy e-books from BN was based primarily on DRM. Once I realized there was no way to tell which e-books you buy at BN have DRM and which don’t (I know there must be some, because one of the three freebies I downloaded didn’t have DRM), I abandoned them, looked into my other options, and started purchasing my e-books from ARe, and occasionally directly from certain publishers (Samhain is a big one for me, because of their new release discount). Even if it hadn’t been for my strict “no buying DRM-protected” personal policy, Agency pricing probably would have turned me away. The only way I’d even consider some of the higher prices is if I could use some kind of store deal on them (like ARe’s buy 10, get 1 under $25 free).

    I agree with the things you listed. Loyalty and reward programs are great, and I love advanced searching (there are a few things I wish ARe would modify about theirs). Good recommendation services are something I miss, although I don’t know how vital that would be to me, since, even back when I bought only print books, Amazon’s recommendations never prompted me to buy anything. I base my purchases off recommendations from friends and blogs.

    Another thing I like: good, clear indications of exactly what I’m buying – what format, what price, whether it has DRM. BN could probably prompt me to buy even just a few e-books from them if they unbent a little and indicated which of their e-books have DRM.

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  14. LG
    Mar 11, 2012 @ 11:41:13

    @SAO: Ooh, that would be nice. Or, if most of your purchases are in a particular genre or subgenre or a particular publisher, you get emailed about sales that apply to that.

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  15. carmen webster buxton
    Mar 11, 2012 @ 12:13:35

    I agree with @SAO. I occasionally buy technical books from O’Reilly Books. They sell their own ebooks in every format you could want with no DRM. I can easily put one of their books on my Kindle: they have a button to register my Kindle’s email address; once I white-listed their email address in my “Manage My Kindle” page, buying their books became a snap. And every book I buy from them goes into my O’Reilly library and can be downloaded again any time, in any format. Too bad they don’t sell fiction!

    If publishers are serious about not getting locked in to Amazon, they need to provide a way for customers not to be locked in.

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  16. Moriah Jovan
    Mar 11, 2012 @ 12:30:32

    @Courtney Milan: I get around that by *also* having my own shopping cart. I have a disproportionate number of overseas readers because of it. Let me know if that’s something you’re interested in and I’ll help you.

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  17. Courtney Milan
    Mar 11, 2012 @ 14:03:38

    @Moriah Jovan: I’m interested, but I’m also moving states relatively quickly and it was not something I wanted to set up at a point when I’d have to collect sales tax in one state and then switch it to another.

    I will set it up at some point, but it’s a twitch lower on the priority list.

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  18. LVLMLeah
    Mar 11, 2012 @ 15:05:28

    @Moriah Jovan:

    I get around that by *also* having my own shopping cart. I have a disproportionate number of overseas readers because of it. Let me know if that’s something you’re interested in and I’ll help you.

    I know this is going off-topic, but do you have it set up so that the person has to type in all their info and set up an account to buy direct from you?

    I wanted to buy from an author selling direct from her site. She uses a 3rd party CC company to process that info, but she also has it set up that you have to create an account to get to that 3rd party to buy it. Um.. no. First, I don’t want authors knowing my personal information like name and address, even though setting up an account doesn’t require CC info. And second, I don’t want to create yet another account just to buy 1 book. Unfortunately this author decided to only offer that book on her site and not through Amz or Smashwords. So.. NO SALE.

    About the topic at hand, I’m that type of person that can find other things to read so I don’t miss agency books. Even agency authors whom I love, I can wait for their books or not read them at all. I don’t want to read paper anymore for various reasons, but main one being comfort for my body. In fact, I’m going to take all my unread paper books to sell at Half Price Books because I know I won’t read them. But I do have a price point at which I won’t pay for an ebook. So even if Big six would change their policy and still charge $9.99 I would think long and hard about that and most probably still not buy it.

    I buy mostly from AMZ and ARe. I like ARe because of the book bucks.

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  19. LG
    Mar 11, 2012 @ 15:56:35

    @LVLMLeah: “And second, I don’t want to create yet another account just to buy 1 book.”

    This is why I don’t necessarily jump on all the reports of fantastic sales for particular books or publishers. If I don’t think I’ll regularly be buying something from a place that requires me to create an account, I’m hesitant to get yet another account. A handful of books at a fantastic discount, or even free, is not good enough of an incentive. I feel like I have way too many accounts as it is.

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  20. Alan Skinner
    Mar 11, 2012 @ 20:55:45

    Hi, Jane

    Whilst I agree with you that the agency model isn’t fostering competitiveness, I can’t agree that it’s only purpose is to stem the tide of ebooks. The issue is rather more complicated than that. More tellingly, to scrap the agency model and be left with Amazon’s model by default would be damaging long-term, not just to publishers but to author’s and readers as well. The price to consumers is not the only measure of fairness or sanity in any industry and publishing is no exception.

    If the agency model is declared restrictive and proscribed, do you see another model as being viable for all parties?

    Kind regards

    Alan

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  21. meoskop
    Mar 12, 2012 @ 01:50:17

    Before Agency I bought from indie ebooksellers, shifting my business from Amazon paper orders. Post Agency I buy all my books from Amazon & have amassed a long list of books I would have bought pre Agency but did not buy now. So at my house, total fail.

    I welcome the DOJ finally looking at this – it has always seemed a pretty clear case of collusion.

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  23. Courtney Milan
    Mar 12, 2012 @ 07:18:15

    @LVLMLeah: I don’t think that someone selling books (at least in the United States) has a choice but to ask for your address. If I were selling books, I would need to know your address so I could figure out if I had to charge you sales tax.

    It’s the whole sales tax thing that really deters me from the prospect of selling books myself. Adding an entire new layer of really boring bureaucracy with regular reporting requirements? I’m not sure it would be worth the added sales.

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  24. LVLMLeah
    Mar 12, 2012 @ 08:47:05

    @Courtney Milan:

    I guess I don’t get the process then. Wouldn’t the CC processor have that (tax cost) built into their system? In this case it seemed that I would also have to fill out all that same info on CC site for them to process it. So I didn’t get why I have to give all that info to author just to get to CC site.

    Most businesses online ask you to set up an account which requires only a user name and password. When you select an item to buy you are then directed to the CC prossesing site. So I didn’t get why author needed all my info to set up an account.

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  25. Azure
    Mar 12, 2012 @ 08:59:39

    While I would welcome the end of Agency pricing–because all it did in the end was hurt the independent ebookstores they claimed they were trying to help (yeah right)–we already know what their response to this will be. In their ongoing efforts to slow ebook growth, the Big Six will simply delay ebook releases. They were already starting to do that when Agency pricing took effect–I remember this well because I’d been looking forward to reading a book which was on the list of ebooks to be delayed. Of course, once Agency pricing was instituted, the release date of the ebook changed. But by then, I’d already bought it in hardcover–just as they’d intended for me to do. So yes, I will be glad to see Agency pricing go. I’m just not looking forward to what they’ll replace it with.

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  26. Linda Hilton
    Mar 12, 2012 @ 09:58:33

    @LVLMLeah: RE sales tax: The sellers/vendors are responsible for collecting, reporting, and transmitting sales taxes to the appropriate jurisdictions, which may be state, county, and/or local. It’s a very complex process, which also depends on whether or not the jurisdiction the seller is in has a reciprocal agreement with the jurisdiction the buyer is in. CC companies only facilitate the transfer of funds from buyer to seller; they are not responsible for sales taxes. This becomes further complicated if the buyer’s CC address is in one state (or country!) and the sale is made in another. I’m not even sure what happens when someone from Canada comes to Arizona for the winter and wants to buy ebooks with their Canadian CC?? How do the geo restrictions apply? I do know that I would not want to be selling too many ebooks from my own website and have to deal with all that.

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  27. Mary Beth B
    Mar 12, 2012 @ 10:42:16

    I agree with all the above. I’ve significantly decreased my purchase of Agency ebooks except for those few series that I REALLY want to keep. I’ve continued using BoB and All Romance Ebooks, and Sony (since I use a Sony e-reader). However, when there are new books out that I want to read, I always check my local Library’s wait list and get on it. Sometimes I get it within a week of release, sometimes a little later, but it’s worth the wait to keep from feeding more money to the Agency publishihers, and prevents hardback/paperback books from filling up my bookshelf space and even better it supports my local library system.

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  28. MrsJoseph
    Mar 12, 2012 @ 12:40:29

    @Alan Skinner:

    I think this will only be the case as long as publishers force DRM. If a consumer could read any ebook they purchased on any ereader they chose – the playing field would be much more level. But as long as DRM forces a consumer to either have to strip DRM or stay with a single vendor…Amazon will continue to beat publishers with their own stick.

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  29. DeeCee
    Mar 12, 2012 @ 20:59:40

    Agency pricing has drastically changed my shopping habits. I make lists now instead of impulse buying recommendations. I can’t justify a $15 ebook, especially when the print book costs the same and it’s a tangible good with a resale value.

    I would love to get back into ebooks. They saved me so much space, frustration and money once upon a time. But until the publishers realize that more discounts=more sales…I’ll be toting my books in boxes.

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  30. LVLMLeah
    Mar 12, 2012 @ 21:35:41

    @Linda Hilton:

    Thank you. Now I see.

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  31. Miki S
    Mar 13, 2012 @ 02:12:17

    Most everyone else has covered all my thoughts, too. My ebook spending has decreased by more than 1,000% since Agency (RPM) pricing.

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