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Monday News: German authors v. Amazon, retailers v. Apple, Apple shareholders...

The literary culture in Germany and Austria differs profoundly from that in the United States or Britain, in that pricing is protected by laws that forbid deep discounting, or other purely commercial practices. Many authors fear Amazon will use its dominant position to seek to overturn these laws. –New York Times

I distinctly remember the moment (not really) Agency Pricing hit BoB, because I was in the process of buying some trad published books and could not complete the transaction because of the pricing change. That was the beginning of the end in my relationship with BoB, and, I suspect, many other readers had similar experiences.

In a conference in her Manhattan courtroom, Judge Cote conferred with the parties on discovery issues, and outlined a schedule that could have the case ready for trial by late 2015. Although a final schedule was not set, the judge said she would order the parties to enter mediation in December. –Publishers Weekly

This suit stems from some of the other lawsuits Apple has found itself embroiled in, particularly the 2010 price-fixing suit and the class action suit over employment issues. Among other things, plaintiffs assert that Apple’s reputation and “innovation” have suffered over the past few years. This may turn out to be the most interesting suit of all filed against Apple, seeing as it’s been filed on behalf of the company’s own shareholders.

Filed with the U.S. District Court for the Northern District of California this week, the derivative shareholder complaint prepared by attorneys for plaintiff R. Andre Klein accuses Apple senior directors and officers of “breach of fiduciary duty, gross mismanagement, corporate waste, and breach of the duty of honest services.”

Individual defendants, including Jobs and Cook, allegedly caused the company to violate antitrust laws, issue false and misleading financial proxy statements and stifle worker wages, according to the argument. As a result, Apple, which must be included alongside Klein and shareholders as a nominal defendant, was harmed by being forced into a time and asset consuming settlement with the U.S. Department of Justice in 2010, as well as an ongoing class action lawsuit leveled by a group of employees. Further, the company’s reputation suffered, as did innovation. –Apple Insider

The cast teamed up with WaterAid, a UK-based non-profit organization dedicated to bringing clean water to the world, for a funny photo that makes sure everyone knows that they are in on the joke, well hydrated and willing to use their media ruckus-raising powers for good. –Vanity Fair

isn't sure if she's an average Romance reader, or even an average reader, but a reader she is, enjoying everything from literary fiction to philosophy to history to poetry. Historical Romance was her first love within the genre, but she's fickle and easily seduced by the promise of a good read. She approaches every book with the same hope: that she will be filled from the inside out with something awesome that she didnʼt know, didnʼt think about, or didnʼt feel until that moment. And she's always looking for the next mind-blowing read, so feel free to share any suggestions!

18 Comments

  1. Jayne
    Aug 18, 2014 @ 07:12:43

    “The UK government also announced plans to match every pound donated to the charity. Click here to donate online.” – Wonderful that a gaffe can be turned to a good purpose!

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  2. Isobel Carr
    Aug 18, 2014 @ 09:15:49

    The Big 6 drove me to Amazon by killing FictionWise, where I was a devoted purchaser. I’m not sure they understood that they were killing small retailers when they implemented agency pricing, but that doesn’t change the end result (and honestly, I think they did, so they helped create the 800lb gorilla they’re now battling). I lost access to hundreds of books and when I was done fuming, I looked around and had to decide who I thought was most likely to be around to support the eBooks I was buying for the long haul. B&N looked shaky and their customer service is appalling, so that meant the Big 6 sent me running into the arms of Amazon.

    Also, good on the folks at Downton!

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  3. MrsJoseph
    Aug 18, 2014 @ 09:26:33

    @Isobel Carr: I agree! I don’t feel any sorrow for ANY of the Big6 – they destroyed all the places I used to shop at. Now I buy ebooks rarely – coupons only for the most part, I have a Kobo – and all my DTBs from Amazon.

    I can’t see how I’m supposed to care that Amazon is screwing them over…they had no problem screwing ME over.

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  4. Darlynne
    Aug 18, 2014 @ 12:42:17

    @Isobel Carr: @MrsJoseph: I’m with both of you. I had just started into the digital book world and FictionWise was my place. And then it wasn’t because they’d been forced out of the retail picture. Idiots. Stupid, short-sighted, greedy Big 6 idiots. I’m rooting for the gorilla.

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  5. AlexaB
    Aug 18, 2014 @ 14:09:09

    I know the following is an unpopular (not to mention tl;dr) opinion here. Plus my only contact with the Big 5/6 is as a purchaser of their products, and my only contact with Amazon is buying from it practically daily. So I really have no dog in the hunt, other than my hobby is following the effects of digital disruption on businesses.

    However, I’m not sure if agency pricing can be blamed for Fictionwise’s demise.

    On the face of it, agency pricing should have evened the playing field as prices would be fairly uniform across retailers and deep discounting – which would encourage consumers to purchase at the discounter over the other retailers – would no longer be a factor in choosing a store from which to buy an e-book. This contributed to Amazon dropping from a reported “90 percent of the American e-book market in 2010 to about 55–60 percent” in 2012, according to The Nation on May 29, 2012 (“The Amazon Effect”).

    Also, agency pricing should allow a smaller retailer to make more money – 30% on every book – rather than forcing them to compete with Amazon by cutting their 50% retail markup on wholesale to 5% or even below cost. Forecasting is much simpler when a business can count on steady margins from sales (agency pricing itself isn’t illegal; colluding by suppliers to fix the agency price across all retailers is).

    Fictionwise was acquired by B&N, and that’s who pulled the plug on it; the reason given at the time was Fictionwise’s formats (and Fictionwise was started to provide book files for Palm, Rocket and MSReader, devices no longer in general use) were no longer popular with consumers who moved their reading to Kindle, Nook and iBooks apps/devices.

    I suppose an argument might be made that higher agency prices could have led to decreased unit sales, thus forcing Fictionwise out of the market. But the numbers we do have for trade books don’t bear it out. From PW’s BEA 2013 report, published on May 29, 2013:

    “As with any new product category, e-books enjoyed their strongest gains, at least in terms of percentage increase, in the first few years following their introduction. In 2008 and 2009, driven by the launch of the Kindle and later the Nook, e-book sales rose 354% and 198%, respectively. As publishers began to make more print books available in digital formats, e-book sales surged from under $900 million in 2010 to over $2 billion the following year, adding $1.24 billion in sales in 2011. The slowdown in growth in 2012 was not unexpected as e-books have become a billion-dollar business, making triple-digit gains a thing of the past. What’s more interesting than the 44% increase in sales in 2012 is that in terms of dollars, e-books also grew at a slower rate in 2012 than in 2011, partly due to lower prices as well as lower unit sales, adding about $933 million in new sales in the most recent year. ”

    The key is the last sentence: e-book prices fell, but e-book unit sales ALSO fell. Which is contradictory to the rhetoric the pro-low price side has been pumping out lately. I would suggest this is a sign of market maturation and saturation, instead.

    But Fictionwise did not use DRM, and probably publishers weren’t all that happy about it. So perhaps there were machinations to shut it down behind closed doors after all.

    But we do know that under agency pricing Amazon lost e-book market share instead of gaining it, while B&N stabilized and Apple grew. Thus suggesting if the intent of agency pricing was to drive consumers to Amazon, the Big 5/6 failed.

    I’m all for calling out the Big 5 on their stupidity (withholding e-books from libraries and/or charging exorbitant prices, for one) and greed (give authors back their rights, Harlequin/now Harper Collins). But agency pricing was designed to hurt alternative retailers and create a monopsony for Amazon? No.

    Meanwhile, the focus is on Hachette/Big 5 but Amazon is forcing onerous terms on small publishers as well. Karen Christensen of Berkshire Publishing gives her perspective here: http://www.berkshirepublishing.com/blog/2014/06/04/how-amazon-com-is-hurting-readers-authors-and-publishers/

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  6. Darlynne
    Aug 18, 2014 @ 14:54:52

    @AlexaB: I’m the first to admit that I get lost reading numbers and statistics, which means I don’t completely understand what you wrote, although you did so very clearly; the failure is mine.

    Here’s what I remember: I could no longer buy the books I wanted from FictionWise, full stop. I couldn’t use the rebates I had for the titles I wanted. However this all gets sliced up–and perhaps you mentioned that in your post, but, again, I can’t see it for all the numbers–the advent of agency meant FictionWise could not sell agency books. My memory could be imperfect and I am all for being corrected when I am wrong, but that’s how the whole debacle played out for me, in its simplest terms.

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  7. Isobel Carr
    Aug 18, 2014 @ 16:11:09

    @AlexaB: Except that books from the Big 6 disappeared entirely from Fictionwise when agency was implemented, so yeah, it totally can be blamed.

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  8. AlexaB
    Aug 18, 2014 @ 16:53:48

    @@Isobel Carr and @Darlynne:

    I didn’t know that. Thanks for the correction. I wasn’t following Fictionwise at the time, so I very much appreciate the insight.

    It’s funny, though, because as a strategy agency pricing can be beneficial to the retailer. Retailers weren’t allowed to discount, true, but then other retailers weren’t allowed to discount, either, enabling a level playing field. Even Amazon benefitted as it made more money per book because it couldn’t sell them as a loss leader. But I’m finding references to Fictionwise’s “Buying Club” shutting down due to agency and so maybe the new contracts disallowed that (and the rebates) as a discount and thus scuttled their model?

    I’m also wondering how much was agency contract terms and how much was B&N wanting to quietly shut it down in favor of the Nook store and hey, here’s a good opportunity to put some nails in the coffin.

    But that’s all speculation. And it certainly was horrible for the Fictionwise user, something I failed to acknowledge. Shitty all around for readers. Sincere thanks again for the correction – I’m going to try and extract the shoe from my mouth now!

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  9. Darlynne
    Aug 18, 2014 @ 19:39:44

    @AlexaB: Not to keep beating the same drum, except, well, here I am. Please know that I don’t mean this personally, my ire is reserved exclusively and still hot for the publishers.

    “It’s funny, though, because as a strategy agency pricing can be beneficial to the retailer.”

    And for absolutely no one else in the food chain. Not the authors via greater royalties (AFAIK), not the readers/buyers. Not for retailers like FictionWise, nor even Kobo still today, whose business model was/is built to a degree on discounts to customers.

    Not allowing discounts, across the board or not, is not a strategy that any retail business would consider without coercion.

    I’m thinking of building a shrine to Judge Cote.

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  10. Kaetrin
    Aug 18, 2014 @ 21:15:01

    I used to buy 90% of my books from Books on Board. They had a great rewards scheme where a percentage of the purchase price was allocated to your account as rewards dollars. They had deals where the rebate was higher on some days or for some genres and I loved it. As I understand it, Fictionwise had a similar (though not the same) kind of rewards scheme. But after agency pricing, those rewards/rebates did not apply to agency books so there was no reason to shop there. For many months at BoB, certain publisher’s books weren’t available anyway. There’s only so many times you go to a shop which doesn’t sell what you want to buy. So yeah, I totally believe agency killed the smaller eretailers (and I hope the publisher pay through the nose for it). I don’t think I’d bought a book from Amazon until agency came in.

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  11. Anne
    Aug 18, 2014 @ 21:35:31

    I’m with Darlynne on the shrine to Judge Cote thing. Books on Board was the retailer of choice for me. Agency pricing goes into effect and the books are gone. I really didn’t care so much about the pricing or rewards but I really wanted to support some competition in the industry. I simply stopped buying books published by the fixers and started shopping primarily with Amazon. The price fixers couldn’t see the forest for the trees.

    I do think the Downton deal with WaterAid is a good one.

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  12. Kaetrin
    Aug 18, 2014 @ 22:21:19

    @Anne: WaterAid is a great charity. We’ve been donating to them for years. They do excellent work.

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  13. Ros
    Aug 19, 2014 @ 04:59:21

    @AlexaB: I do see your point about agency pricing creating a level playing field. Except… it doesn’t. Smaller retailers can’t compete with Amazon on a lot of fronts, but without agency, they could compete on price. Smaller retailers couldn’t, for instance, take advantage of in-device one-click-purchasing. But if a reader knew that they’d make a small saving by going to the extra effort of buying elsewhere, they might do that. Without the saving, why would they? Pricing is an important part of retail competition and agency stripped that away.

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  14. Anne
    Aug 19, 2014 @ 09:16:05

    @Kaetrin: Thanks for letting me know. My mom already has a favorite water charity in the US but Downton Abbey is also a favorite of hers and she actually mentioned this story to me.* With your input and after reviewing my usual charity checking sites, I just made a donation to WaterAid in honor of her birthday.

    *Who knew that my mother actually searched for Downton Abbey stories? Not me.

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  15. AlexaB
    Aug 19, 2014 @ 14:04:07

    Sorry for the, as usual, tl;dr. My interest in the subject is really more theoretical than anything, plus I have a kneejerk desire to take the devil’s advocate position every. single. time. I’m working on the latter. The longwinded pedantry, alas, I just can’t seem to shake.

    @Ros:

    “Smaller retailers can’t compete with Amazon on a lot of fronts, but without agency, they could compete on price.”

    In theory, sure.

    In practice, not so much, especially as Amazon matches the lowest price. And often, it was the lowest price to begin because it was willing to loss lead.

    For example:

    Supplier X prices its product at a suggested retail price of $20. It sells the product to retailers at a wholesale price of $10.

    Retailer A sells the product at $15. Retailer A makes $5, customer gets a discount of $5 off the suggested price. Win/win for everyone.

    Retailer B sells the product at $9. Retailer B sells at a loss of $1 per product. Customer get $11 off the suggested retailer price. Windfall for the consumer!

    Customers flock to Retailer B. But Retailer B is going to go out of business – unless it can pass the losses off to other categories. And Retailer B happens to sell kitty litter at almost full retail markup. Retailer B is aware that many buyers of Supplier X’s product own cats. Retailer B uses its consumer information to push notices about kitty litter to the customer, who then places both items in their cart plus a few impulse purchases.

    Before long, Retailer B has captured most of the consumer dollars for Supplier X’s category. Retailer B can go to Supplier X and demand special concessions for the privilege of selling their product in their store. Supplier X now must give Retailer B co-op advertising money and other incentives if they wish their product to receive decent placement on Retailer B’s shelves. (If Amazon’s dispute with Disney is any indication, this is the root of the Hachette standoff. It’s not so much pricing as it is Amazon’s demands for increased incentives – including demanding suppliers pay the difference if Amazon discounts to match competitors).

    Retailer B no longer has to use kitty litter to make up its losses on Supplier X’s products – it uses Supplier X’s co-op and other financial incentives to make up the windfall. Now it can discount kitty litter below wholesale, etc.

    It’s not just how Amazon works – it’s Tesco and Asda/Wal-Mart and Target, etc. Lure the customer into the store with low, low prices on one item, make up the difference by selling him/her additional items with higher margins, capture the consumer market, lean on suppliers. But most stores spread around the loss leader – this week canned corn, next week barbeques, following week new release DVDs, after that school supplies. Amazon made the entire category of books a loss leader.

    And Retailer A, even though it is discounting, is not going to be able to compete with Retailer B when they have no other point of differentiation when it comes to Supplier X’s products. That’s why Bezos chose books as Amazon’s first category: books do not vary from retailer to retailer. They do not go bad or stale or out of fashion. They have an ISBN that is the same regardless of where it is purchased. They rarely have “exclusive to retailer Y!” line extensions.

    So now A either has to go to the retailer and demand a lower wholesale price, thus cutting the supplier’s margins (triggering B to demand the same contract terms), or A continues to lose customers to deep discounter until it goes out of business. In the best case scenario, A finds a way to add value to the transaction that B can’t match: a loyalty scheme, community involvement, trusted hand selling, etc., and stays in business despite higher prices. But that takes a lot of work (and savvy marketing) and still might not pay off.

    So, yes, in a perfect world, retailers can compete with the Amazons and Wal-Marts by discounting. But the market isn’t perfect.

    Also, some people seem to take the position that an agency model = high prices only. But if the prices are too high for the value received, consumers will not purchase (Hi, Ellora’s Cave). And prices will either fall or the publisher will go out of business. In free-ish markets, consumers should determine how much they are willing to pay, not the retailer. IMO.

    @Darlynne:
    “Not allowing discounts, across the board or not, is not a strategy that any retail business would consider without coercion.”

    Agency – where the supplier, not the retailer, set the prices and discounts – is how most digital retail marketplaces operate today.

    Agency is how KDP operates. KDP author sets the price, Amazon takes a pre-determined cut. KDP author determines when to put on sale, when to make the book free, when to increase or decrease price. I bet KDP authors would get mighty upset if Amazon took this power away from them and said, “No. $2.99 only. And here’s your 30%, minus Whispernet fees and other concessions. Because we have info that says that’s the right price.”

    But what if you are Bella Andre or Liliana Hart or Barbara Freethy and your readers will gladly pay $4.99 for your books? Shouldn’t they be able to price higher to capture that demand? Or put previous books on sale as a promotion for a new release? Or raise prices across the board to keep up with the cost of living if they choose? (Amazon’s $9.99 preferred price point for trade bestsellers and new releases has been the same since 2007, even though per the inflation calculator that would be $11.50 in 2014 dollars).

    In fact, I would argue that wholesale retailing is a leftover from physical good sales and doesn’t make sense in a digital world.

    Wholesale makes sense when retailers have to make an investment in a physical good. The retailers warehouse it, physically stock it, physically remove it from the shelves when past its prime, etc. Retailers take a gamble when they order; they should be able to price the product to move as best as their customers demand.

    But in digital marketplaces, retailers take little risk. There is no cost of warehousing. They don’t have to pay stock people. They don’t have to spend time taking physical inventory. They don’t have cashiers at a checkout stand regardless if customers are present or not. There is no shrinkage – digital items don’t walk off store shelves in shoplifters’ pockets.

    App stores, eBay, Etsy, even Ravelry for knitting/crochet patterns: all use a form of agency. Why should ebooks be different?

    But the disconnect comes when ebooks are compared to paper books. Paper books are discounted at different schedules to move them fast/deplete the stacks in the warehouse, thus leading to the “ebooks cost more than paper, the horror!” understandable reaction when the pricing schedules don’t match up.

    The only real takeaway for me is that it’s currently a mess. (Also, feel free to build a shrine to Judge Cote – I’ll join you, I admire how she cut through all the rhetoric – but again, it was the collusion of suppliers to set prices that was illegal. Not the use of agency.)

    @Everyone re: Fictionwise: I swallow what I said yesterday. The switch to agency hurt them horribly as well as Books on Board. Not because agency is an inherently flawed model; but because according to various Googled articles, the way the publishers enacted the switch for smaller retailers was, in a word, stupid. They removed access to Big 6 titles immediately and dragged their feet on restoring them, thus hurting the retailers’ storefronts and customer service irreparably. So, yeah, what you all said about publishers. At least ARe has survived – so far.

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  16. MaryK
    Aug 19, 2014 @ 23:48:22

    @Ros: @AlexaB: Coupons. Loyalty programs. Absent those, I’m going to buy from the store with best ease of use. Or I’m going to buy used paper.

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  17. MaryK
    Aug 20, 2014 @ 00:43:51

    @MaryK: Even with the end of agency pricing, there are still publishers whose books you can’t use coupons on. Does that mean I grit my teeth and pay full price? No, it means those books languish on my wish list until I either have an overwhelming desire to read them or can’t remember why I wanted to in the first place.

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  18. Windsprite
    Aug 20, 2014 @ 03:48:19

    Wait, let me understand the situation (since my English isn’t as good as I always think of myself and you’re talking about things that are concerning the US and the UK I’ve never heard before)
    Let me clarify, that I’m from Germany and that I never had a problem paying the full price fpr every single book I buy. Yes, do you think I’m crazy? But I’m used to that all the time and never felt that I needed to complain about fixed prices (But that has a long tradition in Germany, so never mind). I just wanted to say what I think about that. Well, if I got that right. If I’ve misunderstood anything, simply correct me.

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