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Random House not interested in agency model
February 10, 2010 | 10:13 am
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By Paul Biba
Daithi, a poster at MobileRead, made the following post related to his attendance at the American Booksellers Association’s Winter Institute meeting:
The only bright spot for Amazon, and Kindle owners, came from Madeline McIntosh, the President of Sales, Operations, and Digital for Random House. She pointed out that publishers “have no real experience at setting retail prices.” She also revelaed that one of the reasons Random House had not been party to the iBook Store at launch was because of the pricing issues.
In regards to delayed releasing of ebooks, McIntosh said, “Our current policy is we release e-books at the same time as physical books,” followed by “I haven’t been convinced that it’s good for the author or consumer to delay the release. My fear is that the consumer who has fully embraced the technology will buy another e-book that is available or lose interest altogether. What if I train the consumer that the best scenario is to get it free?” …
Madeline McIntosh had worked for Random House for 18 years, but a little less than two years ago she went to work for Amazon as their Director of Kindle Content Acquisition for Europe. Then at the end of last year Random House hired her back as President of Sales, Operations, and Digital. This might help to explain why Random House is sticking with Amazon.
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Finally, someone in a position of power with common sense and actually knows what she’s talking about. Come on Random House release that huge backlist you have, especially William Faulkner.
Those quotes can’t possibly be right…
A BPH executive that gets it?
“What if I train the consumer that the best scenario is to get it free?”
Exactly; train consumers to pay for your books by meeting them halfway instead of talking over their heads and dictating terms from mount olympus.
Consumers matter.
Maybe there is some hope for avoiding outright war…
This is certainly amusing: ‘The only bright spot for Amazon, and Kindle owners, came from Madeline McIntosh, the President of Sales, Operations, and Digital for Random House. She pointed out that publishers “have no real experience at setting retail prices.”’
Assuming by “retail prices,” she means “retail prices for ebooks,” that certainly is true. Even Amazon’s experience is relatively recent and centered only on the Kindle and their sales scheme.
But experience is learned by practice. If Random House is going to outsource book pricing to Amazon, they’ll never learn to do it well themselves. The advantage of the agency model is that it doesn’t lock publishers into a fixed price like $9.99. They’re free to experiment and learn.
How close to the hardback price can they get when a book first comes out? How low do they have to go to keep sales up when interest wanes? How effective is the iPhone app technique of giving something away for a day or two to generate buzz? And for writers such as Stephen King, how effective is it to sell a special edition of an an older title very cheaply to get fans to read a couple of sample chapters of an upcoming book?
With no inventory issues or printing and distribution costs, the marketing of ebooks will be very different for any book marketing that has gone before. My hunch is that smart publishers will experiment around, while the foolish ones will outsource all the thinking and most of the profits to Amazon. I suspect Amazon has been losing money (in the short term) on many $9.99 ebooks to create just that dependency (in the long term).
I also suspect that the long-term result is likely to be lower prices than what Amazon would set were it in charge. Recent ebooks aren’t just competing with one another for their time. They’re competing with free copies of all the great authors whose works were published before 1923.
I just hope the larger publishers have enough sense to add value at no cost by enabling text-to-speech reading for most titles. Computer voices are not good enough to keep audio book fans from buying professionally read titles, but it’d be great if readers could shift modes: reading from a screen (generally faster) when they can and shifting to text-to-speech when they’re driving or on a walk, with a digital bookmark keeping track of their place in either case.
How is it that Random House has ‘no experience in setting retail prices’?
Who determines the cover prices for RH books, then? Do they outsource all that? If so, why not just have that company do it for them?
This press release really smells fishy to me. I suspect some sort of extra-special, double-secret probation deal between Amazon and RH. The press release is just cover for the real story, it seems to me.
People are mistaking ‘Retail’ prices for ‘List’ prices as that’s how the word was used by customers for years — when bookstars were selling books almost automatically on Discount. ‘Retail’ somehow came to mean ‘List’ for most of us.
But what it means in today’s world, or the one in which this conflict is taking place, is the amount the ‘retailer’ decides to sell a book for, AFTER paying the publisher based on the publisher’s “set” list price for its revenue from the bookseller.
I’m emphatic about this because most people (especially authors) on the various forums don’t know this as they keep posting the publisher should set their own price. They do.
Amazon pays the publisher traditionally something like 50% on the publisher’s set price — the List price.
If the List price is $25, Amazon pays them about $12.50. Most here know this is the way it’s done.
The publisher gets that amount, and if Amazon, the retailer, has a book=sell price of $10, then Amazon loses $2.50
However, a perusal of online e-book stores will often show Amazon charging a bit more than other bookstores online for books that are a few years old.
They can make some of it up that way and of course they sell other items which they can discount and they can choose to charge more than paperback prices for some e-books that aren’t best sellers.
Again, the ‘Retail’ price is, in this situation, the bookseller’s/retailer’s CHOSEN price AFTER paying the publisher the agreed percentage based on the publisher’s set LIST price. So McIntosh is talking about not knowing how to set prices that work well for the booksellers, as they know their crowd best.
So Macmillan and its authors have gotten their revenue based on the $25, with $12.50 going to them (an average traditional arrangement).
The authors are NOT losing money based on the $10 book price Amazon uses unless the publisher chooses to give them a smaller amount that does not reflect what the publisher actually gets from Amazon.
They’re not sharing that with the author.
And now they say they are intentionally getting less revenue from the Agency plan — how will the author fare under that when the base amount the publisher gets is less? And when there’ll be less e-books sold as a result.
Some authors MAY be losing money if they chose to sign an agreement with the publisher which gives them only an amount based on the bookseller’s chosen Sell-price. I’ve read that Macmillan recently reduced the author’s take from 25% to 20% with some authors. I don’t know how true that is. That’s adding insult to injury if the author is paid by the publisher on what the bookseller’s price is.
But the money based on the List price goes to the PUBLISHER, who then decides how much to pay the author. If the publisher bases the author’s pay on the retailer’s price, then the author loses out on the $10 books -while- Macmillan does make more from that arrangement than they would (assuming they sell the e-books at all, at $15) under the Agency arrangement.
The fight is over control. With the new scheme, no matter what store we go to, the price for an e-book will be the same for us. No Sales events.
Macmillan’s Sargent will not give e-books to libraries due to his hostility over the loss involved for him with e-books, relative to hardcover books.
It’s enlightening that in this case more competition of this type has meant higher prices for the customers.
As for dynamic scaling, pricing histories perused at Baen show Macmillan not dropping prices after a length of time on e-books.
Sargent doesn’t like e-books because their selling-prices make it harder to sell hardcover books at a good price for them. He’s fighting a reality that’s not going to go away. Anyway, apologies for getting carried away.
Excellent post, Andres.
I suspect I’m showing my age when I remember a time when discount bookstores (Crown Books, anyone) offered significant discounts off cover price for paperbacks. Now, Wal-mart and other retailers offer discounts on best-sellers. These are the retail prices. The price printed on the sleeve of the hardback is like an auto maker’s suggested retail price. It’s a suggestion by the manufacturer, not a binding agreement.
Whatever the merits of the case, Macmillan and the others favoring the ‘agency model’ are creating something new rather than following the traditional book model. And no, none of us have much experience with this new (for books) model.
Rob Preece
Publisher
Rob,
True, and Amazon’s experience so far is it’s making money overall, in an economy where few companies are.
I’d wondered why they often sold 3-year old e-books at prices somewhat higher than Barnes & Noble’s, but that’s where they’d make up for the loss-leaders. They also sell some non-bestsellers at about $13-$15.