I may not agree with everything Mike Shatzkin has to say, but from the point of view of trying to understand the traditional publishing mindset, he’s an invaluable resource. (Don’t forget to check out the Q&A we posted with him yesterday.)
His latest column is a case in point.
The column poses the question “If Amazon pricing of ebooks is the problem, is agency actually the right solution?” That’s a bit of a loaded question to begin with—who says Amazon pricing of e-books ever was the problem?—but we’ll let that pass. The interesting part is the opinions that the publishing execs Shatzkin spoke to had about what to do about Amazon.
Though he doesn’t couch it in quite these terms, the fundamental problem that publishers seem to have is that, far from being crippled by agency pricing, Amazon is continuing to thrive—possibly not least because it’s now being forced to take a 30% margin on every big-publisher e-book it sells, instead of being able to shave the margins razor-thin or even lose money in the name of being more attractive to consumers.
True, publishers are selling more print books now that e-book pricing makes them less attractive—but given that so many of those are the print books Amazon can still discount, and lists side-by-side with the more expensive e-books, Amazon is also benefiting. And now publishers are getting really worried by the rumors that Amazon is about to go big into the bookstore sector and compete with Barnes & Noble in bricks and mortar as well as on the web.
One exec that Shatzkin spoke to thinks publishers should keep the 70/30 agency split, but allow bookstores such as Amazon to discount if they want to, at least until they get sued for predatory pricing. This would ostensibly permit Apple and Google to compete with Amazon on price, causing Amazon to have to shave its own margins to keep up. (Let’s just ignore, for the moment, that the whole reason Apple enticed the publishers into agency pricing collusion in the first place was that it didn’t want to have to throw its own margins in the toilet to compete on price.)
But another exec didn’t think that would be a solution, as customers would only remain loyal to any given store for as long as it had the lowest price. (And you only need one guess as to which company can afford to shave its margins far enough to get a lower price than anybody else.)
There are so many assumptions to unpack here that I don’t really have time or space to go into them all. The one I had the most issue with was Shatzkin’s assumption, in line with those of most other publishing execs, that Amazon sold all or most of its e-books at below cost before agency pricing came around. It’s expounded in this parenthetical paragraph:
(It should be noted here that Amazon sold Kindle ebooks at well below cost in the days before they had competition, as a carrot to get customers to buy Kindle e-readers, which were originally priced at $400. By doing so, they made the reader-and-content equation attractive to the people who bought the most books. The DoJ and Judge Cote said that Amazon’s pricing at that time was not predatory, but the Supreme Court could, at least theoretically, change that understanding. And, in fact, Amazon has continued to behave as though the $9.99 price point is the “right” ceiling for ebooks, even as the device-and-content equation has changed with considerably lower Kindle device prices and a plethora of multi-function devices having changed the market.)
In the paragraph immediately preceding that one, Shatzkin had suggested that Amazon discounting below the $11.19 cost on a $15.99-priced e-book could be construed as “predatory.”
What Shatzkin elides here is the reason that the DoJ and Judge Cote said that Amazon’s pricing was not predatory—the fact that Amazon actually sold very few titles overall at below cost, while still making a healthy profit (though, granted, probably not a 30% profit margin) on e-books as a whole. The practice of pricing just a few items at below cost to make greater profits by selling more other stuff is called a loss leader strategy, and is perfectly legitimate.
If Amazon should again be granted the right to discount and decide to sell a few $15.99 e-books below cost at $9.99, it seems unlikely that the DoJ or anyone else would have much of a predatory pricing case against it—any more than they would have one against Best Buy for marking down the occasional TV to below cost in its weekly circulars.
What’s more, it’s not just Amazon who considers $9.99 “the ‘right’ ceiling.” When you’ve got people posting one-star reviews because they think e-books that are priced at $7.99 in new release are still too expensive, anyone who seriously thinks double-digit e-book prices are the way to go is sadly out of touch with their consumer base.
And there’s also Shatzkin’s assumption that, because Kindles and tablets are cheaper now, e-books can be more expensive. Tell that to anyone who read e-books on devices they already owned or bought for other purposes, like their desktop computers. Anyway, nobody’s ever going to say, “Oh, I got an e-reader for $80 instead of $400, so it’s okay for me to pay a lot more for e-books because I saved money on the reader.”
People want to save money in general, and they don’t compare the money they spend on something now to how much it would have cost several years ago. And if they do, they’re just as likely to consider an $80 device now to be of the same approximate value as a $400 device several years ago, as they forewent at least $320 worth of enjoyment waiting to get it.
Beyond that…isn’t it funny how the major publishers can’t ever seem to be happy? They went to all that trouble and expense to foist agency pricing onto Amazon, had to back down and pay fines over it, then imposed it again. Now it’s firmly in place, legally this time, to the point where it’s crippling e-book sales in favor of print—and they’re still upset because now Amazon is thinking of going into the print bookstore business. What did the publishers expect was going to happen when they made e-books so much less salable and print books so much more attractive?
It puts me in mind of that time earlier this month when a publishing exec called on bookstores to stop boycotting Amazon-published titles—because they were insulating Amazon from having to deal with the added expense of bookstore returns. The problem doesn’t seem to be what Amazon might do in the future any longer; it’s now become that Amazon simply exists at all.
It’s weird how everyone hates when Amazon discounts, but their last hope is that Google and Apple might discount MORE.
Which lays bare the bizarre motivation behind all BPH’s posturing: How can we hurt Amazon? We don’t care if we hurt ourselves, hurt our readers, hurt our authors, or hurt literature. Just tell us how we can harm this company. That’s it. That’s all we want.
In any event, worrying over e-book retail pricing may be fussing over the barn door after the horse has already left. The market seems to have moved on, and now the new big thing is e-book subscriptions. Once again, Amazon is the market leader with its Kindle Unlimited program. About the only competitor who is still in the market is Scribd, and even Scribd just had to announce a major cut to its subscription’s service level. Not exactly a surprise, given that big publishing has made its e-books so expensive to own. So why not subscribe and read all the e-books you want?
One Passive Voice commenter suggests that publishers may be in the throes of desperation to try to avoid losing their best authors—that if Amazon were able to implement 400 bookstore locations, authors would no longer need traditional publishers because they could get their self-published titles into Amazon bookstores. That seems a little far-fetched, but then, so did the whole idea of agency pricing in the first place.
Regardless, agency pricing did foreclose on a lot of potential for competition with Amazon. Not just on the basis of price per e-book, either, but bundles (such as the ones Baen had to stop offering at date of publication) or discount clubs (such as Fictionwise’s defunct Buywise program). Indeed, it effectively killed off Fictionwise, eReader, and most of the other small e-book stores that up to then had been Amazon’s main competition. Since then, Barnes & Noble has been terrible at competing, and Apple and Google haven’t really even tried.
That’s not to say Amazon wouldn’t have been a major force no matter what the publishers did, but if the publishers were looking for a way to cripple Amazon, they sure didn’t find it in agency pricing. And now they’re concerned over Amazon opening bookstores? Well, they sowed this with agency pricing. Now let them reap it and smile.