eBooks: Is Agency Pricing Good or Bad?

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Recently, there has been a lot of focus on the “conspiracy” between 5 major publishers and Apple regarding agency pricing and whether these 6 entities have violated antitrust law. The focus is not on whether agency pricing is good or bad, but whether the parties colluded. That question I’ll leave for the US Department of Justice.

I’m more interested in whether agency pricing has been good for me as a consumer. Various forums have been discussing this and Mark Coker, president of Smashwords, has written an excellent piece defending agency pricing (see Does Agency Pricing Lead to Higher Book Prices?) Mark Coker makes several salient points, but they are points from the author and distributor perspective, not the consumer perspective.

(Mark Coker does make, however, one interesting observation: Before agency pricing, there was the wholesale pricing model. A publisher would set a book’s list price at say $30 and wholesale to booksellers for $15. The booksellers were free to sell the book for any price they wanted, be it $5 or $10 or $25 or $30. The reality was, however, that no bookseller could sell all books at less than cost and survive, not even Amazon. At some point, a bookseller has to turn a profit or at least cover costs. Consequently, the wholesale price was, in effect, an agency price; that is, a minimum price at which a book could be sold without putting the bookseller out of business. In other words, there really isn’t much difference in effect between the wholesale scheme and the agency scheme as far as consumers are concerned. For retailers, the agency scheme ensures that the retailer makes a profit on every ebook sold.)

But what about from the consumer perspective, and even from the indie author perspective?

In the days before ebooks (i.e., my participation in the ebook marketplace), I spent, on average, $5,000 a year on pbooks, mainly hardcover. I am now into my fifth year of ebooking and each of those years has seen a steady decline in the amount of money I am spending on books overall. Combined, my pbook and ebook spending doesn’t exceed $2,000 in a year, and is often quite a bit less.

One reason, if not the major reason, for this is agency pricing. The traditional publishers, namely the Big 6 (Random House, Hachette, Simon & Schuster, Penguin, Macmillan, and HarperCollins), are overpricing their ebooks via the agency pricing. Consequently, I am simply not buying agency ebooks published by the Big 6. The newest James Patterson novel simply isn’t worth $12.99 or higher to me. They are good reads, but let’s face it — classic literature that I would read again and again and savor each phrase they aren’t. They are formulaistic books that provide entertainment but do not evoke a lasting passion.

Consequently, I consider agency pricing to be a positive for the consumer. It helps dissuade ebookers from spending excessive amounts of money on books that in an open marketplace, and without publishers setting a retail price that bears no correlation to the true value of the book, would not command such high pricing in perpetuity. It might command it for weeks or months, but not years.

Agency pricing has had another benefit for the consumer. It has made the rise of the indie ebook distributor, like Smashwords, possible along with the rise of the indie ebook author. It is not that these entities didn’t exist before; they did in the form of vanity presses for the pbook crowd. Rather, they have become legitimized, something the vanity presses never were able to accomplish.

Because the Big 6 agency pricing is so high, readers like me began to explore alternatives. And now I buy primarily indie authored ebooks at places like Smashwords. The competition among indie authors to get noticed and read has been such that ebooks are often priced at $2.99 and less, all the way down to free. Even here, however, agency pricing is beneficial because I can buy those books at Smashwords or Barnes & Noble or Books on Board or any number of outlets and not worry about price — it will be the same at every store.

I’ll grant that if my only interest in reading is today’s popular books by big name authors, what we used to call the New York Times Bestsellers but which name is no longer appropriate, agency pricing is a problem. After all, Amazon demonstrated that it was willing to sell those ebooks at a loss in order to gain market share. (Which raises another interesting observation: When Amazon was able to sell the bestsellers as $9.99 or less ebooks, it cornered nearly 90% of the ebook market. With the advent of a more level playing field, introduced by agency pricing, its market share has dropped to about 60%.) Amazon had the fortune to be able to sell at a loss because other product lines were making a profit and could support the ebook losses; most ebook sellers did not have that option if they wanted to remain in business.

Agency pricing doesn’t ensure the lowest price; the Big 6 demonstrate that daily. But from my perspective as a consumer, the advent of agency pricing has made ebook selling more competitive. Not because the ebooksellers are being price competitive but because the indie authors are being price competitive. Agency pricing has also ensured that there won’t be one supplier of ebooks, which is also important to me as a consumer.

In balancing the scale of good or bad, I think agency pricing is good for me as a consumer. It has saved me scads of money by limiting the number of expensive ebooks that I buy to a handful. It saves me money because I no longer spend as much on pbooks; I have too many ebooks to read in my to-be-read pile, so I buy fewer pbooks. It has broadened my reading. Before agency pricing I did as many readers and bought reasonably priced ebooks by name authors. Since agency pricing, I browse the indie author ebook offerings and buy indie ebooks at very reasonable prices.

One last observation: Even if the Department of Justice pursues the collusion matter, there appears to be nothing inherently wrong with agency pricing. I expect that at worst the 6 parties being investigated will pay large fines but I think agency pricing is here to stay.

What do you think? Is agency pricing good or bad for the consumer?

(Via An American Editor.)

15 Comments on eBooks: Is Agency Pricing Good or Bad?

  1. Ah, the tired old “pre-Agency, Amazon had 90% of the market, now it has 60% of the market, therefore Agency has been good for competition and bad for Amazon” trope. It’s a nice bit of misdirection, since it ignores the growth of the market (Amazon sells a lot more Kindle books today than it did three or four years ago, despite its lower market share), and it doesn’t take into account that Amazon had essentially no competition in the early days. Take B&N, Apple, and Kobo out of the equation, and Amazon probably has 90% of what’s left – Smashwords has grown, Fictionwise has essentially died, and Agency stifled any chance that smaller players like Diesel ever had of growing up to be major players.

  2. The market is WIDE open for anyone to compete in. Anyone. There is no barrier to entry into this online market. The investment requirement is a tiny fraction of what it would be if it were a bricks and mortar business. There is no reason whatsoever why groups of other publishers or biggies like Bertelsmann could not compete with Amazon if they chose to. But they chose not to, and prefer instead to bitch about Amazon.

    Read the article by Mark Coker on the Smashwords blog:
    http://blog.smashwords.com/2012/03/does-agency-pricing-lead-to-higher-book.html

    “My goal (in an hour-long conference call with the DoJ) was to express why I think it’s critically important that the DoJ not take any actions to weaken or dismantle agency pricing for ebooks.”

    I myself, in the past, have failed to dissect out the real meaning of ‘Agency’. It is not the essence of the Agency Pricing method that is a problem anyway. It is the collusion between the Agency 6 in it’s implementation.
    The thousands of self pubbed authors selling on Amazon, and Smashwords, are using Agency pricing to price their own titles, as are Indie publishers. This is a good idea because there is plenty of competition and no online retailer is realy capable of establishing the best price for hundreds of thousands of titles. The collusion between the big publishers, however, is falsely inflating one group of titles in an anti competitive and illegal way.

  3. All I know is that if the big 6 or whomever think an ebook is worth 30$ they are nuts. If I can’t get a book reasonably be it ebook or pbook, then I go to the USED market. Which means the publisher AND the author lose. It’s no skin off my nose (or money lost) if it hurts them. I’d rather not but frankly, as noted in your article above, an ebook is not worth $12.99; not freshly published and certainly not 3 years old.

  4. Interesting logic. I guess if someone steals my car and I have to walk everywhere then I should thank the person who stole my car because I’m much healthier. It was obviously good for me.

    The agency pricing is bad because it removes competition. This isn’t good for the consumer and it isn’t good for the industry. The publishing industry and their perception management engine can try to spin it however they want but the general public recognizes that it’s bad. The US Department of Justice has obviously come to the conclusion that it also violated the antitrust laws. Too bad it took them so long.

  5. I’m not sure whether it was good for me or not. I was a very early Kindle adopter and the result of agency pricing was that I now pay close attention to pricing. In the past I’d overlook a book here or there which was over-priced; I’d grit my teeth an bear it. Now, I add that book to a list and move on. As it turns out, I usually ended up deleting it from my list if it took too long for the price to come down. I do the same thing for ebooks that get windowed – where the publisher holds the release for a period of time after the hardback. If it is more than a couple of weeks, I don’t even bother to put it on a list, I just wait. This has resulted in my never getting around to those books either.

    In essence, agency pricing has caused me to take a lot of money elsewhere. I buy at least a book a week, usually more. MUCH more of that money has ended up in the hands of self-pubs and indies which is fine by me.

  6. Too many people, I think, are hung up on price. I like to call them cheap-readers– those who use price as a sort of litmus test when obtaining eBooks.

    As I see it, $12.99 is not unreasonable for new quality fiction and $14.99 is OK for new non-fiction. If cheap-readers truly prefer indie titles over professional titles, then that’s good for them, but I’m not about to pick books in digital thrift stores to find bargains.

    True, some publishers are raising prices for older backlist titles to the high end, but they are usually equivalent or close to the current MSRP of new paperback editions. They is no way they should be bond to price to used market of older editions.

  7. As a reader I refuse to be taken for a dumb sucker by greedy publishers. No book, absolutely no book, is worth more than 10 dollars. And the idea that ‘new’ bestows some kind of value to a title is beyond absurd.
    In the last year I have discovered more really great reads at prices from 2 dollars to 6 dollars, on Indie sites and from self pubbed authors – which is the range I believe all titles should be – than from any ‘supposedly’ quality I ever discovered in a bookstore.

  8. Howard: “No book, absolutely no book, is worth more than 10 dollars.”

    Poppycock. Maybe not it’s not worth it to you, but I pay more than $10.00 a plate for dinner out, so as I see it, that’s dirt cheap for a book. Julian Barnes Booker Prize Novel cost more than $10.00 and I thought it was worth it, short as it was. I’ve not found an indie I’ve enjoyed half as much. How many authors do you know who writes at that level but are priced at under $10.00?

    I did enjoy reading J.R. Salamanca, an old college professor, who has released his novels for $6.99 each, but I think it’s rare to find that kind of writing at that low price, probably because he’s been out of print for decades, so I think that’s an exception. There are probably a few more like him, but not so many so to feed solely of the cheap prices.

  9. Quote from article, “Agency pricing has had another benefit for the consumer. It has made the rise of the indie ebook distributor, like Smashwords, possible along with the rise of the indie ebook author. It is not that these entities didn’t exist before; they did in the form of vanity presses for the pbook crowd. Rather, they have become legitimized, something the vanity presses never were able to accomplish.”

    Agency pricing has been around for a very few years. Indie epublishing and self-publishing have been around more than a dozen years, Fictionwise as long, and Smashwords is considerably older than agency, as well.

    If you intend to make such broad statements, you should ask those of us who have been around more than a few years to give you more perspective.

  10. Greg- ‘quality’ is the key word there. I would happily pay that price if it would assure me of a quality product. But they don’t even proof them anymore. Paying $10+ for a book that’s full of typos and OCR mistakes? No amount of literary value makes that worth it to me. To a damn proof-read and then we can talk about at-paper prices! Until then, I’ll get from the library or do without.

  11. Joanna: “Paying $10+ for a book that’s full of typos and OCR mistakes? No amount of literary value makes that worth it to me.”

    I agree with you. As I see it, OCR errors and bad formatting are unreadable defects, and I neither buy nor read such ebooks. Usually, I can detect these problems in the sample, unless I’m lazy and don’t bother to check, so I don’t often get hoodwinked with bad product. I see a lot of these errors in old science fiction novels converted to a digital format, but many new books I read are relatively free from mistakes.

  12. @Greg — You wrote: “Too many people, I think, are hung up on price. I like to call them cheap-readers– those who use price as a sort of litmus test when obtaining eBooks.

    As I see it, $12.99 is not unreasonable for new quality fiction and $14.99 is OK for new non-fiction.”

    I do not think a licensed ebook is worth $12.99. I think that such a price might be reasonable if I actually owned the ebook and it was DRM-free, but not a licensed ebook that is intended to be locked into a particular eco system by DRM.

    I gladly pay $25, $30, even more for new hardcover nonfiction (I admit I am reluctant to pay that kind of pricing for new fiction) but when I buy that new hardcover, I own the book (yes, I know that I don’t own the copyrighted material, but I do own the book). It isn’t a license, it is outright ownership, which means that I can lend it without restriction to every member of my family, I can pass it around my neighborhood, I can sell it on the used market. And it means that neither the publisher nor the bookseller can come along and grab it out of my library.

    One other important reason why I do not think ebooks are worht $12.99 — they are much too often poorly assembled and badly proofed. One would think that the ebook should be the exact duplicate qualitywise of the pbook version, but my experience is that they are often not of equal quality and publishers are unwilling to do anything about it.

    I do not think it is a matter of being a “cheap” reader but rather a matter of being a wise consumer.

  13. Greg M wrote: “Julian Barnes Booker Prize Novel cost more than $10.00 and I thought it was worth it, short as it was. I’ve not found an indie I’ve enjoyed half as much. How many authors do you know who writes at that level but are priced at under $10.00?”

    I read it as soon as it came out when I was given a gift of it. I hated it. I wouldn’t spend 2 dollars on it. No book, absolutely no book, is worth more than 10 dollars.

  14. Binko Barnes // April 5, 2012 at 1:37 pm //

    What do you receive in return for your money when you pay for an ebook? Generally, you only receive the limited right to read the book on a limited number of devices that are owned only by you. You can’t transfer the ebook to the device of your choice, you can’t resell it, you can’t make a device independent backup.

    Basically it’s a lease. If some people are wealthy enough to be able to lease limited reading rights to every book they want at at ten or fifteen bucks a pop that’s a wonderful thing for them. But the vast majority of us don’t have so much disposable cash to spend at a whim.

    Right now the big publishers are foisting a fraud on the ebook reading public. They try to give the illusion of “selling” you an ebook while only providing you with limited leasing rights. Eventually people will catch on. People will explore alternatives. Buy from small publishers. Read more public domain works.

    Within a few years this will sort out. Print books will fade into the background like vinyl LPs or music CDs or even DVDs of Movies are starting to. My family once purchased tons of Movie DVDs. Now, with all the watch on demand options, we never do. Some day we’ll have a Netflix type service for ebooks. Pay five bucks a month and get 3 ebooks at a time or something like that.

    Change will come when both the publishers stop fixating on protecting print books price model and consumers more fully realize how much they are getting overcharged for limited reading rights to ebooks.

  15. “Right now the big publishers are foisting a fraud on the ebook reading public. ”

    100% right.

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