4

Images

Joe Konrath has a long article in A Newbie’s Guide to Publishing, with the above title.  He marvels that authors are defending the agency model even though it is hurting their pocketbooks:

I won’t point fingers, but a Google or Twitter search will show how many authors seem to think Amazon is bad, the agency model is good, and the poor Big 6 are getting the shaft.

Uh, no. That’s just plain wrong.

I’m going to explain why the agency model in this particular case is indeed bad for authors. But first go read April L. Hamilton’s terrific breakdown of arguments and statements erroneously defending the Big 6.

Before I begin, let’s make sure we’re all on the same page about what the agency model is. Here’s a detailed explanation, but in a nutshell it is this: in a wholesale model, the one supplying the goods sells to a retailer at a predetermined price, then the retailer sells to consumers at whatever price they see fit.

In the agency model, the one supplying the goods gets to set the price for consumers, and then gives the retailer a set percentage (in this case 30%.)

It should be obvious that the one who sets the price has a great deal of power over the market.

The agency model by itself is not illegal. Retailers can choose to adopt any pricing structure with their suppliers as they see fit. And as I said before, I care less about the legality of this particular business relationship, and more about if it was good for authors.

And it wasn’t, for this very big reason:

Under the Agency Model Authors Make Less Money

I’ve gone into this in detail before, but let me distill it.

Under the prior model, Amazon bought ebooks at a percentage of the recommended retail price. Then they priced them how they saw fit.

The recommended retail price for ebooks was often about half of the hardcover price. So a $25 recommended retail price meant Amazon paid $12.50 for the ebook.

According to most contracts, the author made 25% of the net price the publisher received. So at the above numbers, an author would make $3.12 NO MATTER WHAT PRICE AMAZON SOLD THE EBOOK FOR.

In other words, if Amazon wanted to sell the ebook for $9.99, the author still makes $3.12.

Sell it for $5.99? Author makes $3.12.

Sell it for 99 cents? Author makes $3.12.

So what happens when the agency model comes into play?

First of all, Amazon no longer controls the price. We all know that this is BAD, because Amazon became the giant billion dollar company it is today by ruthlessly gouging customers, forcing them to pay high mark-ups at unreasonable prices.

Oh, wait a sec… Amazon doesn’t do that. In fact, Amazon works its butt off trying to keep prices low. That’s why so many people shop there.

Now, I’ve got reams of data that show lower priced ebooks outsell higher priced ebooks. My higher-priced legacy novels are underselling my lower-priced self-pub novels by 1 to 5 or worse.

In other words:

With the wholesale model, authors made more money per unit and sold more units.

If you are an author defending the Big 6 and the agency model, repeat that in your head until it sinks in.

With the wholesale model, authors made more money per unit and sold more units.

Funny thing is, publishers also made more money under the wholesale model. But instead the Big 6 decided they wanted an agency model.

Authors still get 25% of net. But net has gotten lower in almost all cases.

With the wholesale model, net was $12.50. With the agency model, net is 17.5% of the list price set by the publisher.

So the publisher sells it for $12.99, the author makes $2.27.

Sell it for $9.99? Author makes $1.74.

Sell it for $5.99? Author makes $1.04.

Sell it for 99 cents? Author makes 17 cents.

The Big 6 don’t like low priced ebooks. It hurts their paper sales, and paper is the model they hold distribution power over. So once the agency model became adopted, the Big 6 kept ebook prices high.

In other words:

With the agency model, authors made less money per unit, and sold fewer units.

There’s lots more in the article and I suggest you read the whole thing. I must admit that I love the last line of the post:

You shouldn’t worry about being eaten by a lion tomorrow when there is currently a pit viper biting you in the ass. And if you’re defending the pit viper, you’re an idiot.

 
4