shatzkinI 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.

As Hugh Howey put it in the discussion on The Passive Voice:

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.


  1. Recall that the judge is the Apple case was so clueless and biased, she actually said Apple should lose before it went to trial. (Some judges think that way. Only the clueless go public with that.) The fact that only a few titles were being heavily discounted wasn’t the issue. Those titles were bestsellers, the ones whose prices buyers remember. Amazon didn’t really want to be the cheapest place to get ebooks. It only wanted to make the more naive customers, in part because the more naive customers tend to be the richest.

    Nor was what Amazon doing unclear. It owned 90% of the ebook market and had enormous resources that would allow it to soak up even huge losses on ebook sales until it could rid itself of that pesky 10% competition. That’s why Apple’s entry into the market freaked them out, and why they got a law firm mere blocks from their corporate headquarters to persuade the DOJ to go after Apple. I find it very telling that what passes for a tech press in this country hasn’t explored that connection. When I still lived in Seattle, I toyed with demonstrating the connection by making a video in which I would walk from that law firm to as close as Amazon security would let me get to Jeff Bezos’ office. That’d be about 10 minutes walking. Journalists think like domesticated cattle. Where the herd isn’t going, they don’t go.


    Nor can you write off what Amazon was doing by claiming it was merely having loss-leaders. That’s fanboy talk. The closest parallel is what some 19th century railroad robber barons did. They’d build a rail line to a town alongside the tracks of a much smaller competitor and charge far lower rates. People would ride their cheaper line and the little competitor would go bankrupt. Then prices would go up quite a bit to finance the target of the next little railroad.

    Only fools assume that Amazon, having turned that 90% share of the ebook market into perhaps 98% and having driven Apple, whose executives seem disinterested in ebooks anyway, out of the market, would continue to play the good guy. At best, Amazon would do precisely what it does now, which is pay authors well below market rates and pocket huge profits on each ebook sale.

    Keep in mind that, thanks to its 70% market domination, Amazon already gets away with paying half what Apple pays for ebooks priced outside the narrow range of $2.99 to $9.99. It also gets away with charging, within that range, a download fee that’s inflated to about ten times market rates. That’s enough to demonstrate that Amazon already has too much market domination for a health market. It’s already getting away with screwing authors quite badly.

    And no, the real problem isn’t that Amazon is mean and nasty. That could be handled. The real problem is that far too many authors are ill-informed wimps. Most haven’t even made the effort to penetrate Amazon’s clever written FAQs about royalties to discover that they’re getting far less per sale. And even when they discover that, they’re so passive, they don’t even make a minimal effort to shift their sales to retailers to pay better.

    All too many authors, in their relationships to Amazon, remind me of the poor, unfortunate women who not only marry and remain married to drunken, abusive husbands, they defend them with muddled excuses. It’s not rocket science to figure out that Amazon already abuses authors in the worst possible way, what it pays them. Nor is it rocket science to figure out that, absence what competition does exists, it would treat them even worse. Amazon’s next move would be to make discovery of ebooks harder when authors don’t give them exclusives.


    One final remark. Agency pricing isn’t the big deal the techie pundits try to make it out to be. It’s the norm in app, music and video sales, and no one fusses about it there. It’s simply a practical way to sell things that have no ‘per unit’ cost but often cost quite a bit to develop. It also allows musicians, developers and others more control.

    It’s only an issue in ebooks because it was perhaps the only way to prevent Amazon from destroying virtually every other ebook retailer with cut-throat pricing. Amazon’s predatory behavior is why it matters, and why it needs no other defense. It attaches a ball and chain to the ankle of that 800-pound gorilla Amazon, and that’s what matters.

  2. According to Michael Perry:

    The judge in the Apple case was clueless and biased. Despite this handicap the judge’s rulings are being supported against the Apple position. Therefore, I guess the entire judicial appeal process is also clueless and biased.

    Rich customers are naïve customers. It is amazing how they ever found a way to get rich in the first place.

    Apparently Amazon convinced DOJ to file suit against Apple and the Big 5 publishers because they could afford a smooth talking lawyer. It of course had absolutely nothing to do with the merits of the case. Mr. Perry indicates that the physical closeness of Amazon to their law firm somehow influenced the outcome. I thought that only worked with magnetics the closer they got to each other.

    Mr. Perry compares Amazon to the 19th century robber barons who built the railroads. Saying those robber barons built rail lines parallel to their competitors and drove them out of business with lower rates, then raised rates after they went out of business. History books say different. The problem was not parallel tracks. The rail road barons entered into sweetheart deals with their friends. There was a general published rate that was supposed to be for all. However, the railroad robber barons then gave undisclosed rebates to their friends to give them a competitive advantage and drive their competitors out of business. The Progressive movement eventual was able to gain government oversight of the railroads to monitor rates. They treated the railroads as a common carrier. If the railroad gave someone a preferred rate they had to disclose it and offer the same preferred rate to their competitors. I would recommend Dolores Kearns Goodwin’s “The Bully Pulpit” for more on this issue. I am unware of any similar pricing sweetheart deals by Amazon. Apparently while Amazon is attempting over and over again to lower prices and increase sales, while the Big 5 publishers are equally determined to raise prices, lose customers, and hurt authors just for the chance to stick it to Amazon.

    Amazon is not operating in a vacuum. If authors are so unhappy with the terms Amazon is offering they can go elsewhere. Apple, Google, Kobo, Barnes and Noble, etc.. For the most part they don’t, not because most authors are naïve or stupid but because they get better results with Amazon then they do in general with the others. Amazon pays more to authors who write and sell books in the $2.99 to $9.99 range because their data shows that is the sweat spot where you grow sales the most and maximize profits for both Amazon and authors.

    Mr. Perry really does not like authors describing them as ill informed wimps and no better than abused women too blind to leave abusive relationships. Ouch! Apparently Amazon among their many successes has corned the market in ill informed and abused wimp authors. Authors Earnings says otherwise. Their Feb 2016 report indicates authors are acting on good data and making informed choices and for mid list authors going indie is probably a better strategy. Meanwhile, Big 5 publishers over time are losing more and more market share to indie authors. Big 5 authors are a shrinking presence on Amazon’s best seller lists.

    On a more personal note. I no longer buy paper books. I do have many legacy paper books purchased before I went all in with e-books. Big 5 e-book pricing is nonsense. As an example. I was looking forward to purchasing “Illidan, World of Warcraft”, e-book price: $13.99 and hardback price: $7.34. This is ridiculous! It is stupid pricing like this that will cause the Big 5 publishers to loose more and more of the market until they become totally irrelevant.

  3. What I wonder is whether you DELIBERATELY twist and distort what I say or are just so stuck on your own point of view that you don’t get it? Too lengthy a diatribe to engage, but a stunning misread, starting with the headline. Maybe some more discerning minds will just read the original. Your ability to make assumptions about what I didn’t say and misunderstand what I did say are breathtaking.

  4. @Michael Perry: As usual you’re way off. Denise Cote was not clueless when she made her pretrial remarks (at the request of at least one of the parties), she had already read most of the discovery material, and she was the presiding judge at the prior settlements with the publishers. If she was at all biased, it was because she had already seen all of what was going on with Apple’s co-conspirators.

    If the Big 5 publishers are really unhappy with Amazon and its ebook monopoly, then why are they doing things like setting the price on an a Neil Gaiman ebook at Amazon for their deal of the day at $1.99 and then leaving the price at $11.99 at B&N, Google & Kobo? The regular ebook price was actually a dollar more expensive than the trade paperback at both B&N and Amazon to boot. At Amazon, just next to the price was a notice that the price was set by the publisher. Not only are they enforcing a walled garden with DRM, but they are pricing ebooks cheaper at Amazon to drive buyers away from their competition.

  5. I would love to be able to buy an ebook with all of Mr. Perry’s anti-Amazon rants on Teleread. Who would own the rights?

    My favorite bit in this latest rant is linking domestic abuse with sticking with a business that makes an author the most money. By his thinking and Author is better off going to a Big Publisher who will use creative accounting to reduce the Author’s share, or not release a book because another more famous Author has a similar book coming out around the same time, keep ownership of the Author’s work for what seems eternity, or price a book outside of the demand curve, etc. Yep, Big Publishers seem like loving caring and giving husbands. Unlike Amazon who lets you publish pretty much anything you want, when you want at any price point you want. Evil

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