Gnashing of Teeth: Publishers vs Readers

Peter Brantley -- March 11th, 2012

Seldom has news of litigation against publishers demonstrated such differences in opinions. But as the Department of Justice signals that it may file suit in a case alleging that the largest U.S. publishers and Apple combined to set high prices for books, the shrill cries from publishers suggesting that “the end of retail competition for books is nigh” remain largely deaf to the myriad benefits for customers. If agency pricing is struck down, readers may once again see reasonable book prices from online retailers that years ago acknowledged that digital music and videos have a very different value than their traditional analogues.

The Justice Department alleges that agency pricing was established to rectify the negative impact of Amazon’s discounting of e-books below the wholesale level. Imposing a uniform price across all retailers benefited Apple by letting it avoid a price war with Amazon. For publishers, artificially inflated digital book income permitted them to maintain a legacy print business for a longer period of time. Bowing to print’s inefficiencies, big media publishing firms are constructed around an outdated model of book production that incorporates expensive printing, warehousing, distribution, and returns; migration to a digital production environment is chained to the liabilities of their past.

In a renewed competitive ebook market, large publishers fear that Amazon will again reduce prices, driving average price points below the magical $10.00 threshold. In their logic, other online book retailers such as Barnes & Noble’s nook and Rokuten’s Kobo are presumed to be ill-equipped to compete with this level of price pressure. Consumers will therefore flock to Amazon, cementing its monopoly hold on the ebook market, thus ultimately leading to unprofitable publishers and customers locked into a single delivery platform.

I think there are a number of problems with this argument. First, existing digital book consumers are restrained from casually switching ebook platforms by dint of vendor-specific DRM that prevents ebook portability; further, breaking a vendor’s DRM to sideload books into another platform is at present technically illegal due to the Digital Millenium Copyright Act. Anticipating a sudden rush of consumers to Amazon would mean people would be willing to ditch existing investments in their book libraries and their dedicated reading devices; this is not a compelling scenario. Additionally, nook and Kobo will inevitably respond to lowered prices by attempting to erase the discrepancy to the best of their ability.

Second, publishers always had more creative ways of reacting to market challenges than price controls. Publishers are not without strategic recourse: for example, if they permitted B&N and Kobo and other retailers to sell DRM-free EPUB books, it would make non-Amazon retailers more attractive, fostering the kind of competitive retailer market whose absence they lament. Alternatively, publishers could make serious investments in selling books and reading experiences through social tools and community building — an approach they’ve pursued only in the most rudimentary forms and with extensive delay, e.g., Bookish. This strategy might shift some book commerce away from discount retailers into higher margin venues.

Publishers argue that one of the benefits of agency pricing was that ebook retailers had to compete on the value of their services, which was (oddly) presumed by publishers to be of higher value to consumers than pricing. Not only is the logic questionable, it is also an extremely book-centric perspective on Apple, Amazon, and to a lesser extent, Google – very large technology companies whose business are not defined by selling books but in building traffic and generating commerce. People who are Kindle customers are likely to be Amazon customers prior to ever picking up a Kindle because they appreciate Amazon’s superb customer service, the Prime subscription offering, and their ability to get a wide variety of goods cheaply and quickly.

It is possible that agency pricing may have forced Amazon to give up some market share to Barnes & Noble, but at most, agency pricing could only be a temporary monkey wrench in the digital transformation that has reshaped the publishing business. Large technology companies can bring efficiencies to bear that are a result of powerful cloud platform services, troves of customer data, and the ability to wring benefits from a wide range of digital commerce. Google introduced its new Google Play media marketplace with extremely steep discounts on books. And, who can doubt that Apple could aggressively adjust its pricing if it wishes to remain competitive; the company that has “enough cash to buy a good part of Western Europe” can manage to subsidize a few more copies of the latest Twilight novel.

It’s also worth noting that publishers’ move to agency pricing helped create the retailer market concentration that publishers now decry as inevitable. Small independent online booksellers were devastated by the move to agency. Books On Board took months to recover, adversely impacting its relations with suppliers. Diesel Books took six months to get agency publisher books back into inventory; All Romance eBooks has reported that it took over a year – and in all that time, their customers were not being well served. All of these retailers, as well as Fictionwise, found their loyalty programs, their “buy one, get one free” (BOGO) promotions, and the ability to do spot sales, immediately crushed. (Fictionwise was absorbed by Barnes & Noble.) These ebook vendors were a serious counterweight in passionate reader communities against Amazon, and agency hurt them badly.

In the long run, there are far bigger transitions ahead of us. I just flew back from a meeting at USC’s Institute for Multimedia Literacy for the Alliance for Networking Visual Culture. The gathering showcased a mixed media authoring environment called Scalar which gives faculty and students a web based tool to help redefine scholarship, and with it, the academic book. Like Inkling’s Habitat and Vook’s new authoring platform, Scalar is one of a growing number of tools that will have a greater impact for readers than the possible rise of a temporary monopoly in book retailing. When books are more like web productions than downloadable bundles of text, we’ll inevitably have a very different reading experience.

Let’s not stop the train of competition now; let it roll on. It’s too early to constrain our future.

15 thoughts on “Gnashing of Teeth: Publishers vs Readers

  1. Lisa Spangenberg

    I wish people would stop confusing the book with the container. Hardcovers cost a couple of bucks more to print and bind than trade paperbacks, which cost a couple of bucks more than an ebook. But what we are really buying is the text, the data, not the container. I want my favorite authors to be able to afford to continue writing; I want my books, in whatever container, to be edited, designed, typeset and produced with professional quality. Most of the costs of a book are before the book is sent to the printer or the ebook production department. Author advances, for instance, are often the largest single line item in the the budget of a book. I see no reason why that shouldn’t be reflected in ebook pricing.

    I’m buying the book; the container is a matter of convenience.

  2. carmen webster buxton

    Don’t you think a big part of the problem is that publishers have always ALWAYS based their prices on format? Book buyers expect to pay more for a hard cover than for a trade paperback and more for trade paper than for mass market because publishers have taught them that it will always be that way. For publishers to now say that a book costs the same no matter the format makes book buyers feel that they were either being ripped off before, or being lied to now. Publishers need to be more up-front about this issue and they need to pay more attention to ebooks. Don’t just slap a price on the ebook and forget about it; when the book has been out a while, lower the price. If you want control, then pay attention! Make sure there is never a print copy that costs less than the ebook copy. That just drives folks up the wall because it looks like pure greed. I can see why agency pricing looked like a good option, but I’m not convinced it’s really good for them in the long run.

  3. Theresa M. Moore

    We tend to ignore the thousands of legitimate authors who also have been marginalized by Amazon’s pricing structure. We cannot sell our books on Amazon thanks to its launch of its various imprints (which take the front stage on the site, BTW), and we cannot sell our ebooks thanks to a dysfunctional reporting system which fails to track sales. This week I discontinued all but three of my ebook titles, and do not plan to post any new ebooks for the future. Amazon has not sold many of my printed books, proving that it cannot sell them.

    Amazon makes itself look big the way a decorator crab does. It attaches importance to its brand, and threatens other booksellers with its size. But in the end it is still just a crab. It cannot sell books any better than any other bookstore, and I can safely say that the “pro” publishers have nothing to fear if they simply do not deal with Amazon and concentrate on offering books online the way the rest of us do. Then watch the controversy wane as people realize that diversity and price competition is the only way to give customers what they want. Make Amazon bid for the books the same way it has been done for generations, and you will soon see that Amazon is not as big or as powerful as everyone seems to think it is. As for me, I will continue to sell my books and ebooks direct from my site and act as if Amazon does not exist, since depending on Amazon for sales is a waste of time.

  4. Laurie Gold

    Wow…what a difference between this article, highlighted in PW’s daily newsletter, and that headlined with Turow Slams Prospect of DOJ Anti-Trust Suit. As an obsessive reader and reviewer, I used to spend probably $75 a month on books; mostly mass market, a trade or two, and perhaps one hardcover. When I moved to reading digitally, I continued to spend high to buy a lot of books.

    When the agency model and iPad came into fruition, I noticed price increases of 20%, and they are continuing to creep upward. I am buying far, far less.

    Right now I can buy a mass market title with a 10% discount just about anywhere, which is less than I am paying for the digital copy. That is totally ridiculous. It’s worse with trade-size books, which routinely cost slightly more digitally than they do w/discounting.

    Publishers allow routine discounting for print books, but none for digital. It sends the message to me as a reader that I am unwelcome. I’ve read that digital prices are propping up hardcover prices. I think publishers need to get past the fear and develop other models. I’m fine with not buying the digital hardcover price if, by waiting for the paperback equivalent, I’m still saving something over print. But that’s not happening, and more and more hardcover ebooks are now almost the same price as discounted print hardcovers.

    With more and more books being published in trade size, the mass market customer is also being squeezed. The upshot of the agency model is this: many readers like me now regularly buy fewer digital books and supplement with library reads. In the long run readers like me are being alienated and are buying less. That can’t be good for publishers…or authors, and it’s certainly not good for readers. Lots of authors are angry with Amazon when I think the publishers deserve more of the blame. I’d be interested to hear what Connie Brockway, who sold her last book exclusively for Amazon Kindle, has to say about the experience.

  5. Gary Edwards

    Look to the music industry for some perspective. People used to listen to an entire record album because it contained related music, organized to flow from one song to the next. The album in its entirety created a musical thought. The singles which were released for airplay were intended to generate buzz about the artist, promote a concert tour and, most importantly, to spur album sales. Today people tend to buy singles rather than an entire album. As interest is lost in the artistic flow of an album, the artistic flow of the album has become less important.

    In the future, look for e-book content to be reduced to “singles” which can be purchased for $1.29, and can be read in less than an hour. Is this bad? Not necessarily – it’s different, and it’s a new potential market. The good news (again, looking to music) – people still buy full-price recordings of symphony concerts, even though you can purchase individual movements for a lower price. The first movement of Beethoven’s Fifth Symphony is one of the most well-known pieces of classical music, but few fans would be satisfied just listening to the first movement. There will always be a market for well-written content, fiction and nonfiction, whether it’s sold/purchased by the chapter or by the book.

    Oh, and one more thing… remember the “record store?” Even if one can’t fully embrace change, it’s best not to totally ignore it.

  6. Gary Edwards

    Look to the music industry for some perspective. People used to listen to an entire record album because it contained related music, organized to flow from one song to the next. The album in its entirety created a musical thought. The singles which were released for airplay were intended to generate buzz about the artist, promote a concert tour and, most importantly, to spur album sales. Today people tend to buy singles rather than an entire album. As interest is lost in the artistic flow of an album, the artistic flow of the album has become less important.

    In the future, look for e-book content to be reduced to “singles” which can be purchased for $1.29, and can be read in less than an hour. Is this bad? Not necessarily – it’s different, and it’s a new potential market. The good news (again, looking to music) – people still buy full-price recordings of symphony concerts, even though you can purchase individual movements for a lower price. The first movement of Beethoven’s Fifth Symphony is one of the most well-known pieces of classical music, but few fans would be satisfied just listening to the first movement. There will always be a market for well-written content, fiction and nonfiction, whether it’s sold/purchased by the chapter or by the book.

    Oh, and one more thing… remember the “record store?” Even if one can’t fully embrace change, it’s best not to totally ignore it.

  7. Clive

    The major publishers themselves appear to be working hand in glove with Amazon. Why does Random House only make books available on the Kindle? No Nook or Epub at all. This is a restriction of trade.

  8. Paul T. McCain

    I was not clear if the article’s author was reflecting an argument made by the DOJ, or his own opinion, but I must disagree with this statement:

    For publishers, artificially inflated digital book income permitted them to maintain a legacy print business for a longer period of time.

    The reality is that the highest costs we as a publisher incur are not the printing and handling of a physical book, but the creation, design and production of the intellectual property, that is, the content of the book. If consumers expect to continue to receive excellent content, they can not expect prices for all e-books to be only $10. It is simply not going to be possible.

    1. Nathan @SWONtech

      Paul, I don’t disagree with you, but I’d love to see data that demonstrates your point. There’s a huge lack of information on what it costs to produce a book and on what parts of the process take what proportion of the costs. On the one hand, it’s understandable that publishers aren’t eager to share this information with the public and their competitors. But without some evidence, publishers and libraries/individuals can contradict each other all day without moving the conversation forward.

      I also don’t think that customers don’t independently believe ebooks to be worth $10 max. But if Amazon can set that price at a loss and absorb the difference, it creates the expectation that this is what ebooks cost. Apple may have won a wide consumer base for iTunes with $.99/track pricing, but a glance at their current Top Albums chart shows a surprising amount of pricing diversity. (I was surprised by it, anyway.) If publishers in any field want to set the pricing range from $14-$24 per product and not $4-$14, they’re going to have to make an amazing argument to do so. I haven’t heard it yet.

    2. M. Hart

      I think Paul has a very valid point. One issue that came up several times as this topic was discussed at the Tucson Festival of Books last weekend was the devaluing of books’ content by predatory pricing — which should be of concern to all, but especially, one would think, to the two ends of the process, authors and readers.

  9. Allan Jardine

    I agree with the points you have raised, however, Amazon’s have only one motive; profit. They have killed the independent small book trade and have such a dominant position in the global ebook market, that in a couple of years no competition will exist. The DoJ is going after the wrong guys in the short term

  10. Emma Cunningham

    I tend to agree. I think there are thousands of reasons why the end of Agency Pricing won’t be the end of the publishing world. I’m interested to see how it will play out.

    Small retailers have always competed with big-box stores. My mom ran a cookware store that did just fine despite the existence of Walmart, Sears, etc. Tons of other small businesses manage to compete. I’m not sure why it has to work differently online.

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