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Posts Tagged ‘IPG’

(Cross-posted from Mad Genius Club)

I’m a little late posting this morning because I’ve been going round and round about what to write. Dave did such a wonderful job yesterday discussing his thoughts on Mike Shatzkin’s blog about what he thinks will happen if the Department of Justice’s possible antitrust investigation into Apple and five of the big six publishers causes the agency pricing model to disappear. I’ve already covered my thoughts on Scott Turow’s letter about the issue. Then I made the mistake of reading some of the comments from the “enlightened” on it and, well, you guessed it. I’m weighing in again on the issue.

I’ll admit, part of the reason for this post is a thread started by what I can only term a publishing troll on one of the boards I read every morning. This person posted a defense of big publishing comment that included a statement that the people “attacking” legacy publishing are doing so because they don’t have the talent to be published by a “real” publisher.

I beg your pardon? Oh, and that grinding sound you hear is the sound of the teeth of innumerable mid-listers who have suddenly been cut loose by their publishers because, even though their books are still on the shelves more than a year after publication and even though there are continued demands from their fans for more in a series, the publisher claims they just didn’t connect with the public. And that evil laugh you hear is me as I contemplate what will happen when these same mid-listers, free of the fear of upsetting their publishing masters, finally demand full audits and the publishers are caught between a rock and a hard place because of their “creative” bookkeeping methods.

So, yeah, I’m in a pissy mood this morning. I’m tired of legacy publishers thinking they can pull the wool over the eyes of authors who should know better. I’m tired of them also thinking readers, those good folks who buy their products, as so dumb they can’t see what is happening. With that in mind, I’m going to revisit Shatzkin’s blog and some of the sources it cites.

From the opening paragraph:  But if this does mean the end of the agency model, it would seem to be a cause for celebrating at Amazon and a catalyst for some deep contemplation by all the other big players in the book business.

Duh. Of course it will be “a catalyst for some deep contemplation”. The problem is, they should have been doing this “deep contemplation” years ago. Market trends and technology have been changing for the last three plus decades and yet the publishing industry hasn’t really embraced these changes. The publishers should have been concerned when the big box stores came onto the scene and forced the smaller, locally owned bookstores out of the market. But publishers weren’t. Oh no, not at all. They embraced these new stores, loving the fact they could do larger orders and write bigger checks. But now, with the economy and other trends causing these large stores to close down, publishing is running scared and blaming Amazon for the problems faced by these brick and mortar stores. But the truth of the matter is, Amazon is only one small part of the whole equation. Unfortunately, neither the big box stores nor publishers did any “deep contemplation” before things became so bad their entire companies are in danger of failing.

Agency pricing, for those who have not been following the most important development in the growth of the book market, enabled the publishers to enforce a uniform price for each ebook title across all retail outlets

Okay, pardon me while I laugh for a bit. Is he really saying agency pricing is the most important development in the growth of the book market? Sorry, but no. E-books are the most important development in the growth of the book market. If you’ve followed the sales numbers over the last few years, the only segment of the market to consistently grow, usually in triple digit percentage points, has been e-books. The only thing agency pricing has done is artificially inflate the price of certain e-books and that, in turn, has opened the market to small press published and self-published e-books.

This was Apple’s desired way to do business, and it addressed deep concerns the big publishers had about the effect of Amazon’s loss-leader discounting.

Okay, whether he meant to or not, he just admitted that agency pricing is something dreamed up by Steve Jobs and agreed to by five of the big six publishers. And, if you read the link included in the quote above, you will see this wonderful piece of logic from Macmillan: The agency model would allow Amazon to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model. Our disagreement is not about short term profitability but rather about the long-term viability and stability of the digital book market. Am I the only one to see all sorts of wrong in this statement? How in the world is lower profits for the publisher–which would mean less money for authors under most contracts–be good for the publisher? How is this sort of an agreement going to safeguard the “long-term viability and stability of the digital book”? It makes absolutely no sense. My opinion is that they went along with this because they wanted into iBooks/iTunes and the only way to do so was to accept Steve Jobs’ terms and that meant forcing Amazon, B&N and other e-book retailers to adopt the agency pricing model. Remember, the key to the agreement with Apple was that these publishers would not allow their e-books to be sold for less anywhere else. So Amazon isn’t the only market where these publishers would be making less money. Funny how folks seem to overlook this little item.

Back to Shatzkin: Although the WSJ article and Michael Cader’s follow up in Publishers Lunch make no “agency is dead” declaration and there are quotes from publishers and others indicating that there are a range of possible outcomes, including a version of agency that is modified to allow some discounting, everybody in the industry now has to contemplate what it would mean if the agency model is legally upended.

Again, why weren’t they already considering this? For one thing, the contracts signed with Amazon, B&N, etc., weren’t for perpetuity. There would soon be a time when they came up for renegotiation. For another, The European Union, not to mention more than a few states’ attorneys general, were already looking into the legalities of agency pricing. The fact that the industry hasn’t been considering “what ifs” simply shows how out of touch it is with the reality of the market these days.

To Amazon, it would mean they would be free to set prices on all books again, including the most high-profile and attractive ones that come from the big trade houses. That is an opportunity they are likely to seize with loss-leader discounting of the biggest marquee titles.

Ah, evil Amazon. Conducting its business as, gasp, a business. The ability to sell a product wanted by the public at a lower price has been an age-old tactic of shop owners and merchants. It gets folks through the doors, be they physical doors or cyber doors. And isn’t this basically what the brick and mortar stores did when they burst onto the market? They were able to price hard covers much less than the mom and pop bookstore could. That’s why the public initially loved these larger stores. It’s also why publishers loved them. These lower prices meant more units being sold. Funny how the publishers have forgotten that.

To Barnes & Noble, it would mean they have to devote cash resources to ebook discounting that they might have preferred to dedicate to further development of the Nook platform, maintaining the most robust possible brick-and-mortar presence, and improving the user experience at BN.com. 

This very well may be true. The problem with this statement is that it omits the part about BN waiting too long to enter the e-book market. It forgets that BN spent too much time selling third-party e-book readers instead of developing and putting on the market its own e-book reader. It also ignores the fact that the BN online presence is not user friendly, especially not when it comes to e-books. It also lacks the vibrant online community Amazon has built.

Unconfirmed stories abound that B&N is about to announce an international expansion. Whether that will produce cash flow immediately or require it for a while is not yet known. For B&N’s sake, it would always better if it were the former, but if they’re about to fight discounting wars, it might be critical.

I seem to be saying, or at least thinking, “too little too late” a lot as I re-read Shatzkin’s post. BN needed this international expansion long ago. The fact that it may, finally, occur probably is too little too late. I’ll note here that this possible expansion is for e-books, not brick and mortar stores. Again, why has it taken this long? I’ll also note that the source Shatzkin cites is from August of last year. So far, to the best of my knowledge, that expansion has yet to occur.

To Kobo, it would mean that they also will need to devote cash resources to subsidizing price cuts to match Amazon. With their new ownership by Rakuten, they should have the capital they need to fight this battle. They must be glad that deal got done before agency was upended.

Nope, sorry. For those of you familiar with Kobo, you know they don’t always match Amazon prices. There are a number of titles Kobo offers for substantially higher prices than the same title is offered for on Amazon. And, before you ask, I’m talking about legacy published e-book titles. So I don’t see them trying to match prices with Amazon except on certain titles.

To Google, it would mean that the bookstore service piece of their ebook business will suddenly be highly challenged. Many independent stores might be pushed out of the ebook game completely; it certainly would be extremely difficult for them to support competition with Amazon’s prices. To Google itself, with their new Google Play configuration, it means they will have to both spend more margin and more management energy to be a serious competitor in the retail marketplace. There’s no clear evidence that they have the interest at the top to do that, although they certainly would have the resources.

Yes, I’m laughing again. Google’s e-book business is already highly challenged. They’ve dropped the number of stores able to take part in their program. Their interface for authors and small presses leaves a lot to be desired. As for Google Play, why is Amazon the only reason they would have problems? Doesn’t Shatzkin remember a little company called Apple and its iTunes store? Or does he not see the parallels between Google Play and iTunes?

To Apple, it would mean that their entire iBookstore model is in question. They apparently didn’t want to take on all the normal responsibilities of a merchant, which would include setting prices. Now they may have to.

Oh, cry me a river. If Steve Jobs hadn’t presented the agency model to publishers and said “accept or else”, we’d not be having this discussion. But then, I’m just a bitter small publisher employee who can’t put our e-books directly onto iTunes/iBooks because we use PCs and not Macs, something required to use their interface. And, btw, they are the only storefront for e-books that we’ve come across that requires a certain computing platform in order to upload a file.

To all the big publishers, including Random House (the one of the Big Six not being sued, because they stayed out of agency for the first year and therefore were not considered part of the “collusion”) it would mean that they will have to painfully reverse the re-pricing and systems adjustments they went through to implement agency in the first place.

“Painfully”? How can it be painful if they can return to a pricing model where they made more money? Remember the quote from the Macmillan post above. It was admitted then that agency model pricing meant less money for publishers.

Smaller publishers and distributors might be beneficiaries if agency is eliminated, but they might not. The agency model is a great advantage for those publishers who are able to fully implement it. But that is only six publishers — the Big Six — because Amazon has simply refused to let anybody else sell to them that way.

I ask again, how is ia great advantage for publishers when these same publishers admit they don’t make as much money from agency pricing as they did before? As for Amazon refusing to let anyone else use agency pricing, good for them. It means Amazon is looking out for the economic well-being of the company and making sure it keeps its shareholders happy. It also means Amazon is looking out for its customers. But that’s a bad thing I guess because, gasp, it isn’t saving legacy publishing from the follies of the boardrooms in NYC.

That creates problems for the smaller publishers but an even more threatening one for distributors. All but the Big Six, if they want to sell to both Amazon and Apple, must operate a “hybrid” model, selling Apple on agency terms and Amazon on wholesale terms. The two are inherently in conflict. What is ultimately a threat to the distributors is that distributees that desire agency terms, and many would. might seek distribution deals from one of the Big Six. (It might be coincidental, but it is worth noting that IPG, the company having a fight with Amazon at the moment over terms, is a distributor.)

Okay, here is where I have to watch myself. It doesn’t create a problem for small publishers. We set our own prices both with Amazon and with Apple. If one lowers the price for promo reasons, the other can and does the same. As for the two being inherently in conflict, thank Apple. As noted before, Jobs required the first five of the big six to accept agency pricing or not sell in iBooks. Blaming Amazon for something it had no control over is ridiculous.

As for the threat to distributors, get real. I’ll admit distributors have a role in publishing, but not when it comes to e-books. Sorry, but there is no reason a small press has to use a distributor to get into Amazon or BN. The process is simple and relatively pain free to upload titles to either of these stores. Given the proper Apple computer, I assume it is for iTunes/iBooks as well. So I have no sympathy for IPG or other distributors moaning the fact Amazon won’t let them go to agency pricing. As an author I have even less sympathy because I know publishers take out the cost of distribution before figuring royalties. Why would I want to lower my already too small royalty payments?

Of course, we don’t know how the Big Publishers will respond if they’re forced off agency. It’s long been my opinion that the 50% discount for ebooks is unworkable. It leads to ridiculous and unrealistic retail prices. (Publishers operating on the hybrid model have to have two retail prices: one on which to base the wholesale discount and another at Apple operating agency-style. It’s crazy.) Would the big publishers, if they couldn’t do agency, keep the 30% discount and their current prices? Would they go back to the 50% discount and jack the suggested retail prices back up? If they did the former and nothing else changed, the smaller publishers could be at a much greater disadvantage than they are now.

Ah, the economic double-speak. First of all, small publishers won’t be at a “much greater disadvantage” because we will still be pricing below major publishers. Why? Because our overhead is much smaller. Also, for those of us with a limited paper-side publishing, we aren’t trying to artificially prop up the hard copy publishing arm with the digital arm. And that is exactly what the legacy publishers are doing. They are trying to use their e-book sales to keep the print side alive.

The other thing Shatzkin keeps overlooking is the fact that publishers aren’t making as much per sale under agency pricing as they did before. So, going back to the previous pricing method would actually give them more money in their pockets. How that is a bad thing, I don’t know.

Over time, the biggest losers here will be the authors. The independent authors will feel the pain first. Agency pricing creates a zone of pricing they can occupy without much competition from branded merchandise. When the known authors are only available at $9.99 and up, the fledgling at $0.99-$2.99 looks very attractive and worth a try. Ending agency will have the “desired” effect of bringing all ebook prices down. As the big book prices are reduced, the ability of the unknowns to use price as a discovery tool will diminish as well. In the short run, it will be the independent authors who will pay the biggest price of all.

This guy really should try his hand as a comedian because he’s killing me here. First of all, do any of us really see legacy publishers pricing their books under $5.99, much less as low as $2.99? And let’s forget about the fact that they already have e-books in the $7.99 range.  The loss of agency pricing will simply allow best sellers and new releases to come down in price to something more readers will be willing to pay. This will be, in my opinion, back in the $9.99 range and there simply aren’t that many self-published or small press published titles that are in that range.

With regard to his comment that the lower prices will make it harder for “unknowns” to price their titles low enough to be discovered by the average reader, wrong again. I would be very surprised if legacy publishers will price any book, much less a new release, at less than $7.99. Remember, they are using e-books to prop up their print divisions. If they price low enough to shut out these so-called “unknowns”, they will have to do some major cost cutting somewhere and that isn’t going to happen. They like their plush offices and they’ve already cut out or outsourced so much of the editorial process that it isn’t funny.

But, in the long run, all authors will just get less. They will join the legion of suppliers beholden to a retailer whose mission is to deliver the lowest possible price to the consumer.

Authors already get less. Most authors are not paid royalties based no cover price, not really. Publishers take out expenses. So, if an e-book has a price of $12.99 and the publisher gets 30% of that under agency pricing, that starts the share of the pie the author gets to look at at $3.90. Believe me, the author is not getting much of that at all. Once more, I remind you of what the Macmillan post said. Agency pricing means less money for publishers than the previous pricing plan paid. Less money for publishers means less money for authors.

Seth Godin has recently made the argument that this is simply inevitable. Perhaps it is. The laws of supply and demand would support that contention. But from my personal perspective, I don’t like seeing the government hasten the process along.

Could this be because he works with/for publishers? I am not, and never have been, one to want our government interfering in business. However, we do have laws and the Department of Justice is tasked with upholding these laws. If there has been collusion between the publishers and Apple — and I think it is pretty clear there has been — then those laws need to be applied to them.

The truth of the matter is simple. Agency pricing has hurt publishers and hasn’t done what they wanted–it hasn’t saved their print divisions. Those sales continue to fall while e-book sales continue to rise. Amazon is not the only reason for the problems publishers face. Despite what one commenter on the thread that got me started on this this morning said about publishing’s business model not being broken, it is. Until legacy publishers address ALL the issues facing them and not just try to save things by artificially inflating e-book prices, the industry will continue to flounder. Just a few of the issues they need to address are:

1. the failure of agency pricing to do as they wanted

2. low royalty rates to authors

3. cutting of mid-list authors, traditionally the work horses of the industry, as a cost-cutting means to allow them to continue paying higher advances to their so-called best sellers (note here that those advances have fallen just as have the advances to mid-listers)

4. lack of push or promotion for books

5. decline of physical bookstores (yes, Amazon has had a hand here, but so has the economy, over-expansion of the big box stores after pushing the locally owned stores out of the market, mismanagement of the big box stores, etc.)

6. decline in the quality of their product (publishers have cut their editorial staffs, often use interns to do copy edits and proofreading, lower quality bindings and paper, etc)

7. economic downturns that have people unable or unwilling to pay $10 for a paperback or $30 for a hard cover

There are a number of others as well. But agency pricing is not the savior of the industry. Amazon is not the big bad that a few outspoken publishers and authors would have us believe. Publishing is plagued by what could almost be termed a perfect storm, a combination of factors that it failed to see coming and that it has failed to effectively deal with once those factors could no longer be denied.

 

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And the lemmings march on

The past 10 days or so have seen lots of chest beating and crying unto the heavens by some members of the publishing community. Oh the gnashing of teeth and the blind leaping onto bandwagons as they roll off the cliff of reason. How easy it has been for these writers to cry against the evil that is Amazon, all the while refusing to look beyond the headlines or even read the headlines to see what is really happening.

Last week IPG (Independent Publishers Group, a book distribution company) announced that Amazon failed to accept new contract terms that would have been so much better for IPG’s clients than the current contract. We were told how Amazon was being the big bully and wanting better terms for itself to the detriment to IPG, its clients (publishers) and therefore writers. Without knowing what these wonderful new terms would be, writers hit social media sites condemning Amazon. How dare Amazon refuse to accept terms that would be better for the other party, for writers?!?

But let’s look at this. First of all, at the time of the announcement, we didn’t know what those so-called wonderful terms were. IPG all-too-conveniently didn’t say what they were. Nor did IPG detail what terms Amazon proposed and it turned down. Then there’s the fact that IPG is the middle-man. Just because terms are better for it, that doesn’t mean they will be better for the publishers using them, much less for the authors. Remember, authors may create the product but we get the smallest amount of the sales price of anyone else in the chain. But I can understand why writers were up in arms after reading the IPG announcement. Amazon was once again trying to screw the publishing industry. Evil Amazon! (yes, the sarcasm meter is on here.)

Then came the announcement that Amazon had removed IPG distributed e-books from its catalog. Oh the cries of outrage became howls. Authors’ fists pumped in the air like workers of old as they marched against the evil regime. How dare Amazon remove their titles! Didn’t Amazon know it was hurting authors by doing so? It had a duty to keep those titles in the catalog and for sale. Bad, Amazon, bad.Facebook was ablaze with authors rallying around the cause. Blogs flogged Amazon for being an evil capitalist machine out for no one but itself. And then SFWA (Science Fiction and Fantasy Writers of America) entered the fray.

SFWA leadership decided to stand by the few authors who had titles distributed by IPG. They would show their solidarity with the common man, er writer, and take action. They’d show evil Amazon that it can’t push people around. So, without consulting the member-at-large, SWFA leadership decided to redirect all product links on its pages from Amazon to other online stores. The only caveat to that was that if the book was only available through Amazon. In that case, the link would remain.

Solidarity! Solidarity! Solidarity! SWFA and others march unerringly toward the cliffs with the other lemmings.

What everyone seems to have forgotten in all this is that Amazon is not the big evil when it comes to publishing. The problems the industry faces now have their roots in practices that were outdated before Amazon was founded. Business plans have failed to evolve with changing times, changing technologies and changing consumer demands. How quickly these same authors have forgotten how the big box stores like Barnes & Noble came in and wiped out the majority of our neighborhood bookstores. How quickly they then over-expanded until they flooded the market. And now that practice, as well as other poor business decisions, have these big box stores in trouble.

Don’t believe me? Where’s Borders? Where’s Bookstop? Barnes & Noble has been trying to spin off Sterling to become more financially stable. That hasn’t worked so Sterling is no longer on the market. Instead, B&N is once more considering spinning off the Nook division.

But let’s continue. IPG presented Amazon with these wonderful terms for itself and its clients and Amazon had the audacity to decline to sign on the dotted line. Then, gasp, it removed those e-book titles. How dare it?

My question is how dare it not? Amazon no longer had a contractual right to sell the titles. It did the correct thing in removing them. After all, whether you like it or not, Amazon is a company. It has shareholders it has a duty to. That duty is to make money in return for their investment. I know that’s awful in the minds of some, but it is the truth. Just as it is true that IPG is in the business to make money.Even SFWA admits that Amazon has the right to decide who to do business with. But what is telling is that, while admitting that only 4,000 e-book titles or so were involved in the IPG dispute, SFWA was redirecting all links away from Amazon as long as the books weren’t exclusive to Amazon. There is nothing in the SFWA letter to say this is applying to just e-books. No, ALL BOOKS are involved.

But the authors who are beating their breasts and pumping their firsts have no problem with this. You must protect the few at the expense of the many.

The double-standard about this hatred so many in publishing have for Amazon continually amazes me. None of these authors cried “FOUL” when Barnes & Noble, and then other bookstores, announced it wouldn’t sell books published by Amazon. No, they actually applauded the move. After all, how dare Amazon have its own publishing arm. It’s out to kill traditional publishers. It is only enticing authors away and then it will turn on them because Amazon is evil.

I’m not going to say there won’t come a day when Amazon changes the royalty structure for self-published authors or small presses. It very well may. But the responsibility falls to us to be prepared for that day. In the meantime, we’re foolish not to take advantage of the tools available to us and, like it or not, Amazon is one of them.

Another example of the double standard is the deafening silence in the wake of Barclay’s announcement that it will not distribute one of its titles to any online bookseller. Their reasoning, to protest Amazon’s “unfair practices”. So, they don’t like Amazon but will “punish” all online stores.  I’m sure Amazon is quaking in its boots at the removal of one title and will soon capitulate. Yes, I’m rolling my eyes as I type this. But the point is, Barclay is removing the title from a number of venues and yet the authors pounding their chests and pumping their fists are silent. I can only guess their reason is because the evil one was mentioned so they didn’t read any further.

Nor have I heard these same authors condemning Apple for refusing to carry an e-book in iTunes/iBooks because, gasp, it had a link in the back of the book in the references section to an Amazon page. GASP. It linked to a book Apple didn’t carry. Not an e-book, if I remember correctly, but a hard copy. Guess what, boys and girls, Apple doesn’t sell hard copy. Not yet, at any rate. But no one is up in arms about this because, sigh, Amazon is involved.

As I sit here writing this blog this morning, I have the news on. A commercial just aired for a live show later this month at the American Airlines Center. The music in the background is “Do You Hear the People Sing?” from Les Miserables. How appropriate. I see these authors in my mind’s eye marching shoulder to shoulder, fists pumping as they call for solidarity against Amazon. But they aren’t marching toward the guns of their oppressors. No, they are marching toward the edge of the cliff, blindly supporting an industry that, if it doesn’t quickly change its operating model, will soon fall.

And, like it or not, these authors are playing a role in the decline of the industry. How? By doing exactly what they are right now. By getting on their facebook accounts and alienating a very large part of their readership by saying not to buy from Amazon. Guess what, authors, the Kindle still holds a major market share when it comes to e-readers. As long as your publishers continue to insist on putting DRM on your titles, most readers won’t jump through the hoops, hoops that are technically illegal around much of the world, to convert that title bought from B&N or Kobo, etc., to be able to read it on their Kindle.

Guess what else–the reading public doesn’t understand why an e-book should cost as much as a hard copy of the book. No, don’t go spouting the tripe about how it costs the same to make an e-book as it does a hard copy. That dog don’t hunt, especially not when there is a hard copy being produced. You don’t edit the book twice, once for the hard copy and once for the digital version. You don’t make two different covers for it.  I could go on, but I won’t. Why? Because you have dug your heels in, put your head in the sand and are going “lalalalalalalalala” until it’s over.

The time has come for writers to take control of their careers. I’m not saying every writer should self–publish. Why? Because not every writer wants that. Not every writer is capable of doing everything that is needed to self-publish, either because of time constraints, personal preferences, etc. But now is the time for writers to demand accountability from their publishers. That includes demanding to know why publishers are using distributors for e-books to sites like Amazon and B&N where it is simple to publish on your own. Middlemen add costs that publishers will take out of the whole before paying the author. But even more than that, it is time for authors to demand their fair share of royalties on a book. Remember, without the writer, there would be no book.

Wake up and realize that while Amazon isn’t pure, it is still the 800 pound gorilla we need to work with–at least until there is a viable alternative. It is not the beginning and end of all that wrong with the publishing industry. If you want to rail against something, writers, read your contracts and your royalty statements. Ask yourself why publishers are trying to claim digital rights to books when contracts were signed long before e-books were even thought of. Ask yourself how your books can still be on the shelves of physical bookstores more than two years after publication and yet your publisher tells you “it just didn’t catch on with the readers” and declines to pick up your option. Ask yourself why you haven’t earned out more royalties than your advance. Ask yourself why the quality of editing, copy editing and proofreading from your legacy publisher has been declining over the years.

Or, continue gnashing your teeth, beating your chest and pumping your fists in the air as you walk off the cliff, alienating readers and cutting yourself off from what most likely is your largest online market.

Cross-posted to The Naked Truth and Mad Genius Club.

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