Amazon vs. Hachette Update - It's About Price

[DuckieTigger]

Originally Posted by tubemonkey

Question for anyone:

Under Agency, how much did Amazon pay for books priced at $12.99? $14.99?

Apple paid 70%, I see no reason why Amazon would have accepted to pay more. So my guess would be they paid 70% of $12.99 or $14.99.

[DiapDealer]

Agency may have actually caused Amazon to make more money per Agency title than wholesale. It's just their contention that they sell less books at that price.

Remember that a "race to the price point that yields the most profit on the total sales of that product" is not the same thing as a "race to the bottom." It's in Amazon's best interest to NOT go below the former, too. And they're also in a better position to know where that price point is than anyone else.

[tubemonkey]

Originally Posted by DuckieTigger

Apple paid 70%, I see no reason why Amazon would have accepted to pay more. So my guess would be they paid 70% of $12.99 or $14.99.

Thanks. If Amazon fails at getting the wholesale price reduced and ends up with Agency, they can still sell the books lower than what the publishers want and still make a profit.

• $12.99 retail ($9.09 wholesale) + free $2 ~ $3 Kindle credit = $9.99 ~ $10.99
• $14.99 retail ($10.49 wholesale) + free $3 ~ $4 Kindle credit = $10.99 ~ $11.99

[DuckieTigger]

Originally Posted by tubemonkey

Thanks. If Amazon fails at getting the wholesale price reduced and ends up with Agency, they can still sell the books lower than what the publishers want and still make a profit.

• $12.99 retail ($9.09 wholesale) + free $2 ~ $3 Kindle credit = $9.99 ~ $10.99
• $14.99 retail ($10.49 wholesale) + free $3 ~ $4 Kindle credit = $10.99 ~ $11.99

Maybe, maybe not. A no-discount agency contract would not allow discounting in a bundle, receiving store credit, using coupons, and such.

[DiapDealer]

Originally Posted by DuckieTigger

Maybe, maybe not. A no-discount agency contract would not allow discounting in a bundle, receiving store credit, using coupons, and such.

In all fairness though; while the first agency "experiment" was indeed a no- (no not ever) discount contract (and I'm sure publishers would like nothing more than to return to that situation), it's not beyond the realm of possibility that an agreement could be reached with "special" discounting concessions included.

[pwalker8]

Originally Posted by DuckieTigger

Oh, believe me, I have paid attention. In a nutshell: if agency is going to be the new model, then the only thing left to talk about is retail price and cost to retailer. What else is there to talk about?

And there I thought you were in the pro-agency model group to protect whatever (HC prices, funding for specialist books, ...). From what you just said it sounds like you want the wholesale model back? Under agency model there is absolutely no way that Amazon can sell books cheaper than the price charged by the publisher. Think about it: Hachette charges $20 to Amazon for a book, but sets the price Amazon is allowed to sell it for $14.99 - not going to happen. And it is also not going to happen under agency that the retailer is forced to sell at cost.

I would not be so sure that Amazon's only reason for setting the prices low is for establishing market dominance. It is good for competition. Amazon is not making a secret out of how they discount - any competitor will know that, and they will find ways to compete by offering different kind of discounts. They used to do that, you know, before Apple entered ebooks.

No what I am saying is that under the wholesale model, Amazon is able to charge whatever they want. Once Amazon established the $9.99 price point in the customers' mind, it's a natural progression that Amazon would then push the publishers to reduce their wholesale price to below $9.99.

So just to throw out made up prices to make the example clearer, if the suggested retail price for an ebook is $20, and the wholesale price is $12, then when Amazon sells that ebook for $10, they eat a $2 loss. What Amazon is now doing is saying, "we can't make any money at $12 wholesale, so publishers need to reduce the wholesale price to $7 so we can make some profit". It was both predictable and predicted.

My point is that while Amazon's pricing practices may maximize profit for Amazon, it doesn't necessarily maximize profit for the publishers or for the established authors that I like to read.

The current publishers business model is to sale books at hardback prices for those customers who are willing to pay hardback prices and then a year later, release the book at paperback prices for those who want the book but aren't willing to pay hardback prices. Skipping that step leaves a lot of money on the table that the publishers and authors never get.

I'm perfectly willing to pay hardback prices to support authors that I like to read. I do not view books as generic product and that one author/book is as good as another.

The reason that publishers want agency rather than wholesale is because Amazon's ploy is so transparent and predictable. Ebooks currently don't have a established price point in the consumer's mind as evidenced by the back and forth debate here.

The publishers want to set the price point in the consumer's mind at whatever the current deadtree version is. They do not think that Amazon's $9.99 price point makes their business viable long term. I favor long term viability for authors and publishers over Amazon's quest for market share.

[tubemonkey]

Originally Posted by DuckieTigger

Maybe, maybe not. A no-discount agency contract would not allow discounting in a bundle, receiving store credit, using coupons, and such.

Amazon would be stupid to sign such a contract. At a minimum, they should insist on contracts similar to what Apple does. Apple doesn't allow more than 5% (I think) discounting on it's stuff. So stores get around it by selling a $399 iPad mini for $379 and then giving the customer a free $50 ~ $75 gift card on top of that.

[pwalker8]

Originally Posted by DiapDealer

Agency may have actually caused Amazon to make more money per Agency title than wholesale. It's just their contention that they sell less books at that price.

Remember that a "race to the price point that yields the most profit on the total sales of that product" is not the same thing as a "race to the bottom." It's in Amazon's best interest to NOT go below the former, too. And they're also in a better position to know where that price point is than anyone else.

That is an unproven assertion. Amazon is in a position to know how much they sell of a specific book at a specific price. It doesn't follow that they are in a better position than the publishing industry to know what is the most profitable pricing model to price books at. Publishers have been studying the problem, doing experiments and collecting sales figures at various price points for far, far longer than Amazon has been around. Amazon seems to be unwilling to accept the idea that the right price for the latest JK Rowling book may not be the same as the right price for whatever is being churned out by various indie writers. Name recognition matters a lot when it comes to authors.

For all practice purposes, we have seen with pc's, DVD players and the like that if you assume one ebook is as good as the next, then the race to the price point that yields the most profit on total sales of that product _is_ a race to the bottom. There is always someone out there who will under cut your price.

[tubemonkey]

Originally Posted by pwalker8

The publishers want to set the price point in the consumer's mind at whatever the current deadtree version is. They do not think that Amazon's $9.99 price point makes their business viable long term. I favor long term viability for authors and publishers over Amazon's quest for market share.

Fact: ebooks are cheaper to produce than paper books. Therefore, they should be priced lower than paperbooks.

At some point in time, publishers will have to accept the fact that their industry is transitioning from paper to digital. That means trimming down operations and letting people go. If they continue to play it stupid like they currently are, they'll end up like newspapers that no longer exist.

[DuckieTigger]

Originally Posted by DiapDealer

In all fairness though; while the first agency "experiment" was indeed a no- (no not ever) discount contract (and I'm sure publishers would like nothing more than to return to that situation), it's not beyond the realm of possibility that an agreement could be reached with "special" discounting concessions included.

That would be a step in the right direction. If anything it would allow competition again. That is why I said "maybe, maybe not" - and that will depend on the kind of contract.

Originally Posted by tubemonkey

Amazon would be stupid to sign such a contract. At a minimum, they should insist on contracts similar to what Apple does. Apple doesn't allow more than 5% (I think) discounting on it's stuff. So stores get around it by selling a $399 iPad mini for $379 and then giving the customer a free $50 ~ $75 gift card on top of that.

Last time Amazon signed such a contract in 2010 it wasn't because they were stupid. It was because the alternative was even worse. Except it turned out that even that stupid contract did not hurt Amazon much.

[darryl]

Originally Posted by tubemonkey

Thanks. If Amazon fails at getting the wholesale price reduced and ends up with Agency, they can still sell the books lower than what the publishers want and still make a profit.

• $12.99 retail ($9.09 wholesale) + free $2 ~ $3 Kindle credit = $9.99 ~ $10.99
• $14.99 retail ($10.49 wholesale) + free $3 ~ $4 Kindle credit = $10.99 ~ $11.99

The whole basis of agency is the fiction that the actual seller is the Publisher, not the retailer. The retailer acts merely as the Publisher's agent, with no control over the sale price whatsoever.

[DuckieTigger]

Originally Posted by pwalker8

Spoiler:

No what I am saying is that under the wholesale model, Amazon is able to charge whatever they want. Once Amazon established the $9.99 price point in the customers' mind, it's a natural progression that Amazon would then push the publishers to reduce their wholesale price to below $9.99.

So just to throw out made up prices to make the example clearer, if the suggested retail price for an ebook is $20, and the wholesale price is $12, then when Amazon sells that ebook for $10, they eat a $2 loss. What Amazon is now doing is saying, "we can't make any money at $12 wholesale, so publishers need to reduce the wholesale price to $7 so we can make some profit". It was both predictable and predicted.

My point is that while Amazon's pricing practices may maximize profit for Amazon, it doesn't necessarily maximize profit for the publishers or for the established authors that I like to read.

The current publishers business model is to sale books at hardback prices for those customers who are willing to pay hardback prices and then a year later, release the book at paperback prices for those who want the book but aren't willing to pay hardback prices. Skipping that step leaves a lot of money on the table that the publishers and authors never get.

I'm perfectly willing to pay hardback prices to support authors that I like to read. I do not view books as generic product and that one author/book is as good as another.

The reason that publishers want agency rather than wholesale is because Amazon's ploy is so transparent and predictable. Ebooks currently don't have a established price point in the consumer's mind as evidenced by the back and forth debate here.

The publishers want to set the price point in the consumer's mind at whatever the current deadtree version is. They do not think that Amazon's $9.99 price point makes their business viable long term. I favor long term viability for authors and publishers over Amazon's quest for market share.

That I can understand and is reasonable. I personally do not share the same opinion about it as you do, but how boring would life be if everybody had the same opinion.

[pwalker8]

Originally Posted by tubemonkey

Fact: ebooks are cheaper to produce than paper books. Therefore, they should be priced lower than paperbooks.

At some point in time, publishers will have to accept the fact that their industry is transitioning from paper to digital. That means trimming down operations and letting people go. If they continue to play it stupid like they currently are, they'll end up like newspapers that no longer exist.

I think you discount the labor costs that are the same regardless of if it's ebook or pbook. According to this article, by an author, the actually printing cost of an $8 pbook book is 75 cents or around 10% of the total price.

http://www.davidderrico.com/cost-bre...printed-books/

[pwalker8]

Originally Posted by DuckieTigger

That I can understand and is reasonable. I personally do not share the same opinion about it as you do, but how boring would life be if everybody had the same opinion.

I totally agree, it would be a boring world if everyone had the same opinion.

[tubemonkey]

Originally Posted by pwalker8

I think you discount the labor costs that are the same regardless of if it's ebook or pbook. According to this article, by an author, the actually printing cost of an $8 pbook book is 75 cents or around 10% of the total price.

http://www.davidderrico.com/cost-bre...printed-books/

I don't discount anything and I never said how much cheaper they are. Even if it's only $0.75 cheaper than a paperback or $2 cheaper than a hardcover; they're still cheaper to produce.