Did the Big 5 Shoot their own foot with demanding the return of Agency Pricing?

[Xianxia]

http://www.thepassivevoice.com/2016/...hing-industry/

In 2014, there was a drawn-out dispute between Amazon, and Hachette. The latter is one of the largest publishers in the world, and Amazon is a company that sells things, such as books. The essence of the dispute was that Hachette—and all the other publishers we affectionately refer to as ‘the Big 5’—wanted more control over the list price of their e-books on Amazon.

That sounds thoroughly reasonable, and it sort of is, but please let me explain because the crazy is in the details. What was happening was that Amazon was discounting the price of the ebooks, and it may seem like this is something the Big 5 would want to stop, except the markdown was coming off of Amazon’s end. In other words, if Hachette wanted to charge $15.99 for an ebook, and Amazon marked it down to $9.99, Hachette was still paid their cut of the full price of the book.

More people will buy a book at $9.99 than at $15.99, so essentially, the Big 5 was coming out ahead in this arrangement in every conceivable way. They collected royalties at an unreasonably high price point while moving the number of units that corresponded to a lower price point.

So of course that had to be stopped right away.

Hachette fought for, and won from Amazon, the return to something called the Agency Model, whereby they set their price and Amazon wasn’t allowed to reduce that price. So that $15.99 book stayed at $15.99 until Hachette decided to change it.

Soon after that contract was signed, the other Big 5 contracts came due, and they all asked for the same Agency Model arrangement. Thus, the finest minds in publishing—or one might assume—negotiated themselves out of an arrangement whereby they sold more units at a lower cost without suffering the financial impact that comes with a lower unit cost.

On purpose.

This isn’t even the crazy part.

After securing the right to price their ebooks unreasonably high and having those prices stick, the first thing the collective brain-trust of the Big 5 did was raise their ebook prices even more. Often, the prices were higher than the price of the print edition, which is just fundamentally insane.

If I did, I’d be hopping mad, because what I just described above is an entire industry trying to take away a viable (and lucrative) sales channel for their own authors’ work.

http://authorearnings.com/report/feb...rnings-report/

From November 2014 to September 2015, the Big Five publishers negotiated brand new two-year contracts with Amazon in which they fought aggressively for — and won — the right to prevent Amazon from discounting their ebooks. Prior to these contracts, Big Five ebooks were discounted steeply at Amazon’s own expense. Our data from 2014 and early 2015 revealed that Amazon was on average selling Big Five and other traditionally-published ebooks to consumers at breakeven prices and making zero or marginal gross profit from them. That’s almost no profit on traditionally published ebooks, while Amazon was earning a healthy margin on the sale of indie and Amazon-imprint ebooks. In effect, prior to the Big Five’s return to agency, Amazon was more or less selling traditionally-published ebooks at cost. They were subsidizing traditional publisher ebook profits and traditionally-published ebook author earnings by nearly 30%.

By reinstituting agency ebook pricing and forcing their own consumer ebook prices high while preventing Amazon from discounting those ebooks, the Big Five publishers put a halt to that. They willingly did financial harm to their own bottom lines and in the process also seriously damaged the sales and earnings of their own authors, in an attempt to wrest market share and control away from their largest and most profitable retailer.

I wonder if the Authors Guild will say anything about this....

[eschwartz]

It's kind of old news, so I doubt the Authors Guild will have anything to say.

[Fbone]

It also contradicts what Amazon revealed to the court in the Apple case.

Presently, agency pricing benefits Amazon so they aren't going to fight it.

[murg]

Originally Posted by Fbone

It also contradicts what Amazon revealed to the court in the Apple case.

Presently, agency pricing benefits Amazon so they aren't going to fight it.

And since their competition seems to like it also (yes, you Kobo), Amazon probably sees no reason to fight it.

[crossi]

The current arrangement is even worse than that. If declining sales finally causes a BPH to decide themselves to discount one of their ebooks the lower return comes out of the publisher's (and the author's) pocket now. Are they insane or what? Companies with apparently insane and criminal CEOs don't seem like a wise companies to invest in long term.

[darryl]

This is my comment on the subject originally posted on the Passive Voice:

The Publishers made their bed with the original price-fixing conspiracy. When they did come to negotiate with Amazon after the fall-out, I find it very plausible that Amazon would make them lie in the beds of their own creation. This post puts in very clear terms just how good a deal the Big 5 destroyed. To quote from the post;

“They collected royalties at an unreasonably high price point while moving the number of units that corresponded to a lower price point.”

For Amazon to allow a return to retail would likely reinstate this situation. And let’s face it, the evil to consumers from agency is not because of the agency model itself, but because of the intransigence and agenda of the Big 5. All else being equal, whoever is setting the price would wish to set it so as to maximise revenue. Apparently this point used to be $9.99 for new blockbusters. Now I suspect it is lower. Like it or not, Big 5 titles are not in their own superior category, and do compete with Indie/Self-Published works, which of course exerts downwards pressure on prices. The prices of Big 5 ebooks must come down, and not just to pre-agency levels. The question is who is going to pay for the “discounts”. I simply cannot see Amazon giving the Big 5 an easy way out of this.

Having said this, I doubt Amazon insisted on agency at the time in question. I think this is supported by the raising of prices which took place shortly thereafter, thereby demonstrating that the Big 5 had not realised the implications at that point, though apparently, according to Mr Shatzkin, 4 of the 5 do now!

[HomeInMyShoes]

Idiots. To me it really makes absolutely no sense. Amazon was playing like a retailer does, occasionally marking things down to generate traffic and sell that thing (perhaps a loss leader) along with other things that actually make a profit.

This is called a sale, its called generating traffic. The publishers really just said that we don't want more people to buy our books at a lower price, ever. They obviously all failed marketing 101.

I don't hope Amazon sticks it to them because I see value in what those publishers do within the market, but I am hardly crying a river for them because they are idiotic. When I see a tried and true brand on sale at the grocery store I don't think less of them, I think I'm getting a deal and it helps continue my brand loyalty.

[Phogg]

Originally Posted by Fbone

It also contradicts what Amazon revealed to the court in the Apple case.

Presently, agency pricing benefits Amazon so they aren't going to fight it.

It certainly makes it easier for indie authors to find a niche in the market.

[Cinisajoy]

Oh and one of the big 5 sometimes puts older books on for $1.99 or free. Note these are ebooks.
And on December 25, 2013 Random House put Dan Brown's Inferno for $1.99.
They gave away the Da Vinci Code right before Inferno came out.

Also, all of the Fifty Shades books have been on sale.

[Rizla]

So Amazon is not fighting agency-pricing? I thought they were trying to lower prices (or have the option to do sell more cheaply).

And does this apply to only e-books or p-books too?

[Xianxia]

Originally Posted by Rizla

So Amazon is not fighting agency-pricing? I thought they were trying to lower prices (or have the option to do sell more cheaply).

And does this apply to only e-books or p-books too?

Amazon fought and lost.

Hachette wants agency pricing and they got it

Hachette’s CEO Michael Pietsch:

“The new agreement delivers considerable benefits. It gives us full responsibility for the consumer prices of our ebooks,” Mr. Pietsch explained in the note. “This approach, known as the Agency model, protects the value of our authors’ content, while allowing the publisher to change ebook prices dynamically to maximize sales. Importantly, the percent of revenue on which Hachette authors’ ebook royalties are based will not decrease under this agreement.”

Amazon whole business practice is about lowest prices possible to grow market share. For Amazon, it's about revenue, not profits.

In this case, the Big 5 is forcing Amazon to take 30% cut on each ebook sold.

Amazon is using the profits from ebooks to make prints cheaper on Amazon. Market share again.

For the Big 5 Publishers, they want to slow down ebooks to protect their print business. The best way to do this is to raise ebook prices.

[Cinisajoy]

Originally Posted by Xianxia

Amazon fought and lost.

Hachette wants agency pricing and they got it

Hachette’s CEO Michael Pietsch:



Amazon whole business practice is about lowest prices possible to grow market share. For Amazon, it's about revenue, not profits.

In this case, the Big 5 is forcing Amazon to take 30% cut on each ebook sold.

Amazon is using the profits from ebooks to make prints cheaper on Amazon. Market share again.

Proof of how Amazon is using profits please.

[Rizla]

Originally Posted by Xianxia

Amazon fought and lost.

Originally Posted by Fbone

It also contradicts what Amazon revealed to the court in the Apple case.

Presently, agency pricing benefits Amazon so they aren't going to fight it.

Hmm. Which is true?

[Xianxia]

Originally Posted by Cinisajoy

Proof of how Amazon is using profits please.

Not sure how I can prove that Amazon use profits of ebooks to lower the prices of hardcovers and paperbacks sold on Amazon.

Fact is that hardcovers and paperbacks on Amazon is now cheaper compare to before. That discount must be coming from somewhere....

Amazon is known for using profits from one segment to help another segment. AWS is a good example.

http://authorearnings.com/report/feb...rnings-report/

According to both our data and Amazon’s own public statements, despite the Big Five’s return to agency ebook pricing, Amazon’s overall US ebook sales have continued to grow throughout 2015 in both unit terms and dollar terms. On the other hand, the Big Five’s share of those ebook sales has plunged precipitously in both dollars terms, and even more precipitously in unit terms.

That particular outcome was easily predicted — and probably inevitable. Perhaps the Big Five viewed it as a strategic sacrifice.

But at the same time, Amazon’s online print sales — driven by steeply discounted hardcovers and paperbacks, which in many cases were priced even lower than the ebook editions — ALSO went up. Significantly. In fact, our data points toward Amazon seeing even greater growth in their 2015 print sales than in their 2015 ebook sales.

[Xianxia]

Originally Posted by Rizla

Hmm. Which is true?

Agency pricing is both good and bad for Amazon.

Good: 30% cut since it's mandatory
Bad: Higher ebook prices = not happy Amazon customers = losing market share since some ebook buyers now buy prints instead at brick and mortar stores when before they buy on Amazon.

Amazon fought Hachette in 2014-2015 (lot of articles about it). Amazon lost since Hachette got what they wanted which is agency pricing.

After that, other publishers follow suit.