Smashwords Moves to Agency Model

[kacir]

Originally Posted by abookreader

So now Amazon can clearly undercut all the other retailers at will, and from what I'm reading still reduce commission structure - correct?

I do not think so.
They specifically state that they match the lowest price.

[rhadin]

Originally Posted by mr ploppy

If they discount it too much your commission goes down from 70% to 30%.

A lot of Smashwords titles were priced under the $2.99 floor that Amazon imposes for the 70% author cut. I expect that we will see a sharp increase in pricing to that $2.99 floor. And when it comes about, we can all send Amazon thank yous for taking the first step to raise ebook prices as it exercises its increasing market power.

[rhadin]

Originally Posted by lilac_jive

Yeah, this doesn't bother me so much. It's the author setting their price, They can still give out coupon codes for use on Smashwords. . .

I don't think they will be able to use the coupon codes to discount the books on Smashwords. Agency pricing has done away with all discount schemes (remember Fictionwise's micropay, for example) and there is no reason to believe it won't bury the coupon codes on Smashwords.

[HarryT]

Originally Posted by DMcCunney

Since it's the authors who can set their desired prices, tell me why they shouldn't cheer over it?

You aren't exactly being forced to buy. If the price is higher than you want to pay, you can pass on the work. Authors will find out what price points work for them as sales rise or fall.

But meanwhile, you get what you're willing to pay for, and if you want good work, it tends to carry a higher price.
______
Dennis

It's right that authors should be allowed to set the wholesale price of their books - ie, the amount that the retailer pays them for a sale. I'm very uncomfortable, though, with fixing the retail price; it's the very foundation of a free-market economy that retailers should be free to set whatever price they wish for the products that they sell.

I can't see that anybody wins from retail price fixing.

[DMcCunney]

Originally Posted by abookreader

True. And I do wonder about the long term effect since the Agency Pricing agreement doesn't extend to Amazon from what I can tell.

Nope. The Agency Pricing model was specifically aimed at Amazon, to force them to charge more for ebooks. It extends to other ebook retailers, but Amazon provoked it.

Amazon had a default price point of $9.99 for Kindle editions. It was selling Kindle versions of current hardcover releases at that price, competing with the hardcover.

When a publisher publishes both a hardcover and a mass market paperback of a book, there will be a year delay between the HC and the MMPB, to give the HC time to sell before introducing a competing format at a lower price.

Hardcovers generate more revenue and higher profit margins than PB editions. Hardcover best sellers may make the difference between a publisher making money or showing a loss for the year. You can imagine how thrilled the publishers were about the competition from Kindle editions.

The publishers originally tried to get Amazon to impose a delay in releasing the Kindle edition to protect hardcover sales. When Amazon wouldn't play ball, they changed the terms under which they sold ebooks to Amazon to require a higher price.

The dust hasn't settled, but I think the eventual norm will be that if you want the ebook cheap, you'll have to wait for it, the same way you wait for the MMPB instead of buying the hardcover. If you want to read it at the same time the hardcover is released, you'll pay a higher price for early access.
______
Dennis

[DMSmillie]

Originally Posted by rhadin

A lot of Smashwords titles were priced under the $2.99 floor that Amazon imposes for the 70% author cut. I expect that we will see a sharp increase in pricing to that $2.99 floor. And when it comes about, we can all send Amazon thank yous for taking the first step to raise ebook prices as it exercises its increasing market power.

Why would authors who were previously happy to set a Smashwords list price of less than $2.99 suddenly change that now? Amazon's terms haven't changed.

[ATDrake]

Originally Posted by DMcCunney

The publishers originally tried to get Amazon to impose a delay in releasing the Kindle edition to protect hardcover sales. When Amazon wouldn't play ball, they changed the terms under which they sold ebooks to Amazon to require a higher price.

Okay, maybe I'm missing something really obvious here.

But wouldn't the logical solution to that be for the hardcover publishers who also hold e-book rights to simply not submit the electronic files for Amazon's Kindle editions (and B&N's, and Sony's, etc.) until several weeks or months had passed after hardcover release and they were satisfied with those important initial sales?

[DMcCunney]

Originally Posted by ATDrake

Okay, maybe I'm missing something really obvious here.

But wouldn't the logical solution to that be for the hardcover publishers who also hold e-book rights to simply not submit the electronic files for Amazon's Kindle editions (and B&N's, and Sony's, etc.) until several weeks or months had passed after hardcover release and they were satisfied with those important initial sales?

And in fact, publishers did withhold electronic content for a bit, prior to the Agency Model pricing scheme. It was part of the Mexican stand down with Amazon, in which Amazon for a bit priced some Kindle editions lower than $9.99 in a nose thumb at the publishers.

But that sort of solution is temporary, at best. Buyers who prefer an ebook edition may want to read the book upon release. The end result of the Agency Model is effectively "You want to issue the ebook at the same time as the hardcover, competing with the hardcover? Fine. Charge more for it, and give us a bigger cut, to compensate for what we lose by not selling the hardcover."

The longer term question is whether ebook prices will drop to Amazon's standard level when the MMPB edition is released. There are some publishers with a questionable grasp of reality who will try to maintain the higher price.
______
Dennis

[tompe]

Originally Posted by DMSmillie

Why would authors who were previously happy to set a Smashwords list price of less than $2.99 suddenly change that now? Amazon's terms haven't changed.

Because they have seen the effect of it. I think Amazon recently started to automatically detect that the book was sold to a lower price at other sellers.

[thrawn_aj]

Originally Posted by lilac_jive

Yeah, this doesn't bother me so much. It's the author setting their price, They can still give out coupon codes for use on Smashwords, and I get a book DRM free in the format of my choice.

Ah. In that case, I agree - this is much ado over nothing. Initially, I thought this would mean the end of coupons as well. Given the existence of coupons, the title of the thread seems incorrect - this is not the Agency model at all.

[HistoryWes]

Originally Posted by kacir

Well, it depends.

If you have agreement with Amazon, that gives you 70% of the price, the agreement has a catch or two.
Like, you get 70% of sale price and not list price.
Another nice catch is, that when somebody discounts your book, Amazon matches the price.

So.
You publish your book on Amazon. List price $1.99.
For each book sold you get 0.7x$1.99. Nice and dandy.
You also publish on Smashwords, with the same price $1.99
Then comes third party, that gets the books from Smashwords and discounts your book to $0.0
Amazon matches the price, and your "sales" skyrocket. Except now you make 0.7x$0.00 on each sale.
You - the author - rush to Amazon and try to change the contract to 35% of the List price. No problem here, 0.35x$1.99 is significantly more than 0.7x$0.0 and you make the difference up on volume. BUT! (You knew there would be a but, didn't you?) But, the process takes 2 days or more.

Yes. I thought it was great when retailers discounted my books but was always worried about the scenario above (though I'd rather have readers than money). Now I can set one price and forget it. I had my novel Tesla's Stepdaughters set at $2.99, then Amazon discounted it to $2.59. Now that there is a single price and it's not going to change, I've lowered it to $1.99. It's already changed at Amazon and Smashwords, though it may be a few weeks before the new lower price shows up at the Smashwords affiliates.

[DMSmillie]

Originally Posted by tompe

Because they have seen the effect of it. I think Amazon recently started to automatically detect that the book was sold to a lower price at other sellers.

Not recently, no. They've been doing that for many months - since early in 2010. There are quite a few threads in the Amazon DTP community forums discussing it. Those authors who already publish both with Amazon and Smashwords and who are concerned about avoiding having Amazon discount their book in the Kindle bookstore already have prices set at $2.99 or above in Smashwords. Those who aren't concerned about it and who have prices set lower than $2.99 with Smashwords are unlikely, I think, to suddenly change that when nothing material has changed.

/Edit to add/
In fact, those who increased their Smashwords list price to ensure that, if their book was discounted by, for example, Barnes & Noble, it didn't go below the Kindle list price and affect their royalties, are more likely to lower their Smashwords list price again, if they can be sure the book won't be listed at a lower price by another retailer such as B&N.
/end of edit/

[khalleron]

Originally Posted by rhadin

I don't think they will be able to use the coupon codes to discount the books on Smashwords. Agency pricing has done away with all discount schemes (remember Fictionwise's micropay, for example) and there is no reason to believe it won't bury the coupon codes on Smashwords.

Except that Smashwords is NOT going to 'agency pricing.' The author sets the price. Period. Smashwords has no say in it.

All Smashwords did was ask its partners to honor the authors' wishes.

So why are some of you so upset about this?

[NightBird]

Yes, it is an agency model, as stated by Mark Coker of Smashwords, so no the title of the thread is not incorrect. It is in the link from his log that I posted:

I knew it would be a bigger challenge to move our retailers to the agency model, or something agency-like. Needless to say, none of our retailers were too keen to do this when I first started requesting this in June. I can't blame them for their hesitation, because the agency model creates all kinds of complexity and expense for the retailer to administer. I imagine many were still smarting from the insult of being forced to do it in the first place by the A5.

Today, however, I'm pleased to report that Kobo, Barnes & Noble and Sony have transitioned all Smashwords books to the new model.

...Like with our other agency retailers Apple and Diesel

No there will not be coupons. The statement made about coupons meant that the authors or publishers could offer coupons if they wanted to; doesn't mean that they will and it would be an individual thing. But if say Kobo offers a 20% off coupon you will now, in addition to not being able to apply that coupon to the big 5 agency books, also not be able to apply it to any Smashword books.

It's right that authors should be allowed to set the wholesale price of their books - ie, the amount that the retailer pays them for a sale.

Exactly.

Granted Smashword prices are generally cheaper, and it's fine to say your books will always be $2.99 and that's a reasonable amount. What you are missing is the psychological effect of a discount or coupon on boosting immediate sales. If I have a coupon or something is on sale I am more likely to grab that book now that is $2.99 on sale, since that is a limited time offer. If I have a huge TBR read pile I don't really need to buy now the book that is always $2.99...

[khalleron]

Originally Posted by NightBird

If I have a coupon or something is on sale I am more likely to grab that book now that is $2.99 on sale, since that is a limited time offer. If I have a huge TBR read pile I don't really need to buy now the book that is always $2.99...

Except that when you buy a discounted paper book from a bookstore, the author gets the same royalty no matter what the selling price is.

Kobo's and other stores' discounting schemes were also affecting the author's royalties, not only at Kobo, but also at Amazon.

If you have a better solution, I'd like to hear it.

And it is not agency pricing, it's author pricing. The author sets the price. As I said before, Smashwords has no say in what price is set, except asking its partners to honor the authors' wishes.

If some of you are going to boycott Smashwords because they put control in the authors' hands, then that's your choice, but don't put them in the same category as the Big 5, who set their own prices. Their authors have no say once they sign on the dotted line.