Publishers Weekly: Will the Agency Model Survive?

[speakingtohe]

Originally Posted by SteveEisenberg

If Hachette made life-saving drugs, or food staples, I would see some moral responsibility to keep down prices

Not too sure I agree on the food staples as prices are pretty low already for staples IMO. They are that way because of factory farming which is detrimental to the welfare of animals and overall quality of produce.
Very hard for an independent farmer to survive.
I am afraid I don't put my money where my mouth is and look for lowest prices not highest quality etc. My grocery bill is around $120 a month and manage quite a few luxury items on that.

A disturbing trend in my area is the disappearance of one major chain and another looks to be on it's way out.

I don't see Amazon becoming more dominant as a major threat right now, I see the online shopping as a whole as more than a bit harmful to the economy and Amazon or no Amazon that horse has left the barn.

Not everyone is able to adapt to the changing job market. The unskilled labour pool is in big trouble these days. A person can survive on minimum wage only if they have the skills to do so.

Helen

[rcentros]

Originally Posted by SteveEisenberg

Do you have a citation for the word you put in quotes? I can't recall it being said here. And if I ever came close to thinking it, it has nothing to do with pricing, but rather with how they were treating low-wage workers.

Amazon's lowest wage labor pool is made up of Kindle Direct Publishing authors. A bit sad, yes, but evil, no.

First, forget the lawyerize. When I put "evil" in quotes I was doing a written version of the "rabbit ears" people use to emphasize the word. So don't fixate on it.

Second, yes Amazon authors may be paid less, but these authors weren't getting paid anything at all before they found a new market where they actually got a chance to be published. Isn't this what the open market is supposed to be about? And, as mentioned here by others, the publishers and authors actually made LESS (not more) under the Apple Collusion scheme.

Originally Posted by SteveEisenberg

If a publishing executive was aware of MobileRead, he or she might reasonably believe that the eBook format is preferred by readers. However, I don't think they go by such anecdotal evidence as much as facts and figures from marketing surveys. And based on those they set the prices.

But is it really true that the publishers want to set the price of eBooks and paper books at the same level? To find out, check web sites of publishers that sell their books directly. If you check out a few titles here, you might be surprised at the eBook to paper price ratio a publisher chose when it was totally under their control:

http://books.simonandschuster.com/bestsellers

Okay closer to what a paperback costs. Again, an eBook requires ALMOST NO cost in publishing and distribution. That's the main point. And, again, eBooks can't be legally resold or donated to the library or passed on to friends -- so AGAIN -- you will naturally end up selling more eBooks than paper books. So where does the publisher make more money, selling a hardback book for $18.50 or TWO eBooks for $10 each?

Originally Posted by SteveEisenberg

Why don't readers pay a penny more than the price on a book label? Is that greed? Why should a publisher leave any more more on the table than I do?

Because in an OPEN MARKET people find the best bargain. Or, quite possibly, because not everyone can afford an extra $3 more for an eBook. (Which is really the figure we're talking about here, isn't it?) $3 is significant jump in price, when you're talking about a $10 item.

Originally Posted by SteveEisenberg

If Hachette made life-saving drugs, or food staples, I would see some moral responsibility to keep down prices. But I do not need books to survive. This is especially true because I have freedom to read any book I want through library borrowing, including inter-library loan. So the harm to the public of high book prices is, it seems to me, no more than a transient feeling of impatience. It seems to me they have much more responsibility to their employees, authors, and maybe even some stockholders (like pension funds) than to their customers.

Boy, are you turning the truth on its head or what? It's not that the colluders raised prices, it's that they colluded (the Big 6 and Apple) to raise prices. That's anti-trust. That's one of the reasons the Justice Department exists, to keep "supposed" competitors from colluding to artificially raise prices instead of openly competing for the market. That's evil -- no quotes this time so as not to confuse you.

You may not think that colluding is immoral, but your opinion (or my opinion) on this subject is really not relevant. Our country has laws against collusion, so morality or immorality (I think it is immoral) is beside the point -- it is illegal. Nuff said.

Originally Posted by SteveEisenberg

Average publisher profits margins are much lower than for Microsoft or Apple, but I don't see people asking why Apple needs to sell an iPad for so much. The answer, I think, is that Apple has no more or less moral right to its money than do its customers.

As for Apple selling iPads for too much, apparently you haven't seen me write on the subject. I think their profit margin is insane -- and I've never bought an Apple product because of it. But here's the difference. Since Apple is the only company making iPads, it does not collude with anyone else to sell them for too much -- and they do compete against Android tablets -- which is why their prices (and profit margins) have fallen to some extent. Open competition works that way.

As for Microsoft, again, no one else makes Windows but they have been taken to court for anti-trust issues in the past because they used their OS monopoly to gain monopolies in other products. And Microsoft lost those cases -- though the Justice Department merely slapped them on the wrist.

So, yes, people have noticed and do talk about Apple's price gouging and Microsoft's anti-trust issues.

[Fluribus]

Originally Posted by SteveEisenberg

Average publisher profits margins are much lower than for Microsoft or Apple, but I don't see people asking why Apple needs to sell an iPad for so much. The answer, I think, is that Apple has no more or less moral right to its money than do its customers.

Apple charges too much. But I'm quite certain that I've spent far more on books, movies, and software than I've spent on electronic hardware.

[tompe]

Originally Posted by eschwartz

Conversely, ebooks can be compared to pbooks; then we can say, if x is a fair price for pbooks then why does the same product as an ebook cost about the same when there is less cost in producing?

Because it is not the same product. Also because the cost to produce the physical item have never been something that have decided the price for a book. So why do you want to use different criteria now?

[Snow Sciles]

My take is that the industry itself still wants to see the same profits, if not more. So why should they allow ebooks to be cheaper. People working within publish still want the same wages, still have mortgages and schools fees to pay, etc.

So the industry itself can not support a price cut, unless the industry itself is cut. And of course they're not going to do that unless forced.

It's the same with music and films.

[speakingtohe]

Originally Posted by tompe

Because it is not the same product. Also because the cost to produce the physical item have never been something that have decided the price for a book. So why do you want to use different criteria now?

Yes. I doubt that a $1000 garment costs $900 more than a $10 one to make.

Some charge what they think the market will bear and some charge less hoping to make money on volume. Why should publishers be different.

I feel that I actually get more value from an ebook because of the convenience, but many don't feel the same, so they wisely stick to paper.

Of course I would like everything I buy to be cheaper but not going to happen IMO.

Helen

[fjtorres]

Originally Posted by Snow Sciles

My take is that the industry itself still wants to see the same profits, if not more. So why should they allow ebooks to be cheaper. People working within publish still want the same wages, still have mortgages and schools fees to pay, etc.

So the industry itself can not support a price cut, unless the industry itself is cut. And of course they're not going to do that unless forced.

Well, the BPHs aren't "the industry", just a big part of it, but that is exactly what they are facing. Their approach is to maximize per-unit revenue, even if the number of units moved goes down. So they raise prices and reduce costs (by squeezing authors) which means both lower unit sales and lower submissions. So far, the BPHs are balancing the books and racking up modest growth by digitizing the backlist. And by milking the backlist for all its worth so that, currently, about a third of their ebook sales are backlist. And growing. There is an endgame in sight there and it points at consolidation and downsizing, at much higher margins through significantly fewer new releases.

In contrast, their smaller competitors are increasing their market share by playing the exact opposite strategy: lower prices to consumers to maximize unit sales and higher royalties to the authors. (Self pubs obviously get a 70-30 split, but quite a few small presses are working on a 50-50 basis.) Their gameplan is more new releases in order to build up *their* backlists so they, too, can exploit the sunk costs and long tail economics of the eternally-in-print ebook editions.

So, like it or not, the BPHs *will* shrink--their corporate beancounters will make sure of that--and the smaller presses will grow dramatically. Unit-wise, the market is already split in three more or less equal parts; BPHs, medium publishers, and the indies. Where things get tricky is the medium-sized publishers; some are small presses growing by exploiting ebooks, but others are mid-sized tradpubs that are getting squeezed by the market shifts. Most of the latter are likely prey for the consolidating BPHs looking to beef up their backlists. Which is why HC tried to buy S&S and did buy Harlequin. And why Disney flipped Hyperion while they could get good money for it, why Scholastic is up for sale, and other mid-sizers aren't going to stay independent much longer.

The industry overall isn't going to shrink but its make up is going to change. The disruptions are barely starting: the handwriting has been on the wall since Peason flipped Penguin.

[Manabi]

Originally Posted by SteveEisenberg

Average publisher profits margins are much lower than for Microsoft or Apple, but I don't see people asking why Apple needs to sell an iPad for so much. The answer, I think, is that Apple has no more or less moral right to its money than do its customers.

You haven't been looking at the right places on the Internet. Many, many people complain about Apple's high profit margins, even to the extent of hating the company for them. They aren't immune to criticism over them at all. I personally think their profit margins are obscene and won't buy their products. (Although to be completely fair, there's a lot of other reasons I dislike Apple and won't buy from them as well.)

Originally Posted by Snow Sciles

My take is that the industry itself still wants to see the same profits, if not more. So why should they allow ebooks to be cheaper. People working within publish still want the same wages, still have mortgages and schools fees to pay, etc.

But the market is changing, and if the BPHs don't adapt, they'll end up having to do major layoffs as they're forced to downsize as income drops. If they really want to protect their workers, they need to get in front of the market, not stubbornly try to force book pricing to remain where it has historically when buyers are increasingly unwilling to pay those prices any longer.

Also, DRM is probably going to bite them like it did the music industry with Apple. The problem there (and here) is interoperability. If you buy e-books from Amazon with DRM, they only work on Amazon's e-readers and in their Kindle app. Without DRM, you can use them in any e-reader app, so it's easier for smaller stores to compete. With the music industry Apple's iTunes store gained market control because of DRM. Apple won't license out its Fairplay DRM, so other stores couldn't sell DRM'd music that would play on iPods. The music industry finally realized this and dropped DRM, allowing (ironically) Amazon to open a music store that could give real competition to Apple.

Originally Posted by fjtorres

Well, the BPHs aren't "the industry", just a big part of it, but that is exactly what they are facing. Their approach is to maximize per-unit revenue, even if the number of units moved goes down. So they raise prices and reduce costs (by squeezing authors) which means both lower unit sales and lower submissions. So far, the BPHs are balancing the books and racking up modest growth by digitizing the backlist. And by milking the backlist for all its worth so that, currently, about a third of their ebook sales are backlist. And growing. There is an endgame in sight there and it points at consolidation and downsizing, at much higher margins through significantly fewer new releases.

Of course, long term, the day comes when the entire back catalog has been digitized and growth plummets. This strategy is going to help them win the battle (short term profit) but lose the war (long term profit). Not a good long term strategy at all.

I also think that they're going to have to start treating authors better or they'll lose more and more of them.

[fjtorres]

Originally Posted by Manabi

Of course, long term, the day comes when the entire back catalog has been digitized and growth plummets. This strategy is going to help them win the battle (short term profit) but lose the war (long term profit). Not a good long term strategy at all.

Giant multinational CEOs live quarter to quarter: their idea of long term strategy is surviving until their golden parachutes vest.

For the BPHs, living off the backlist is heaven: all income is overhead free, and there are no authors or staff to worry about.

[Manabi]

Originally Posted by fjtorres

Giant multinational CEOs live quarter to quarter: their idea of long term strategy is surviving until their golden parachutes vest.

For the BPHs, living off the backlist is heaven: all income is overhead free, and there are no authors or staff to worry about.

Oh I know corporations do that, and Wall Street throws a fit any time a publicly traded company tries to do otherwise. It's just not a strategy that can continue indefinitely. Eventually the bottom will fall out from under the house of cards and someone's going to be left holding the bag. (Probably all the small investors, the big ones will have gotten out first. That or taxpayers, somehow. )

[Fbone]

Originally Posted by fjtorres

Giant multinational CEOs live quarter to quarter: their idea of long term strategy is surviving until their golden parachutes vest.

That's what their shareholders demand. Growth and profits each quarter.

[fjtorres]

Originally Posted by Fbone

That's what their shareholders demand. Growth and profits each quarter.

Some CEOs play the long game and are decried for it.

http://www.slate.com/articles/busine...f_the_web.html

It's tough, playing with other people's money.

[SteveEisenberg]

Originally Posted by Manabi

You haven't been looking at the right places on the Internet. Many, many people complain about Apple's high profit margins, even to the extent of hating the company for them.

Or maybe I have been in the right places on the internet

[fjtorres]

Shatzkin talks on Hachette vs Amazon:
http://www.idealog.com/blog/inevitab...ng-publishers/

From the comments:

I do, and have in the past, agree with your assessment that the 52.5% of total income that the publishers have enjoyed in the past makes them look very fat and ripe for picking. As a Hachette author, I of course wish they would have spread that to us rather than leave themselves vulnerable to have Amazon pick it off. One way or another they are not likely to keep 52.5% when there are two other parties involved. Had they given more to the authors I do think that would have been a better way to share the pieces of the pie.

[sirmaru]

The end game could be authors simply publish their books through Amazon and avoid the old line publishers entirely.

Songs seem to be going that way as well with the authors selling direct through Amazon.

Why does an eBook consumer need an old time publisher anyway? What do they do to earn their money?