Understanding agency prices and geo restrictions

[karenr_nz]

Right at the outset, I need to state something - I do not work for any publisher, and I hate both agency pricing and geo-restrictions, as these have seriously affected my ebook buying options. However, I had something of an epiphany last week which let me understand why/how they work. I would like to try and explain how my thinking went (bear with me, it's a bit torturous).

I was in a physical bookstore the other day and notices that they had copies of both the UK and US editions of several books. This is pretty common in NZ. This seemed odd to me, as the usual argument over geo-restrictions is that publishers contractually split up the rights to sell a given book in different territories, so how could I get the same book from two different publishers in the one territory. And if I could get a hard copy from two different publishers, why the hell couldn't I get an ebook from either publisher!

Then it hit me. A pbook is a physical item. So a bookseller from NZ can contact a distributor in the US (not a publisher obviously, but a distributor) who can then on-sell the book to anyone, and ship it to NZ for the bookseller to sell. Because when you own a physical item the first-sale doctrine (or equivalent legislation in most places) states that you can pretty much do what you like with it.

So as long as a country doesn't have any parallel import restrictions (NZ doesn't) then a retailer can source their product from anywhere they like and price it at whatever they want.

BUT! Ebooks aren't physical items. The bookseller never purchases a copy of an ebook before on-selling it. Thus they're acting as the agent for the publisher. The ebookseller is only an intermediatary who connects the purchaser directly with the publisher. And because of that, the publishers distribution contracts come into play (you're effectively buying straight from the publisher) and the publisher has the right to set the price.

Presumably this would be different if the ebookseller were to purchase a given number of copies of ebooks (or licenses if you prefer) and then on-sell them to the public. At this point, the ebookseller should be able to sell to anyone at any price. But as long as they don't actually own the product they're selling, they're at the mercy of the publishers.

I don't like the situation any better, but at least now I understand it better.

[James_Wilde]

Then it's time to start getting the laws of several countries updated to reflect reality. When I go into a site and buy an e-book, I'm buying a product, not a license to read someone's creation. It might be electrons in my e-reader's memory, but it's mine, and I can give it away, lend it, erase it, copy bits of it, etc., as I can with a p-book. Perhaps we should begin dropping the 'e' and 'p', and just call them all books.

[blogbook]

The point of sale of pbooks is legally the vendor's country. But the point of sale of digital goods (=ebooks) is the buyer's country.

When you buy a US-pbook at Amazon US, you legally buy it in the US and then have it shipped to you. That's fine. But when you buy a book at the Amazon Kindle store from outside the US, it is bought in "outside the US". That's bad.

All geographical restrictions could be yesterday's news, if they could change just this tiny little thing.

[Kali Yuga]

Changing the laws won't change nearly as much as you think.

First, even if you update some laws there's the question of paying sales taxes or VAT. The UK has a VAT system, the US does not; if the UK allows blanket purchases from the US without paying VAT, tax revenues will drop. You may say "big deal," but in case you didn't notice several European nations are already facing violent protests over "austerity measures" -- i.e. less tax revenue = less government benefits.

This can be dealt with, but puts a bit of an onus on the retailer -- who may well decide that, OK, it's worth it to sell books in the UK but not in South Africa or NZ.

Second, this primarily helps a handful of nations that share a common language or the occasional expatriate. It might help NZ'ers buy from the US or UK, but won't do anything for French consumers waiting for a French translation of a Japanese book.

Third, you've got decades of contracts stipulating specific rights in specific nations for authors. You can't abolish tens (if not hundreds) of thousands of contracts just by waving your hand.

Fourth, chances are good that even if a publisher demands international rights to a book, at least some authors are going to balk at that -- especially if the royalty rate is the same.

Fifth, there are actually benefits to nation-based publication, primarily with marketing and local distribution. E.g. a sales campaign that works well in NZ may either get lost, or not make any sense whatsoever, in the US.

Finally, ebooks are growing but are still not a huge slice of the market; figures range from 6-8% in the US, which is almost certainly ahead of several other nations. As ebooks pick up, many availability issues will be mitigated.

So no, you can't just change a couple of laws and fix the world overnight. The solution, of course, is to be patient -- which, last I checked, the average person today finds as palatable an option as eating sand.

[L.J. Sellers]

As more big name authors enter e-publishing as independents who can and will sell their books anywhere, it will increase the pressure to loosen the restrictions. It will happen, but as Kali Yuga pointed out, it will take some time.
L.J.

[millicent]

I am afraid that some of Kali Yuga's arguements are specious. Although the UK (and indeed the rest of the EU) have implemented a VAT system, paper books (in the UK market) are zero rated. E-books, on the other hand, attract VAT at the current rate (17.5 per cent rising to 20 per cent in January 2011).

[speakingtohe]

@Kali Yuga
Good point about taxes. One I have never seen mentioned.
It could cost a retailer plenty to set up a tax collecting and remitting structure for every country in the world.
Canada has a 8 different tax structures for 10 provinces/territories, plus customs.
A US company dealing with Canada has an advantage that it is mainly English speaking and the proper regulations can be read without the aid of a translator.
Selling globally to countries with different languages, import laws, regulations etc. sounds like an accountants nightmare.
Add to that the fact that some items (certain books for example) are illegal to own in some areas of the world, well it is a wonder they are sold online at all.

Thanks for the viewpoint.
Helen

[Elfwreck]

Originally Posted by blogbook

The point of sale of pbooks is legally the vendor's country. But the point of sale of digital goods (=ebooks) is the buyer's country.

Defined how? Legal residence of the buyer? Current location of the buyer? The location of the computer she's logged into at the time of purchase? (Which is probably the same as her location, but sometimes, things are a bit weird. Computers in, for example, an embassy might be "in" a different country than the people in that embassy.) The location of the server of the ISP? The location of the main office of the bank or credit card used for the purchase?

If a person who lives in France is vacationing in the US, she can buy pbooks that aren't sold in France. While she's there, can she buy ebooks that aren't sold in France? If not, why not? If yes, how?

Can she visit a US embassy in France and buy US ebooks there?

Geo restrictions are a *mess.*

[speakingtohe]

You can buy most products anywhere if you can convince the seller that they are not contravening any laws by selling to you and that it won't cost them more than they can make from the sale.

Most businesses wish to make a profit and avoid legal problems.

[Kali Yuga]

Originally Posted by millicent

I am afraid that some of Kali Yuga's arguements are specious. Although the UK (and indeed the rest of the EU) have implemented a VAT system, paper books (in the UK market) are zero rated. E-books, on the other hand, attract VAT at the current rate (17.5 per cent rising to 20 per cent in January 2011).

Emphasis added, simply to point out that VAT does apply. I also pointed out that this can be addressed, but it will place an additional layer of complexity on transactions.

Oh, and there are five other points which are perfectly valid, and cannot be wiped away overnight with a wave of the legislator's pen.

[Kali Yuga]

Originally Posted by Elfwreck

Defined how? Legal residence of the buyer? Current location of the buyer? The location of the computer she's logged into at the time of purchase...?

In the US, it's based on the location (residence) of the buyer. I may be wrong, but afaik if you have a US credit card and a US address, you should not have a problem purchasing electronic goods outside the US.

Originally Posted by Elfwreck

If a person who lives in France is vacationing in the US, she can buy pbooks that aren't sold in France. While she's there, can she buy ebooks that aren't sold in France? If not, why not? If yes, how?

If she is a US resident with a US residence, yes she should be able to purchase digital goods from the US. The only real issue would be delivery, e.g. a 3g ebook device that doesn't work outside the US.

If she resides in Paris, is a US citizen, does not have a US address, and does not have a US credit card, then she will have a problem.

Originally Posted by Elfwreck

Can she visit a US embassy in France and buy US ebooks there?

If she's a tourist, that won't be necessary.

If she's a US citizen but a Parisian resident, then no, unless her residence is the US embassy.

Originally Posted by Elfwreck

Geo restrictions are a *mess.*

Meaning what, exactly? That 30 years ago, authors and publishers should have realized that international methods of delivery would cost nothing and take seconds, and should have adjusted their contracts to suit? Or perhaps that no country should charge any sort of sales taxes or VAT for digital goods?

Besides, the real issue is not "geographic restrictions." It's availability. As soon as more titles become available in digital form -- which is inevitable as ebooks capture more market share -- the complaints will be mitigated.

I might add, it would likely take longer for every nation to agree to some sort of international tax treaty than it will for publishers to fix title availability issues.

[Kali Yuga]

And for good measure...

I forgot to mention pricing issues, namely that the cost of living -- and thus what should be charged for a good -- will vary significantly from one nation to the next, and not just because of taxes.

E.g. due to the cost of living a book might cost the equivalent of $10 in the US, $5 in Nigeria and $15 in Japan. Or, demand might be very high for a book in one country (thus justifying a higher price, per basic macroeconomics) and low in another (thus justifying a lower price to boost sales, again per macro econ 101). So how much should the company charge, exactly?

Similarly, exchange rates could play havoc with pricing. One day a US ebook costs $15 to the Japanese customer, a few weeks later it's $12, six months later it's $20. Consumers are insanely sensitive to price fluctuations and won't be thrilled about situations like this.

So, unless the entire planet has the exact same cost of living and currency, setting a single international price is highly problematic.

[murraypaul]

Originally Posted by Kali Yuga

I forgot to mention pricing issues, namely that the cost of living -- and thus what should be charged for a good -- will vary significantly from one nation to the next, and not just because of taxes.

'Should be charged'? What does that mean.

E.g. due to the cost of living a book might cost the equivalent of $10 in the US, $5 in Nigeria and $15 in Japan.

That makes sense if something is being made in different countries, or if a retail shop is being run in different countries, but is completely irrelevant if you are selling digital goods online. There is no different marginal cost of sale implied in one website selling to someone in different countries.
(Yes there are setup costs, and legal costs, and taxes, etc... but that is not what is being discussed here. Cost of living has no effect.)
If you try to charge differing rates for the same good, when the good can be transferred around the world at essentially zero cost, people (the market) will simply work around you and source from the lowest cost location.

[ficbot]

The Kobo people have explicitly told me 'location' is determined by the country of the billing address of your credit card.

[blogbook]

Originally Posted by Kali Yuga

Changing the laws won't change nearly as much as you think.

Second, this primarily helps a handful of nations that share a common language or the occasional expatriate. It might help NZ'ers buy from the US or UK, but won't do anything for French consumers waiting for a French translation of a Japanese book.

Third, you've got decades of contracts stipulating specific rights in specific nations for authors. You can't abolish tens (if not hundreds) of thousands of contracts just by waving your hand.

Fourth, chances are good that even if a publisher demands international rights to a book, at least some authors are going to balk at that -- especially if the royalty rate is the same.

Fifth, there are actually benefits to nation-based publication, primarily with marketing and local distribution. E.g. a sales campaign that works well in NZ may either get lost, or not make any sense whatsoever, in the US.

So no, you can't just change a couple of laws and fix the world overnight. The solution, of course, is to be patient -- which, last I checked, the average person today finds as palatable an option as eating sand.

But that is exactly my point. If point of sale would be at the vendor's (like pbooks) you don't need international rights to sell and transfer them online and all existing contracts stay valid.

Buying ebooks across borders is not about annoying the local publishers and in most cases not even about saving money. It is about availability. In large parts of the world there is no ebook version of the French translation of the Japanese book. There often is no print version of the French translation either. But if you want the book and feel confident in your Japanese reading abilities you can order any print book in any Japanese shop and have it shipped to you.

People will always prefer to buy in their local (online-)shops. No additional accounts, no language barriers, no exchange fees. I do not see the end of civilization in aligning selling ebooks to selling pbooks. As you said yourself it is a small market niche and it will shrink with the increase of local offerings.

Yes, there is the tax problem (isn't it always). In the pbook parallel they are collected by customs. This is not possible if the book is transfered online. But I am quite sure most selling and distribution software could handle this. And if several shops decide they do not want the hassle others will fill in.
You will have the tax problem anyway, even if the seller has international distribution rights.

Personally I think it would be easier to change the legal definition of "point of sale" for ebooks than to renegotiate existing contracts or trying to restructure the whole publishing industry.