Thursday, October 14, 2010

Agency Pricing: Amazon UK Tells its Customers Who Is To Blame For Higher Prices

Below is a letter from the Kindle team in the UK to their staff. Its a pity its not taken as an advert page in the broadsheets as it clearly states the case from the consumer perspective and that is a hard one to argue against. The case for mid and back list authors would be just as compelling.

Dear Customers,

Recently, you may have heard that a small group of UK publishers will require booksellers to adopt an "agency model" for selling e-books. Under this model, publishers set the consumer price for each e-book and require any bookseller to sell at that price. This is unlike the traditional wholesale model that's been in place for decades, where booksellers set consumer prices.

It is indeed correct that this group of publishers will require Amazon and other UK booksellers to accept an agency model for e-books. We believe they will raise prices on e-books for consumers almost across the board. For a number of reasons, we think this is a damaging approach for readers, authors, booksellers and publishers alike.

In the US, a few large publishers have already forced such a model on all US booksellers and readers. You can read the thread we posted about that change here:

As we're now faced with a similar situation in the UK, we wanted to share our thinking and some details about what we have observed from our experience in the US.

First, as we feared, the US agency publishers (Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster) raised digital book prices almost across the board. These price increases were not only on new books, but on older, "backlist" books as well (in the industry, "backlist" books are often defined as books that have been published more than a year ago). Based on our experience as a bookseller setting consumer prices for many years, we know that these increases have not only frustrated readers, but have caused booksellers, publishers and authors alike to lose sales.

There is some good news to report. Publishing is not a monolithic industry - there are many publishers of all sizes taking a wide range of approaches to e-books. And most publishers in the US have continued to sell e-books to us and other booksellers under traditional wholesale terms. They make up the vast majority of our Kindle bookstore - as a simple proxy, in our US store 79 of 107 New York Times bestsellers are priced at $9.99 (£6.31 GBP) or less, and across the whole US store over 585,000 of 718,000 US titles are priced at $9.99 or less.

Unsurprisingly, when prices went up on agency-priced books, sales immediately shifted away from agency publishers and towards the rest of our store. In fact, since agency prices went into effect on some e-books in the US, unit sales of books priced under the agency model have slowed to nearly half the rate of growth of the rest of Kindle book sales. This is a significant difference, as the growth of the total Kindle business has been substantial - up to the end of September, we've sold more than three times as many Kindle books in 2010 as we did up to the end of September in 2009. And in the US, Kindle editions now outsell hardcover editions, even while our hardcover business is growing.

In the UK, we will continue to fight against higher prices for e-books, and have been urging publishers considering agency not to needlessly impose price increases on consumers. In any case, we expect UK customers to enjoy low prices on the vast majority of titles we sell, and if faced with a small group of higher-priced agency titles, they will then decide for themselves how much they are willing to pay for e-books, and vote with their purchases.

Thank you for being a customer,
The Kindle UK Team

Comments are already being posted against the letter. To read the letter and comments posted


j purdie said...

So, 'Agency model' is the another name for Net Book Agreement that was removed from books years ago?

Martyn Daniels said...

You may conclude that I couldn't possibly comment... But

The net book agreement was an industry wide state which itself had some interesting aspects see or type in Net book agreement into our search.

This is an contract between individual publishers and resellers but the contract agreement carries a clause which states that the price is set by the publisher and can't be undersold by anyone.

The issue in the US is a different set of statute and also includes tax collection implications. This is under investigation by two state attorneys. Different countries different issues.

The real stupidity is that it was a reaction to Amazon trying to sell at 9.99 and at a loss in some cases. Amazon lost under the wholesaler model they win under this one.

Many think this provides a level playing field for resellers which is utter crap as some may find themselves in a beauty contest in an unattractive one piece next to an Amazonian in a revealing and attractive bikini.

David Powell said...

That's very interesting.

But tell me, if a writer is getting a % commission on the sale of his/her book, is that commission cut to satisfy the marketing needs of the seller?

You see, I have been told, on pretty good authority, (a writer whose 'best-seller' was heavily discounted by Amazon, that she ended up getting a pennies for every book sold instead over £1.20 or so.

From which one could argue, could one not, that the writer, most of whom have to keep a full time job, is being forced to subsidize retailing powers like Amazon and Tesco?

And whilst the retailer might have a motive,i.e. bringing in customer who might then buy more, higher priced and thus more profitable books/goods the writer, who has no such benefit suffers. A writer has no economies of scale.

No you may think this is good, and fair, and the wonderful movement of market forces.

I think it's a crock of shit to make a few rich people even richer at the expense of those who frequently have very little.

Long live the new 'Agency Model' I say.

Martyn Daniels said...

we have to be careful what we are talking about and respect that the agency model relates to ebooks only and that pbooks still operate under the wholesale model.

Many authors are now tied to net sales deals which means they get x% of whatever it sells at. Most ebook deals are similar but the question is what is in the best in the best of the author and what is in the best interest of the consumer?

OK book has a RRP of £20 sells to reseller at 50% discont and he sells it to the consumer at £14. The author is paid on net sales of £10. Take the same book under agency and the publisher sets the price at £15 acording to the rates of comissiion the retail still make 30% or so and the publisher still has the same net sales. So explain how the author is better off?

In the case of Amazon selling at a loss (as they were on some etitles) they stood the loss and the publisher still got paid the same now they get commission whatever they sell at. Even on those promo titles tripping out at 3.99

Seriously the maths can be twisted many ways but if you think this is good for authors I suggest you think about mid and back list ones and do the maths.

I would seriously like to be to convinced as I have many author friends and ones also in the family.

Agency pricing is flawed on many counts and i believe is ill-conceived.

If authors want to make more money from digital they should negotiate the % up with publishers and if back list revert rights at first opportunity and look to do it DIY where they get a greater percentage with the likes of Amazon and B&N