Agency Mud Sticks?

Searching for clarity on the DOJ Agency debate is often like searching for the Holy Grail and wherever one turns one finds opinion based often on vested interest more than independent judgement. So it was great to read Jane Little’s ‘Antitrust Primer for the Publishing Price Fixing Lawsuit’ article on the case. Jane has taken the legal points made by the DOJ, reviewed the anti trust legal position in the US and has crafted a piece we would recommend all to read.

Some 15 U.S. states plus Puerto Rico are apparently in settlement talks with the three publishers who have opted to settle. This action itself could impact on the separate class actions that have been lodged in the US. There is speculation as to the motive behind these settlement talks and some such as Alison Frankel suggest that they made be designed to undermine the class action cases.

Interestingly two Canadian law firms have now named Apple, Hachette, HarperCollins, Macmillan, Penguin, Simon & Schuster, and their Canadian subsidiaries, in class action claims that they colluded to “fix, maintain, increase or control the price of ebooks”. The filing claims that the action contravenes the Canadian Competition Act which makes it a criminal offense to enter into a conspiracy with competitors that increases prices. The Canada’s Competition Bureau has not declared if it is probing Apple or the publishers.

The European Commission stated last week that it had received settlement proposals from Apple and four publishers; Simon & Schuster, Harper Collins, Hachette Livre and Macmillan. Interestingly this further settlement could include Apple and Macmillan who have not settled in the US and have opts to have there day in court.

So we have different perspectives in different geographies which are obviously driven by different laws. However, the news has raised the profile of ebooks within the general public for all the wrong reasons and whether we like it or not has it has again raised question of pricing in the mind of the consumer. Anyone who remembers the initial CD pricing debacle in the UK will know that mud unfortunately sticks.

Will eBooks Loose Their Triple 'A' Status?

If the ongoing DOJ negotiations with the gang of five as expected take away Apple's "most favoured nation" status, which prevents the publishers from selling e-books through rival retailers such as Amazon, Barnes & Noble, Kobo etc for less.

It will almost certainly reduce the ability of publishers to control prices. This will almost certainly lead to a resumption of skirmishes between some parties and reduce market prices.You could say that the market will certainly loose its triple 'A' status (Apple Agency Appeal).

The question of whether we shall see a return to $9.99 ebook pricing is not so important as the one as to what any removal of the status will do to Apple’s commitment to ebooks. Apple are unlikely to dominate the ebook market and like to keep things simple. They are not retailers and playing in an open market is unlikely to be appealing, will be very demanding and not very profitable. The ebook market is very small in Apple’s revenues and is unlikely to grow exponentially with the removal of agency.

We all have to wait for the Justice Department and the EU Commission’s judgement but is looking increasingly like that an agency model will stand as constructed today but the most favoured nation may only consist of one.

2012 Digital Perspectives: The Publisher

This week we have written a series of short articles titled, ‘2012 Digital Perspectives?’ These have looked at what we believe are the short term issues, challenges, potential game changers and outcomes across the digital publishing value chain. Today we look at the many complex opportunities facing the Publisher.

As we have seen this last week with the HaperCollins versus Open Road legal charge, different parties can view even a contract from a perspective, which is not always shared. We often find ourselves through different windows into the same house and seeing completely different rooms.

Rights
Publishing is a rights business without a Rights registry, where much of the information about rights remains locked away behind closed doors. Digital publishing now demands greater clarity and transparency on rights and the current ambiguity and lack of information remains digital publishing’s biggest threat and opportunity.

The book world is global and as the ebook market explodes, publishers have to rethink territory rights. Orphans remain the prize sought by many and an issue still unresolved. Permission rights will increasingly become an opportunity as content gets fragmented, enhanced and as snippets become more accessible in a digital world.

Licensing models that exist in other media don’t exist in the book market today. Rental and loans can’t be ignored any longer and if not addressed proactively they may be addressed by others.

Digital Rights Management will continue to be demanded by publishers who will be wary of piracy. The shift to online and cloud based on-demand platforms will also start to negate the need for DRM and downloads as we know them today and it is inevitable that DRM as we know it will have a limited life.

Copyright contracts should move to fixed term contracts and commercial terms where a licence may automatically revert if not renewed. This could itself offer a different reward structure and one which is based more on performance by all parties. However publishers must seize the initiative and not wait for others to dictate it.

Content
Many still print first then convert to digital and Editorial remains for many the last bastion of the analogue world. Although many in professional and STM have already learnt the lesson and gained the benefits of XML workflow and development it is still to be adopted more widely across all sectors..

Context
Ester Dyson once said that being able to find a needle in a digital haystack was key and we thought that Google’s big opportunity was to start to change search and discovery. However this did not happen in 2011 and perhaps their problem is that they still see books as mere information to index and fail to grasp the context.

Content will increasingly be used to provide context and support search and discovery. These opportunities demand changes in how content is developed, managed and distributed.

Progress has been made with services such as Net Galley and Yudu, but these were still locked into solving bits of and not the total problem. The industry is failing to grasp the difference between content based services and transactional ones. It’s standards bodies and focus is still focuses on servicing business to business information and fails to grasp the more important and greater business to consumer opportunity.

Social networking is starting to make a difference, and the challenge is to harness the social facilities in a positive way to advise, stimulate and lead consumers to discover titles, whilst avoiding blatant product placement and ;happy money'. Success is not guaranteed by the size of the spend, but by the skill of the approach and the only one that really matters and decides the winners is the consumer.

We still have to see trade publishers grasp direct marketing skills and mail list management. It is after all easy to collect names, but a lot harder to know how to exploit them when you are not the natural consumer facing agent. Trade publishers now find themselves dealing with traditional mass marketing, marketing to channels, brand building of both authors and their own brand and direct marketing. Is it therefore understandable that they all often fail as they try to cover all bases.

Digital Sales, Tax, Pricing and Royalties
Today’s digital ‘honesty box’ sales model is not sustainable without sales and royalty transparency. Asking publishers to reconcile sales that they can’t often audit, could be seen by some as an untenable position. No longer can publishers count the stock out, sold and returned. In a digital world, the unit only needs to be stored once and only moves when it is sold and there should be no returns. In theory this should make sales and royalty reporting and reconciliation very simple. We expected the industry to address this before it became indoctrinated within the market, but have seen little co-ordinated effort, standards or even approach.

Taxation is a digital mess with different rules and rates everywhere and a lack of harmonisation even across the EU. Should prices be inclusive or exclusive? Should tax be at point of distribution or consumption? Why is the same product taxed differently because it is digital? Publishers may not make the rules but can lobby and influence them.

We know now that the agency pricing model will face many legal tests this next year and will probably fail some if not all. Pricing is a threat and an opportunity. Managing prices across thousands of titles, from thousands of publishers, through many many channels and outlets, can only be managed at the consumer interface. In a digital world where all books look the same, the lack of consumer price points only adds to confusion. This was partially addressed in music when iTunes invented the track price but remains a challenge in publishing where value still has to be effectively communicated.

The Publishing Organisation
Publishers now need to seriously consider the impact of digital on the organisation. There is no right or wrong answer.Do they have a single organisational focus that sees physical and digital as mere renditions of the same work and if so, which part is the dog and which is the tail?

The digital business will have to be far more holistic in its approach and consideration of all aspects of publishing and yet must remain agile enough to respond to rapid changes.

The large publishers will continue to control the vast majority of sales and in sectors such as education, professional and academic and it is hard to see a change to this 80/20 rule set. However, in trade publishing we see a different dynamic and potentially, a more level digital playing field. In digital, publishers are only as good as their ability to exploit their content and rights and those that believe they have a divine right to market share will soon learn the digital reality.

The Digital Jungle Book

The news last week was again littered with the impact on how the publishing industry deals with new entrants and in particular the Gorillas that are now in the back yard. Two stories in particular raised our eyebrows.

Google Book Settlement

Or as we called it from the very beginning ‘The Great Book Bank Robbery’.

It now looks like the saga is entering yet another interesting phase as Google moves to get the case dismissed by the court. According to which side of the barricades you stand behind, the legal technicalities and case is clear. However, once again we enter into somewhat uncharted waters and a level of unpredictability on the outcome and keenly await the court ruling. What is apparent, is that the world has moved on since the original submission and has twisted and turned ever since, to a point today where one could argue the original submission is in danger of being lost in translation.

Does this mean that all parties will now loose the appetite to resolve the dispute? Some now believe that Google has manoeuvred themselves into a position where the shackles can come off and free them to resume their quest to scan and monitories all in Googleworld, on Goolgleworld terms. Orphan works remain the key, but will everyone now ignore these to open the door to allow everyone to adopt them and be dammed? Will the legislature finally arrive and redfine copyright for the 21st century and protect orphans, or will the opportunity again corrupt our thinking once more? Will anyone protect the orphans or will they just become casualties from increasing ‘friendly fire’ and land grabs? Who will step up to citify the obvious need for a rights registry and will this be global or restricted by somewhat meaningless geographic boundaries?

Some would suggest that the current rights information void is akin the those patents that some big corporate entities buy up and sit on out of their own vested interest.

Agency Pricing

The second predictable development was the growing concerns over the agency model, or what some see as a return to retail price maintenance for just ebooks by the back door. The agency pricing debates rage on, with often ‘holier than thou’ arguments according to the side you sit on. Our view has always been that the only entity that can effectively price for the consumer is that which deals directly with them and they should be allowed to make their own commercial judgement call on price, profit and offer. However, many publishers will disagree and some will believe that they in fact ‘own the consumer interface’ and are the only middleman between the author and the reader. Others see agency as the Amazon ‘brake’ and vehicle to start to get control of pricing. Many now recognise that ebooks will have a significant place in tomorrow’s revenue streams and understandably want to protect the status quo through price control. Some would suggest this happens today with the pbooks and the somewhat fictional RRP which is there in some cases to accommodate deep discounting.

We would suggest that publishing is now entering a phase where cost reduction across the whole value chain is needed and today’s ‘passengers, prisoners and wounded’ may not be affordable moving forward.

The referral by the UK OFT (Office of Fair Trading) to the EU on the agency issue, the news that the DOJ is finally looking into the issue and the establishment of a federal Judicial Panel on Multidistrict Litigation accusing Apple, Barnes & Noble and a group of major publishers of conspiring to fix e-book prices should be welcomed by all as a wake up call. No one can call the result but the investigations themselves should signal that agency is at worst against the consumer interest and at best skirting very close to being against their interest.

The rumours of some of the contractual clauses that may or may not be included in the agency agreements are alarming if true and still disturbing if not.

So what do we learn from these two separate but related threads?

The industry should not act out of fear of Amazon to form new business models and alliances but should do these on their own merit. Inviting another Gorilla into the back yard may look attractive but what ever happens the only certainty is that there will be a Gorilla in the back yard and whoever the Gorilla is they are still a Gorilla. Agency was a kneejerk reaction and a unilateral declaration by a few, for the few and without thinking of the many. The Google Book settlement unsurprisingly has the same fingerprints on the gun.

OFT to investigate Agency Pricing

The U.K. Office of Fair Trading (OFT) is investigating antitrust complaints related to digital-book pricing, after receiving "a significant number of complaints."
The investigation is over the new agency pricing model and follows similar investigations that have been initiated in the US by attorneys general in Connecticut and Texas.

The agency model, forces retailers to adopt prices set by publishers ensures by contract that these are not undersold. The retailer merely becomes an ‘agent’ and collects a fixed percentage of each sale. The major publishers who have adopted this practice include Penguin, Hachette, HarperCollins, Simon and Schuster but do not include Random House who have elected to stay outside of the practice and continue to trade all their books via the existing wholesale model. Any online retail or wholesaler who does not accept agency pricing is effectively starved of agency priced titles.

Some would say this was a clear return to retail price maintenance, albeit on a selective basis and as such restricts retailers and also means that consumers do not benefit from a free and open market and competitive pricing.

The practice was initiated at the launch of the iPad and was strongly advocated by Apple and opposed by Amazon. The publishers claimed that it was Amazon’s deep discounting that had driven them to take control of pricing. Some suggested that the fact that it only was applied to ebooks and not physical ones, which were equally being discounted, would suggest the driver was aimed at building an alternative eplatform for Apple and assisting their launch. Some would suggest it was also aimed at enabling publishers to establish their own direct market offers free of being undersold by retailers. The claim by some was that this would create a level playing field for all retailers but the reality is that many retailers today face pricing challenges, not on ebooks, but on suicidal discounting and trading on physical books. There are many questions over contracts that prohibit any discounting and also whether the UK companies had any choice but to follow their US ‘parents’.

Why does agency pricing only apply to digital.

In 1962, The UK courts declared that, the then Net Book Agreement (NBA) was in the public interest to allow publishers to subsidise works of authors. However some would suggest that the NDA stifled creativity as much as it supported it. But today’s return to fixed pricing is not in support of creativity but to control pricing nothing more. It may ironically kick start even more authors to go digital by themselves with the likes of Amazon offering authors attractive ‘agency’ royalties.

The agency model is to some is a backdoor return to the NBA, albeit the eNBA. The NBA/ agency model is not bookselling, nor is it retail, it is a false economy that hurts the one person who puts real money into the mix – the consumer. We believe that the agency model is flawed just as the NBA was. Digital renditions are over priced and the real control is with the aggregators, new entrants, technology providers not any publisher.

We welcome the investigation but are cautious of it delivering a blow to the agency model and remember their investigations and findings into the initial CD price issues many years ago.

source WSJ

NBA = Net Book Agency

We don’t welcome back the Net Book Agreement in the UK and especially through any backdoor and have written before of this somewhat valueless move.

We now have three major trade house setting or ‘fixing’ the prices of their ebooks in the UK. Anyone now wishing to sell their books must sell at the price the publisher sets and the commercial terms are on a fixed commission basis. We also now have two major retailers refusing to play and even after publishing an open letter objecting to the practice, Amazon have understandably capitulated. As Amazon's commission is now guaranteed on all ebook sales, some will suggest Amazon is secretly rubbing their hands at the move.

The statement from HarperCollins in yesterday’s Bookseller states, " Experience has shown in the US, where the market is more mature, this is the best way to stimulate competition by offering good value to consumers and maximising the number of channels to market."

However, some would suggest that ‘good value to consumers’ is illogical as value is determined by price. In this case the price goes up and will no doubt go up again with 20% VAT in the New Year. Some would also question just how it maximizes the number of channels to market if two of the UK’s major retailers channels aren’t playing and Amazon was clearly taken there against its will. Finally, the US experience matters little, as it is a very different market,is covered by different laws and different business relationships. Some would suggest that once again the US parents are probably demanding their UK children step in-line.

So why are we not going whole hog and bringing back fixed retail pricing for all books? After all its deep discounting fears that is driving the latest hysteria. We now have a consumer muddle with a wholesaler pricing model for physical books and an agency fixed price model set by publishers for ebooks. A reseller can't offer a discount even if they wanted to. Yes the recent poll in the Bookseller came out in favour of the agency model, but that is hardly consumer based research and some would suggest that is like asking communists party members in China to vote against the state.

When America's book publishers wrested control of e-book prices from Amazon earlier this year and established this new agency model, the results where predictable prices went up. Amazon started to make money on loss leaders and it was hardly consumer orientated, but there again it was hardly done by consumer facing people.

So where is this all leading? If ebook sales are only expected to capture some 15% to 25% of market share over this next 5 years, will authors really benefit from this dual market? Will it favour best selling front list and penalise mid and back list authors? Will mid and back list authors vote with their feet and go for the higher prizes available for going alone and price point at a level that earns them more whilst clearly differentiating themselves for this non value pricing?

If publishers set the price then they become effectively the reseller and in some cases liable for more than just setting the price. Under agency, publishers can experiment with prices as much Amazon did before agency agreements were established but can they react and change prices as effectively across the market? How will they bring prices down or will they simply stay at the original price set. Publishers are once removed from consumers and this is only going to demonstrate how big that gap is.

If agency pricing is aimed at creating a level playing field for all retailers to compete evenly on ebooks, we would suggest that no one wins a beauty contest in an ill fitting one piece standing next to a stunning Amazonian in a cute bikini. Levelling price is not the answer and some would suggest not why we got into this net ebook agreement.

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:
http://www.amazon.com/tag/kindle/forum?cdForum=Fx1D7SY3BVSESG&cdThread=Tx2MEGQWTNGIMHV&displayType=tagsDetail

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

Where's the Value Chain in Agency Pricing?

To some the agency model appears to be the way forward and the answer to discounting of ebooks. To others it seems to not only like a step backwards towards fixed price maintenance, but similar to the boy sticking his finger into the dam and hoping it will stop the flood.

This week came an interesting piece from the Doris Booth, Editor in Chief of Authorlink titled ‘Publishers’ Agency Model Punishes Mid-List Authors’ and we recommend it be read, irrespective of your persuasion. Booth has a witty take on the conversations that may have happened between the publisher and reseller and also points out the flaw in Macmillan CEO, John Sargent’s public defence of his actions from a mid list author’s prespective.

Many analyse the maths and conclude their perspective is correct. It is hard to argue with maths, but we first must agree on the common figures which are to be manipulated and there we often unfortunately loose the will to live. We however take a very simplistic ‘value chain’ approach that views, the author putting value in at one end and the consumer putting cash in at the other. Everyone in between has to add value and justify the cash they take out, or their place in the chain. There is no divine right to exist and no matter who you are, you have to earn your place between the author and reader.

In free markets competition is healthy and although it often drives down prices and rewards this keeps everyone on their toes and ensures the consumer gets a competitive price. A fixed price market often creates pockets of fat and can result in a poor deal for those that count, the creator and the consumer, whilst making a guaranteed deal for those that should be striving to add value.

It is interesting that the agency model was introduced with Apple iBookstore and introduced contractual price fixing on ebooks and a simple way for them to calculate revenues. Why are physical books different why isn’t price fixing introduced to these and why is the consumer subjected to false regulation in one format and not in another?

Some believe the agency model creates a level playing field for all resellers. The reality is that the only level playing field is between the giant technology companies and resellers. The rest could be said the be wearing very unattractive one piece swimming costumes in a beauty contest competing with a bikini clad Amazonian. Guess who wins that contest?

The agency model like the Google Book Settlement before it appears to being force on the industry by some who some would say know best. However just like these other leaps into the dark it appears to be ill conceived and now faces review by two state Attorney Generals. Also there are tax collection issues and the need for retail pricing strategies that are often foreign to publishers. It has already been adopted by a number of large publishers and resellers, but the issues surrounding the new agency pricing may be far from over.

eBook Races: Thoughts on the Winners and Losers

If ebooks are to be as significant as predicted, who will be the biggest supplier? Will it be publishers supplying direct, social networks, traditional aggregators, the book-chains, device manufacturers, Celebrities, libraries? We have long regarded Amazon, Google as favourites and we can’t ignore the likes of Apple, but will these global brands conquer all, or will the business splinter? What will are some of the factors that will determine the winners and the losers?

Global Brand Recognition

Today Amazon claim that they have between 70% to 80% of the eBook market and that 80% of their sales are to Kindle owners. We have to remember that global brands and consumer awareness shifts more units of anything. No matter how big Barnes and Noble are in the US, or Waterstones are in the UK, the average buyer will only know, or have even heard of one of them. The acid test is to ask 10 people, on any High Street in any country, if they have heard of Amazon, Barnes and Noble, Kobo, whatever. We can predict the one to score consistently across all respondents in many countries will be Amazon. When consumers are uncertain they will go for safe bets on the known and trusted players.

Everyone is a Potential Retailer

Today, the business model adopted by many is similar to that of the traditional internet market, where someone aggregates all the content and sells it through what we refer to as ‘white label’ stores. The stores act as a shopping window, holding no stock, but branding the store and its stock as theirs. They merely ‘pull down’ stock from a digital aggregator only at the time of sale. This is achieved by separating the customer and transaction from the actual file access and download. Anyone can sell any file, as long as they have a commercial web site and an agreement with and ability to link to the aggregator. The ability to sell ebooks is not restricted to stores, it can be clubs, non traditional retailers, even celebrities such as Oprah Winfrey can sell ebooks alongside physical books and have them all supplied transparently by the likes of Amazon. Even libraries don’t have digital files they simply connect to the likes of Overdrive.

Repository Size doesn’t Matter

How many aggregators are needed to supply the market? As wholesalers and distributors from the physical world move into being digital wholesalers and compete with true digital aggregators, will they all survive, or have the lost the battle even before it has started? It is easy to believe that the biggest aggregator will win – after all those were the rules in the physical world. However in the true digital world, it’s all about networks and transparency of links, not accumulation of files. If you can identify where the file is and can connect to the custodian, all you have to do is send a ‘pick pack and dispatch’ message in real time and collect the money. The more repositories you can connect to, the greater the offer. Why do publishers want to send digital files to tens of aggregators when they could effectively store them within their own digital warehouse and only release then on a sale? There will always be a Amazon who demand the files, but there are only a handful who can justify the risk.

Price Can’t be Fixed Upstream

As predicted, the agency model is now coming under scrutiny with a second US state attorney now questioning it. Price fixing contracts that are 'never undersold' are counter productive in the short term and futile in the long term. Some would argue that the price is too low, others that it is too high, but entering into a model simply to try and control Amazon and discounting is not the answer. It was obvious that the ‘famous five’ agency pioneers would find themselves;open to a US legal challenge, taxation issues and be accused of reintroducing the NBA (price maintenance) in the UK through the back door. The best price control is the free market and the best people to set prices are those closest to the market and not sat behind desks in a distant office.

Is a ‘Book’ an ‘eBook’

We now have at one end, the book morphing into a multi media format and at the other, fragmenting into sub sections. What is clear is that there will be a vatiety of offers which may be genre defined. The book will no longer be straight jacketed and constrained in size or by two pieces of cardboard? This more than anything starts to change the relationship between author and publisher and also has an impact on rights. It starts to change the way we look at bibliographic information and other metadata. If the package becomes far richer it has implications on its promotion and marketing and also who owns what? If the book is fragmented then we also have to be able to tie the associate parts to together. These changes start to redefine and preserve the publisher’s role and remit in a digital world.

Spread Betting

So we return to the winners and losers.

Amazon has clearly played a very strategic game and has placed itself between author and reader, accumulated a sizeable repository and the right to demand files. It has also positioned itself across all digital platforms, channels, in the consciousness of the consumer and as a destination store. It will succeed because it has spread its bets.

Google and Apple are forces, but interestingly have failed to spread their bets to date. Others will come and go, but will be always playing catch up and although there may be an outsider its hard to see one among today’s runners.

Is Publishing Digital Ready?

Pricing is a very emotive subject be it physical, digital, rare , bargain or any book. Who sets the and controls the price is itself centre of many debates with some believing the seller should decide others the supplier and some the consumer themselves. Ultimately its about ensuring thatthere is sufficient return for the author, the publisher and the reseller and the price is right for the consumer.

The agency model is new but fraught with its own challenges. Some would question it re the responsibility for sales tax in countries such as the US, others whether it breaks the pricing laws in the UK and is the return to the NBA (Net Book Agreement) by the back door. The Internet resellers who have long benefited from the affiliate model with retailers such as Amazon, ABE etc now face their own pricing challenges over its new price parity policy.

Apple is facing a few legal challenges over its restrictions on software developers building apps, an antitrust inquiry from the Department of Justice over their online music business and allegations that Apple used its market dominance to ‘persuade’ music labels to refuse to give Amazon.com exclusive access to music about to be released." Now the Texas Attorney General's office has started to investigate its pricing policy and agency model.

Meanwhile Sheppards Newsletter today has a letter issued by the Independent Online Booksellers Association (IOBA) to Amazon protesting about their parity pricing policy.

It appears that we are increasingly being drawn into legal battles over pricing. The new entrants into the trade have deep pockets, lobbying clout, time and legal teams queued up waiting. On the other hand some would suggest the trade stands often without clear consensus, real legal funding and leadership. The issues that publishing faces moving forward are no longer contained within the boundaries of a country, increasingly impact all from the author to the reader and are often being introduced by new entrants, technology and outside influences. The question we ask is how is the industry positioning itself to be able to challenges become opportunities and not threats?

Is the Agency Model Really the Garden of Eden?

People keep asking us what we think about the ‘agency model’. The question and tone in which it is delivered would imitate that they have doubts, don’t fully understand it, or that they are looking for reassurance.

The agency model has been well documented and heralded by some as the ‘white knight’ to retake price control from the likes of Amazon and wrestle back control to the publishers. Some see it as ‘the solution’, others as a quick fix to the discounting problem. Some suggest that rather than fix it the discount issue it actually makes it worse and merely raises bigger and more complex issues. Some go forward appearing to believe that they can walk on water and that the power is back with the publisher, ‘were it should be’ The reality is somewhere in the middle and any solution that lands in the middle is not likely to solve the problem, but instead merely sit in the middle solving little.

The economics makes sense to some. However, sceptics would suggest that the losers under the old model become winners and the winners under the old model become the losers. If retailers choose to sell at a loss they have to pay irrespective of the sale price at an agreed trade price. The trade price is what then constitutes receipts to the publishers and forms that basis of royalty to the author that are under net receipts agreements.

So under the agency model the publisher effectively becomes the retailer and the retailer a mere fixed price agent. The sale price may have risen, but effectively the revenue collected by the publisher may be less than under the free market price. The consumer has to pay more, the tax man will collect more, the retailer makes more money, the publisher collects less and the author gets paid less. This may not be the case for all agency deals, but still makes little sense.

We now have two new issues; taxation and retail price maintenance. We presume that publishers have worked out the implications on taxation and are happy to be retailer and accept the potential tax obligations. We also presume that UK legal council has been sought re the potential of some raising the position of the model being seen as reintroducing retail price maintenance.

What the agency model clearly does is promote more authors to go solo on digital rights. The prize for digital self publishing has just risen and although this may not be a big issue for the major houses today, it is certainly one that is growing and sharpening its teeth.

The more audible the noise in the market the more the consumer is not going to be happy. Imposing higher prices on consumers is not a wise move and as proven many times, is often one that comes back to haunt those who do it. Playing with author’s earnings is also not wise unless it improves them.

The real question is whether Apple really cares in the long run

Are 'Black Ships' Entering Japan?

On July 8th 1853 four black hulled US Navy ships sailed into Edo Bay in Japan under the command of Commodore Mathew Perry. The ‘Black Ships’ demanded the opening up of trade. When asked to leave Perry refused and demanded permission to present a letter from President Millard Fillmore, threatening force if he was denied. Perry even demonstrated US naval power by attacking several building with cannon fire. The Japanese government was forced to let Perry come ashore to avoid further naval bombardment by his superior and modern weaponary.

The term "Black Ships", in Japan, came to symbolise a threat imposed by Western technology.

Japanese communications minister, Kazuhiro Haraguchi and the Electronic Book Publishers Association of Japan have now compared Apple’s iPad to the “Black Ships” that opened up Japan some 157 years ago.

Today ebook sales in Japan are significantly higher than even the US but are mainly manga comics and keitia novels on mobile phones. The mobile phone rules in Japan and even Sony and Panasonic have abandoned their ereader business in 2007 and 2008 respectfully. Amazon’s Kindle has not entered the market and no Japanese-language titles are available from its US site.

Publishers everywhere are wary on the implications of not the iPad itself but its pricing and how that may affect negotiations with authors and distributors. The Japanese publishing market is very ‘closed’ with publishers already setting retail prices and preventing discounting and with printing, publishing and distribution being strongly interconnected. So why fear these new ‘Black Ships’?

The issue is that Japan is once again very nervous of the sight of US traders that can’t be repelled and will change their way of doing business. The Stability and depth of the market is down to its economic balance and the Japanese publishers clearly feel that the Apple effect could imbalance the trade by forcing US pricing models on them. However Japan is suffering a steady decline in books and magazines revenues so will these new ‘Black Ships’ open up the market? We also have to respect that Japanese consumers, are truly mobile centric and that a tablet may be too big for them to swallow on the move.

source BusinessWeek

Will Authors Make the Digital Translation?

So you are an established author and have a healthy following, but feel lost in the midlist with reducing advances and hard battles to get published. You feel that you have something to say and more money to make. Can the new digital era offer you a way forward, or will you simply get lost in translation?

J.A. Konrath’s blog claims a way forward and also shows that authors can make it by themselves with some digital application. He's not a new author and has built an established following as a writer of mystery, horror and sci-fi. He has a backlist and has taken the wise move of owning his digital rights. His digital sales aren’t huge but respectable and growing.

Amazon is about to make him richer as they will allow him to soon earn 70% royalty. He is pumped up as he is already making reasonable Amazon, but the agency model certainly works in his favour. He is now getting his ebooks up on other sites and expects much more and is full of the enthusiasm that only doing yourself can generate. He firmly believes he can sell more ebooks at lower prices than a publisher and earn more to boot. He prices his ebooks $1.99 and $2.99 and has even moved one up to $4.99. Under the 70/30 split things suddenly get a whole lot better!

He thinks the $2.99 could become the new bargain rate for authors such as himself and one that which will look very attractive against the ‘safe’ publisher pricing. We would recommend all authors to read Joe’s blog and maybe ewalk alone.

Agency Pricing; The Great Leveller?

Publishers Lunch raised an interesting aspect of the new Agency Model yesterday. Their report claims that the new agency model will be applied equally to all, irrespective of size, channel whether they sell direct or indirect. The implication is that wholesalers such as Ingram will be treated no different to resellers such as Apple.Apparently, Ingram have sent a letter to some 65 retailers that the company serves alerting them that they will have to discontinue the availability of ebook titles from all publishers wishing to do business under an agency model and enter into new agency agreements.

In one move, major and minor ebook outlets could be effectively marginalised. The move means that wholesalers will have to move to the same agency model and terms as others such as Apple and Amazon and if they supply resellers they have to do so within the same agency share. Ingram expects to continue serving its ebook retail clients under the new agreements with publishers. However, they now expect to have to share the 30% agency commission with no movement.

So when some stand on their pulpits and say that the agency model makes it a level playing field for all, they appear to have forgotten the existing trade channel. So much for publishers supporting the existing channel and in enabling resellers to participate in ebooks and the digital world. This channel can’t afford to build the repositories to be independent and they rely heavily on the wholesaler model to supply them economically. Equally the wholesalers rely on the wholesaler model to justify their huge digital investments. Some would conclude that agency publishers only are focused on supporting the big digital channels and not in supporting the existing channels in a digital world.

We hope that in a few years time they don’t look around the digital lansdscape and wonder who killed to independent and medium chains and prohibited them from participating in the ebook market.

Walking Backwards to a Net Book Agreement World?

Some would suggest that the publishers have wrestled price control back from the discount chasm that was in danger of undermining the economics of publishing, others that the winners are the authors and some that Amazon merely backed out of a price war to win a fixed margin on all ebook sales. The reasoning will differ according to your allegiance, but what is clear is that the battle is far from over and the water has just got a whole lot muddier. As always we jump to applaud something new before we understand the real implications.

We now have a clear difference in pricing models between the physical and digital book.

One is free and unrestricted the other now set by the publisher. The physical price has been set to accommodate the current high discounting and only the foolish would pay the false price on the physical jacket. It is common to see high discounted price, bundled offers and generally everyday low pricing on the hardback. Now we have a price hike from Amazon’s ebook $9.99, to an agency model price which is set by the publisher and is aimed at guarantying ‘acceptable’ ebook pricing and margin whilst also guarantying hardback sales don’t collapse.
So it will be highly possible to see a hardback for sale at a high discount competing side by side with a more expensive ebook with no discount. We will also see ‘extras’ being added to the ebook, some would suggest not to primarily enrich the content and experience, but to merely justify a higher price. We then we have tax which current is not evenly levied against the two different format types, but has to be paid for the digital copy by the consumer or buried in the price.
Last week we were in Holland and discovered their ebooks, unlike their physical book prices, aren’t controlled. So a physical book is sold at a fixed price with a tax of 6% and ebooks are sold at discount with a tax of 19%. The ebook market is growing but the ebooks are attracting lots of special bundle deals and obviously are ‘cheaper’. The Amazon deal presents us with the opposite a controlled price on an ebook and a free or unrestricted pricing on physical books. UK pbooks are tax free whilst their ebook counterparts attract full tax at17.5%.

So we wondered whether we now find ourselves walking backwards into the UK’s old Net Book Agreement or just another ebook pricing issue? In those NBA ‘safe’ days booksellers were unable to discount and except for the month of January and the National Book Sale, it was a level playing field for all. We wonder what it would have been like if paperbacks were controlled then and Hardbacks not, or visa versa? How can we advocate controlling one market whilst letting the other be free of control? What message does that send out to consumers? What is competitive and what is price fixing and anti competitive?

Some would suggest that it was easy to take on Amazon with Google Editions and Apple coming into play, but that it would be very hard to take on the physical discounters.
We now also have the next new policy of tiered pricing, where the price will drop after some period at the whim and control of the publisher. It is like a ‘sell by date’ where the shelf life is determined but some marketing manager in some distant publisher’s office. How will that be managed, communicated and explained to consumers? Perhaps it will be like the National Book Sale after all or more likely prices will be moving every month.

Finally, authors have now mainly moved over to 'net receipts' contracts, which are based on the price that publishers receive from the resellers. So what should the author deal now be on ebooks? Should it be based on net receipts, on a fixed margin, related to other renditions and will it be higher or lower in real terms to the physical book? If publishers can neatly separate the physical from the digital why can’t authors do the same.

What we have is a change of ebook pricing driven by the perceived need to control digital discounting and the agency plays of Google Editions and Apple. However can we have one price model for digital and another for physical, or is that the next target?