Posted by: Kerry Gans | March 20, 2012

Is the agency model battle over “price”–or “worth”?

There’s been tremendous interest surrounding the DOJ investigation into collusion between Apple and five publishers after they adopted the agency model. Which got me wondering who actually has the RIGHT to set the price of a book?

My answer is: the seller.

Notice I did not say retailer. I said the seller. Which at first is the publisher. So they get to set the price of the book to whatever they want. What really makes the difference is HOW they sell it to the retailer.

The way I understand it,* agency pricing allows the publishers to set the price, and then Apple (and other agency retailers) get a certain percentage of the sale. This is much like how consignment works. Think of when you post something on eBay. You, the seller, set the price, and once it sells eBay takes a cut. Although I should point out that in the agency model, publishers (and therefore authors) get LESS money per sale than with the wholesale model.

On the other hand, the wholesale, or pre-agency, model is that the publishers sets a list price for the book. Amazon (or whoever) would then pay the publisher half that list price. The retailer would then keep the other half when the book was sold. This means that if the retailer chooses to take a loss by selling it for less, they can—because they have already paid the publisher the publisher’s asking price.

In my view, once someone has paid you the price you want, then they are free to resell it at whatever price point they choose, even if you disagree with it. If you sell a stack of old CDs at a yard sale for the price you asked for, and then see that same person selling them again, that’s their right—you got paid in full what you wanted.

So if the publishers got paid what they were asking for in the wholesale model, then Amazon was free to sell the books for whatever they wanted. It was their choice to take a loss. But the publishers got their slice of the pie, so they were not harmed in the process. If they don’t like the way Amazon sells their books, the answer is simple: Don’t sell your books through Amazon.

Of course, we all know that this is not really about which model of pricing to use. This is about the fight for public perception of what an e-book is worth, and publishers worried that Amazon is taking over the book world. It is obvious that other booksellers without Amazon’s deep pockets cannot match e-book prices with them and take a loss on every book. This is fact. This is business, even if some people feel this is somehow “not fair”. But again, I will leave it to the law to determine if “not fair” equals “not legal” in any of this.

The other, perhaps more important to authors, part of the equation is public perception of what an e-book is worth. If the public gets used to all e-books being cheap, then the authors stand to make less and less money per sale no matter which pricing model is used. For a while, lower prices may move more units, but there is a tipping point where lowering the price will no longer sell more units OR where the royalty on a low price would be so low that the author would have to sell an impossible number of books to make a living. What’s 17.5% of 25 cents? Yes, I said 25 CENTS. Because that’s the promotional price some books were selling for on Google Play—and were being matched on Amazon. And even 70% of 25 cents? Is that what your years of work on your book are worth?

That’s the real battle here—what is the value of writing in our society?

*I do not claim to be an expert on bookselling, so if any of my facts are in error, please note it in the comments and I will correct as needed.

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Responses

  1. Great info:) Thanks for this:)

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    • You’re welcome – come back on Thursdays, we’ve got links galore then!

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  2. I have to agree that ebook pricing has become a hot topic and is important to everyone involved. On one end, I think some of the trad publishers are starting to put way too high of a price on their ebooks. One particular novel I found and want to read is set at $12.99 and it’s not even a well known author. If you want the paperback version, they charge $14.99 which is even more ridiculous. I’ve gotten spoiled by reading on my ipad but I’m seriously considering buying the used paperback copy for 0.01 (plus shipping). There is a point where I have to cut off how much I’m really willing to spend on an ebook. Sadly, the author won’t see a penny of my purchase because her publisher set the price too high. The book has tons of great reviews and good sales rankings, though, so I guess some people are willing to pay it.

    Then you have the opposite end of the spectrum. The thousands of free Kindle books you can get through Amazon and even more that only cost 0.99. The tough part there is that you have to wade through the bad stuff to find the good. Let’s face it, there are a lot of poorly written novels available, but there are also some great ones that would be worth (in my opinion) a much higher price. Yet the author has no easy way to get readers’ attention, especially if they’re indie, unless they drop the price. One thing I’ve seen work fairly well (for those that produce good works) is to have their first book either free or .99 and then increase the price for their other novels. I know as a reader that once I’ve found one good book by an author, I’m willing to pay more for the rest. That is assuming, of course, that they don’t get too high.

    Whatever the price, though, I do believe it should be up to the seller to determine how much it should be after they’ve paid the initial price. Not sure how that would work with ebooks since there are pretty much unlimited copies, but perhaps an author/publisher could set the amount they want from each one sold and the seller could add however much they want on top of that. Seems fair to me, but I’m no expert either.

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    • Yeah, I don’t know how this will all shake out, but there’s got to be some better way than either of the models. Whatever they settle on will hopefully strike a good balance between what readers are willing to pay and the price authors need in order to put food on the table.

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  3. I am an indie publisher for other authors as well as myself, and one author begged me to drop the price of his eBook (originally $4.99) to $2.99. He swore the sales would come swarming in. They didn’t. I’d like to think that my books are worth more than 99 cents. I might sell a story for 99 cents, but a novel at $3.99 to $4.99 depending on the size. My previous publisher sold my eBook at $6.50, and that’s way high.
    For paperbacks, I’ve gone to a bookstore and based the price of my books on what other books of the same size and genre are selling for. I don’t think $12.99 is too much for a paperback – some of them sell for $18 and more.

    Barbara of the Balloons

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    • Thanks, Popple. It’s good to hear from someone with experience in the trenches.

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