The “Evils” of the Agency Pricing Model

10 Nov

I received an email not long ago informing me that several publishers may owe me money due to a settlement regarding the agency pricing model.  I’d heard the term before, but – like many others – I didn’t really understand it.  So I did some research.
There are many articles explaining the case from as many different angles as can be found, so I won’t get into details here except to say that the big publishers weren’t happy with Amazon’s pricing for their books, and Apple offered them an alternative.  For some reason, everybody seems to think that this is all about Amazon and Apple.  As someone who deals with neither, I have a different perspective.

Every time I pull out my ereader in public I’m asked “is that a Kindle?”  To which I invariably answer “no”.  I try explaining that there are other brands of ebook readers on the market, and other places to get them besides Amazon.  They don’t get it.  Then I’m asked if it’s an IPad.  I just shake my head.  It seems that we as a society have forgotten that we don’t actually have to buy at the big department stores.  I don’t buy my groceries at Walmart, even though it’s only a few blocks away, and does sell groceries.  Instead, I go to a grocery store.  For books, I go to a book store.  Or I download the ebook.  Some of you are wondering what this has to do with Amazon and Apple.  It’s really very simple; Amazon is basically an online Walmart, and Apple is actually a computer manufacturer, not a major book seller.  But now I’m just splitting hairs.  Or am I?

Consider this; if you shop at Walmart it’s because you know that they have low prices.  They have buying power that other stores simply can’t match,  But they also sell some products at a loss.  That said, they don’t keep all of their prices low at all times.  You have to go in to see what’s on sale that week.  Now consider Amazon.  They sell books real cheap.  In fact, they are selling books – even print books – at a loss.  They can afford to do this because they make money on the up-selling of other products.  This is the difference between a bookstore and a department store.  Bookstores can’t afford to make all of their books cheap, because that is the source of their income.  Now, Walmart isn’t going to set the prices for Barnes and Nobel, but Amazon very well could.  The difference?  Amazon has other product to sell, Barnes and Nobel is primarily a book seller.  That means that they are dependent on book sales to keep afloat.

You may be asking “what does that have to do with agency pricing?”  Did you know that Barnes and Nobel has it’s own ereader?  It’s called the Nook.  “Oh yeah, I think I heard about that one somewhere,” you might say.  Then there is my own ereader of choice – Kobo.  Kobo doesn’t sell anything but ebooks and ereaders.  And they sell the ereaders pretty cheap.  That means that they have to make money off the sale of ebooks.  If they have to follow suit with Amazon, then they will have to sell absolutely all of their product at a loss.  You don’t have to be an economist to know that no business can afford to do that.

So what if nobody can compete with Amazon?  Why can’t we all just buy a Kindle?  This is what we call monopoly, and, unlike the game, it isn’t much fun.  Right now Amazon has to buy ebooks at a set price from publishers, the same as anyone else.  They may sell at a loss, and it’s their problem.  If they were the only option, they could simply tell publishers “we won’t sell your book unless you sell it to us cheaper”.  They could also choose to raise prices for the end user (That’s you, bye the way) to make up for all the money that they lost selling books cheap.  Okay, they might not do that.  But reducing what they’re willing to pay for books?  you bet.  And I do like not having to go to Amazon.  And that’s the real point, isn’t it?  Don’t we want choice?

If you’ve stuck with me this far, you likely think that I’m for high prices.  Not at all.  I think lower prices are great.  I will buy more books if they are cheaper, and so will most readers.  But it should be left to the publishers to realize that lower prices will sell more books.  The market will determine this as indie authors take a larger share of the market simply on account of lower prices.  That said, let’s try to give our potential readers an option by not making our books exclusive to Kindle.  (KDP good, KDP Select bad.)  Try Smashwords, or Lulu.  Kobo, Barnes and Nobel, and Ibooks all have author platforms.  BookBaby distributes to ebook stores that I haven’t listed, as well as the retailers  have.  (Smashwords and Lulu are not retailers, though they do sell books direct to the reader.)

If you think books should be cheaper, then price your books at what you think is a fair price.  Don’t leave it to Amazon to lower prices for you, forcing other sellers out of the market.

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Posted by on November 10, 2012 in Rants


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