Crikey posted an interesting article last week on the subject of agency pricing for ebooks and the sudden increase in some ebook’s prices. The article makes some very good points but it also overlooks a couple of issues.
The first one that ‘An international agreement between publishers has driven massive increases in the price of ebooks for Australian readers’ is not exactly accurate. Yes agency agreements have seen the price readers pay for some ebooks go up but the price of the ebook has not necessarily increased. Under the agency model retailers must sell the ebook at the price set by the publisher. Under the traditional wholesale model the publisher sets a list price (suggested retail price) and retailers can discount off that. Whether an ebook is sold under agency or wholesale the list price stays the same. To say an agency agreement has driven prices up is incorrect, the agency agreement just means the ebook is sold at is originally set price and cannot be discounted by the retailer. But it can be discounted by the publisher. You will not see flat pricing under agency (not if the publisher has half a retail mind). There will be days, weeks or even months when the price will drop, quite considerably in some instances, before going back up again.
The agency model is not new. Everything Apple sells is under the agency model from apps to music from Macs to iPads. In fact many electrical goods and kitchen appliances are sold in Australia under a similar agency model. Yes Apple instigated the agency model for ebooks when they launched iBooks in 2010 but it was not ‘a deliberate attempt by Apple to destroy Amazon’s dominance of ebook sales’. They achieved that just by entering the ebook market as did Kobo, Barnes & Noble, Google and every ebook retailer.
Apple does everything by agency. The reason the big major publishers jumped on board was because Amazon’s ebook pricing was destroying their business model. And yes there is a business model for book publishing both print and digital. There are costs that need to be recouped. Just because a book is in a digital format does not mean it cost 3 cents to make. An ebook does not exist in a separate world to the print book. They share the same costs of production as well as marketing.
Publishers’ sales of $US25 hardcovers were being eroded by Amazon selling the ebook a $US9.95 regardless of the price (retail and cost) that the publisher had set. The agency model allowed publishers to gain a 70/30 split (publisher/retailer) on ebook sales, much higher than the print book split which can be up to 45/55 for Discount Department Stores (usually 60/40 for bookshops). This meant an ebook at $US14.95 agency vs a $US25 hardback would be at a ‘price of indifference’ (indifference for the publisher NOT the retailer). Unfortunately there are some publishers who have not priced their ebooks at this ‘price of indifference’ and Crikey can rightly argue that they have ‘gouged the customer’ (both reader and retailer).
The real story is not one of ebook rip offs and global pricing inequality. The real story is that Amazon is actually predatory pricing (see ACCC definition). They are setting ‘prices at a sufficiently low level with the purpose of damaging or forcing a competitor to withdraw from the market’ and they are doing this with a proprietary ebook format and device. This has also made it next to impossible for new competitors to enter the market. If it wasn’t for the agency model there would be a lot less competition in the ebook market. Barnes & Noble would not have been able to claw back marketshare nor would Kobo have made the inroads it has made and I doubt there would be independent booksellers selling ebooks like you have in the US with Google or here via Booki.sh and ReadCloud.
While many consumers enjoy Amazon’s predatory pricing the end result is not good. Once competition is wiped out Amazon ‘can disregard market forces, raise prices and exploit consumers’ something that can be more easily done if you have already locked your customers in to a particular format and device. It is a complex issue and one that is far from over. But it is a lot more complicated than is being reported. What is at stake is a competitive market which ultimately is good for authors, publishers, retailers and most importantly readers.
Jon Page is president of the Australian Booksellers Association. This post first appeared on his Pages & Pages Bite the Book blog.