Thursday, July 31, 2014

Fisking Shatzkin's and Cader's Fisks of Amazon

Two days ago, Amazon released a statement explaining their position in the negotiation difficulties with Hachette. As many of us had guessed, it's all about ebook pricing.

Barry Eisler did a post about the statement, and I fisked Douglas Preston, history's worst poster child for publishing, because he continues to beat a drum that only 1% of authors can hear.

The fact that Preston acknowledges that many disagree with his position, but never responds to or addresses criticism, is equivalent to stuffing his face from a big bowl of fail with a spoon in each hand.

But elsewhere on the Internets, there are those who remain on Hachette's side and are vocal in their concerns about the Amazon statement. Among them, John Scalzi, Mike Shatzkin, and Michael Cader of Publishers Lunch.

Scalzi's take was skewered on the Passive Voice, with 178 comments so far, the majority of them critical of his POV.

I decided to address some of Shatzkin's and Caders comments, and Barry Eisler also weighed in on Cader on his own blog.

I'll start with Mike Shatzkin.

Mike: “Unjustifiably high” is an opinion, not a fact.
Joe: Mike, when Amazon has the data on what pricing structure is the most lucrative, that's not opinion. It’s math.
Mike: Publishers pay money for the right to exploit copyrights and their “opinion” on pricing should be at least as important as anybody else’s.
Joe: A publishers' opinion on pricing certainly applies to the wholesale price at which they sell their content to retailers. They've always controlled that. Publishers also insist on a recommended list price (books are one of the very few retail items that have the price printed on them). But unless the contract with the retailer states otherwise, that's where their opinion ends.
Mike: Agency publishers had a lot of experience with higher ebook prices that couldn’t be discounted before the DoJ stepped in and they apparently disagree.
Joe: Huh? Ebooks were being discounted, which is why publishers colluded to force the agency model on Amazon. The agency deal meant Amazon couldn't discount. When the DOJ stepped in, Amazon went back to discounting.

Okay, upon rereading your sentence, I think you're saying that the price- fixing publishers seemed to like higher prices.

Did they like them because they made more money? Probably not, because they had to give a lot of that money back to readers in the settlement.

Or did they like those high prices because they retarded the growth of ebooks and protected their paper oligopoly? How is that counter to Amazon stating that $14.99 is unjustifiably high? It seems to be sympatico. The price fixers wanted those ebooks to be priced high, and their justification was to protect paper. 

Mike: This elasticity measurement considers only sales of ebooks at Amazon. What is the impact on print book sales when the ebook price goes up and ebook sales go down?
Joe: It only considers ebooks because ebooks are the items that Hachette wants to raise prices on. Hachette and other publishers make higher profits on ebooks, but they don't run a cartel over ebook distribution like they do with paper.
Mike: What is the impact on the bookstore distribution network when ebook prices go up and ebook sales go down? It would be commercially irresponsible of publishers not to consider those effects as well.
Joe: What's commercially irresponsible is not giving readers what they want. In the past, publishers had all the control. They priced hardcover books as luxury items, and those who couldn't afford them either had to wait for the library copy or wait a year for the less-expensive paper version to come out.

Publishers no longer wield that power. It's understandable that they don't want to let it go, but you can't put that cat back in the bag.

Amazon's press release isn't meant to be a comment on the state of the paper publishing industry. It's meant to explain the current negotiation situation with Hachette, which is about ebook pricing.
Mike: It is true that ebooks live in a world where they compete with other media. It is also true that the they live in a world which includes print, also an important component of a publisher’s and an author’s economic world. This analysis is very short on measurements of the impact on print sales of lower ebook prices.
Joe: Print is important to my economic world. It's about 2% of my income.
Ebooks are 1% of Legandare's income. And, again, this pricing issue is about ebooks, not paper.
We know Hachette wants to protect their paper sales. Why should Amazon care about that? Amazon cares about the needs of its customers, and Amazon and Hachette can apparently agree on terms for selling paper books. How does your argument that Amazon isn't taking paper sales into account affect Amazon at all? That isn't Amazon's concern.
Mike: It is good to hear that Amazon accepts a 30% share for retailers as reasonable. Will they now extend terms reflecting that to all the non Big-Five publishers who are trapped in “hybrid” terms, giving 50% or more in wholesale discounts to Amazon for ebooks? Of all the points raised by Amazon in this document, this is the most consequential in terms of commercial impact.
Joe: You mean "trapped" as in "willfully entered into the contract"? I'd be fine with a 50% wholesale deal with Amazon. I'd love it if they heavily discounted my books. I'd love it even more if they sold them as a loss-lead. But I don't have a paper empire to protect.
Mike: How about the academic and professional title universe that never operated on trade discounts until Amazon forced them into the trade discount world recently?
Joe: I don't think you understand the word "forced" anymore than you understand "trapped".
I'll give you a correct usage: "Amazon was forced to accept the agency model because publishers illegally colluded, and they became trapped by those terms."
No one is forcing any publisher to accept Amazon's terms. Amazon isn't a monopoly. Those publishers are free to go elsewhere. Amazon isn't breaking any laws by being a fierce competitor and negotiator. The same cannot be said about Hachette.
Mike: The economics of those segments of the book industry are being devastated by trying to put them into the trade paradigm where they never belonged and never intended to be.
Joe: Yes, the world will weep over the loss of $200 textbooks. I'm getting teary-eyed just thinking of it.
Again, it is not Amazon's job to give life-support to a business model that no longer works, whether it’s 8-track tapes or textbooks.
Technology, and consumers, have moved on. Publishers also need to move on if they want to continue to be relevant. Go with the flow, or drown.

Michael Cader of Publisher's Lunch was also critical of Amazon's statement, and he says some things worth responding to.

Cader: As most of our readership has likely seen by now, on Tuesday afternoon the Amazon Books team put up another unsigned, closed to comment post (an exercise in what Barry Eisler ought to call shameful "pointless, pernicious, promiscuous anonymity") on the Kindle Forum. The post is said to offer "specific information about Amazon's objectives" in their negotiations with Hachette Book Group.

As to why Amazon doesn't allow comments, I'm puzzled by that, as well. They haven't allowed comments on any of their Hachette related posts. I doubt it would be because they fear criticism--Amazon tends to ignore criticism, even from the highest sources.

If I were forced to speculate, I'd guess--and this is a pure guess--that Amazon believes the comment thread would fill up with anti-Hachette sentiments, and that's not conducive to the negotiations they are currently involved in.

Or maybe Amazon truly fears that a pro-Hachette avalanche of posts would overwhelm them, as pro-Hachette authors have been lighting the Internets on fire with their fact-based, common sense posts.

(Can anyone point me to a single pro-Hachette fact-based common sense post? Anyone?)

Cader: If you have not read the post yet, check it out. It raises many questions, among them:
Amazon is very careful with their words, even if not elegant. The post begins, "A key objective is lower e-book prices." A lot of traditional media have written the post up as if it said "The key objective..." What are the other key objectives, Amazon? Why do your conversations with people in the trade talk about looking for your fare share of the "business efficiencies" produced by a rising ebook market and your investments, while your public words are only about pricing objectives?

Joe: Well, we agree that Amazon is careful with their words. It’s unusual to hear an observation like that leveled as a criticism. Does Cader prefer the Hachette approach, which is to clear English what a chainsaw is to a tree…?

That said, I'm pretty sure Amazon just agreed to a 30% cut of ebooks--that speaks directly to their business efficiencies of the rising ebook market, doesn't it? So they didn't just speak of pricing objectives. But since Hachette hasn't made any statements about pricing, we're left with the belief that this dispute is about ebook pricing, which is why Amazon is addressing that particular point.

Cader: Amazon says they have "quantified the price elasticity of e-books from repeated measurements across many titles" in their store. Will they provide that data to publishers? Will they do it for a variety of price points?

Joe: Have publishers released any price-point or sales data? No. We rely on third parties to attain that information, such as BookScan.

I find it interesting that Amazon is, finally, sharing some price point data, and Cader immediately wants more from Amazon and nothing from Hachette. It reminds me of that Louis CK joke about WiFi on airlines.

Amazon, like legacy publishing, has always been tight-lipped about sales figures. But with Amazon, authors get timely, easy to understand royalty statements.

Cader: Amazon keeps trying to push a public perception that most new ebooks are $14.99, overlooking the substantial number of titles at $11.99 and $12.99 -- and overlooking the post-settlement discounting provisions that led some publishers to raise ebook prices in anticipation of Amazon's discounting.

Joe: I had the impression that Amazon is focusing on $14.99 because that's the price Hachette is pushing for. Remember that the agency model is still in effect on Amazon, all the DOJ did was allow Amazon to discount those agency prices.

As for publishers raising ebook prices in anticipation of Amazon's discounting, I find it hilarious that there were abundant author complaints that Amazon stopped discounting Hachette titles. How about Hachette prices them fairly to begin with, in which case discounting wouldn't be needed?
Cader: And will they back up the contention that lower prices raises overall revenue in the form of advance guarantees, one publisher asks? Amazon is essentially offering an assurance that an ebook that sells 100,000 units at $14.99 will sell 174,000 units. Even if true, does that only work in isolation? E.g., if all $14.99 ebooks moved to $9.99, would the sales effect be mitigated as consumers are back to choosing among a wide swath of comparably priced books?
Joe: Well, we could always run a controlled experiment by using a parallel universe...
Oh, wait. We can't.
But we can allow Amazon to price ebooks where they choose, and publishers to wholesale those ebooks to Amazon for the price they choose. Which is how it used to be, except publishers hated the discounting so much that five of them colluded with Apple to fix prices.
Cader: Their figures consider a world of ebooks only. Their "total pie" is really just a piece of the pie. But publishers and authors are looking to maximize revenue across all formats. "Total revenue" on an ebook is only part of the "total revenue" for a new release book, and the hardcover edition still generates substantially more revenue per unit.
Joe: As I mentioned while responding to Shatzkin, this dispute is about ebook prices. Hachette is welcome to counter with a "total pie" argument, but Bezos believes "your margin is my opportunity". He's not in business to prop up the paper book market.
Cader: Publishers and authors are also looking to maximize exposure of their titles and revenue across all possible outlets. More viable outlets makings books available for perusal and sale is an essential part of the "healthy reading culture" Amazon talks about.
Joe: So it's Amazon's job to bolster its competition? It's one thing making books competitively priced with other media types. It's another thing to be competitive with other retailers selling books. Amazon wants low prices. It’s in Amazon's best interest if other retailers price books higher, or don't sell books at all. That's a no-brainer. Amazon's arrival on the publishing scene has given the industry a much needed shot in the arm. Writers, and readers, are benefitting. Amazon's position seems to be it wants those benefits to continue, but it isn't Amazon's job to enable the competition to compete better.
Cader: Of course it's in Amazon's interest to drive higher ebook sales -- where they have a 60 to 70 percent market share -- over print sales, where their market share is half of that or less, but it doesn't mean that is the solution for publishers and authors, or even readers.
Joe: As I stated above, my paper income is about 2% of my overall income. But publishers still have an oligopoly over the paper industry, and they want to protect that. This isn't an impasse. Readers will vote with their wallets. Because, for the first time ever, readers have a choice.
Cader: Tangentially, first-run movies would sell a lot of downloads on Amazon at most any price. The lower the price, the more downloads they would sell. Would that be good for the movie business as a whole?
Joe: Funny you should mention that -- because more and more pay-per-view movies are being released while the film is still in theaters, or in some cases before it is in theaters.
With some titles, like Transformers, the bean counters have decided a theater-first option is best. Others, like 4 Minute Mile, http://www.amazon.com/Minute-Mile-Watch-Before-Theaters/dp/B00LFE2558 are takign a different approach. And this seems to be good for the movie business as a whole, and for film lovers.
Cader: People in the business will smile at Amazon's writing, "Any author who’s trying to get on one of the national bestseller lists should insist to their publisher that their e-book be priced at $9.99 or lower." As we've demonstrated, it's harder than ever to get a regular new release ebook onto to Amazon's Kindle bestseller list, which now gives 40 percent to 50 percent of its slots to books Kindle Unlimited free trial members have clicked to download.
Joe: Uh, then maybe those publishers should enroll their books in Kindle Unlimited?
I just hit #11 on the Amazon Top 100 with Whiskey Sour, which was published back in 2004. I sold over 6000 ebooks in a week. I can get a ten-year-old book on the list with just a few ads, but giant publishers can't hit the Top 100?
But this is a straw man. Amazon is talking about lists like the NYT, which publishers deem to be extremely important (I've sold a few million books and never hit the NYT list). And if publishers want to get on the NYT or USA Today lists, Amazon is helpfully suggesting an ebook priced at $9.99 or less, because Amazon has data to show this is the best price point.

It just isn't a price point that publishers like, because they care more about losing power and therefore relevance (that paper oligopoly) than they do about losing sales.
Cader: We understand Amazon is playing to the crowd, where the idea has been embedded that agency pricing raised prices.
Joe: How could that idea have been embedded? Maybe because, under the agency model, prices went up? Isn't that what the DOJ proved? Why does Cader think five of the then Big Six colluded to fix prices? Were they trying to force Amazon to lower its prices?
Cader: But they way they phrase it in the post -- "the 30% share of total revenue is what Hachette forced us to take in 2010 when they illegally colluded with their competitors to raise e-book prices. We had no problem with the 30% -- we did have a big problem with the price increases" -- is factually wrong. eBook prices paid by consumers may indeed have risen post agency, but the agency publishers themselves did not increase prices. They lowered their prices to their retailers, and they eliminated discounting.
Joe: Huh?
Ebook prices paid by consumers went up. The publishers controlled those prices. And publishers and authors made less money. But this is all apparently okay as long as Amazon could no longer do any discounting?
Amazon has no problem with 30%, because that's what they take from indies. They did have a problem with higher ebook prices.

In the short run, Amazon made more money per ebook sale when the publishers forced the agency model on them, and they still had a problem with it because it meant higher ebook prices overall, which they didn't want.
Cader: "We had no problem with the 30%" is raising lots of questions from other players. Many publishers would love to limit Amazon's share to 30 percent.

Joe: And I'd love to sell my ebooks to Amazon at a 50% wholesale that they're free to discount. It all comes down to what sort of deal you're able to make with Amazon.

Cader: Smashwords founder Mark Coker wonders in our comments why that offer doesn't apply to the hundreds of thousands of Smashwords titles? "So agency is okay as long as it's accompanied by lower prices? Then why have they refused to allow Smashwords or other low-cost ebook distributors into their agency program?

Joe: I'll take a wild shot here: because Smashwords is a competitor?

Cader: We'll give them 30% *and* give their customers lower prices. If Amazon wants its customers to have lower prices, then why the doublespeak? And why then has Amazon been so stingy with free pricing?"

Joe: It's a mystery to me why Amazon doesn't see the value of free. They're leaving a lot of potential money on the table. But Amazon, like any company, is free to do business with whom it chooses, and how it chooses.

Cader: On Amazon's remarks about authors' interests and their share of ebook revenues, Coker adds: "Nice of Amazon to care about authors. But do they really care? If they care about the welfare of authors, then why for last four years has Amazon been robbing KDP authors every day via draconian price matching? Amazon routinely steals revenue from authors even when the price differentials are due to a competing retailer's error, and not the author's intention or fault."

Joe: I don't like KDP Select's exclusivity either. I also think Amazon should sell in epub format. I'd like to be able to make my books free whenever I want to. I've been telling Amazon this for years. But it's their house, their rules. If I don't like the rules, I can opt out of Select, or take my books off Amazon completely.

I don't expect Amazon to become altruistic, but since the days of DTP they have been operating according to a philosophy of enlightened self-interest. I have benefitted. So have tens of thousands of other authors. So have many millions of readers.

Publishers are correct to fear Amazon. Amazon is slowly disintermediating them. That's what this dispute is about. That's why Hachette wants $14.99 ebooks. Because as the ebook market grows, and the paper market shrinks, what’s the point of having a publisher? Most authors with even a pair of functioning neurons will cut out the middleman and take that share for themselves. 

Publishers are middlemen. Once they were essential middlemen. Now they are, as Barry Eisler says, a value-added option. If you find value in turning over ¾ of your ebook royalties in return for cover art and editing. 

Because when B&N closes, and paper distribution exists only for the big names like Patterson, Preston, and Turow, cover art and editing will be all the legacy industry can offer authors. And the legacy industry knows how lame that is.

35 comments:

T. M. Bilderback said...

Well said, Mr. Konrath. Well said.

Alexander Mori said...

And there it is! The hard truth! "Publishers are correct to fear Amazon."

I published my first book through Amazon and my dad, who is quite old, was confused that he could not go to the store and buy a copy. So I bought him a kindle paperwhite, downloaded my book to it, took him to amazon.com and showed him how to buy other books. We perused the site for two hours and he decided on 6 books right then and there. Some of them were free. Some were 99 cents. Some were $2.99. He bought them all and was completely amazed. He has converted. He doesn't even know how to use a computer, yet he LOVES his kindle after only a short introduction.

He stopped reading because books were too expensive and he hated spending $15-$25 for a book he may or may not like. But he was like a kid in the candy store buying 6 books at once and spending less than $20.

My dad does not change. He still eats vienna sausages dipped in mayo when mom doesn't cook him dinner. That's what he ate when he was a bachelor 40 years ago, and that's what he eats now when he is not properly fed. The fact that he embraced ebooks amazes me. And it shows that those readers holding on to the print world need only try the digital one to understand and embrace the benefits.

The ebook market will continue to grow and the print market will continue to shrink. Though the legacy pub death rattle will not be easy to watch, their dominance over this industry will eventually come to an end. The question will become, will they be able to adapt and make themselves an important part of the solution? Or will they continue to try and be the problem?

Joshua James said...

This is off-topic (and great topic, I just have nothing to add that hasn't been said) but a question, Joe... what ads did you use for Whiskey Sour, and have you found any new ones you really like?

Thanks...

Robert Burton Robinson said...

Joe: I don't like KDP Select's exclusivity either.

I dislike KDP Select's exclusivity so much that I've pulled all nine of my books out of it. I'm using Smashwords again to make my books available from as many vendors as possible. Smashwords still has some limitations that I am not happy with, and although I'm not married to the idea of staying with them necessarily, I don't want to limit my books to Amazon anymore.

When I first started writing novels in 2006, I wrote them as serials, posting each chapter on my website as I wrote it. That led to a decent number of paperback sales at a time when few indies were making any money on fiction paperbacks.

When the Kindle came along and you started talking about the money you were making, Joe, I jumped on the bandwagon, and did quite well myself--especially in 2011. At that time $0.99 books were selling like hotcakes. Then Select came along, and five-day free books were magic for a while.

Now there's Kindle Unlimited, which is currently making a ton of money for many indies. It will be interesting to see what happens after the initial free memberships start to run out. I imagine the flow of cash will begin to slow.

I understand why Amazon created Kindle Unlimited. Oyster and Scribd were beginning to have some success. Amazon had to react. And I would be happy to participate, even though nobody knows how well it will pay, or whether that level of pay will hold for the long term--if it did not require exclusivity. That's the deal breaker for me.

I love Amazon. They've allowed me to earn a lot of money over the past few years. And I'm a dedicated customer. I buy a ton of stuff from them. I'm a Prime member, and I love the free shipping.

But I want my books to be available everywhere--to make it as easy as possible for readers to find them. And I don't want to be totally dependent on any one company, like Amazon or Google or Facebook or Twitter, etc. Sure, they're all powerful companies that can help me reach readers. But I have no control over the decisions they make, which are, understandably made with their stockholders in mind.

So, I've put all of my book back on my website. All of them, to be read for free online. People who want the convenience of an ebook at a cheap price can buy them from Amazon or Barnes & Noble or the iBookstore or Kobo or Flipkart, etc. Or they can read them on Scribd or Oyster.

I'm not a corporation, but I do own my copyrights and I control my own website, and my business goal is to make the most of them.

Karen Myers said...

You said: Publishers are correct to fear Amazon. Amazon is slowly disintermediating them.

I have only one objection. There's nothing "slow" about it, esp. from the perspective of the entrenched publishers.

Hachette Author said...

Mike Shatzkin deleted a very polite comment I left on his blog post, linking to this one. It said:

For a balanced perspective, read Mike Shatzkin's post above. Then read this:

http://jakonrath.blogspot.com/2014/07/fisking-shatzkins-and-caders-fisks-of.html

Smart Debut Author said...

Shatzkin deleted my post over there, too, for some reason. I can't imagine why:

Watching Mike Shatzkin trying to sell his new "metadata" consulting business to the big publishers is kind of like watching a Dodo Bird charge the dinosaurs big bucks for advising them on how to avoid extinction.

Anonymous said...

Amazon posts a PR statement on its customer forum (where the business community goes for important top news like how to use affiliate widgets.)

Corporate. PR. Posted on a bulletin board aimed at customers. Filled with simplistic and misleading information.

And you all believe every word of it. Amazon loves you. Just not for the reason you think.

Okay, then! My small press happily accepts Amazon's 70 percent terms. Glad to trade in our current wholesale contract for a new one. You betcha. Our prices are already below 9.99, and we pay 40 percent net ebook royatlies. So where do we sign for this glorious deal?

Will the contract be delivered by Santa, the Tooth Fairy, or the Easter Bunny?

Elka said...

Okay, then! My small press happily accepts Amazon's 70 percent terms. Glad to trade in our current wholesale contract for a new one. You betcha. Our prices are already below 9.99, and we pay 40 percent net ebook royatlies. So where do we sign for this glorious deal?
What is preventing your small press from publishing books using KDP, which has the 70% option?

Angry_Games said...

Got to love Anonymous. He/she trolls around the internet, complaining and insulting, but never doling out any facts that might support the complaints and insults.

I guess it comes down to those of us who use our real names, regardless of the risk that we might get some backlash at the retailers our books are sold.

Anyone that posts as anonymous, unless they're in fear of their jobs for going against the corporate grain, simply can't be taken seriously.

If you have an argument to make, a complaint, some insults, use your real name. Otherwise, you can't be taken seriously. In fact, I think most of us gloss over Anon posts for the fact that if someone has to hide behind a curtain, then they probably didn't do a whole lot of fact-checking. Which is why Anon posts almost never contain anything of value.

I mean, my posts are negative value, but I at least am not afraid to stand up for whatever I believe in as me, not some shill behind an invisible curtain.

Tom Maddox said...
This comment has been removed by the author.
Tom Maddox said...

Anonymous at 3:03

Corporate. PR. Posted on a bulletin board aimed at customers. Filled with simplistic and misleading information.

Please inform me of the misleading info and point me to where the evidence is that shows that it is misleading info.

And notice I said evidence an not opinions, and if it is an opinion at least make sure it is not an opinion by an anonymous poster.

Mark Edward Hall said...

Anon said: "Our prices are already below 9.99, and we pay 40 percent net ebook royalties. So where do we sign for this glorious deal?"

Three of my books are with a small press. Biggest mistake I ever made. Thank God I get them all back within a year. They pay me 40% of net, which at first sounded good before I truly understood what that meant, less than 15% of gross.

Those slimes get 70% from Amazon and pay me peanuts. They should be ashamed, as should you.

Hey, maybe you are my publisher.

Daddyo Shabazz said...

Both Shatzkin and Cader make the argument that sales of ebooks impact the sale of paper books - a point that Amazon failed to address because, as Joe mentions, it's not relevant to the issue at hand. But this argument shouldn't be relevant to publishers either, considering that their margin is much higher with ebooks than with paper. Note how Cader talks about maximizing "revenue" and not "profit" for some reason. Publishers should welcome higher ebook sales at the expense of paper if they're thinking logically.

Could publishers really be that desperate to perpetuate an obsolete model that they'd prefer selling more of a low-margin product than a high-margin product? Or is this failure of logic really another indication that their survival wholly depends on the need for distribution of paper?

Anonymous said...

I am not the anonymous at 3:03. I bet you 50 dollars that it is Deborah Smith of BelleBooks - whose small publishing company exactly matches the statistics quoted there.

And she loves the derisive drive-by comment. No need to listen, just tell people they are dumb and run!

Cader said...

(Part 1) Hi Joe. I'm glad we have at least some points of agreement. Some of your other replies are tangential rather than on point.


Joe: Well, we agree that Amazon is careful with their words. It’s unusual to hear an observation like that leveled as a criticism. Does Cader prefer the Hachette approach, which is to clear English what a chainsaw is to a tree…?

That said, I'm pretty sure Amazon just agreed to a 30% cut of ebooks--that spea ks directly to their business efficiencies of the rising ebook market, doesn't it? So they didn't just speak of pricing objectives. But since Hachette hasn't made any statements about pricing, we're left with the belief that this dispute is about ebook pricing, which is why Amazon is addressing that particular point.

Cader again: I was not criticizing Amazon's careful language, I was parsing it. As the post said, a lot of media acted as if Amazon had said ebook pricing is *the* key objective. They chose to say it was one objective, and they have chosen not to discuss any others. As I pointed out, what they say to people in the trade privately is different. So you can have your belief, but it's just that, and not necessarily backed up.

I wish HBG had more to say in public, but I also understand why a supplier is reluctant to iterate the steps of their negotiations with their biggest account in the media. Particularly since public statements across years were used against them by the DOJ, and because they have confidentiality provisions in their Amazon contract.


Cader: Amazon says they have "quantified the price elasticity of e-books from repeated measurements across many titles" in their store. Will they provide that data to publishers? Will they do it for a variety of price points?

Joe: Have publishers released any price-point or sales data? No. We rely on third parties to attain that information, such as BookScan.

Cader again: Publishers do provide sales data to a trade service run initially by Bowker and now run by Nielsen, based on their ebook invoices (so it has a time delay). They are actually not allowed to share or publish the *sales* data provided to them by individual retailers, since it's the IP of the retailers.

BookScan would like to license ebook sales data. Amazon has declined to do so.

The point is Amazon is claiming to have determined a universal public good, basd on proprietary information, and wants everyone to simply accept that and accept their terms. And they want readers of the post to simply accept Amazon's conclusion.


Cader: Amazon keeps trying to push a public perception that most new ebooks are $14.99, overlooking the substantial number of titles at $11.99 and $12.99 -- and overlooking the post-settlement discounting provisions that led some publishers to raise ebook prices in anticipation of Amazon's discounting.

Joe: I had the impression that Amazon is focusing on $14.99 because that's the price Hachette is pushing for. Remember that the agency model is still in effect on Amazon, all the DOJ did was allow Amazon to discount those agency prices.

As for publishers raising ebook prices in anticipation of Amazon's discounting, I find it hilarious that there were abundant author complaints that Amazon stopped discounting Hachette titles. How about Hachette prices them fairly to begin with, in which case discounting wouldn't be needed?

Continued....

Cader said...

(Part 2)
Cader replies: So the technique has worked. Do some research, Joe. $14.99 was a rare price point following the introduction of agency. (It applied to books with a hardcover price of between $27.51 and $30.) The preponderance of new release agency books were lower -- the stipulated price band maximums are a matter of public record. (There was no $13.99 bracket, I guess for luck. So lower priced hardcover releases had ebooks at $12.99 and $11.99.)

Even now, many new release HBG ebooks are $12.99. Like CALIFORNIA, for one example. Data is available on their web site. Yes, some of their ebook prices probably did rise *post settlement* -- and *because of the settlement.* Once discounting was allowed, at least some agency publishers increased their ebook prices, to balance out the expected discounting within the post settlement limits.

I do agree with you on the discount complaints. You can't have it both ways. Either you want your prices observed, or you allow or even prefer discounting. It is clear that Amazon has used modification of discounts on HBG books as a tactic in the negotiation, but I don't think it is a tactic authors or the publisher ought to be complaining about.


Cader: Their figures consider a world of ebooks only. Their "total pie" is really just a piece of the pie. But publishers and authors are looking to maximize revenue across all formats. "Total revenue" on an ebook is only part of the "total revenue" for a new release book, and the hardcover edition still generates substantially more revenue per unit.

Joe: As I mentioned while responding to Shatzkin, this dispute is about ebook prices. Hachette is welcome to counter with a "total pie" argument, but Bezos believes "your margin is my opportunity". He's not in business to prop up the paper book market.

Cader again: You are limiting the sphere because it serves your argument, Joe, but that doesn't make it any more true. First, as established above, you are relying on your "belief," when there are good reasons to believe the dispute is broader.

But also, even if ebook prices are the focal point of the dispute, that does not mean HBG should not be looking at the effect across their total business, and their total account base.

Amazon's statement is rhetoric, posted on their own forum, which is of course their right and prerogative. My point was to illuminate some of the rhetorical devices at play and in what they, and don't, say. You seem to be arguing that we can only discuss their statement within their rhetorical box, which of course leaves little to say and nothing to learn.

You are correct that Bezos is not in the business of benefitting anyone but Amazon. But that's not what the Books Team post tells consumers/readers. It tries to create the impression that lower ebook prices create more revenue for everyone, full stop, and therefore there is no arguing against it.

Lower ebook prices don't create more revenue for everyone. They might increase ebook revenue, but publishers and authors are concerned with all revenue, all types of readers, and all accounts as I stated.

Growing Amazon's dominant market so that it is bigger still and drives other players out of the business is not what HBG is "in the business" of either. Each party has its own objectives, for sure. But Amazon is the one posting as if they are addressing a mathematical, universal good.

Continued....

Cader said...

(Part 3)

Cader again on following points: Yes, readers will vote with their wallets. HBG wants Amazon to continue let readers have that vote. If they don't like HBG's prices, whatever they might be, they won't buy the books.


Cader: But they way they phrase it in the post -- "the 30% share of total revenue is what Hachette forced us to take in 2010 when they illegally colluded with their competitors to raise e-book prices. We had no problem with the 30% -- we did have a big problem with the price increases" -- is factually wrong. eBook prices paid by consumers may indeed have risen post agency, but the agency publishers themselves did not increase prices. They lowered their prices to their retailers, and they eliminated discounting.

Joe: Huh?

Ebook prices paid by consumers went up. The publishers controlled those prices. And publishers and authors made less money. But this is all apparently okay as long as Amazon could no longer do any discounting?

Amazon has no problem with 30%, because that's what they take from indies. They did have a problem with higher ebook prices.

In the short run, Amazon made more money per ebook sale when the publishers forced the agency model on them, and they still had a problem with it because it meant higher ebook prices overall, which they didn't want.

Cader again: I chose my words very carefully here, Joe, just as Amazon does. They don't talk about "ebook prices paid by consumers."

The ebook prices publishers charged to Amazon went down as a result of agency. That it is a clear, undisputable matter of fact.

For a $27 hardcover, agency publishers typically would have called the consumer MSRP anywhere between $27 and $21.60 (20 percent less). Amazon would have paid about half of that to the publisher ($13.50 to $10.80). That same ebook would have been agency priced at $12.99, and Amazon would have paid $9.10 to the publisher. The price between the publisher and Amazon decreased.

Consumer prices are a separate issue. Higher prices to consumers may have been the result on some books, but it was not because publishers raised their prices. Publishers lowered their prices, but eliminated discounting.

As for the myth of $9.99 and what Amazon "wants," did you see the document that surfaced during the proceedings showing Amazon's formula for when and how long they would discount to $9.99 and when they would let the ebook price rise again?

On the other hand, some publishers did raise their ebook prices *post-settlement,* to make room for the limited discounting allowed.

Continued....

Cader said...

(Part 4)

Cader: Smashwords founder Mark Coker wonders in our comments why that offer doesn't apply to the hundreds of thousands of Smashwords titles? "So agency is okay as long as it's accompanied by lower prices? Then why have they refused to allow Smashwords or other low-cost ebook distributors into their agency program?

Joe: I'll take a wild shot here: because Smashwords is a competitor?

Cader again: Yes, Smashwords is in some ways a competitor -- and there are many instances in which I will not quote Mark for that reason -- but shouldn't Amazon want them to be a supplier? Why does it matter if they get 30 percent from a KDP author, or 30 percent from a Smashwords author?

Amazon is positioning themselves as speaking for and acting for all authors interests', particularly those of self-published authors. You and Barry have declared them the real Authors Guild. But here you are excusing the way they treat a couple hundred thousand independent Smashwords authors/publishers because of competitive interests.

So maybe you should sort that position out further.

Also, Amazon is still supposed to be a store, that sells books by other suppliers. The Kindle mission is "any book, ever published, in 60 seconds or less...," not "any book, published by us, subject to our broad rights claims and ability to change terms without any notice or consent...."

I'll finish on another point of agreement.

Joe:....
Publishers are correct to fear Amazon. Amazon is slowly disintermediating them. That's what this dispute is about.

Cader again: Yes, that. Hachette is trying to prevent that, and protect their business, their authors, and their other vendors. As you have implied in your comments, Amazon is also looking to disintermediate other retailers, and other suppliers/vendors/distributors like Smashwords.

Larry said...

That comment about the textbooks irks me. Back in the mid 90s, I was enrolled (for some reason) at a university here in the US. Textbook prices were outrageous, but what was even more outrageous was my Japanese friend receiving a large box from home full of the same textbooks. His family would buy the books he needed for maybe a third of the US price, ship them halfway around the world, and it would still be cheaper than picking them up at the local college bookstore. I have no sympathy for textbook publishers.

Joseph Ratliff said...

"Cader again: Yes, that. Hachette is trying to prevent that, and protect their business, their authors, and their other vendors. As you have implied in your comments, Amazon is also looking to disintermediate other retailers, and other suppliers/vendors/distributors like Smashwords. "

And Hachette isn't trying to do the same thing? Seriously Mr. Cader?

This is business after all, right?

Joe Konrath said...

My small press happily accepts Amazon's 70 percent terms.

Your cowardly anonymous small press? Praytell, how can we buy your books, and how much do your authors get when they can make 70% doing it on their own?

Anonymous said...

Anonymous at 3:03

http://www.bellebooks.com/shopcontent.asp?type=Aboutus

Joe Konrath said...

@ Cader: Thanks for the detailed response. I've unplugged for the night, but I'll give you some detailed replies tomorrow in a separate blog post, and Eisler told me he'd add his two cents.

It's good for everyone to have a back and forth discussion and exchange ideas. I appreciate your efforts.

William Ockham said...

I call bullshit on Cader and his obfuscation on prices. The Amazon statement was very clear that the price they referred to was the retail price paid by their customers. Cader brings up this crap because he wants to distract from the fact that he is defending a company that broke the law, a company that he defended while they were breaking the law and he knew or should have known they were breaking the law.

Cader makes much of the fact that most titles weren't priced at $14.99. He elides the fact that it is the number of copies sold at that price that matters. It is a fact (you can look it up in the Apple ebook antitrust judgment) that the colluding publishers raised the prices of some print books so that they could get to that $14.99 price. And it is a fact that they wanted even higher prices, but Apple wouldn't go along with that. Trying to give the publishers credit now for the fact that Apple kept them from raising prices as high as they wanted is a bit rich.

Cader certainly chooses his words carefully. He completely distorts what actually happened when the publishers pulled their scam with Apple. There is a factual record available on the internet. You don't have to take my word for any of this. You can look it up for yourself.

Laura Resnick said...

What William just said. It's in the lawsuit.

Apple wants to set a $12.99 ceiling on ebooks, the colluding publishers resisted. Apple needed to close the deal before the launch of the iPad, which date was approaching, so it made a counter-proposal: an ebook could be priced higher, up to a ceiliung of $14.99, =if= the print edition was more than $28, which was the typical hardcover SRP at that time. The publishers agreed and signed, and one immediately sent a memo to staff, introduced as evidence in the court case, telling them to start raising print prices above $28.

A.G. Claymore said...

And you all believe every word of it. Amazon loves you. Just not for the reason you think.

Okay, then! My small press happily accepts Amazon's 70 percent terms. Glad to trade in our current wholesale contract for a new one. You betcha. Our prices are already below 9.99, and we pay 40 percent net ebook royatlies. So where do we sign for this glorious deal?

Will the contract be delivered by Santa, the Tooth Fairy, or the Easter Bunny?

I don't get it, Deborah. You've posted the same message all over the internet but you suddenly go anonymous when you come to Newbie's Guide?

Terrence OBrien said...

Publishers are correct to fear Amazon. Amazon is slowly disintermediating them.

Amazon offers the the platform to disintermediate. Authors are the ones making the decision to disintermediate.

Ron Edison said...

These fisks are the next best thing to MST3K, a show I miss terribly. Maybe you and Barry can get a deal with cable.

Nirmala said...

I just had a thought: If the contract has expired, then what is stopping Amazon from unilaterally doing something like what they have proposed in the past. Why can't they just say something like: Starting tomorrow, we will reinstate pre-orders, etc., but instead we will reduce Hachette's share of revenue by 30% of sale price which is an amount exactly equal to our share and donate this portion of their money and all of our 30% share to literacy programs. That way both we (Amazon) and Hachette will have an exactly equal incentive to complete the negotiations quickly.

Yes it would still hurt Hachette authors but at least no one could say that Amazon is asking Hachette to take on a bigger burden. Both parties would be contributing exactly equally to charity. And Hachette authors would still receive their share of the remaining 40% of the sales price that would continue to be paid to Hachette.

Maybe someone knows the legal ramifications, but without a contract it seems that right now Amazon can pay Hachette whatever it wants to for every ebook sold. Of course Hachette could withdraw their books, but are they ready to take that step?

Seems like this could light a fire under Hachette and yet it would be a completely fair and equal hit on both parties if Amazon only reduces payments to Hachette by the exact same amount as Amazon's own share. And again, it seems that legally they should be able to do this unilaterally since there is no contract.

You talk to Amazon, Joe, so if you think this is a good idea, maybe you can pass it along :)

Anonymous said...

Okay people, stop slamming anonymous posters. If they're jerks, yes, it's because they lack stones. Some of us have different reasons.

Anyway, question about B&N: I keep hearing they are doomed, but haven't seen any evidence of that lately. I get that the technology shift seems to make it likely, especially after what happened to record stores and video stores.

But this is different, because both of those industries, music in particular, depend so heavily on a younger generation, which means a very high percentage of early adopters of the new tech. Books are different in this regard, as the demographic distribution of readers is much more balanced.

My question is: what evidence do we have that B&N is doomed? At least in the near term? I only ask because I'm interested in knowing. I don't have a personal stake in it one way or the other. But if it's true, it would be a fascinating development.

Anonymous said...

Yeah, quit with the bashing of anonymous! Bash the argument or lack thereof, not the moniker. I could make up a fake name and email and post as that and it wouldn't change my argument one whit. So please -- using anonymous does not mean we are cowards or liars or trolls. The content of our posts determines the applicability of those labels.

That said, I don't have an argument with Joe's fisking. I thoroughly enjoy it and find myself nodding my head at pretty much everything.

I get my morning coffee and the first thing I do before hitting my daily quota of words on my WIP is check out Joe's blog. As an indie author making my living from Amazon (and to a lesser extent, B&N and iBooks), I like to keep in the loop about industry developments and Joe is a no BS analyst. I read Joe and Barry and David G every day -- and of course, I read Hugh as well when I need a hug. ;)

Anon Author

Nirmala (free spiritual ebooks) said...

In answer to the question about the prospects for Barnes and Noble, here are two articles that address it indirectly but still make for interesting reading:

http://www.dailyherald.com/article/20140704/business/140709999/

http://www.forbes.com/sites/mergermarket/2014/07/30/digital-media-rise-pushes-print-suppliers-to-the-brink-and-beyond/

Joe Konrath said...

My responses to Cader here:

http://jakonrath.blogspot.com/2014/08/michael-cader-of-publishers-lunch.html

Broken Yogi said...

In some ways, I agree with Cader. Hachette and other publishers have every right to pursue a business model that protects their print distribution channels, and to charge higher prices for ebooks as a part of that business model. They even have the right to demand agency pricing for their ebooks to enforce those high prices and to prevent Amazon from discounting them. They even have the right to reject Amazon's proposals and even withdraw their books from Amazon's catalog.

And Amazon has every right to reject Hachette's business model where it conflicts with their own. They can reject agency pricing, and demand that Hachette allow them to discount books, even to demand certain price ceilings. And if Hachette will not agree to those demands, they can refuse to carry Hachette's books.

Both have their own business models they want to protect, and they have the right to only work with partners who will agree to their core demands and needs. I see nothing wrong with that on either party's part. I just think it's important that we understand what each side's business model is, and what their non-negotiable positions are, and what is negotiable.

For authors, it's important to understand what these business models are, and whether they benefit us or hurt us. There may be some positions on both sides that hurt authors. Amazon is no angel, of course, and their business model has different implications for traditionally published authors than it does for self-published authors. So there's some valid reason some traditionally published authors might not like Amazon's business model and its demands, and feel threatened by it instead.

It's very much true that lower ebook prices could be quite threatening to Hachette and other traditional publishers. The real question is whether the business model they are trying to protect can actually be protected by higher ebook prices, and whether the course of action they are pursuing will actually help them in the long run. In the short run it might, but in the long run, it seems as if it could doom them to obscelescence.

So that may not be a bad thing. If your goal is the ending of traditional publishing, letting Hachette and other traditional publishers win this current battle to protect higher ebook prices might be the best way to accomplish that. Give them enough rope, and they will hang themselves.

For the growing band of self-published authors, big publishing's margins are our opportunity. By cutting prices and keeping most of the profits for ourselves, we make self-publishing more and more attractive to authors of all stripes, including many traditionally published authors. The drain on those publishers' health and author loyalty will continue to fade. At some point, it will just break.

In the meantime, author earnings for self-published authors will continue to grow and dominate the ebook market. Print sales and profits will continue to decline. Self-published authors will therefore gain a premium on traditionally published authors merely through the stupidity of publishing houses. Can we honestly complain about that?

Perhaps we should just laugh all the way to the bank.