Wednesday, July 27, 2011

Moving the Goal Posts: The Effect of Agency Pricing

I think agency pricing -- a term I understand only in its practical effect, namely ebooks selling for the full list price of the paperback even on normally discounted sites like Amazon and even though any fool can get a paperback at a discounted price pretty much anywhere -- is insane.  (In case a would-be purchaser misses the point, Amazon has a helpful disclaimer:  This price was set by the publisher.  Mind you, the paperback copy of the same book is the same full price plus shipping at Amazon unless you bundle it with other books and/or get the supersaver free shipping deal.  No disclaimer there.)

But I don't think agency pricing is any reason to not buy a book you would otherwise buy at that price.  Because, let's face it, there are valid reasons to pay list price -- to support an independent bookseller, for example, or because you have figured out that the cost of gas negates the savings your discount card gets you at the big box store.

What agency pricing does -- other than make the publishers look like mathematically challenged doofuses who forget to "carry the one" when calculating their profits -- is move the goal posts on the number books you're willing to buy at full price.

There's a wonderful author -- I won't name her but I think her writing is divine -- whose back list I have yet to get through.  I don't know, maybe I'm hoarding them because they're that good.  Anyway, I didn't buy her most recent book because, frankly, I don't need it right away.  I put it on my wish list at Paperback Swap.  Yes, that means I'll eventually get a used copy of it.  No royalties for the author (you see now why I don't name her) but as much as I adore her writing, if I want to read a book by her, I've got enough to keep me going.

Miranda Neville's latest romance, The Amorous Education of Celia Seaton, on the other hand, I bought for my Kindle at the agency price on the day it was released.  Yes, she's a friend online, but more importantly, I want to read it now.  Like virtually every reader I know, my TBR collection is too huge for it ever to be a true statement that I need any book.  But in this case, I want that book enough to pay the agency price.

The number of books that fall into that group of "I want it enough to pay the agency price" is small.  And yes, I would buy more books on their release dates if they were discounted.  That's what I mean about moving the goal posts: all agency pricing does to affect my buying habits is make my Kindle purchases (purchases that result in royalties for the author) fewer in number.

Which is pure Economics 101 (demand goes down when the price goes up), and why I'm convinced publishers lack opposable thumbs or some other indicia of higher intelligence.  If the release day price for an ebook reflected the actual savings in producing that ebook (vs. the cost of getting a paperback into a physical store for me to buy), I'd undoubtedly buy more authors' books on their release days.

What I really don't understand is the statement online by some readers that they won't buy a specific book because the readers object to agency pricing.  Isn't that another way of saying, "I won't pay that much"?  I bet there is a book, at least hypothetically, that such readers will pay agency price for, despite their scruples.

Because at the end of the day, readers want what they want.  It's just that not every book is "wanted" enough to justify paying full agency price.
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5 comments:

  1. What I really don't understand is the statement online by some readers that they won't buy a specific book because the readers object to agency pricing. Isn't that another way of saying, "I won't pay that much"? I bet there is a book, at least hypothetically, that such readers will pay agency price for, despite their scruples.

    I'm one of those readers. I see these as two separate issues. I've blogged about how I stopped reading Agency books without consciously trying to do so, and that behavior is motivated by the price. But there are also readers who are not buying *any* Agency-priced ebooks, no matter how much they want to read them (they'll buy print, or used, or get them from the library). That's a conscious decision. If they buy a book, they're breaking that pact with themselves. The former is behavior shaped by the changed price. The latter is more like a boycott.

    As for publisher motives, there's evidence that publishers don't want readers shifting from print to electronic books, so driving up demand for e at the price of reduced demand for print is not in those publishers' interests. There's nothing violative of simple supply-demand rules there.

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  2. Sunita - If someone objects to agency pricing because they want publishers to provide ebooks at a cheaper price, boycotting individual titles in digital formats but then buying the book in paperback (particularly buying the book new) just feeds into the publishers' delusional thinking.

    The way publishers analyze the situation is that digital sales will drive down sales of paperbacks, so it's critical to price ebooks so that there's no advantage to buying it in digital. This is profoundly stupid for a couple reasons.

    First, digital books can't be "swapped," sold to a used book store, or even shared with a friend (not easily, at least). If, hypothetically, a substantial percentage of a title's sales were digital -- say, 60% -- then there would be so many fewer paperbacks around for people like me to acquire them used. That results in greater numbers in sales, not fewer. I'm not entirely sure why publishers haven't twigged to that detail but it would appear they haven't.

    Second, an argument can be made that pricing a digital release independently based on the usual calculus (i.e., wholesale cost + markup = appropriate price point for actual sale, which is the "list price" less any discount) is going to result in an ebook price so attractive relative to the simultaneous release of a hardcover or trade paperback that those more expensive formats will lose too many sales to be as profitable for the publisher. I think they'd be surprised at how resilient hardcover and trade sales would be.

    But agency pricing for simultaneous release of a mass market paperback and the ebook just makes no sense. Price the ebook on its own: what does it cost to produce it and get it into readers' devices, add your markup, factor in the discount at point-of-sale and you have your price. I don't know what that price would be on a $7.99 paperback, but it wouldn't be $7.99. See how many you sell. See how many fewer MMPB units you sell. Crunch the numbers and adjust upwards or downwards.

    I swear Chicken Little is running the Big Six publishing houses -- the sky is perpetually falling in their offices.

    But for readers to boycott agency pricing only adds more artificiality to an already confused situation. If a buyer would buy the ebook for $7.99 because a) they want the book on their e-reader or b) that works out to be less than the cost of driving to the big box store to get that book, but they don't buy it because of this pact they've made with themselves, they're really just giving publishers more excuses to put a thumb on the scale when it comes to setting the price for ebooks.

    What a truly determined reader would have to do to make her anti-agency pricing point is track ebooks with agency pricing, wait until the price drops for whatever reason, and then buy the ebook. Of course, that could take years, and by that point the reader has probably acquired the book some other way.

    This isn't a politically motivated boycott -- we're not talking about a company using underage labor or palming off substandard goods in third world countries. The agency price boycotters are trying to tell publishers to rethink their calculus for pricing ebooks. The only thing that's going to work is ridiculing publishers' antiquated thinking -- something blogs like Smart Bitches and Dear Author are doing quite nicely -- and providing accurate sales data to show publishers they're going to sell X units of ebooks at agency pricing and X+Y units at a more organically calculated price. Suppressing sales artificially doesn't help because publishers are too stupid to see the data the way the boycotters intend.

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  3. If someone objects to agency pricing because they want publishers to provide ebooks at a cheaper price, boycotting individual titles in digital formats but then buying the book in paperback (particularly buying the book new) just feeds into the publishers' delusional thinking.
    If there were a 1-for-1 substitution of print for e, then definitely. I think most people who do this are either borrowing from the library or buying used.

    ... I think they'd be surprised at how resilient hardcover and trade sales would be
    They're not showing resilience now. Hardcover sales are falling along with TPB and MMPB. (http://bit.ly/qNQQPM)

    What a truly determined reader would have to do to make her anti-agency pricing point is track ebooks with agency pricing, wait until the price drops for whatever reason, and then buy the ebook. Of course, that could take years, and by that point the reader has probably acquired the book some other way.
    As you say, showing this for Agency books will require Agency prices to drop. Which so far they haven't.
    What *has* happened is that Kindle sale books, non-Agency books, and $0.99-2.99 books are selling well. You don't have to show Agency publishers by not buying their books as the only tactic; you can also provide information by buying cheaper books. Readers are doing that, and at least one Agency publisher has joined the Amazon Kindle deals program. Readers substitute books. Over time, if they keep doing this, publishers will notice. Unfortunately the authors who are most likely to be substituted are the midlist ones I enjoy. That's why I'm ambivalent about a boycott.

    This isn't a politically motivated boycott -- we're not talking about a company using underage labor or palming off substandard goods in third world countries.
    I'm not sure what you mean by this point; boycotts don't have to be about political-institutional issues. They can be about whatever consumers care about. What Ridley is doing is definitionally a boycott.

    The only thing that's going to work is ridiculing publishers' antiquated thinking -- something blogs like Smart Bitches and Dear Author are doing quite nicely -- and providing accurate sales data to show publishers they're going to sell X units of ebooks at agency pricing and X+Y units at a more organically calculated price.
    I'd love to think that ridicule would shift business behavior but in my examination of the topic, it only shifts it when ridicule can be directly connected to reduced revenues. As for the other, I agree that data are important. The Lost Book Sale website and the regular publication of sales data by PW, etc., are already in place. Everything else is just anecdotes, and those only work as part of a critical mass of similar information. No single person can effect this, any more than an individual decision to boycott can effect policy change.

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  4. My point about the sales data being too confusing for a boycott of agency pricing to be effective is this:

    If you buy Ebook X for $2.99 and forebear from buying Ebook Y for $7.99, publishers will look to see what else is different about those two books: author? original date of release? subgenre? publisher? Difference in price will be their last hypothesis, particularly if they have a vested interest in supposing that agency pricing is in their overall interest. And the data will always be too confounded to make it clear that price was the only factor in the reduced sales.

    But if Ebook Y is priced at $7.99 on its release date, then -- some months or years down the line -- reduced to $2.99, at which point a whole lot of people buy it, well, presumably the price is the only thing different and therefore the reason for the increased sales. (Leaving aside all sorts of complicating factors like news about the author, etc.)

    So, if boycotters eschew the $7.99 price point but wait and buy in at the $2.99 price point, maybe that will show up as evidence that agency pricing is suppressing sales.

    But all of that presupposes that anyone is analyzing sales data in ways that reflect the best interests of readers as opposed to seeing the data as supporting what publishers most want to believe.

    I suspect more executives at publishing houses are English Lit majors than MBA grads -- and the old ways of doing things are the right ways of doing things, just because. And being English Lit majors, they can ignore the sales data entirely while having a spirited discussion about who coined the expression, "Lies, damned lies and statistics," Mark Twain, Benjamin Disraeli, or a player to be named later.

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  5. Hm, interesting. I'm one of those people that WILL NOT pay $8 or $9 for a mmp, and I sure as heck am not going to pay that for an eBook. Ebooks $4 or under seems reasonable; mmps at $5 or $6 also seems reasonable. But paying almost ten dollars for a mmp is ridiculous. I'll wait for them to either be acquired by my library or wishlist them on paperbackswap.com if I want them that badly. But in most cases I don't care; there are a lot of books in the metaphorical ocean and I'll read one of the other ones, tyvm. I don't consider it a boycott for or against eBooks (I actually prefer paper anyway), more like a "Well, it's sad, but I can't afford this anymore, so bye-bye."

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