Is Amazon Behind the Return to Agency?

Mike ShatzkinIt was widely assumed that when the Big Five (and later other publishers) secured agency ebook contracts in  late 2014 and 2015 that the publishers had pressured Amazon into giving up control of the retail price of the ebooks.

According to Mike Shatzkin, that isn't the case. Yesterday he posted this on his blog:

One powerful literary agent, who is inevitably informed by publishers about negotiations that affect the selling prices of ebooks (which, in turn, affect the author royalty), tells me that I have the whole motivation thing on agency backwards. It may have started six years ago as a way for publishers to control the prices of ebooks across the supply chain, so something they were “imposing” on Amazon. But that turned around. It became a way for Amazon to guarantee that they would get a full margin on all agency publishers’ ebook sales (because publishers could lower the ebook price, but the stipulated agency percentage would not be affected). So, in the recent negotiations, the big publishers had no choice about sticking with agency. Amazon insisted that they stick with agency.

The grapevine, although not this agent, also says that the original 70-30 split of revenues that agency began with has been revised in the recent contracts so that Amazon gets a wee bit more than 30 percent. I can’t verify that although, in time, agents should be able to see that picture clearly.

Some might find it hard to believe that this secret could have been kept for fourteen to fifteen months. (In fact, one plausible alternative proposed over at The Passive Voice is that this was propaganda designed to lay the groundwork for the publishers reversing their position on Agency pricing.) This detail is so juicy that I myself had trouble believing it, but as it sank in the idea began to make more and more sense.

I wouldn't go so far as to say that Amazon "insisted" on agency (that sounds like self-excusing prevarication on the part of Shatzkin's source).

But I do think Amazon was in favor of the idea.

No one is talking publicly about those negotiations, so we really only have supposition to go on, but this revelation would explain why, for example, HMH secured an agency ebook contract in July 2015.

When I broke the news in July that HMH had, after five years finally gone agency, I couldn't understand why they would want to or why Amazon would go along. Amazon being Amazon, you would think that they would fight to the death to keep the option of cutting their ebook margins as thin as possible. Instead, they let HMH go agency (or actively pushed the idea, we don't know).

Furthermore, Amazon has cut agency deals with other publishers, including Kensington. Steven Zacharius, the CEO of Kensington, announced the news in the comment section of Shatzkin's post. And I can confirm that several titles in the Kindle Store are now showing that the price was set by the publisher (the same titles were not saying that as recently as November 2015).

So yes, Amazon is happy to give every publisher who asks an agency contract. Heck, they may even propose it at some point in the negotiations.

But why would they?

Sure, Amazon can only fight so many battles at once, but HMH was a battle that Amazon intentionally chose to lose. Or did they?

The obvious answer would be that Amazon is taking the wider view in letting the publishers hurt their own ebook sales, thus shifting those publishers' sales back to print. This maneuver would hardly impact Amazon's share of the ebook market while also boosting Amazon's share of the print market.

I personally think that goes a little too far towards conspiracy theory, but it is not out of the question.

Thoughts?

About Nate Hoffelder (11579 Articles)
Nate Hoffelder is the founder and editor of The Digital Reader:"I've been into reading ebooks since forever, but I only got my first ereader in July 2007. Everything quickly spiraled out of control from there. Before I started this blog in January 2010 I covered ebooks, ebook readers, and digital publishing for about 2 years as a part of MobileRead Forums. It's a great community, and being a member is a joy. But I thought I could make something out of how I covered the news for MobileRead, so I started this blog."

21 Comments on Is Amazon Behind the Return to Agency?

  1. Although I hadn’t hit on this at the time I wrote my own post on the matter, on TeleRead, it seems reasonable that Amazon might change its attitude over time. It no longer needed the $9.99 loss-leader pricing once everyone and his sibling had already bought Kindles. And having the excuse of it being the publishers who ostensibly wanted to charge more money just made Amazon come out smelling like even more of a rose. “Sorry, guys, we tried, but the publishers insisted. Blame them whenever you see ‘this price was set by the publisher’ on one of our e-book listings. But hey, have you noticed how cheap all our self-published e-books are?”

    Terribly clever, if you ask me.

    • Hey, Chris. I am confused over this agency business. And is it related in anyway to Amazon’s suggestions as to what my e-book should sell for based on percentages of sales verses royalty percentages?

  2. In addition to “forcing” agency on the big publishers, is Amazon also forcing them to raise ebook prices over print prices?

    • Nope, but Amazon’s the one dropping print prices below e-book prices, because Amazon has the ability to discount print books. If Amazon sold the print books at the publishers’ “suggested” retail price, they would be more expensive.

      • Good point. But the crazy high prices the publishers set for ebooks creates the main problem. Yet you’re right. Amazon might make it look all the worse by giving discounts on print. All of which both makes the publishers look bad to customer while continuing to allow Amazon to undercut their other print distribution channels.

        Hoisted on their own petard comes to mind.

  3. As I have written many times, blame not Amazon for truly Amazon is your friend — not!

    To me it makes sense (and always did) that Amazon would want agency pricing once, as Chris notes, it was essentially the only major ebook player remaining (few of us would call B&N a major player any more in the ebook market). Agency pricing does two things for Amazon that it desperately needs: (1) it eliminates competitive pricing, so no resources need to be assigned to combatting lower pricing in the ePub market — it allows the Kindle platform to dominate; and, more importantly, (2) it assures Amazon desperately needed profit. If you can’t buy the ebook lower anywhere else, why not buy at Amazon.

    Amazon spent years getting consumers to prefer shopping at Amazon and once that was locked in, the shift to making a profit was a natural progression. This locked-in experience is what allows Amazon to increase the cost of Prime and raise minimum shipping.

  4. If this is true that Amazon wants Agency pricing, I think we should all go Kobo and buy no eBooks from Amazon.

    • The problem with saying Amazon “wants” agency is that only part of the ebook market is locked down by agency prices, and that Amazon is not trying to force agency on the rest of the market.

      • During the Hachette catfight Amazon argued for lower consumer pricing while Hachette and its supporters insisted on no-discount Agency. When Amazon agreed to Agency deals where their cut started at %30% and went higher with higher ebook prices, Hachette and their apologists celebrated it as a victory for them and promptly raised prices above Amazon’s publicly recommended baseline.
        So I see no evidence that Amazon forced anybody to no-discount Agency. (Remember, the issue wasn’t Agency, it was and always has been the discounting: the big publishers want european style fixed prices and Amazon champions american-style dynamic pricing.)

        I see some evidence they (in effect) said: “what you want is going to reduce my sales and profits so if you really, really want that you have to increase my cut to compensate for my lower sales”. And the BPHs (and their followers) eagerly agreed.

        The dirty little secret of the entire price fix saga is that Agency has been good to Amazon and delivered entire swaths of the market to Amazon for free (neutering interoperable epub, foreclosing the US market to hardware-only ereader vendors, killing the small and agile ebookstores, enabling the mainstreaming of Indies…) and doing so in a way that makes Amazon antitrust-proof.

        Just because the BPHs might have finally realized they royally screwed up six ways from sunday and now want to spin it to shift the blame (and one third-hand account is hardly proof they have learned anything) doesn’t negate the public record that they were the ones who fought tooth and nail for Agency.

        Amazon’s hidden motivations are irrelevant: it doesn’t matter if they truly preferred wholesale or agency. The BPHs were the ones publicly demanding no-discount contracts and the ones who raised the prices. They loaded the gun, aimed it at their feet, and pulled the trigger.

        Only the ADS-addled can now blame Amazon.
        But there is no shortage of those…

    • Kobo won’t get any of my money until they drop their appeal of the Canadian price fixing settlements as determined by Canada’s Competition Bureau. I did do a quick internet search and was not able to find any recent status information so I don’t think there is anything new to report but maybe Nate has some info.

  5. I don’t buy it. Amazon never sold print at suggested retail. Without Agency they were Quickly running Barnes and Noble and Kobo off the field. Neither could compete with a company that could afford to give away so much margin to cement market control.

    Remember that Amazon publicly pleaded with e-book buyers to write Big5 CEOs about pricing. At the time consumers where more concerned with getting big name author titles as soon as they came out(remember all the talk about hurting authors?) than keeping low prices. Most of us did not anticipate this wave of 14.99 madness.

    JS Wolf…think about this…Kobo needed agency just to be in the ballpark of Amazon. I think we might be talking about them dying the slow death that Barnes and Noble seems to be without Agency. The pricing difference before Agency was incredible…It still is on many Indy books…take some time and do price comparisons.
    Examples that I just looked up:
    The School of Greatness Amazon 12.99 Kobo 16.79
    The Compound Effect Amazon 9.03 Kobo 12.79
    You Are A Badass Amazon 8.59 Kobo 12.79
    These were just three books I picked in a category.

    My guess is the book The Battle of 9.99 is close to the truth about the first Apple /Big6 Agency collusion. Of course the latest Agency agreements were Negotiated…The Big 5 did not just get everything they wanted…if Amazon had to make these agreements they were going to get something. I expect that they would pursue getting their 30 percent cut at all price points. I doubt that The Big five are Forced to charge 14.99! I still believe they choose to in order not to undermine print. Just because they price the ” cost” of books at an arbitrary amount for Amazon,Barnes and Noble etc. does not mean these ebooks have an actual cost anywhere near those amounts. The Big 5 was making money when Amazon was selling at or below their cost, Amazon was not.
    Remember Simon and Schuster CEO Carolyn K. Ready’s Book Industry Study Group comments about pricing?? I believe they got close to what they wanted and Amazon made the best deal they could on percentages that they could…they are a business.
    In short I still believe Amazon wants more ebooks sold and they think lower price is they way to go. If they are going to be stuck with Agency, they will make the best of it. They are great at understanding the vast amount consumer data at their disposal. I am sure that they will take advantage of the high prices of Big 5 books to push their other initiatives such as Amazon imprints, Kindle Unlimited etc.

    • Amazon may not want to run B&N and Kobo off the field.

      Having competitors is useful. It keeps the anti-trust people off your back. It provides the opportunity to undercut them, and look good to your customers. It keeps your own people sharp. It keeps your suppliers in check, so they can’t raise prices on you, or shrink your agency margins.

      Amazon very well may want to have viable competitors, just not too viable. And so far, none of Amazon’s competitors have really had a chance of going after Amazon, and Amazon has really had to do anything special at all to eliminate any of the competitors that have fallen by the wayside (the BPHs have done ALL of the dirty work on that).

    • My proposed reasons for Amazon’s attitude towards book competitors have a caveat: none of Amazon’s real competitors are selling anything other than books.

      I’d expect Amazon’s attitude to change if either B&N or Kobo became a serious competitor in the non-book arena.

  6. On reflection, in their public statements during the Hachette dispute, Amazon was arguing for lower prices, but not specifically for wholesale pricing. Amazon might have only been pushing the publishers to take a much lower cut under agency anytime they priced above $9.99, just as they do for KDP.

    They were not arguing for the right to discount in their public statements, but for the overall benefits of lower prices. And the math they used to justify their assertion that lower prices were better still showed Amazon receiving 30% on the lower priced ebooks which is consistent with agency pricing. If those lower prices were supposed to be the result of discounting, then Amazon’s share would have been lower.

    I do not know what actually happened, but it does seem possible that at some point in the negotiations, Amazon decided to stop fighting for wholesale pricing, and instead started pushing for agency with higher percentages on high priced ebooks as the means to lower ebook prices. And that appears to be what Amazon got in the end. The question is: did they actually end up deciding in the process that was the best possible outcome for them and so pushed the publishers in that direction?

    In any case, the final outcome does seem to be a pretty good deal for Amazon, given their dominance of the ebook arena. It might explain some of why the publishers seemed to accept a deal that so obviously turned out to be better for Amazon than a deal that allowed discounting.

  7. Puzzled’s Law: At every opportunity, the BPHs will actively pursue policies that will harm themselves and advantage Amazon.

    • They have been doing a good job. The only others hurt are readers. I wonder when if the Big 5 will come to the conclusion that their market share and market power has imploded and decide to change course…Will it be too late??

  8. This is funny. The best part is that people like Mike Shatzkin are now saying that it was Amazon, not the publishers that truly wanted agency pricing. I know that my memory may not be the greatest but I do think I recall this to be the other way around, the publishers wanted full control of their ebook prices.

    They now have that and they can still find fault with Amazon.

    If their sales are diminishing, it is not because of Agency or Wholesale pricing. It is because of pricing. I wish I could find the video again but it has been removed (http://www.booknetcanada.ca/lessons-learned-from-short/) where Michael Tamblyn (Kobo) was kindly telling us that 9.99 was THE price point and anything above that was ‘The barren rocky plains of publisher wishful thinking’, then he went on to say something along the lines that ‘we may as well try it’. That is, to raise ebook prices. That was all part of the push to get all retailers to go to the Agency model, therefore, with no other choice, we would have to accept the higher prices.

    I used to buy some ebooks from Kobo at that stage, but when Tamblyn came out with a push to charge ME more, he never saw anymore of my money.

    So, do the publishers want to go back to wholesale pricing? Allowing Amazon to undercut most ebook retailers, would hurt Kobo and others (again).

  9. It’s been my assumption, and I could be completely wrong, that Amazon based its decision on a long-term analysis of ebook prices as a driver of sales. Amazon has more data than even the publishers on what readers are willing to pay for an ebook, and the precise point where the reader will not buy. Knowing you make more money by selling more units at a lower price, Amazon may not have cared that much if the publishers wanted higher list prices. For one thing, Amazon doesn’t rely on books at all for profit. And Amazon moves more ebooks at the lower price point, which indies are rapidly taking over. As the Big Five’s percentage of ebook sales drops, maybe Amazon thought, “give them enough rope; I’ll make plenty on ebooks either way.”

  10. Amazon has consistently showed itself 1. more concerned for happy customers and 2. savvier in the digital age than trad publishers. So, yeah, I can believe that after the long Hachette negotiations, it decided, “Fine, give em what they want and watch the money roll in for us.”

    I used to spend 5K a year on trad-pubbed book. I see the prices they put on ebooks now and, sorry, it’s a no go. I spend less than 800 a year now, and I joined KU to read as much as I want for 10 bucks a month. And it’s time to dust off my library card.

    Many books I really wanted to buy over the past year, I have not. The prices on trad ebooks are nuts. So, I wait. Because all I have to do is wait a year, or two, and that 12 dollar ebook will either go on sale at some point (either because it’s the first of a series or because they want to push it before a new one by the author comes out), or a used version will be there for a buck (or less).

    As long as they high-price my preferred format (digital), they aren’t getting my money. This girl is used to 7 and under ebooks, and prefers 5 and under.

    Times they are a-changing and what consumers are willing to pay for a good read is a-changing, too. When Amazon says consumers prefer less than X for e-reads, publishers should heed that. They know better than anyone.

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