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And the Anti-Anti-Trust Complaints Continue

Late last week The WSJ reported that the Department of Justice is considering suing the Price-Fix 6. Like I said when I covered it, it’s generally accepted that Apple and 5 of the major publishers conspired to raise ebook prices as part creating the agency model.

That bit of news has sent shockwaves through publishing, and ever since then various people have been criticizing the DOJ for even having an anti-trust investigation. Everyone knows that price fixing is wrong, but they would all prefer for the crime to continue rather than give Amazon the chance to dominate the ebook market again.

On Saturday Mike Cane penned the first post of what I have decided is going to be a new series on this blog. Mike disproved a couple of the more questionable arguments put forward by Scott Turow, the head the of the Publisher’s Author’s Guild.

I’m going to continue his work, and luckily for me there’s no end of end of topics.

Joe Wikert weighed in today. One of the arguments he presents has to do with publishers controlling their brands.

The agency model prevents brand erosion — Think of the premium products you’ve bought or admired. Oftentimes their prices are higher than most of the competition’s. What would happen if those prices were suddenly significantly reduced? Would those products retain the full value of their premium brand? Highly unlikely. And shouldn’t the owner of that brand have a say in what price is associated with it?

The problem with this  is that readers don’t think of publishers as brands. For the most part, readers don’t even know who the publisher is. Oh, SF fans know Baen, romance readers know Harlequin, and techies know O’Reilly. But that’s about it.

Ask me who published the ebooks on my ereader and I could not tell you beyond the trio mentioned above.  I know authors, series, and genres. But publishers don’t matter.

But let’s take that argument seriously for a moment. If publishers should control their brands then let’s take this to the logical conclusion. They should open their own ebookstores and sell direct. This would also eliminate any concern for Amazon to undersell them; they can price the books however they like.

It’s a good idea, but you and I both know that (with a few exceptions) it won’t happen. And that’s because the problem here isn’t prices, in spite of what everyone says. The real issue is that no one feels capable of competing with Amazon. If you don’t like how Amazon does business, fine. Start your own company and out compete them. This should be easy for publishers, given that they already control the content.

Do you know why the major publishers haven’t (and won’t) do this? It 's because it would involve learning a new business style, and the dinosaurs cannot adapt anymore. It’s far easier to hobble the fleet of foot than it is to compete.

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Eric March 12, 2012 um 8:48 pm

I think David Gaughran has the definitive evisceration of Turow’s BS letter.

The cynic in me has no problem with Agency pricing. It’ll just get the dinosaur publishers out of the way quicker so the lean and nimble and smart can get on with redefining book publishing.

Nate Hoffelder March 12, 2012 um 9:41 pm

It was a little long, I think.

Common Sense March 12, 2012 um 11:57 pm

One point you forgot to mention is that, in order to have their own stores yet still have access to the Kindle market, the publishers would have to sell DRM-free content, which is another thing they refuse to do.

They could ignore the Kindle market, but that would be ignoring a whole lot of avid readers. Readers who won’t want to purchase a new device just to read some publishers ebooks. And let’s face it, books are not unique products. One books isn’t exactly like another, but most people can be happy with alternate material in the same genre.

Mike Cane March 13, 2012 um 9:14 am

Access to the Kindle market depends on how long it keeps its grip on things. With over a hundred million non-Kindle devices out there — iPhone, iPads alone — whether a book is available in Kindle format or not still matter if their device can read ePub?

And if prices continue to drop for eInk devices, would someone be inclined to supplement their Kindle with a Kobo Touch or Nook Touch if the price was just US$49.00? — which is entirely possible by year’s end.

It’s becoming increasingly clear to me that the Kindle Fire was *not* an evolutionary move by Amazon. It was an act of desperation to counter erosion of the Kindle lock-in strategy.

Joe Wikert March 13, 2012 um 9:24 am

Nate, you’re missing the point that most publishers' strongest brands *aren’t* their imprint or company names but rather their series names, titles and authors. Those are the brands I’m referring to. So should the publisher of "Chicken Soup for the…Soul" sit idly by while a retailer sells the series at fire sale prices? I don’t think so.

Nate Hoffelder March 13, 2012 um 9:46 am

But retailers already do exactly that with the paper copies. Check B&N and you’ll find most of that series available for 26% off (the Nook price is even lower).

I see no reason why the ebook market should be treated any different.

Joe Wikert March 13, 2012 um 9:57 am

There’s a huge difference between 26% off and more than 50% off, which is the discount that a final price of $9.99 works out to be. It’s the same as my point about offering a loss-leader sale on milk for a day or two but not losing money on every product every day. It’s also important to note that when B&N sells a book for 26% off they’re not losing money on the transaction. In fact, oftentimes the publisher shares that markdown with the retailer. You need to look past the surface on this issue and consider all the factors involved.

Mike Cane March 13, 2012 um 10:21 am

>>>There’s a huge difference between 26% off and more than 50% off, which is the discount that a final price of $9.99 works out to be.

It’s funny how this usually comes up to protect an incompetent industry.

Really, do you think the average person knows WTF a "remaindered" book is? No, but they see that *more than 50% off* price anyway and wind up feeling that the cover price is a gouge. Go into any B&N, see the remaindered tables. Why no complaints about how *those* "erode" the "value" of a book? Just stop.

Joe Wikert March 13, 2012 um 10:30 am

Mike, you do realize those remaindered book areas are often *shared* markdown deals where both publisher and retailer agree to the discounts, right? And in those cases both parties are simply trying to unload physical inventory. I don’t see the correlation between unloading physical inventory that’s not going to sell and losing money on the sale of almost every ebook, where there is no inventory.

And, FWIW, I see remainder-like areas in plenty of other retailers, not just bookstores. My first impression is the same as it always has been: Here are a bunch of products nobody wants at their original price. Maybe I’ll find something I like at a deep discount. There’s a huge difference between a bin that has those products and the rest of the store where prices are high enough on everything else to generate a profit.

Do you honestly believe Amazon will continue selling Fires and ebooks at a loss forever? Really?

Nate Hoffelder March 13, 2012 um 10:56 am

In that case Joe, what about the hot HC books getting marked down by 40% the week they come out? I’ve seen B&N and BAM! do this, and I don’t recall any publisher trying to stop them.

Nate Hoffelder March 13, 2012 um 10:57 am

The difference is only a matter of degree. And from the reader’s viewpoint, it’s a small one.

Joe Wikert March 13, 2012 um 11:03 am

You again have to ask yourself if (a) was the publisher involved and sharing that markdown?, (b) is it a discount that lasts forever like the Kindle $9.99 ones, and (c) are those 40% off deals at a loss and almost all the other titles in the store are also being sold at a loss? I suspect the answers are (a) yes, publisher was probably involved, (b) no, the discount won’t last forever and (c) of course B&N and BAM aren’t selling the majority of their products elsewhere in the store at a loss. You’re picking just one data point and trying to extrapolate it but you need to look at the whole picture.

Nate Hoffelder March 13, 2012 um 11:15 am

As a reader, no, I don’t have to ask. This is a marketing issue (we’re talking branding here), and if I cannot tell the difference (a markdown is a markdown) then there might as well not be one.

And Amazon’s old pricing policy is actually more complicated than you make it sound. Yes, they created the idea of the $9.99 ebook, but not everything was sold for that price, nor did they markdown every title to the point that they lost money.

Peter March 14, 2012 um 6:24 pm

If I remember the 90’s correctly- publisher’s were never too happy about B& N’s discounting either. They even made a Tom Hanks movie about it.

Loss leadership has ALWAYS been considered a negative externality by publishers.

But with physical books, the "right of first sale" meant there was nothing that publisher’s could do to stop it. Loss leader retailers could simply sell used versions of the book at a loss if publisher’s wouldn’t let them sell directly. With ebooks, used books cannot be used as an end around, and the agency model becomes possible.

It makes a lot more sense when you think about it in terms of supply and demand.

When Amazon, Barnes and Noble, Independent bookstores, Walmart, etc. make physical books available for sale, they have to order inventory in finite batches. Additionally, they must make upfront investments in order to increase distribution capacity. That means that they need the ability to vary prices in order to make supply (at their particular store or warehouse) meet demand (at their particular store or warehouse). Retailers may abuse the wholesale system with the intentional use of loss leadership from time to time, but at least there’s a reason for the system to be the way it is in the first place. If your local bookstore priced everything the same as Amazon, they’d be permanently out of stock!

Ebookstores, on the other hand, have no "supply" of ebooks to manage, and even the smallest ebookstore has a virtually unlimited distribution capacity, therefore they don’t have any reason to be mucking about with the price. Publisher’s and author’s can make the case that they don’t really have an infinite supply, since in the long run selling more books requires writing/editing/producing more books, and thus they do need to vary prices. Loss leadership with ebooks is an abuse of a system that makes no sense to begin with.

Nate Hoffelder March 14, 2012 um 8:33 pm

deep discounting books started in the 1970s.

fjtorres March 13, 2012 um 3:31 pm

Consumers don’t care about *where* the discount comes from or who "approved" it.
They do care *where* they can get those discounts: Half-price Books, the now-gone Borders Outlets, Amazon…
It should be no fracking business of publishers what a consumer pays, as long as they pay.
If publishers are *that* concerned about consumer relations, then they should set up their own consumer retail operations. But no, they want to have it both ways: have somebody do all the work of selling, while they get to sit in their glasshouse towers calling all the shots like tinpot dictators.
Sorry. Not *this* century.
Those days are over.

Mike Cane March 13, 2012 um 7:17 pm

"Pricing is hard. Let’s denounce the piracy we create instead!"

As both Nate and fj pointed out, no one gives a damn about the mechanics of how the discount got there. And if publishers can figure it out for lumps of paper, it should damn well be easier for *files* that are effortless to reproduce (note I said reproduce, not create) and that guarantee they will *never* be shipped back for pulping.

And if "no one wanted" these books to begin with, why the hell do they sell when *discounted*? THAT is the damn question to begin with. THAT, and nothing else.

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