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Breaking News: Agency Price Controls Reduce eBook Sales

5573381914_2d2ed9a224_bThere’s still no proof that Amazon is behind the return to agency, but evidence continues to grow that publishers have shot themselves in the foot by taking control of their ebook prices.

PW noted last week that three major US publishers have reported declining ebook revenue.

E-book sales at HarperCollins fell 23% in the quarter ended Mar. 31, 2016, compared to a year ago. HC CEO Brian Murray attributed the decline in part to extremely strong e-book sales ofAmerican Sniper and the Divergent trilogy in 2015. He also noted that sales of print books have been up for the first nine months of HC’s current fiscal year (which ends June 30) compared to the same period in fiscal 2015. Murray said the market seems to have found an equilibrium between print and digital sales, which he believes is a healthy thing. For the quarter, revenue at HC fell 10.9% and EBITDA (earnings before interest, taxes, depreciation, and amortization) declined 35.7%. Murray expects results in the fourth quarter to improve.

First-quarter e-book revenue at Simon & Schuster was down slightly in the quarter, CEO Carolyn Reidy said, but sales of digital audiobooks were up by double digits. Reidy said she believes e-book sales will finish 2016 down modestly, while sales of digital audiobooks will post a solid gain. Overall, Simon & Schuster had sales of $145 million in the quarter, flat with the same period in 2015. The company did manage to boost profits by $1 million. S&S’s children’s division had a strong quarter, with sales up 23%.

Revenue at Houghton Mifflin Harcourt’s trade division dropped 6.8% in the quarter, and its loss increased compared to the first period of 2015. HMH blamed the revenue decline on lower e-book sales as well as a drop in e-book subscription revenue. The decline in e-book sales was attributed to fewer movie tie-ins. Sales of cookbooks were up.

Isn’t it funny what happens when a non-retailer tries to control the market price?

Sales apparently go down. Now who could have predicted that?

I am exaggerating, of course, but the fact remains that the best outcome these publishers can report is that their revenues held steady as paper book sales replaced ebook sales. And that’s just S&S; the other two can’t even report breaking even.

Do you suppose Amazon is letting this happen as an object lesson, or are larger trends and market forces at play?

image by Phil Roeder

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Maria (BearMountainBooks) May 11, 2016 um 1:07 pm

Is is pricing? Or a declining economy or a mix of both?

Fjtorres May 11, 2016 um 8:01 pm

The economy has been lousy since 2008.
It was lousy as ebook sales boomed in 2008, 2009, 2010, and all the way through, ahem, 2014.
Correlation is not causation but the correlation shows that as each BPH switched to Agency part Deux their ebook sales declined while the sales of the BPHs still on wholesale didn’t. That may not be a smoking gun but it definitely smells like gunpowder residue.

Liz May 11, 2016 um 2:13 pm

Well duh? Of course they are losing money hand over fist with agency pricing. No one wants to pay $15.99 for an ebook. The real question is, will they learn from this and discard the agency model?

Anne May 11, 2016 um 3:47 pm

They don’t even have to discard the agency model. They just have to price them at something where enough readers/buyers consider it a reasonable buy to offset the reduction in pricing.

Amazon supposedly showed them unit sales at different price levels during the last round of negotiations with $9.99 being the sweet spot and yet they continue to overprice (IMO) digital. I also suspect they get lower than the usual 70/30 split on pricing over $9.99 based on the "incentives for lower pricing" remark made by Amazon whenever an agreement was reached.

As Markus Dohle of Random House said about agency pricing back in 2010- "We’ve got to think very hard about whether we want this drastic change in our business model," he said. "The question is if publishers know how to find the right retail price… This hasn’t been our job in the past."*

Well, it’s been RH’s job since 2011 and the price fixers since 2010. IMO, they’re still not doing a very good job of it. I don’t think these guys understand the retail digital market or maybe digital anything. DRM? Geographic restrictions? I personally find those to be as ridiculous as their pricing decisions.

Anyway, I’m not sure that Amazon cares any longer. I suspect they will continue to push for lower prices with these guys but I wouldn’t be surprised if the indie market and KU is rapidly accomplishing what they want for revenues and margins.


Fjtorres May 11, 2016 um 8:10 pm

The funny part is that to get pricing back to pre Agency Part Deux pricing they have to cut prices on their end so the "discount" comes out of their pocket, not Amazon’s. That would leave them reporting a decline is gross dollar volume which would make their HQ overlords very cross. Not going to happen soon. (Which is a good thing.)

But you’re right.
2016 isn’t 2010 in that Amazon isn’t all that dependent on BPH titles for ebook sales growth. Plus, under stupidity Part Deux, Smazon gets a bigger cut of the higher prices so their profit is probably not affected all that much by the decline.

On the other hand, lower BPH unit sales leaves room for smaller tradpubs, Indies, and APub. All worthier recipients of our money. The end result will be a healthier trade book market that isn’t dominated by foreign multinationals.
Let them sink.

Frank May 11, 2016 um 3:57 pm

I have purchased fewer ebooks because 15+ bucks for a work I don’t even own is too much. I have recently bought paper copies of some books because it was a lower price compared to the ebook.

Diane May 11, 2016 um 5:12 pm

My spending is mostly on Book Bub and other sales. I’m reading the over $10 books via Overdrive and my local library. The whole agency price thing has generally meant that now I check availability at the library before I decide if I want to buy a book. Mostly I now decide on waiting for library availability even if in the past I would have considered a book as reasonable priced.

Geoffrey Kidd May 11, 2016 um 7:07 pm

Gee! Who would have thought that raising prices would cut down sales? People will ALWAYS pay what they’re told to, won’t they? 🙂

Gary May 11, 2016 um 8:45 pm

I have to agree with several previous posters. The title of this article "Agency Price Controls Reduce eBook Sales" is not really correct. It should read "HIGH Agency Price Controls Reduce eBook Sales".

I also disagree with the statement in the first paragraph above that "publishers have shot themselves in the foot by taking control of their eBook prices".

I believe that the senior executives of the big publishers considered all of their options and coldly and deliberately increased the prices of their ebooks with the deliberate intention of reducing eBook sales and increasing sales of paper books. Since they have achieved EXACTLY what they wanted to achieve you can’t really call it 'shooting themselves in the foot', or at least not yet.

Now I think that this is a poor decision on the part of the big publishers, but I also accept that they know their business much better than I do. We will all see how it turns out in about 10 or 15 years. If the big publishing houses are still around and still dominate the industry in 2030, then maybe they were right all along. If they have been pushed out of existence by smaller, and more agile, online-only publishers, then they were wrong.

Either way, it doesn’t really matter to me. Authors will still create stories and write them down; the stories will still be offered for sale; and I will still buy the ones that interest me. Whether I by the stories from 'big publishing' or from the author’s online store doesn’t really matter.

Fjtorres May 11, 2016 um 10:08 pm

Uh, the big publishing houses don’t dominate the business today.
They are down to well under 50% of the trade business and a much lower fraction of total US publishing.
Even in a "boom" year like 2014 they weren’t close to dominating US publishing:

If anything, they are becoming big fishes in the shrinking pond of B&M retail. But with online becoming over half of pbook sales and ebooks at around 25% of all trade book sales (by revenue) they have already seen a big decline in market share and market power since 2010 and the first (illegal) agency age.

And all that is by the industry’s reader spend metric.
Going by unit book sales their decline started way back in the 90’s and is actually accelerating.
Read tbe AAP annual reports for the past decade and you’ll find that the BPH’s "growth" is strictly the result of mergers and reducing the number of cheaper mass market paperbacks published to force consumers to the higher priced trade paperback and hardcovers. And the windfall of booming backlist ebook sales in the 2012-2014 period. Now that they are doing to ebooks as they did to mass market paperbacks, ther unit sale decline has accelerated and started to impact their gross reader spend numbers.
That most definitely is a foot shot.

Here, check this:

Note how their aggregate numbers stay flat despite buying up a bunch of small and midsize publishers (Hyperion, Harlequin, Perseus being more recent ones not in that chart yet the more recent numbers are similar) and despite the arrival of ebooks.

Their may or not think they know what they are doing but what they are doing isn’t setting the stage for future domination. The kindest way I would put it is they are managing their declining years. Less kindly: they are accelerating that decline by trying to import european pricing practices into a market used to competitive pricing.

They try to spin the bad news and obfuscate by suddenly combining digital audio sales revenue with ebook revenue but a close look reveals the truth: they are a cartel in decline and have been for a long time. Agency pricing of ebooks is simply accelerating it.

Karl May 11, 2016 um 10:04 pm

"sn’t it funny what happens when a non-retailer tries to control the market price?"

Yeah, and isn’t it funny what happens when you charge as much or even more for an e-book than for a paperback, when anyone with half a brain cell knows that the e-book costs far less to produce?

People buy fewer e-books from you, and fewer books in general. Who wudda thunk it?

Fjtorres May 11, 2016 um 10:12 pm

They buy fewer of *their* books in general. Plenty of other publishers are seeing big ebook growth as a result of the BPH decline. Plus used book sales are booming.
If anything, readers are buying and reading more books than ever.
They’re just buying less BPH titles.

Mary May 12, 2016 um 9:46 am

When e-books were reasonable, I was buying most of what I read. Increasing the prices has sent me back to the library (both Overdrive and print) to read the more expensive books. There are some exceptions, digital books I buy because I love the author and want to own the book, and yes, I know that technically we do not "own" a digital book. But I am not buying these books in paper; that ship has sailed.

Richard Hollick May 12, 2016 um 10:49 am

Surely, the motivation behind agency pricing was not to increase sales: it was to regain control over pricing. Prior to agency Amazon was discounting e-book prices to below what they were paying for them, perhaps regarding their losses as a promotional cost for Kindle (?), and publishers fretted that the public would come to regard $1.99 as the "right" price for a book. That sales would decline was hardly a surprise. Whether this tactic by publishers turns out to be a good one remains to be seen. Obviously it’ll take some time for the memory of "the good old days" to evaporate.

Fjtorres May 12, 2016 um 11:46 am

The DOJ investigated Amazon pricing and debunked the notion that Amazon treated ebooks as loss leaders. What they found is that Amazon castaways made a profit off ebooks.

The BPHs instituted Agency to raise prices on consumers, even though they themselves made less net, because the industry’s primary metric is reader spend.

Fjtorres May 12, 2016 um 11:49 am

Stupid autocracy keeps turning itself back on.
(Castaways from has always?)

Amazon has always made money off ebook sales. Period.
It was a key point in the conspiracy trial.

Nate Hoffelder May 12, 2016 um 12:13 pm

It took me 20 minutes to figure out what "autocracy" was supposed to be. I can’t stop giggling.

Fjtorres May 12, 2016 um 3:55 pm

That’s why I left it in place.
It fits, doesn’t it?

Had to kill it twice this week.
It comes back randomly after silk crashes and hangs.
Silk *used* to be decent…
…then they improved it.

Muratcan Simsek May 12, 2016 um 12:47 pm

I wonder how this actually works? I pay much lower than Amazon with Kobo’s Turkish shop for the same books. Rarely they have the same price.

At least Kobo successfully destroyed geographic restrictions for many states, both legal and economic.

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