Don’t Be Fooled: Big Publishing Hates Competition

The reaction to the filing of the DoJ’s antitrust suit was laughable, if somewhat predictable.

Among other things, the DoJ has been accused of working for Amazon – helping them to “destroy the publishing industry.”

If you want to sample the mindset I’m referring to, simply visit the comments of any article on the matter in the trade press – such as this or this (although this vocal group are strangely absent from articles such as this one describing publishers’ (alleged!) attempts to cover up their actions by deleting emails).

I’m not sure when “the publishing industry” become exclusively synonymous with the largest publishers. I’m not sure when their narrow interests became everyone’s interests, because what’s good for Penguin isn’t necessarily good for writers, small presses, or indie bookstores.

The publishers named in the suit claim that Agency was/is necessary for competition. In Penguin’s statement released after the antitrust suit was filed, their global CEO John Makinson said “the agency model is the one that offers consumers the prospect of an open and competitive market for e-books.”

John Sargent, the CEO of Macmillan, said that his company “changed to the agency model [...] to support an open and competitive market for the future.”

These publishers may claim to be fighting the antitrust suit in the name of competition, but the truth is they don’t want competition at all. They just want the faux-competition between themselves that was the status quo before the digital revolution.

One of the reasons large publishers were desperate to switch to Agency – even to the point of (allegedly!) breaking the law – was they knew that Agency would lead to higher e-book prices.

In case there is any doubt about that, this was confirmed by Steve Jobs. In his authorized biography, Jobs says (and these words are repeated in the DoJ’s complaint):

We’ll go to [an] agency model, where [publishers] set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what [publishers] want anyway.

Why did the large publishers want higher e-book prices? Well, it’s simple. They were desperate to protect print sales and slow the changeover to digital (and to keep readers frequenting bricks and mortar bookstores for as long as possible).

I laid out that particular argument back in December, but, in case there is any doubt, let me quote from that piece:

Evan Schnittman – Bloomsbury’s worldwide MD of Sales and Marketing, Print and Digital – was speaking at The Bookseller’s Futurebook conference in London, when he said, “For every print book we lose to an e-book, we lose money.”

A few days before that, in an article in the New York Times on the recent spate of high-quality hardbacks from large publishers, Nan Graham – Senior VP and Editor-in-Chief at Scribner – said: “We hoped that a handsome object would slow the migration to e-book for [Stephen] King.”

In a print world, large publishers control distribution. They control (most of) the slots in chain stores, airport stores, box stores, and supermarkets, as well as the co-op therein.

In a digital world, they lose that control. There is less co-op, there is a level playing field for titles not from the large publishers, and, as a result, much more competition.

Be under no illusion, self-publishers and small publishers are providing stern competition. The inroads they have made onto the Amazon bestseller list are well documented. Indeed, as I have pointed out many times, if you drill down to the genres that went digital first, this phenomenon becomes even more apparent (a recent data mining survey showed that self-publishers had captured 66.1% of the Kindle Top 100 Science Fiction spots).

Once you understand this, it’s a lot easier to decode other statements.

When large publishers say that the discoverability puzzle hasn’t been solved online, they are really expressing despair at retailers recommending books not published by them.

When large publishers say that online retailers haven’t matched the experience of buying in physical stores, they mean that they wish there was some way to relegate all that horrid self-published work to the rear (or, preferably, the warehouse), and have tables out front piled high with Dan Brown, Jonathan Franzen, and Snooki.

When large publishers say they are coming together to form a community for readers to help them find great books, what they really mean is they want to limit the discoverability of new books to titles they publish.

They don’t want to be fighting for reader attention and dollars with a horde of small publishers and self-publishers (who keep their overheads low and can price cheaply). They pine for the pre-digital world where they had a lock on distribution.

In short, they don’t want competition.

And, while we are talking about the pre-digital world, we shouldn’t forget the large publishers actions in the 1990s where they illegally offered exclusive deep discounts to big retailers like Barnes & Noble, screwing indie bookstores (a practice that continues in other territories, where it is legal).

The reason for this favoritism is simple. Barnes & Noble plays the game. They reserve the spotlight (almost exclusively) for titles from large publishers. Those troublesome indie bookstores have a nasty habit of recommending books that Manhattan haven’t anointed.

When it suited large publishers to screw indie bookstores, they had no qualms in doing so. Now it suits them to shed crocodile tears for the fate of those same indie stores as much of book-buying goes digital. I’m sorry, but I call bullshit.

It also suits the narrow interests of large publishers to criticize Amazon – or, to be more accurate, to feed anti-Amazon stories to reporters (see comments), and then let their proxies endless repeat the same zombie memes.

The next time that large publishers, or their proxies, complain about “monopolistic” Amazon, remember the true reason for their hatred.

They hate that Amazon isn’t deferential, and refuses to hand over whatever co-op they want at whatever price they want.

They hate that Amazon won’t build them storefronts to obscure all those pesky books from small publishers and self-publishers.

They hate that Amazon is offering competition for writers’ content in the form of a viable self-publishing platform and progressive, author-friendly imprints.

They dearly wish that Amazon would be more like Barnes & Noble and remember their “place” in the traditional order (below publishers).

They dream of Amazon’s recommendation engine being more like that of Barnes & Noble, which is clearly tilted towards large publishers.

But that’s never going to happen.

Amazon will always recommend to readers the books they are most likely to buy – whoever published them.

Amazon’s system will even recommend a book by Scott Turow, or one published by Macmillan, over one published by their own imprints if they think that is what the customer is most likely to purchase.

This agnostic recommendation engine has, for the first time, created true competition. And the large publishers hate it.

Pricing Experiment

I want to give regular readers a heads-up. I’ll be conducting a pricing experiment with A Storm Hits Valparaiso this week. I’ve laid out my views on pricing here, where I stress the importance of experimentation.

I’ve tried all sorts of prices with this book, and have seen little difference between $2.99, $3.99, and $4.99. However, I’ve never tried higher, and if there is one genre that might be amenable to higher prices, it’s historical fiction.

As such, I will be trying out a new price point, $7.99.

I wanted to warn anyone that was considering purchasing the book to grab it now while I’m running a flash sale at 99c (price goes up Wednesday). UK readers can get it for 99p here, and those affected by the Surcharge, owners of other devices, or those who want a PDF, can buy direct from me for the same price.

Why have I cut the price if I’m going to test out a higher price point?

Well, after a great March, the book had been doing poorly in April, with only four Kindle sales (dwarfed, strangely, by paperback sales). I knew there was no point attaching a new price when the book wasn’t visible at all (it had slipped out to 200,000 on Amazon US).

To get it some visibility first, and thus truly test out a higher price point, I dropped the price to 99c on Saturday, which immediately brought it up to 25,000 in the rankings.

Then something amazing happened: the good people at Pixel of Ink featured the sale.

There is a serious lag on reporting at the moment, but that appears to have generated around 130 sales in 12 hours, catapulting me to #869 in the rankings (or so I’m told, I was asleep at that point!) before slipping back a touch.

I didn’t see it quite that high, but grabbed a few screenshots when it hit the Top 1000 (a first for me) and #30 in all Historical Fiction.

I’m going to let this sale run until Wednesday. I want to see how many sales I can chalk up, and if I can push the book higher, before raising the price. If you want to help tweet about the sale, please feel free to copy-and-paste the below tweet, or simply click to retweet this one:

Flash sale: A Storm Hits Valparaiso reduced to 99c for a limited time http://amzn.to/Aovwbm #histfic #kindle UK: http://amzn.to/Ap6jDW

In any event, I’m still waiting for Smashwords to push out my new $7.99 price to Barnes & Noble. If that doesn’t happen before Wednesday, Amazon will just price match back to $3.99.

Depending on how the next couple of days go, I may change the plan slightly, but the price will certainly be going up first thing Wednesday, and will likely stay that way for some time.

I will, of course, share how all of this goes. Happy Monday!

UPDATE (TUES NIGHT): 

It looks like the first part of the strategy was a success. A Storm Hits Valparaiso is up to #459 in the overall Kindle Store, and getting some hot front page action in Historical Fiction at #18.

This is way, way higher than I’ve ever been before. Plenty of screenshots have been taken. Mostly to prove to myself in a couple of days that it actually happened!

I plan to raise the price last thing tonight to $7.99. It looks like all the other retailers have that price, except for tardy Kobo, who still have $3.99. I’ll try and raise to $7.99 soon, but suspect Amazon will price-match Kobo.

And then we’ll see what happens.

About davidgaughran

David Gaughran is a 34-year old Irish writer, living in London, who spends most of his time travelling the world, collecting stories. He is the author of the South American historical adventure "A Storm Hits Valparaiso" and the short stories "If You Go Into The Woods" and "Transfection" as well as the popular self-publishing guide "Let's Get Digital: How To Self-Publish, And Why You Should."
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73 Responses to Don’t Be Fooled: Big Publishing Hates Competition

  1. What say you to the idea that if the agency model goes away, Indies will lose control of pricing? It’s been beneficial to me to experiment with price. It’s actually the only thing I have near complete control over. I’d be bummed if I could only “suggest” a price.

    It doesn’t matter to me that I’d still get a cut of my suggested, rather than actual price. Pricing can be used as a tool, and taking that tool away leaves me with no way to try and create visibility for myself. Remember the St. Patty’s Day Sale? Couldn’t do that any more. Bummer!

    • Hey Christine. Thanks for bring that point up, because there’s a lot of worry about it. The first thing is that the agency model per se is not what the DoJ have an issue with – rather it was certain aspects of how it was implemented by the five Agency publishers and Apple that they wish to do away with.

      Simply put, there is nothing to stop Amazon and Smashwords continuing to use the agency model with self-publishers.

      Now, they may decide to change the terms. If they do, we’ll deal with it and figure out a way to turn the situation to our advantage. You can’t beat thousands of people experimenting with different approaches and sharing results.

  2. We’ve seen Amazon’s recommendation engine, and analyzed the results.

    Amazon does:

    1.) Tilt the recommendation engine towards books published under their imprint, regardless of the star ranking.
    2.) Juice the engine for books enrolled in KDP Select

    What Amazon does with their recommendation engine is their business. What Apple and the Big Six do with pricing is theirs. Both methods influence buyer behavior: Amazon uses algorithms, Apple and the Big Six use pricing.

    The DOJ is on the wrong side of things here. The government should not interfere with commerce, and if it does, all should be equal held equally responsible under the law.

    • 1) Do you have any evidence for this? In what why does it tilt toward their books? And, what do you mean by “regardless of the star ranking”?

      2) The Popularity Lists (rather than Also Boughts or Bestseller Lists) are certainly tilted toward books enrolled in KDP Select (by counting free downloads as sales for the purposes of ranking on The Popularity Lists). I wrote about that here: http://davidgaughran.wordpress.com/2012/03/01/amazon-the-importance-of-popularity/

      I’m not sure if I agree with your laissez-faire attitude to this issue. You don’t think the government should interfere with commerce? Do you think children’s toys shouldn’t meet minimum safety standards? Do you think oil companies should be allowed to pollute at will? Do you think a group of manufacturers should be able to collude to force higher prices on customers?

      I don’t. I think the government should “interfere” if companies are preventing the free market from operating.

      • My books are enrolled in KDP Select and my sales have improved. I suppose that could be a sign that Amazon ‘juiced’ them. However, I have a friend, who writes a similar genre, has the same number of books in Select and they are also a series. She has done the same or more free promos as I have done so far. Her books have good reviews, my books have good reviews. By IndieBooks logic, her books should be doing as well as mine, but they aren’t. I wish they were because I think they are very good books, but for whatever reason, she can’t gain a toehold and Select has had very little impact on her sales.

      • Good point Mary. What I should have said is that Amazon often rewards books that have done very well on their free run by giving them (temporary) extra prominence on Popularity Lists afterward. I suspect Amazon’s justification would be something like those books should be recommended *slightly* more to (certain) readers as they have proved their attractiveness through thousands of downloads.

      • 1.) Yes, we do have data that shows it does. We can’t reveal it without saying some things we’d rather not. As far as star ratings go, they play a very distinct role in how much someone is recommended or not, as I’m sure you know.

        2.) Sorry, hadn’t seen that article…What is clear from talking to authors, is that their sales drop off after leaving the program. No, it doesn’t mean you can’t have a bestseller if you’re not in KDP Select. Your odds do improve drastically if enrolled.

        As far as “Also Boughts” that is more anecdotal, but we’ve noticed that the recommendations happen less once our friends come out of KDP Select. It has something to do with the free downloads, but we are HIGHLY suspicious that there is a little extra something extra added to the recommendation algorithm when your book is in KDP Select.

        In the affiliate program, if you search for certain keywords, Select books come up first. If a title is enrolled in Select, and you search through an author’s catalog, the Select title comes up first, even if it not the best seller or the highest rated.

        It was not information we went out seeking. Friends in the industry approached us with questions that were distilled down to: ” Hey, did you notice your sales fell off the day you left Select?” We’ve had numerous authors come to us with that question, and our answer, as illustrated by the charts is “Absolutely, positively, no doubt in our minds…that is what happened.” The reverse is true for books we just recently enrolled in Select.

        3.) As far as the book market goes, the Big Six and Apple don’t have a traditional monopoly on publishing. It would be different if there were not other outlets and other publishers to buy from. There are, and Indies have been great beneficiaries of their inflexibility and shortsighted thinking.

        Readers benefit from this backward way of thinking, as well. Regulation of something that can kill is far different from simply choosing another book to read.

        I should have clarified with “intervention”. Let me put it this way: I have a right to buy a chicken. If some dude is selling his chicken at $20 a lb., and I want to sell mine for $2 a lb., the consumer will eventually make the choice to buy my chicken instead. It doesn’t change the price or quality of my chicken.

        Consumers have changed their buying habits. It is only a matter of time until the major publishers are left in the dust. We’re three years into a game-changing scenario. It’s folly for publishers to cling to this outdated model.

        I took a flight recently. The newsstands in the terminal were essentially undisturbed, and they were stacked with best sellers. Consumers are making adjustments in their buying habits. Eventually, there will be capitulation.

        There’s no need to waste to waste taxpayer money when the publishers are penalizing themselves.

      • 1) Star ratings. As far as I’m aware, the only recommendations they feed into are the Top Rated lists. Are you referring to something else?

        2) The Search results are a form of the Popularity List (unless you choose to list by one of the other options). Free downloads count as sales on the Pop Lists. It’s not just Select books that benefit from this. Any free run will do the same. If you want to disprove my thesis, it’s easy to test. Find a book that is appearing much higher on the Pop List that has never been on a free run.

        3) Under the Chicken Agency Model, you wouldn’t have the freedom to price your chicken at $2 because the chicken farmer who supplies the chickens has gotten together with all the other farmers to make an agreement only to sell chickens to those who agree to let chicken farmers set the retail price. Which is $20.

        And without legislation specifically prohibiting such behavior, and without the government intervening to enforce those regulations, it would happen in every industry, every day. The reason for that is that price fixing can be extremely lucrative. If all airlines agreed to increase baggage charges by $50, the consumer would have no alternative.

      • @marymcdonald One side effect of Select (and I believe that it was Talli Rowland that shared her experience) is that it can change your association with titles that went free concurrently. Select is just one portion of the algorithm…

        It’s not the ONLY ingredient for success, but it does improve your odds dramatically.

      • @IndieBook List–Is the bump from going free or is it specific to going free with Select? Have you made any comparisons? I ask because one of my books went free last June and the timing was perfect. It was only free a week, so after 45,000 downloads, it went back to paid, and within a few days was #15 overall in the Kindle Store–all without any help from Select.

        While I’ve had good luck going free with it again, it has never come close to those numbers despite more than twice as many reviews and still maintaining the same star rating. A lot of it is that more books are free now, so readers are choosier as to which books they download, but I still reached #11 in the free list the last time before going back to paid. Top paid ranking that time was about 240, I think. If anything, Select hampered it after returning to paid.

      • The bump is not specific to Select. It works for any free run. The only difference with Select is that you can time coming off free at the optimum moment, and can (often) vault into a higher position in the paid charts. Select smooths the kinks out of the process, but the benefits aren’t exclusive to Select.

        The same goes for the Kindle Owner’s Lending Library. That gives participating books extra visibility in the KOLL, and borrows count as sales boosting Sales Rank (and thus visibility on Best Seller Lists), but, again, KOLL is not exclusive to Select. It’s the only way for self-publishers to get in, but all publishers were invited to participate (most refused). The Hunger Games Trilogy is in KOLL, for example.

        I don’t think either case negates my point about the general agnosticism of the recommendation system.

    • Matthew Iden says:

      “There’s no need to waste to waste taxpayer money when the publishers are penalizing themselves.”

      I’m not interested in having the whims of consumer taste decide what’s legal. Just because readers have been voting with their feet doesn’t make price collusion as a business tactic any less illegal or damning to the publishing industry as a whole; in fact, it has nothing to do with the former at all. The DOJ was doing exactly the right thing to take this on.

      I’m a little baffled by the “hey, hands off DOJ!” approach. What if Amazon corners the market and uses their recommendation engine to tank Big Publishing to the bottom of every list out of spite…or as a way to pump their own imprint? Would that be fair? If it isn’t, who do you think is going to investigate it? Readers?

    • Neil says:

      I too would like to see more of the evidence that Amazon is tilting their model. I’ve found that Amazon’s algorithm tends to point me to books I wish to buy. The more effort I put into the algorithm (rating books, telling it to ignore purchases for recommendation, etc.), the more likely I am to buy the books recommended. If Amazon screws that up, they’re toast.

      Kindle Select will boost a books ranking by the ‘Kindle lending library.’ I would expect that as one leaves the program, the ‘credit’ due to the lending library is automatically cut. The same with any residual boost due to free books. The opposite as a book joins the library and is either borrowed or the author runs a free promotion.

      Too much co-op makes customers frustrated. Witness internet search between Yahoo and Google. Yahoo did so much Co-op it just mucked up the results. I didn’t want to leave Yahoo… but for my masters thesis I could find what I needed on Google easily but with only much effort on Yahoo… So I switched.

      Neil

  3. AGClaymore says:

    Good luck with the experiment, David.
    I think I’ll wait until the price increase to pick it up. A good story deserves a good price.

    I’ve seen slow sales on my latest release when it came out at $2.99. After moving to $4.99, It took off. I held a top 5 slot in the UK for almost a week before it bounced it’s way down the top hundred and back into quiet sales.
    The US market is a tougher nut to crack. It takes a lot more sales there to get into the top hundred, but one day…

    Is Storm getting many sales in the US right now? The tax season is wrapping up in a couple of days (probably why you picked Wednesday for your experiment!).

    • Glad to hear higher prices are working for you.

      I’ve found it easier to make inroads in the US. My UK sales are solid and growing every month, but never really spike. When a surge happens, it’s always in the US. The UK is like the tortoise, just trucking along each day posting 3 sales.

      All the current spike is US. I’ve sold two copies of Storm in the UK since yesterday, and something like 135 in the US.

      • AGClaymore says:

        Wow! that’s great to hear! 135 in just over a day is impressive. I call it a good day when I post ten sales in the US!
        You’d better get busy on a sequel – strike when the iron is hot and all that…

      • I’m editing today. Hoping to release in 2 or 3 months.

      • Neil says:

        David,

        I’m excited a sequel is on the way! You have a waiting buyer. I loved ASHV.
        Now how the heck are you going to create a cover ‘theme?’

        Neil

      • Thanks Neil!

        It’s a follow up rather than a sequel. It’s set in Honduras/New Orleans in the 1900s. Banana republics, cigar-chomping generals, nefarious corporations, corrupt politicians, mercenaries, spies, vagabonds, and a color blind railroad engineer from Louisiana called Lee Christmas.

        The working title is Bananas For Christmas, but that may change.

        I’ve no idea about the cover yet, except that *maybe* it might use a lot of green and yellow and perhaps mimic some of the pulp action/adventure novels about soldiers of fortune from the 30s and 40s (which were actually based on the Sunday Supplements that Lee Christmas appeared in every week, giving it a nice circularity). There’s a bit more detail on the book here: http://southamericana.com/2012/03/11/lee-christmas-soldier-of-fortune/

        It is already written, I’m polishing now, and it will go to the editor late June. So, barring disaster, early July release.

      • P.S. Storm is rocking the charts right now – #459 overall!!! – http://amzn.to/Aovwbm

  4. Jaye says:

    I was over on PG’s site this morning and somebody left a link to a story by Mark Coker: A Dark Day for the Future of Ebooks. http://www.cnn.com/2012/04/15/opinion/coker-book-publishing/

    My take on it was that yes, indeed this lawsuit is going to very much hurt the big publishers. It might drive them into bankruptcy or force them to raise prices, further hurting their sales. Every single ebook retailer that has adopted the big publisher method of selling books is going to be badly hurt and may not survive. An aggregator like Smashwords that depends on companies using big pub’s model may not survive.

    Amazon, on the other hand, is set up to take the blow (and there will be a blow if the big pubs go down the tubes). I am as baffled as you are, David, as to why Amazon’s business model is being blamed for this mess. Because it’s consumer-centric? Because it can shift quickly to keep up with a swiftly shifting markeplace? I don’t hold out much hope for anyone who is relying on the big pub model. It’s a loser and if the DoJ case doesn’t take it down, something else will.

    Excellent analysis, as always.

    • I think Amazon’s business model is being blamed for this mess because publishers are looking for a scapegoat for their own ineptitude. Instead of embracing the digital revolution, they tried everything possible to slow it down: tardy digitization of backlists, DRM, refusal to release out of print books back to writers, refusal to make deals on backlist, windowing so that the e-book came out months after the hardback, and, allegedly, colluding to fix prices at an artificially high rate.

      They also had no clue about their true customers: readers. They didn’t know who they were, what they liked, what they bought etc. Their business was geared towards selling to stores, not to readers, and they were blindsided by the digital revolution. Finally, they also allowed their own prejudices with regard to e-books and the marketplace to color their views on what was happening (and they are still doing it, all this talk of e-books plateauing at 40% or whatever are clear rubbish).

      On the other hand, Amazon was right all along about the Kindle, e-books, online shopping, etc. which must be very frustrating for publishers who were wrong about all the important stuff. Amazon knows their customers intimately, and their whole business is focused on pleasing them. Amazon have access to a mountain of data on what readers like, what readers buy and don’t read, and what they buy next. Publishers would kill for that data (now that they understand the importance of it).

      It’s a clash of philosophies, which becomes apparent when you talk about Customer Reviews. When the first negative reviews for big books appeared on Amazon, the publishers went spare, demanding that Bezos remove them from “their” book pages. They just don’t get that for readers to have faith in the integrity of the review system you can’t just have glowing reviews!

      As for Mark Coker’s piece, I read it, shaking my head. I like Mark, but he’s way off-base here. He seems to have soured dramatically on Amazon after Select, when thousands of books were removed from Smashwords (no doubt causing him continuing headaches, as well as losses). I also suspect that something went down in the proposed distribution to Amazon from Smashwords. It was imminent forever, and then never happened. Either way, he has become a lot more militant about Amazon since Christmas.

      He approached the DoJ with a spreadsheet that “proved” that Agency had brought down e-book prices. The only problem with that is he is talking about Smashwords, where no large publishers list their books. There is no question that Agency raised the price of books from large publishers. They literally jumped overnight from $9.99 to $12.99 and $14.99.

      I also don’t think this is a dark day for the future of books. It will mean cheaper books, which is a good thing, and should give the pace of digital changeover another little boost.

      There are plenty of misconceptions around about the terms of the settlement. For one, Amazon won’t have the power to discount every single book from large publishers down to $9.99 – they will essentially have a pool and will only be able to discount certain books (or all books temporarily).

      The problem for Amazon’s competition is not pricing alone. They get beaten on any metric: user experience, selection, customer service, and price. The iBookstore is crap. Barnes & Noble’s website isn’t much better. They really need to up their game as Amazon will be able to use *targeted* discounts on big ticket items to lure customers to the site, where I’m sure that the usability etc. will win them over.

      To stem the flow, Apple and Barnes & Noble need to at least get the basics right (let alone the innovative stuff Amazon keeps trying). Right now, they fail that test (and I believe Agency is partly to blame for that – without true competition, the impetus to innovate is lessened).

      • The only reason big publishing might go under without agency pricing is that it will increase the move from paper books to digital, and they are still too invested in paper. At the same time, didn’t a couple of big imprints (Penguin?) report HUGE profits last year thanks to ebooks? And isn’t it true that under the wholesale model, publishers will actually made MORE on each ebook?

        If I understand you correctly, publishers wanted agency pricing 1) to raise the price of ebooks so as to slow the adoption of digital and 2) so that Apple and Barnes and Noble wouldn’t have to compete with Amazon on price.

        Given that Amazon only wants to lower prices to $9.99 on targeted books, I don’t see how this is a bad thing for indies, except if Amazon takes the opportunity to change how they deal with us as a result. I guess if Amazon wanted to lower the price of my $4.99 book to 99 cents for a sale, and still pay me the $3 they owe me for the book, I wouldn’t have a problem with that.

      • For sure, there are benefits to the publishers in the switch to digital. All that paper doesn’t need to be printed, or stored, or transported, or returned, or pulped. If a book is successful, they won’t have to go back to the printers and repeat the cycle again. There are going to be cost savings associated from moving away from paper. On top of that, for now, most of the books at the top of the charts come from large publishers. And they are charging significant prices from them – anything from $7.99 to $14.99 – and have been keeping 52.5% of that list price under Agency. That’s immensely profitable.

        But the problem isn’t today, it’s the future. When readers get their first device, they stick to their favorites – the names they know. But it’s quite clear that the more readers are exposed to work from self-publishers and small publishers, the more of it they purchase. If you look at the genres that went digital first – romance, thriller, science fiction, fantasy – they are dominated by indies and small publishers. This seems to increase over time. I see no reason why the same phenomenon won’t be witnessed in other genres too.

        Publishers may not see the effect of all this on their bottom line just yet. E-books are still only around 25% of their business. But when e-books capture 50% of the market, or 80% of the market – and a good chunk of readers’ purchases are self-published, then some of them may well be in trouble.

        On top of that, the more the e-book market grows, the greater incentive their is for a writer to self-publish (or to self-publish backlist). Each writer that walks away from a deal hurts them. It’s already happening. I expect that to increase.

      • Neil says:

        tardy digitization of backlists
        I never understood that. There is a bank there. This is the ‘prisoners dilemma,’ or so the big 6 thought. The rise of indie/small publishing put a hole in their plans.

        Neil

      • I guess it’s a big investment when viewed as a whole, and many people (and certainly those at the large publishers) were less convinced that e-reader adoption would happen this quickly.

      • Neil says:

        David,
        They had authors screaming to either digitize or return the rights. Larry Niven is one I recall making noise.

        The interesting bit is the rate of ebook growth. The trend is still growing, but not accelerating like it was. That implies we’re approaching, but below ebooks having half their future end-goal market share. Lots of opportunity ahead.

        Neil

  5. Pingback: Don’t Be Fooled: Big Publishing Hates Competition | The Passive Voice

  6. Reblogged this on Ty Hutchinson and commented:
    As usual, fellow author David Gaughran has an interesting take on the beef between the Department of Justice, Apple and the Big 6 of publishing.

  7. jakeescholl says:

    Wait, who’s Snooki again? ;)

  8. fiveacres says:

    As a voracious reader (and Kindle user of three or four years) I’ve been following these issues with some interest for several years. My main concern was to figure out how I was going to keep getting books from my favorite authors (many of whom are so-called midlist authors and a self-identified dying breed) at a reasonable price. As a former systems analyst, I like to identify trends and turning points.

    The moment I realized bookstores are toast:
    I had driven ten miles to Borders on release day of a new book by one of my favorite authors. It wasn’t on the shelf. I asked a clerk if it was in the back and hadn’t been put out yet. He said no, but they could order it and have it in a week! I thought of the 20 mile round trip, and delivery to my doorstep by Amazon, which would be quicker than getting it through Borders. I realized then that traditional bookstores were toast.

    The moment I realized Amazon has something in the Kindle:
    My husband bought himself a Kindle 1 after hearing it touted by Oprah, for gosh sakes. I was horrified at the waste of money. A month or so later I was in the grocery store and happened to see the new Susan Elizabeth Phillips, which I had on reserve at the library. I took it down just to read the first chapter or two. A third of the book later, my back and feet were killing me, and the sales associates were grinning at me when they went by. I went home, saw it was on Kindle for $9.99, and bought it and was amazed when it had downloaded itself two minutes later. I read the rest of it that afternoon and the Kindle became MY Kindle, at least until I got one for my birthday.

    When the “agency model” went into effect, I felt royally reamed. I also was astonished that it could be legal, though IANAL. Every time I saw a new release in Kindle listed for more than the hardback price, an author lost a sale. I reserve at the library, then buy it if it ever comes out in a less than $10 version.

    • Thanks for that insight – fascinating. I remember when the first Kindle came out. I thought it was a joke. I wondered why anyone would want to read on such an ugly device. I thought it would be a huge flop.

      It sold out in five-and-a-half hours, surprising even Amazon, who couldn’t restock the device for another five months.

      • I happened to read an article about this cool new thing that let you read from a dedicated tablet. I told my future husband I wanted THAT for Christmas, and he ordered it (with a little financial assistance from my daughters). I got it in that very first five-hour sellout. I’m not typically an early adopter — it was my future calling me! (Then I let it sit around for a year hardly using it, until I did, and then I never stopped.) So now we have a vintage first-gen Kindle and a Kindle Fire. The Fire is mine. I gave my husband the old one. ;-}

  9. The first Kindle sold out because there are more Star Trek nerds in the world than anyone realized. I still have my 2nd gen kindle. I will keep it until it doesn’t work anymore. Publishers have certainly not had the foresight to get ahead of the curve on this, but that is their fault, not Amazon’s. It’s also interesting that all the people who are complaining are not Indie authors, who aren’t tied to the old ways. Excellent article as usual, David.

    • Neil says:

      My 2nd generation Kindle just died. The Kindle Touch is such an improvement, I wish I had upgraded for Christmas! Note: It changes how you put books into collections. That has been annoying to relearn. I liked being able to select the book and deciding where it would go.

      I had a friend who was part of the first five and a half hours. He brought over the Kindle 1 and sold me. I ordered too late to receive a Kindle by Christmas… so instead of the K1 ordered, I received a K2.

      Anyone else notice it took a few years to ‘wean away from paper books’ and still longer to fully embrace indie authors?
      Neil

      • I think the embracing is still ongoing, not full on yet. But it’s getting there. Most people don’t look at me with pity anymore when I tell them I’m self-published. They think it’s cool. There are still many who remain down right hostile to it, but I don’t see their viewpoint lasting for much longer.

      • Neil says:

        Jolea,

        Some people will remain hostile. I have an aunt who used to have a ‘late life’ career as a book reviewer. When newspaper sales fell off a cliff, so did her column. She blames Amazon for a change that happened pre-Kindle.

        She’ll never want to concede that online reviews displaced newspaper reviews. She’s hostile to self publishing as she sees it as the root cause of why her book review column isn’t being shopped.

        To say the least, when I note multiple indie authors worth reading… I get zero traction. ;)

        Neil

  10. Reblogged this on Author Jolea M. Harrison and commented:
    Spreading the word…

  11. Mike says:

    Something many people miss is the structure of the “agency model”. Hard working printers, editors, and others who, in order to keep their relatively low paying jobs, must parrot the corporate line. Highly paid CEO’s, CFO’s and other board members have everything at stake; if they don’t get what *they* think they should be getting they find more ways to screw the people who buy their products. I’m not completely happy with my Kindle, but I’ve found some marvelous authors telling wonderful stories through Amazon. These writers’ works would never have seen the light of day had they pursued traditional publishing avenues.

    YAY Amazon, B&N, Smashwords and other digital publishers and retail outlets. The days of the multimillion dollar advances are, thankfully, numbered.

  12. Mike says:

    I missed Indie Books List’s response. Since I got such a great chuckle from it I’m going to repost it right here: “1.) Yes, we do have data that shows it does. We can’t reveal it …” Good lord, the “data” can’t be revealed because it doesn’t exist. OMG! LMFAO!

  13. dawn says:

    I must be the only person who doesn’t know what a ‘kindle’ is.
    And although I’m starting to be won-over by the idea of self-publishing, I don’t like the concept of e-books. For one, I can’t read on the computer for more than an hour without getting a headache and burning eyes from the light emitted by the monitor screen. 2- I can bring a book with me anywhere, and I don’t like handheld devices. 3- reading doesn’t involve electricity, and I live somewhere that experiences an average of two power outs/month. usuall the power out lasts longer my computer or cell phone battery, so having paper books around really helps alleviate boredome until the power comes back.
    I suppose most people don’t think about these things, but I sincerely hope that the digital revolution does not render the traditional book obsolete.

    • Hi Dawn, if you played with a Kindle, you might be pleasantly surprised. For starters, it doesn’t use the same technology as a computer screen at all. It’s not back-lit, and doesn’t strain the eyes whatsoever. I’ve read from my Kindle for hours at a time, and the experience is very much akin to reading a book. Plus it’s super light – weighs less than a slim paperback. It really is suitable for extended reading, and slips in the pocket nicely.

      On top of that, the battery lasts forever. I charge mine every couple of weeks or so.

      Finally, I don’t think paper books are going anywhere – after all, you can still by vinyl records (I have tons of them, and love them). What will happen is that the vast majority of new book-buying will shift to e-books. There are still billions of paperbacks in the world and used bookstores will continue to do a good trade. What you might see, though, is that in the future not all new releases will have a print edition, unless they sell a certain amount.

    • An e-ink Kindle looks like someone took pages from a book and slipped them under a thin piece of glass. That is how close the pages look to a paper book. Only the type is crisper. (at least, in my opinion–especially for older books). The charge lasts for weeks–not hours or day, but WEEKS. I splurged and bought the lighted covers for mine, which makes the Kindle look like a regular book and weighs about the same as paperback–only it’s skinnier than a paperback. I carry it in my purse with me. The light on the cover is retractable, so when not in use, slides into the corner of the cover and it runs off the battery of the KIndle. When we had a recent power outage, not only could I read, but I used my lighted cover to navigate around the house. Also, you can increase the font in a Kindle book–something you can’t do with a paper book.

      • Neil says:

        The Kindle touch with the cover with a light is the way to go.

        Some comments on how it changes book reading:
        1. You always have your library with you. In other words, read what genre you are in the mood for. I loaded up on classics and free books early on. I must still have 200 in the TBR pile… (But I still buy new books… I’ll probably keep reading one free book a month forever…)
        2. The book cover is hidden. No more snide “you’re reading that?” comments.
        3. With the Kindle touch, authors are learning to link the next book in the series at the end of the ebook. Thus, if one enjoyed a read, its easy to buy the next title.
        4. The Kindle touch, with cover, is a nice size to fit in Cargo pants too. (For us men sans purses.)

        The only issue is the airlines do make you turn it off for takeoff and landing… ;)

        Neil

    • Paolo Amoroso says:

      Adequate and up to date prescription glasses, if necessary, are essential for comfortable screen reading on computers, smartphones or ereaders. It is worth paying a visit to the eye doctor. This can really make a difference. With adequate glasses I can read all day without headaches even my good (but definitely not Retina Display quality) 22″ LCD monitor.

      Reading a modern e-ink screen is not much different than a traditional printed page.

  14. pubbloghub says:

    And what is even more confusing about all of this is that only 3 of the big 6 publishers have settled. Depending on what happens in court, it’s possible that some pubs could be on agency pricing while others are not. In other words a big ol’ mess. Random House isn’t even a part of the suit, so they’re still free to do things however they wish. Of course, they may be forced to capitulate if sales are hurt because they’re on the agency model and the others are wholesale. It’ll be interesting to see how that all plays out.

    Regardless, we won’t see the days of pre-agency pricing on Amazon. They do have some limits, though how significantly that will actually effect them remains to be seen. I’m not sure how much of a loss they were actually operating at with regard to books. I suspect though that it will be enough of a pool to kill B/N’s profit margins, if they still had any to begin with. We’ll still see some titles at 12-14.99 while others are at 9.99, and consumers will still be frustrated.

    I honestly don’t have a lot of sympathy for publishers and their plight. They’ve dropped the ball and are just fumbling around with it now. If they don’t take significant steps to change things soon they’re going to be in a world of hurt. However, these are big corporations with money too, and I suspect that they’ll figure out a way to cope, after losing buckets of money. Still possible of course that Amazon could sink all of their ships, which wouldn’t be good either. Bezos wants to transform publishing and the reader experience. Wiping the slate clean except for Amazon probably isn’t the best way to go either. I’m not fond of one entity being in control and able to dictate terms on everything.

    I do suspect what we’re going to see is more and more new and midlist authors migrating to self-publishing. For those authors with the books and backlist to do it, it’s almost a no-brainer. For everyone else, it’s still a difficult challenge to find success, but there is still the perception of hope, which many don’t find pursuing traditional publishers. If publishers want to save themselves in the long run, they might want to consider upping the ante with authors. Right now the financial tradeoff for authors with traditional publishers isn’t worth the services provided. A midlist author with a backlist at all or books waiting in the wings can more easily finance their own freelance hiring of services. Why pubs don’t look at the possibility of going into a more profit-shairing mode of operation with authors is beyond me. Many authors (me included) don’t want to deal with all of the non-writing elements of producing a book. I’d give up a slice of the pie to go into business with a publisher. Let me retain rights and make final decisions on things and I’ll forgo a good chunk of profits. Give me the perception at least that I can make a living just as easily with a publisher as compared to doing it on my own, and I’ll take that chance. Otherwise I may just end up in the self-publishing boat too. Right now though, pubs want too much control to put my book on shelves, which is gradually becoming less relevant and will continue that direction in the future.

    I can see a publishing industry where authors are the publisher and everyone else is a service provider. It could work. Of course, a great many authors out there don’t have the first clue about putting out a good product or are easily scammed by providers looking to take advantage of their lack of knowledge. Or, you get the authors who believe they know exactly what they’re doing when the don’t and put out a crap product. The free market system is full of pitfalls, with chances for great success and epic failure.

    All that said, I’m not fond of Amazon either. Books are a gateway product for them. Their goal is to secure the largest, most loyal customer base that they can, who will use their services to buy products. I don’t believe making money off of books is any real concern to them. They’re happy to let everyone duke it out, succeed or fail as they may, produce great stories or utter crap, it doesn’t matter one way or the other as long as the customer is coming to them. In the long run, I don’t like the idea of working through a company that doesn’t have my interests in mind. I’ll work through Amazon because I’ll have no choice. Having only one option for success isn’t a choice, and I think Amazon’s efforts are guided by the idea of creating the perception that authors have only one real place to go if they want to succeed. So, with that, I do hope publishers figure things out and are able to succeed in this changing landscape. I want options and choice and a thriving industry. Publish with Amazon or don’t at all is not my notion of thriving.

    • Thanks Jim.

      Like you said, as things stand (assuming the settlement is accepted), three publishers will be forced to tear up their Apple contracts, and Amazon will be free to discount their books (within limits).

      And, as things stand, Random House will still be on agency terms, meaning they will set their own prices (and won’t be discounted).

      As for the two contesting publishers, presumably they are still on agency terms pending outcome of the suit. It will be interesting to see if Amazon attempt to discount their books or not. My guess is not.

      But how will Amazon approach the books of the three settling publishers? Will they make a big statement and offer a bestseller from Hachette at 99c? Can you imagine the convulsions if they did that with Joe Konrath’s Hachette books?

      After all, they only need a few big ticket items to draw in readers for the rest.

      Alternatively, of course, they could take a much more measured approach, and only discount a selection of bestsellers to $9.99.

      It’s going to be very interesting to watch.

      • Just as an aside, the publishers don’t and never had the author’s best interests at heart, either. Hard to imagine a company that does care fundamentally about anyone other than the ultimate welfare of their company.

      • Neil says:

        I expect more items like the ‘sunshine deals’ of last year. I also expect Amazon to do more ‘events.’ Horror near Halloween, self help books in January, etc.

        As noted before, ebooks are the ‘gateway drug’ into the Amazon store. While Amazon would like more of a profit, I suspect that will come from being a ‘converged media’ provider. If Amazon goes evil on self-published books, the uproar would bury them.

        What’s in it for Amazon to do that?

        Neil

    • Dan Meadows says:

      Random House is an interesting case. They’re not being sued because they didn’t sign on to the agency deal with Apple along with the other five. There’s an interesting accusation in the DOJ complaint concerning them, too. Apparently, in the year they were still operating on the wholesale model, they were gaining marketshare and essentially benefitting from staying out of agency. But, according to DOJ, they were coerced into getting on board with the others, and even (allegedly) threatened with retaliation by the CEO of Penguin. If that is true, it could be one of the most damning pieces of evidence of collusion in the entire case. I think it also speaks volumes for how ineffective agency really was as the one so-called Big Six publisher that stayed out of it actually improved their market position. It also shows the necessity for united action because even one of them holding out could have undermined the entire scheme.

      • I agree, Dan. According to the complaint, Penguin’s USA CEO David Shanks is alleged to have attempted to coerce a major retailer (presumably Barnes & Noble) to retaliate against Random House, to pressure RH into signing up with Agency.

        From the complaint:

        87. Mr. Shanks also encouraged a large print book and e-book retailer to punish the other publisher for not joining Defendants’ conspiracy. In March 2010, Mr. Shanks sent an email message to an executive of the retailer complaining that the publisher “has chosen to stay on their current model and will allow retailers to sell at whatever price they wish.” Mr. Shanks argued that “[s]ince Penguin is looking out for [your] welfare at what appears to be great costs to us, I would hope that [you] would be equally brutal to Publishers who have thrown in with your competition with obvious disdain for your welfare…. I hope you make [the publisher] hurt like Amazon is doing to [the Publisher Defendants].”

        88. When the third-party retailer continued to promote the non-defendant publisher’s books, Mr. Shanks applied more pressure. In a June 22, 2010 email to the retailer’s CEO, Mr. Shanks claimed to be “baffled” as to why the retailer would promote that publisher’s books instead of just those published by “people who stood up for you.”

      • Dan Meadows says:

        I presumed it was Barnes & Noble too. Good thing for them they had the sense not to capitulate or otherwise, it might be five publishers, Apple and B&N as co-defendants. Pretty sure that might have been the final nail in B&N’s coffin.

    • ” Let me retain rights and make final decisions on things and I’ll forgo a good chunk of profits.”-Publoghub

      You are already forgoing a large chunk of profits and beyond with them while they take the rights (various) and have final say. So what incentive would they have to give you bigger profits when they are already getting everything from you without sharing as much?

      • pubbloghub says:

        I think the incentive will be that publishers need to rethink/alter their relatioinship with authors or they will continue to lose them to the ranks of the self-published.

  15. THIS is my beef as an indie author: “..what’s good for Penguin isn’t necessarily good for writers, small presses, or indie bookstores.”
    and THIS: “They just want the faux-competition between themselves that was the status quo before the digital revolution.”
    Thanks for another excellent post, David.

  16. “This agnostic recommendation engine has, for the first time, created true competition. And the large publishers hate it.”

    Gold.

    Thanks for sharing your insights again, David.

  17. f. d. jones says:

    argh – missed the ‘or buy from me’ bit and purchased from amazon – would have been so much easier to buy from you than go through the convert-to-epub fuss. Thanks for the great article and the inexpensive book.

  18. great overview, David.

    I find the whole scenario rather hypocritical, and i do hope people don’t get duped into feeling sorry for the big man. They spend years dictating and now we’re supposed to feel sorry for them?

    I’m not saying i love Amazon, because they are ultimately the same, a large company with very specific corporate goals. It isn’t there fault they’ve created a model that has succeeded, and done so in destroying the traditional model.

    The same happened in music, and guess what, i don’t feel sorry for Universal et al either

    Good luck on the pricing experiment. Sometimes a higher price can do wonders, so i hope this is the case for you

    Matt (Turndog Millionaire)

  19. Oh my God, you have said this all so well! I’ve been writing about the DOJ case online for the past twelve hours or so. Amazon’s an innovator, and the big publishing houses are trying to keep the technology with which they earned huge sums of money in an earlier era intact. Their new strategy seems to involve going so far as breaking the law, while blaming Amazon for all their failures and frustrations.

    Have you seen Amazon’s program for movie scripts? It’s amazing – short-term options and generous payments to authors. Here are details: http://www.epublishabook.com/2012/04/16/turn-your-book-into-a-script-and-earn-200-000/#axzz1sF0fga8t

    And, speaking of succeeding in the modern high tech era, Jeff Bezos has also started a company for space exploration; and that company, “Blue Origin,” has already located the Apollo 11 rocket engines on the ocean floor: http://www.wired.com/wiredscience/2012/03/jeff-bezos-apollo-11-engines . Bezos is an innovator, and that is very threatening to businesses that don’t want to modernize but want to continue making huge amounts of money. So, while Bezos is working on bringing rockets up from the ocean floor, the traditional publishing houses are trying to win readers by breaking the law in order to charge higher prices for eBooks. Hmmmm, I wonder who’s going to win this competition.

  20. I’m impressed with the sounding of the voices from the independent writers here. Although I’m not an indie writer myself, I’ve been watching the fall out of the digital revolution for years and have witnessed the results of this which may have taken 20 plus years to reach critical mass but it certainly does seem to be shaking things up these days.

    Personally, I think our society which has been mostly under the thumbs of big business for so long is due for a change where the people do speak for real (not just in concept of some vague notion).

    I feel the digital revolution is no less than the actual revolution of our country over 250 years ago. This time it’s the little people showing big business where they stand. I also feel it’s appropriate that we are seeing the resurgence of such notions as the “Tea Party”. I think the next decade is going to be very interesting watching where the cards fall.

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  23. David

    You may well have trouble with Kobo failing to match the Smashwords price of your novel. I had just this problem and had to get on to Mark Coker directly before anything happened. I strongly suggest you contact SW’s author support straight away — they are apparently inundated with work and you may have to wait for a response. Until Kobo plays ball, AMZN will indeed price at $3.99. Indeed, I have now shut Kobo out of my distribution channel for good.

    • Hi Richard, I got Kobo to raise their price by contacted them directly. Amazon price-matched for a day or so at $3.99, but were pretty quick to raise to $7.99 once I told them Kobo had sorted it out. Sales are a lot slower at $7.99, but one sale = 16 at 99c, and the book is selling better than before the promo. Way too earlier to say if the higher price part of the experiment was a success, but the rest of it certainly was – I’ll blog about it soon.

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