Random House to Adopt Agency Model Starting 3/1 [ Edited ]

[Ya_Ya]

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Serendip wrote:

So, yep, since my access is so limited, and my actions are so restricted, I sure do think I should be paying far less for an ebook than I do for a DTB. 

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But this is why you want to pay less, not why they should be priced less.

Pricing has little to do with cost or limitations.  Pricing is based on a bottom of profit-making and a top of what people will pay.  If enough people agreed with your position, that ebooks were only worth less than the bargain book table lowest price possible, that's what they'd be priced.  But clearly, enough people don't, because they're priced closer to the trade and mass-market paperback price.

Pricing doesn't require passing on the cost savings to the consumer unless they demand it.  And consumers aren't demanding it.  (Besides the cost savings are reportedly only about 12% over print versions.)  Pricing doesn't require lower prices based on format limitations unless consumers demand it.  And they aren't demanding it.  In fact, it seems that consumers are placing a premium on the ability to read anywhere, anytime, even when the book (ereader) has been left at home by using a computer or mobile phone.

Maybe I can't bring myself to be outraged over ebook limitations because I rarely lent or borrowed books (libraries excepted - which I can still do) and rarely sold them because I donated them (to the library book sale) only when I needed to purge my overfull shelves.  I don't miss the limitations on ebooks because I didn't use DTBs that way.

Do I, personally, pay new hardback prices for ebooks?  Nope.  But I rarely bought hardbacks - new at full price - either.  Generally I'll pay trade paperback (or a dollar less!) for ebooks - but the DTB format I most often bought was trade paperback, as well. That's what the content is worth to me, regardless of format.

[ABthree]

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scott88 wrote:

 And how do corporations (exactly how is a corporation any different then any other business? Is the small mom and pop in the business to lose money?) stay in business if no one buys the product? The business does not set any price they must price the product at a point where enough people buy the product to make  money.

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Publishing houses are different from the small Mom & Pop store because they have what economists call a "natural monopoly" in their authors.  If you want to read The Girl with the Dragon Tattoo, you're going to buy it from Random House.  You can't go across the street to see whether HarperCollins's edition is cheaper, because there IS no HarperCollins edition -- Random House is the only game in town for Larsson.

Under the Wholesale Model, publishers had supply control (like all monopolists) but no price control  Booksellers could pay Random House ~50% of the cover price, and charge whatever they wanted for the book.  That was real competition, tended toward the lowest price, and strongly encouraged the growth of the eBook market.  The publishers didn't like this because in their view, it "devalued" their product, and diverted buyers away from the more expensive DTBs.

Thus, the Agency Model, giving the publishers price control as well as supply control.  There's no longer any pressure toward the lowest price:  they can and do set the highest price that they think people will pay.  Remember, they saw low prices as "devaluing" their product.  If high eBook prices divert people to DTBs, the publishers are even happier.  They still see their primary business as books on paper, not digital files.  In fact, once you assume that eBook pricing is set, in part, to drive DTB, not eBook, sales, many seemingly insane pricing decisions by the Agency publishers suddenly make perfect sense.

[ellsbells930]

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AlanNJ wrote:

Most people don't question pricing.  They pay what the price is if they want the book. 

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Then they are fools.

[AlanNJ Inspired Bibliophile]

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ellsbells930 wrote:

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AlanNJ wrote:

Most people don't question pricing.  They pay what the price is if they want the book. 

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Then they are fools.

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I'm not disagreeing with you but people have other worries on their mind and pick their battles.  It's easier to just accept the price of an e-book than do without the e-book.  In my experience people take the easiest path that is available that will give them the gratification that they need.  In this case, it's easier to just buy the book at the price shown and have it within a minute or so than fight a probable losing battle with a huge publishing conglomerate.

[ABthree]

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ellsbells930 wrote:

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AlanNJ wrote:

Most people don't question pricing.  They pay what the price is if they want the book. 

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Then they are fools.

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Are you surprised?  H. L. Mencken (often incorrectly attributed to P. T. Barnum) got it right:  "Nobody ever went broke underestimating the intelligence of the American public."

[Nallia Distinguished Bibliophile]

I think people who automatically judge others with different priorities to be fools are the real fools.

[shadowcat80]

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AlanNJ wrote:

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ellsbells930 wrote:

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AlanNJ wrote:

Most people don't question pricing.  They pay what the price is if they want the book. 

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Then they are fools.

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I'm not disagreeing with you but people have other worries on their mind and pick their battles.  It's easier to just accept the price of an e-book than do without the e-book.  In my experience people take the easiest path that is available that will give them the gratification that they need.  In this case, it's easier to just buy the book at the price shown and have it within a minute or so than fight a probable losing battle with a huge publishing conglomerate.

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I don't disagree, I just been voicing my concern that some people may have to give up their nook or other e-reader if the prices get too high.  Truth be told there's a lot of consumers that have paid the 12 dollar book price, they want the gratification that you talk of. 

[ABthree]

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Nallia wrote:

I think people who automatically judge others with different priorities to be fools are the real fools.

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And I think people who decide that they think people who automatically judge ... wait a minute -- I don't like where this is going. 

[ABthree]

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shadowcat80 wrote:

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AlanNJ wrote:

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ellsbells930 wrote:

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AlanNJ wrote:

Most people don't question pricing.  They pay what the price is if they want the book. 

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Then they are fools.

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I'm not disagreeing with you but people have other worries on their mind and pick their battles.  It's easier to just accept the price of an e-book than do without the e-book.  In my experience people take the easiest path that is available that will give them the gratification that they need.  In this case, it's easier to just buy the book at the price shown and have it within a minute or so than fight a probable losing battle with a huge publishing conglomerate.

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I don't disagree, I just been voicing my concern that some people may have to give up their nook or other e-reader if the prices get too high.  Truth be told there's a lot of consumers that have paid the 12 dollar book price, they want the gratification that you talk of. 

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Thought you were taking a break? 

[shadowcat80]

I did take one, I needed to cool off for a bit so I didn't say something I would regret later.  I felt ganged up earlier when like 5 people all replied about something I said and they basically ripped my words apart, i know they didn't mean it personally, but i'm an emotional girl

[Nallia Distinguished Bibliophile]

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ABthree wrote:

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Nallia wrote:

I think people who automatically judge others with different priorities to be fools are the real fools.

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And I think people who decide that they think people who automatically judge ... wait a minute -- I don't like where this is going. 

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Hey, I never said I was exempt from my own judgment. 

[Htom_Serveaux]

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shadowcat80 wrote:

the one thing that's illogical about it, don't they realize they lose money printing books, if they embraced e-books more they could make more profits by not having to print their products.

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Publishers (and some authors) have made it clear that they think (rightly or wrongly, I believe wrongly, but it's what's in their minds that matter) that every ebook sale represents x number of sales (DTB and additional digital) lost because that file will get passed around and/or wind up on some site for free download.  So I believe they want to either discourage ebooks in general, or are attempting to recover the (mostly fictional) "costs" of pirated copies from the legitimate purchasers.

So while on a one-for-one basis they could, should, and presumably would have a higher profit margin on an ebook priced lower than, say, the trade paperback version, they don't think so.

[Binx88]

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Ya_Ya wrote:

I would like ebooks to cost less - but I want my groceries, handbags, wine and cell phone service to cost less as well.  

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Yes but that's why my household clips coupons for our groceries, waits for the handbags to go on sale (especially one that's advertised with a concrete end date) and purchases our cell phone plan as part of a bundle with the phones free. All of these types of incentives have basically been eliminated with the Agency Model, which is what frustrates me the most. Sure we still get some free books from the big 6 but we had that before too.

[shadowcat80]

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Htom_Serveaux wrote:

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shadowcat80 wrote:

the one thing that's illogical about it, don't they realize they lose money printing books, if they embraced e-books more they could make more profits by not having to print their products.

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Publishers (and some authors) have made it clear that they think (rightly or wrongly, I believe wrongly, but it's what's in their minds that matter) that every ebook sale represents x number of sales (DTB and additional digital) lost because that file will get passed around and/or wind up on some site for free download.  So I believe they want to either discourage ebooks in general, or are attempting to recover the (mostly fictional) "costs" of pirated copies from the legitimate purchasers.

So while on a one-for-one basis they could, should, and presumably would have a higher profit margin on an ebook priced lower than, say, the trade paperback version, they don't think so.

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That actually is a bad comparrision because it isn't easy to pirate books, while with the right software you can rip a CD for mp3 format easily.  The publishers control the access to the e-book formats so, they can't really worry about the same issue that music industry had.

[Doug_Pardee Distinguished Bibliophile]

Back when the Agency Model first got dropped on us, Amazon declared that they were not going to work agency contracts with any publishers other than the "Infamous Five". At the time, both Perseus and Workman had already worked agency contracts with Apple. Some reports indicated that they, along with some other publishers, would be selling through Apple on an agency basis while continuing to sell wholesale to other outlets. Some of the other publishers named at the time were Sourcebooks, F+W (Adams Media), Disney's Hyperion imprint, and Kensington.

In the almost a year since then, Smashwords and Random House have switched to agency contracts with all of the booksellers, including Amazon and B&N. Those are two extremes of the publishing range: the largest trade publishing house in the US, and a "self-e-publishing only" distributor. It sounds to me like the doors are now open for agency model contracts.

The justification for Smashwords going Agency Model was that it just didn't work selling agency through some outlets and wholesale through others. Any publisher currently doing this kind of split is almost surely going to be revisiting the question of whether to go all-agency. I suspect they'll come up with the same answer that Smashwords did.

[ABthree]

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Doug_Pardee wrote:

The justification for Smashwords going Agency Model was that it just didn't work selling agency through some outlets and wholesale through others. Any publisher currently doing this kind of split is almost surely going to be revisiting the question of whether to go all-agency. I suspect they'll come up with the same answer that Smashwords did.

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I agree.

And one party we can be sure won't object is ... Barnes & Noble.

I think that B&N was an innocent bystander to the Agency Conspiracy, not a participant, but it would be hard to deny that it's been and continues to be a major beneficiary.  The need to match the A-Team's $9.99 pricing was a sure loser for B&N, and it came just at the time when they needed to build a Nook customer base.  So they gritted their teeth and did it, but it had to have hurt.  A lot.

The Agency Model freezes out the the distributors and will eventually kill the small sellers that depend on them, but it means guaranteed margin for the big sellers like B&N -- it's almost as good as buying bonds and clipping the coupons.  So, B&N plays it cool:  some indications (if you can read the code) of which books are priced by the publishers to placate the disgruntled customers, but no attempt, by word or action, to rock the boat.

This whole thing is going to make a GREAT biz school case study some day -- probably a book full of them. 

[Serendip]

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Ya_Ya wrote:

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Serendip wrote:

So, yep, since my access is so limited, and my actions are so restricted, I sure do think I should be paying far less for an ebook than I do for a DTB. 

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But this is why you want to pay less, not why they should be priced less.

Pricing has little to do with cost or limitations.  Pricing is based on a bottom of profit-making and a top of what people will pay.  If enough people agreed with your position, that ebooks were only worth less than the bargain book table lowest price possible, that's what they'd be priced.  But clearly, enough people don't, because they're priced closer to the trade and mass-market paperback price.

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I understand how pricing works... all we have to do is look at supermarkets - they raised the prices on every item because of the skyrocketing gas prices years ago (NO two items ever shared a truck!??) and never bothered to lower them again... they will always charge the highest that people will pay.

And just like at supermarkets, I pay attention to what something costs, and if it is more than I can justify, I don't get it, whether it's an ebook or a tomato. Between all the classics and so many $0.99 and free books, I'll be set for a very, very long time before I run out of things to read on my Nook, if ever.

[Htom_Serveaux]

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shadowcat80 wrote:

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That actually is a bad comparrision because it isn't easy to pirate books, while with the right software you can rip a CD for mp3 format easily.  The publishers control the access to the e-book formats so, they can't really worry about the same issue that music industry had.

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It's actually very easy to pirate books.  It's exactly the same process as pirating music.  DRM is trivial to remove if you want to do it, and more than one application exists to do so.

But, the point I was trying to make wasn't that books *are* pirated, it's that publishers and some authors *believe* they will be pirated, and behave (with their pricing model and discouragement of ebook distribution) according to that belief.

I think their belief is unfounded, but it only matters what they believe, not what I think.

[scott88]

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ABthree wrote:

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scott88 wrote:

 And how do corporations (exactly how is a corporation any different then any other business? Is the small mom and pop in the business to lose money?) stay in business if no one buys the product? The business does not set any price they must price the product at a point where enough people buy the product to make  money.

---

Publishing houses are different from the small Mom & Pop store because they have what economists call a "natural monopoly" in their authors.  If you want to read The Girl with the Dragon Tattoo, you're going to buy it from Random House.  You can't go across the street to see whether HarperCollins's edition is cheaper, because there IS no HarperCollins edition -- Random House is the only game in town for Larsson.

Under the Wholesale Model, publishers had supply control (like all monopolists) but no price control  Booksellers could pay Random House ~50% of the cover price, and charge whatever they wanted for the book.  That was real competition, tended toward the lowest price, and strongly encouraged the growth of the eBook market.  The publishers didn't like this because in their view, it "devalued" their product, and diverted buyers away from the more expensive DTBs.

Thus, the Agency Model, giving the publishers price control as well as supply control.  There's no longer any pressure toward the lowest price:  they can and do set the highest price that they think people will pay.  Remember, they saw low prices as "devaluing" their product.  If high eBook prices divert people to DTBs, the publishers are even happier.  They still see their primary business as books on paper, not digital files.  In fact, once you assume that eBook pricing is set, in part, to drive DTB, not eBook, sales, many seemingly insane pricing decisions by the Agency publishers suddenly make perfect sense.

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So there is no limit to your want to read a book? You would pay 1 mill for a book you want to read? You will never substitute something else? When the price of OJ goes up people

drink more apple juice.

They do not adjust to the highest price that they think people will pay, they set the price that they think will make them the most money which is not necessarily the higher price. If lowering the price get enough additional people to buy the product that it offsets the lower margin then the company makes more money. The fact that RH has increased the price does not guaranty more money for them as fewer people will buy the books a "monopoly" or not.

[ABthree]

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scott88 wrote:

They do not adjust to the highest price that they think people will pay, they set the price that they think will make them the most money which is not necessarily the higher price. If lowering the price get enough additional people to buy the product that it offsets the lower margin then the company makes more money. The fact that RH has increased the price does not guaranty more money for them as fewer people will buy the books a "monopoly" or not.

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You're assuming that the publishers' intent is to maximize profits on eBooks.  It is not.  They see eBooks as competition to what they continue to consider "real" books, and they tend to see every eBook purchased as a "real" book sale lost.  If they could make eBooks go away, they would.  As I said, once you recognize that mindset, many inexplicable pricing decisions make perfect sense.

Here's the most extreme example I know: 

Atlas Shrugged

  

The irony ot it happening to this particular book is delicious:  you can have the most technologically advanced edtion of the book if you want it, but you'll have to pay more for it than for ANY DTB version available.  That makes NO sense in terms of maximizing profits on the eBook -- but it makes plenty of sense in terms of moving warehousefuls of paper.