Publishing is usually an industry of steady, small-scale drama — the poaching of authors, the movement of editors from house to house, a libel suit or injunction, the occasional merger or bankruptcy. But every once in a while, the ground shakes and the industry starts to remake itself. In five days, we saw a great new device unveiled (the iPad), a major publisher propose a new business model for its retailers (Macmillan), and a big retailer retaliate by pulling all of Macmillan’s books (Amazon). Now that’s entertainment!
If you’re an industry insider, you’ve been following this closely for the last few days. If you’re just catching up, you can get the background here and the color commentary here. Short version: Publishers are contemplating moving to an agency model* for ebook sales. Macmillan’s suggestion of agency to Amazon was what led to this weekend’s de-listing and subsequent twitterfrenzy.
It it a great idea? A bad idea? We’ll see. And more importantly, the consumer gets to decide.
While publishers sort through their options, we wanted to set out a few, simple ideas that are important to us and to our customers. A publisher working on new business models could do worse than to keep them in mind.
1. eBooks are the future. In the battle for ever-scarcer leisure time, they represent the best offense for the written word. They mean more people reading more often throughout the day, in more countries, all over the world. They mean carrying the world’s largest bookstore around in your pocket wherever you go. They mean buying instantly and carrying your whole library around with you always. They aren’t going away. (We know you know that, but it’s worth saying.)
2. eBooks should be priced less than their physical counterparts. Not free. But much cheaper. For all kinds of reasons, consumers expect that an ebook should be substantially less expensive than the print edition, and then get even cheaper over time. The agency model shows that publishers are starting to figure this out on new releases. The same will hopefully be true later in the ebook’s lifespan.
3. eBooks should be released simultaneously with print. Many ebook buyers have made a format choice — this is how they want to read. eBook consumers aren’t going to buy the hardcover because they’re prevented from buying the ebook. They’re going to buy something else (and maybe not a book at all!) And by the time that delayed ebook comes along 60 or 90 days later, the buzz may be gone, the author isn’t doing media, and there is something else that is top-of-mind. The result: lost sales for everyone. Which makes us sad, because we love selling books. Truly.
4. eBook list prices should be set by the publisher or author. Each publisher has to make the economics of each title work for them. If they can’t, it means fewer books published, fewer voices heard and fewer stories told. Not good.
5. Retailers should, as they always have, be able to drive sales and reward customers. Retailers have spent decades figuring out how to turn browsers into customers, how to surprise and delight them, reward and motivate them. That’s what we do. We should be able to continue to use all of the tactics that we’ve developed to grow the business — discounts, promotions, bundling, loyalty programs, and more. It would be a mistake to think that customers show up just because the books are on the shelves, virtual or otherwise.
6. $9.99 is not the only price. If publishers start having more say in the sale price of books, there is always one thing they can’t control: what the customer is willing to pay. Right now, we sell a lot of books at $9.99, even more below $9.99, and a fair number above $9.99 as well. That’s unlikely to change. The right price is one that allows a retailer to eke out a living, the publisher to cover costs and pay the author, and the reader to feel that they have enough change left over to buy another book soon. We’ll get there.
7. A locked-in book is a less valuable book. Want to preserve the value of ebooks? Avoid proprietary formats. Readers should be able to buy their books from any retailer and read them on any device. Does anyone really believe they’ll be reading on hardware from the same manufacturer thirty years from now? That’s like saying “I will only store my books on these IKEA Billy shelves I bought as a college student. If I ever choose to buy non-IKEA shelves, I will throw out all of my books and start over.” A reader should never have to worry about “leaving books behind” or “losing their library”. If you can’t download it and move it somewhere else, it’s worth less. Seriously. They’re books, not Atari 2600 video game cartridges.
If we can keep these seven basic ideas in mind, I have no doubt we can find a model that works. Over the next few months, we’ll be working with publishers to strike agreements that are both sustainable for the industry and affordable for the reader. We won’t be pulling anyone’s books from Kobo. We’re all grownups here. In the meantime, we’ll keep doing what we’ve been doing — providing two million ebooks in more than 200 countries with a solution that lets customers read on the devices they choose. We’ll make reading better on smartphones, tablets, eInk devices, netbooks, and desktops. Along the way, you’ll tell us whether its working through your decision to keep buying ebooks from Kobo. And that’s all we ask.
——footnotes——
* In the agency model, the publisher sets the price (probably USD $12.99 for bestsellers, 12.99 to 14.99 for other new releases). Retailers get a fixed cut of sales (about 30%). Every retailer sells for the same price. We all compete on everything else: our ability to merchandise well, develop cool apps, support great devices, have excellent titles available. The publisher may end up making less money**, but at least the perceived value of a book is several dollars higher and they don’t have to worry about retailers coming back at them to support a money-losing pricing model.
Why “Agency”? It’s about who has the power to set the price. In the traditional wholesale/retail model, the publisher sets a list price, sells books to the retailer at a given margin, and then the retailer can price it however they want as long as the publisher gets their percentage of the original list price. In the agency model, the retailer is acting as an “agent” of the publisher, passing the book along to the consumer at a pre-agreed price. It’s like a real estate agent selling your house. You set the price, they sell it for you. You give them a commission. The agent never owns your house. They just helped out.
** Side note on the agency model. It isn’t really a revenue grab for publishers. In most cases, the publisher makes less. That $35.00 Under the Dome that the publisher made $17.00 on? With agency, they might make $10.50. But they won’t run the risk of some retailer forcing them to price it at $15 and making $7.50.
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Content is still king, and someone who has written a book titled The Peoria Vampire will not make much money, but who is making much money these days in publishing?
Great post – and very politically correct. You’re laying out rules without taking sides, although it seems fairly clear which side of the Macmillan vs Amazon dispute you lean towards.
eBooks should cost more than paperbacks – but less than hardcovers. Part of the premium in hardcover is printing cost, but a lot of it is about maximizing revenue for books that people “can’t wait to read”. There’s nothing wrong with that premium, the whole industry is setup that way. I would hope that on the backend of these agency deals prices naturally fall as a book gets older, perhaps as a paperback is released.
Give consumers the choice of getting it now for $15 or later for $8.99 or so.
I’ve written a lot about the dispute on my eReader blog, including a lengthy opinion piece.
Amazon, Macmillan and agency based relationshipsM/a>
Wonderfully educational post. Thank you! (Totally agree, from my author vantage, with your 7 basic ideas.)
~ Alessia
Hmm, I agree with most of this. With #4, though, you’ve provided not a shred of actual support for the statement. Of course, publishers have to make e-books profitable. It doesn’t follow that they’ll need to set retail prices to do this. For the most part, they don’t do it with paper books, they set a “suggested” retail price. If you want to make the case that e-books are different and publishers need to set the price for specific reasons, absolutely go ahead and make that case. You just haven’t done it here. Basic economics suggests that the further upstream the price is set, the less responsive the market is to changes in demand. There are exceptions – and certainly I agree with Macmillan trying to prevent Amazon from cornering the market on ebooks – but in the medium and long run, I’ve yet to hear any kind of decent argument why publishers should set the prices.
#3 is slightly problematic, though not as much so. I think your reasoning is sound, I just am not sure that anybody knows if that model is profitable or if your assumption about ebook readers will hold (though it’s definitely true now IMO). Your assumption about format choice is based on a nascent market of early adopters. When 20 or 30 or 50 % of readers are reading ebooks, it’s quite possible that they will be willing to shift formats. Or, it’s possible that they will simply choose a less expensive book – we won’t lose overall sales, just the one publisher will lose them. Suggesting that publishers must bring ebooks to market the same time as paper books may wind up being true, but putting it down as a “rule” right now strikes me as suffering from the bias of the dynamics of the past year or two, not rooted in an objective analysis of where things are going. I don’t think the rule makes any more sense on its face than Amazon trying to keep prices down. supply and demand forces will tell publishers whether they need to do it.
Well written Michael, clear and cogent. As an ebook reader I would like to see publishers make books available without geographical restrictions at a reasonable price. And to see companies like Kobo, Amazon, etc. use frequent buyer programs like eReader & Fictionwise. And as Kobo does already, let me read my books on whatever device I want. Simple. Sell me what I’m willing to pay for. Just get rid of that ‘’stupid” geo restrictions and device specific formatting. Everyone will be happy. End of story.
eBooks should be sold WITH physical print books.