Why That Ebook May Cost More Than The Hardcover

It’s Not Over ‘Til The Big Dog Barks

Indie publishing is still growing and it seems that established publishing is at a standstill.

Mike Shatzkin’s column of August 5 may be the one in which we someday remember hearing a new sermon, the beginning of the endgame.

But Shatzkin is not delivering a benediction yet:

This is not a death-knell for anybody. This is a changing world for everybody.

His essay is The publishing world is changing, but there is one big dog that has not yet barked.

True, that headline sounds like bad Dylan. But this write is one of Shatzkin’s best, replete with even-handed accommodation. It’s an important and different homily. Take this line now and just hold it in your mind. We’ll come back to it more than once: “Publishers might have boxed themselves in with their return to Agency pricing.”

For now, note Shatzkin writing:

Hugh Howey told me this was happening in a private exchange three months ago. I didn’t believe him. I do now.

Told him what was happening?

We’re hearing widespread but totally unofficial reports that big publisher ebook sales are dropping noticeably when their new higher Agency prices are activated.

‘To Keep Ebook Prices Artificially High’

The author and commentator Kristine Kathryn Rusch walks us through her surprise at finding a long-awaited new hardcover at Amazon selling for less than the ebook price on its release date.

In Business Musings: Price Wars and Victims, she writes about pre-ordering Sara Paretsky’s Brush Back, and by the time the release date had arrived, “the Kindle edition was $13.99 and the hardcover was $13.”

Rusch asserts that new-Agency terms create a condition in which publishers’ higher ebook pricing will diminish the level of royalty percentages they get from Amazon on those ebooks. And so she writes:

Agency pricing has returned to ebooks, which means that publishers are setting their own ebook prices and the retailers, like Amazon, are not discounting…Traditional publishers are deliberately receiving a lower percentage royalty to keep ebook prices artificially high.

She does some extensive math to conclude that it’s authors taking it in the neck:

The problem is that in this price war, the publishers and Amazon are still making an okay profit on each book sold. The people who are getting squeezed are the ones who get no vote in this: the traditionally published writer.

If accurate, that might be what causes, one day, the “big dog to bark,” Shatzkin’s term for a major author ankling his or her publisher and going flat-out indie.

This, as Rusch formulates it, is the new Agency battle between Amazon and the publishers. As publishers pin their ebook prices Agency-high, Amazon discounts their print editions, basically right out from under them, ensuring that authors’ royalty payments suffer either way.

Rusch, like me and some others, recognizes Shatzkin’s essay as “a rather surprising blog”:

For the very first time, Shatzkin is admitting that the industry might be in trouble due to its own behavior.

I can’t go along with Rusch’s assertion that Shatzkin has never called publishers on creating trouble for themselves. For example, he continues to criticize with great zest the industry’s missed chances to position its authors with effective online marketing techniques. It’s almost become his Jack Benny theme song and I’m expecting the violin to come out any time now.

But Rusch’s work here is compelling and I commend her full essay to you, along with a long round of comments about assumptions in her figures.

Here is the line in which you read Shatzkin  at his most “surprising,” as she puts it, on the subject of Agency (and we’ll return to it yet again in a bit after finishing with Rusch): “Publishers might have boxed themselves in with their return to Agency pricing.”

After recognizing Shatzkin’s column as “the first glimmer of hope I’ve seen for traditional publishers,” Rusch goes on to write:

I’m different from some of my indie writer friends: I don’t want traditional publishing to wither and die. I like having the option to publish books on my own, through a small company, or through a larger one. I like being a hybrid writer…[But] traditionally published writers, stop repeating the party line. The problem isn’t Amazon. The problem is that your traditional publishing company is still fighting with Amazon for dominance over the marketplace.

Can things change?

I’m hoping that this week’s Shatzkin article shows that publishers are beginning to realize how stupid their ebook policies are. But I’m an optimist.

‘Publishers Might Have Boxed Themselves In’

Shatzkin’s message, as Rusch points out, is not the party line.

What appears to be happening, writes Shatzkin, is that higher Agency pricing by publishers may be placing  the majors’ ebooks right out of the market for many potential buyers. And at a bad time:

Recent data seem to show that, for the publishers, the growth in the retail ebook market has slowed down or stopped (at least for the moment), while Amazon’s ebook sales apparently continue to grow. The share of the market controlled by the publishing establishment — the Big Five publishers and others — is starting to be slowly eroded. This does not yet suggest that an author’s best bet is to go out on his/her own and we may be a very long way from that. But it does suggest that life may get increasingly difficult for publishers.

Something for everybody, right? The gatekeeper-haters will be giddy about “life may get increasingly difficult for publishers.” But note that Shatzkin hasn’t cued up the theme from Exodus outside the front doors of the Big Five. “We may be a long way from that.”

Shatzkin looks at the news last week of Hachette’s ebook sales dropping faster than their other numbers.

And this week, we have Michael Cader at Publishers Lunch on Simon & Schuster (S&S) where CEO Carolyn Reidy tells him:

“We consider ourselves more flat” than down after leaving aside last year’s big releases this time, “and we hope to end the year up a bit.” …Reidy noted, “Obviously our goal is to grow revenues, but there are so many factors to it. Not just the switch from physical to ebooks, but the pricing on ebooks, and the changes in how ebooks are sold; all those things factor in.”

Cader tells us that S&S ebook sales were 20.1 percent in the second quarter, as opposed to 22.3 percent at the same time last year. Reidy denies that this has anything to do with the publisher’s newly negotiated Amazon contract for ebook sales. This is the Agency question, manifested on many sales pages by that famous note from Amazon: “This price set by the publisher.”

Asked whether their new ebook terms have weighed on those sales, Reidy replied, “What we do know is it hasn’t. We’ve done a lot of studies of this and our unit sales are absolutely holding. So we’re very pleased with the new arrangement, and the results of it. There can be effects from pricing changes, but now the pricing changes we’re doing ourselves.”

We haven’t heard from Shatzkin yet on the S&S numbers, but the lower Hachette figures bring him to an observation that the S&S stats may seem to reinforce:

We’re also seeing and hearing that [here’s the line again:] publishers might have boxed themselves in with their return to Agency pricing. When publishers first “raised prices” by instituting Agency pricing for ebooks in 2010, they saw no reduction in ebook sales, which continued to grow. Michael Cader’s analysis…was that publishers may have misread the real impact of price increases because they raised them in a growing market. The number of ebook readers was increasing every day, so those who were put off by the high prices were outnumbered by the new entrants who just wanted to read their books digitally on their shiny new devices.

Get what he’s saying? At a time when the ebook adoption growth rate was high and fast, price points were less important than those sheer numbers that made so many boats float. That’s a cogent observation from Cader. Now that all our dinghies are lying lower in the water, “the anecdotal reports I’m getting,” Shatzkin writes, “suggest that the price increases aren’t being so easily swallowed in the current round of Agency pricing.”

That’s just what Rusch, independently, has described. And I’m getting it, too. A reader has tweeted me about an ebook edition of a new novel priced at $16.99, well above the hardcover price.

More news of Stateside ebook sales declines arrive from Jim Milliot at Publishers Weekly:

Sales in the adult book segment rose 2.3% in April, over April 2014, according to figures released by the AAP [Association of American Publishers]. The increase was led by double-digit gains in downloaded audio and hardcover; these gains helped offset a 7.0% decline in ebook sales.

In children’s ebooks, the publishers’ association numbers get considerably worse. Milliot again:

April sales in the children’s/young adult category fell 12.6% with ebook sales plunging 51.6% in the month and hardcover sales off 12.1%.

Are these signals of a systemic issue? Impossible to say at this point, but they’re worth watching closely.

‘Decoy Pricing’

In an interesting comment at Shatzkin’s site echoed by a couple of others, the Canadian publishing consultant Thad McIlroy proposes that “decoy pricing” is the publishers’ game with their comparatively high ebook prices. McIlroy:

Why do this? Because the overall success of any new title is significantly influenced by its presence in retail outlets. Depending on how you define “book retail outlets,” and how popular the title, there are some 5,000 locations in the U.S. that will prominently display proven and potential bestsellers. Within the current publishing business model this exposure is an essential part of the sales ecosystem.

And as for Shatzkin, while he works his way through such comments on his post, we’re reminded of his special value in the business. He’s using more than a half-century of experience to scout ahead for what we might think of as maturing changes. Not completed changes. Not definitive answers, as he’s trying to tell us. But patterns, some with precedents, such as Agency-then and Agency-now. He’s careful to disclaim that many things here are based on anecdotal evidence, not on Nielsenian studies or Codexian analysis. Nevertheless, what’s out there is interesting.

Nor do we need to set aside the fact that Shatzkin is looking for these patterns in order to aid clients of his and his colleague Pete McCarthy’s Logical Marketing. Of course he is. And perspective like his can help industry players appreciate what he has to offer, while in the meantime we’re able to see what he sees and consider it. He writes:

Of the current household names, only Amazon and Ingram are structurally positioned to grow quite naturally in a shrinking overall market. (The publishers can grow by acquiring each other, and PRH and HarperCollins would seem to be in the best position to take advantage of that.)

Shatzkin is describing the Bigs gradually losing what once was their broad control of the markets.

What is definitely true is that the share of the reading market held by commercially-minded publishers (not just commercial “for profits”, but also university presses) will diminish as both successful self-published authors and hundreds of thousands of others who don’t succeed (and maybe don’t even care) take their content to market on their own.

Fido The Bestseller

The “big dog” that Shatzkin is listening out for is a scenario many have expected, in which a hugely popular and successful author jumps ship and goes indie. So far, to Shatzkin’s and some others’ surprise, that hasn’t happened.

No major author of recurring bestsellers has stepped up to take charge of his or her own output. It is bound to happen someday, and if you’d asked me five years ago, I would have been sure it would have happened by now.

The London-based motivational blogger Joanna Penn in comments asks Shatzkin if J.K. Rowling, in fact, isn’t that “big dog” already barking, having created Pottermore to sell Harrymore.

Shatzkin rules against that one:

Since Rowling’s brilliant deal was negotiated by Charlie Redmayne, who is now MD of HarperCollins UK, presumably they’d know how. But to do it, you’d need a website that drew real traffic. Pottermore is a pretty unique situation to provide that!

He’s right, but that’s a near miss, and Penn is smart to raise that case: the big dog Shatzkin is waiting to hear will be a special case in one way or another, by sheer virtue of her or his weight in the marketplace. Eventually, “special situation” won’t mean that the dog hasn’t barked.

Howey, in comments, lays out the case that major earners are, in fact, making moves but we can’t know it because they’re required to sign non-disclosure agreements (NDA):

It is happening. Just quietly. I know of three big-time authors…who just got their rights back to backlist titles and had to sign very strict NDAs on how they did it. So it doesn’t spread. I know of a talented mid-lister who decided to go indie just last week. And I know authors who have contracts they have to fulfill before they can bolt.

Nevertheless, Shatzkin also defines the genuine difficulties facing self-publishers, and it’s these two problems that you can bet are keeping those big dogs at bay so far. Noting that IngramSpark can provide the book-to-store technical services of a full publisher, he nevertheless knows that as a self-publisher:

You won’t have two things that really matter:

• The capability to coordinate the many marketing activities that go into maximizing a book’s success in the marketplace, and;

• The “brand” that tells retailers they should believe your hype and stock your book before they know for sure it will sell.

And he’s right. I call this the “self-publish-yes, self-sell-no” problem. Anyone can self-publish today, this is true. But far fewer people can meaningfully sell their work.

And Shatzkin affirms that this new round of observations doesn’t add up to a definitive look ahead:

What this means for the future of publishers, or for what will constitute the best business decision for authors, is not obvious. Everybody trying to make money in the future from the books they write will suffer from…the increasing share of the readers’ attention that will be taken by books not published with serious commercial intent. If publishers lower their prices to compete more effectively with indie-published books and the subscription offers, their revenue will go down but so will the indies’, who will lose some of the benefits they now gain from their pricing advantage.

‘The Modern Digital Problem’

And so, are we seeing the majors take home less, their higher prices looking less supportable than in the past? If so, as Shatzkin says to former publisher Peter Turner in a comment, it’s because there are so many books out there:

The point is that the number of titles in the marketplace…is growing so fast that in the aggregate their numbers are meaningful.

There’s now so much content competing for the traditional book customer’s eye — including the self-publishing avalanche of titles, of course — that the plethora could erode the traditional hold on the brass ring. It can also make it impossible for most independents to gain even a modicum of traction.

And for the moment, we can put aside questions of quality and value. Sheer volume is creating a howling cacophony of competition out there.

In a comment suitable for needlepoint, Shatzkin puts it this way:

The modern digital problem is that in this day and age the book (ebook) that I wrote in my spare time and put up on Amazon myself doesn’t look any different than the one by a star author with a big house behind her. Ten years ago, the star author would have been in the bookstore and my self-published book wouldn’t have been, at any price.

Imagine what would happen if self-manufacturers could flood the automobile market with hundreds of thousands of homemade cars that looked as good as Detroit’s models? That’s what’s happening in books. It’s a hobbyists’ heyday, and no market in any business that I can recall has experienced such a sudden and deep influx of amateur material, some of which, as Shatzkin says, “doesn’t look any different” from the professional wares.

Today? The self-published ebook that Shatzkin is describing appears right alongside the big dog’s trade-house ebook.

Was that a growl I just heard?