Back in 2010 a publishing executive gave me a background briefing about agency pricing. It was during the height of the terms tussle, the moment when the big publishers were still negotiating agency deals with Amazon and before the US Department of Justice worked itself up into an investigation into publisher collusion.
“Do you know,” I recall the executive telling me, “Amazon quite likes the agency model.”
I remember it as an off the cuff comment, not a detailed analysis of how the e-book market might develop over the next half-decade and I thought it was nonsense. A few years on, I think he/she might have had a point.
In a blog post on his Idea Logical blog, the publishing analyst Mike Shatzkin has written how he has changed his mind about agency: with new information he now concludes that the return to agency pricing by the big publishers in the States over 2015 was done with the willing co-operation of Amazon. And even the behest.
“As it was put to me by one observer, agency in 2010 was a strategy; by 2015 it was a surrender.”
And, he adds, the “real story of ‘agency pricing today’ is that Amazon demonstrated dazzling marketplace power by keeping all the big publishers on agency terms”.
Shatzkin says he’s had “no conversations with any friends in big houses during the recent agency negotiations”, but he has since been told that four out of these big five believe a return to agency was a mistake.
Shatzkin is right about one thing: Amazon is now a willing participant in agency. When in the UK Penguin Random House, HarperCollins and Hachette renegotiated the terms, it wasn’t about whether agency was an option, but actually about the discount levels. The original “70-30” split between the publisher and Amazon was the main topic of discussion, as were marketing costs.
Not only is Amazon a willing participant: it has also offered (though not insisted upon) agency terms to other publishers outside of the top tier. I don’t know of any who have taken up the offer.
I don't believe, though, that publishers were generally unwilling to move back to agency: one executive told me that though they disliked the idea of agency, it remained a useful way of retaining control over the e-book market in what is essentially a monopoly situation. Amazon is also understood to have offered wholesale terms (but unlike traditional wholesale contracts) publishers would have taken the hit on any discounting undertaken by Amazon. That's an unconscionable position to be put in.
That said, my former colleague Porter Anderson at Publishing Perspectives also points to a counter view as expressed by attorney David Vandagriff (aka Passive Guy).
“Since when has Amazon been obsessed with margin? For years, the big knock on Amazon was that it was too focused on revenue growth while sacrificing profits. In what other vertical market does Amazon impose a pricing regimen that guarantees retail prices will be substantially higher than they were under the previous pricing system?”
But here, incidentally, is what HarperCollins UK chief executive Charlie Redmayne said at the FutureBook Conference in 2015:
“They [Amazon] used to care about offering the widest possible selection and the cheapest possible price – now that they have built their market share to such a huge level they are now also focused on delivering margin – something which is predictably being funded by authors and by publishers. This eats into our authors income and creates an un-level playing field.”
Vandagriff has no special insight into Amazon’s business thinking, but he is right to question the motivation; why would Amazon want to over price an important product line that also encourages device sales of its Kindle range? But the point is that Amazon is still hugely dominant in the e-book market, and of its serious competition (Apple and Kobo) neither seem interested in competing on price. Second, allowing publishers to “over price” their e-books in the short term (while maintaining its own margin on those sales) is not a bad strategy while it continues to build this rapidly growing self-publishing and Kindle Unlimited marketplace.
I’ve long thought that Kindle could end up as publishing’s Napster, and this shift in gear shows the road ahead. If, as Data Guy insists, the marketshare of publishers’ e-book business is gradually being supplanted by cut-price self-published e-books then the big publishers either need to drop their own prices drastically (they won’t, except on some backlist titles), or quietly cede this territory. Their hope will be that Amazon eventually recognises that it needs The Girl on the Train just as it wants Wool. And to get the former it will need to work with publishers long term.
Shatzkin also says that his claim that “print book sales overall are rising” in the US has been punctured by data that shows that this rise was the result of the rise in sales of adult colouring books.
In the UK this is not the case: according to Nielsen BookScan the Total Consumer Market (for print books) rose 6.6% in 2015, and with colouring books excluded by 4%. There were rises across nearly all print categories including fiction. In 2016 the print market has improved even further, up 12.2% over the first two months of the year.
That shifts the analysis again. If executives in the US are fretting over the return to agency, their falling e-book sales, and a still fragile retail marketplace; in the UK the strength of physical book sales through the high street, supermarkets, and online retailers, means they can keep passing the open windows.
Whichever narrative you choose to believe, and from whichever region, the fact is that while agency once looked like a strategic masterstroke, it now more closely resembles an albatross an omen of a past struggle that no-one can quite shake off. The delicate balance between the e-book market and print book sales will determine whether publishers (or Amazon) need to shoot it.
Philip Jones is editor of The Bookseller.