In a new post, Joe very clearly explains the difference between agency pricing and wholesale pricing.
Just remember one thing as you read his great post and all the comments:
If you sell a product to a bookstore for a wholesale price, you get the amount you charge the store. So if you are selling your book to a bookstore for a 50% discount, you get the 50%. It makes NO DIFFERENCE what the store sells it for.
Agency pricing is a system in which the publisher forces the store to sell the book only at a certain price. Period.
I agree with Joe on this one completely. Good post. Read the comments as well.
http://jakonrath.blogspot.com/2012/05/pricing-books-and-ebooks.html
Joe is super clear in his post, but I was talking about this with someone the other day and they were struggling to grasp it. I put it this way:
Farmer A sells apples to the grocer @ $1 per bag and walks away. Store charges whatever it wants.
Farmer B sells apples to grocer @ $1 with the caveat that the grocer MUST resell them for $5.
A is the wholesale model. B is agency.
In the real business world, B goes out of business in about .2 seconds. That is because the grocer who buys from A sells the apples for $2 vs $5 across the street where the other guy is locked into agency pricing.
When you collude to fix prices however, there is no competition. Hence where the legal mess we see came from…
Interesting,
I saved Joe’s post to my favorites, I can reread it when I finally get three novels ready to go.
Thanks for the link.
Dean – in March we were talking about putting (or not) prices on our print books, leaning heavily toward doing it. Joe Konrath spends a good deal of space in this post discussing why he wouldn’t. Do you have any newly-formed opinions on the pros and cons of showing a printed price on an indie-pubbed trade paperback?
Joe, honestly, I am still split on it. There are positives to having a price on a book, and it has been standard on books, at least paperback books, since 1939. And bookstores have zero issue on discounting if allowed. They either put a sticker over the old price, or better put a new sticker beside the old one to show the customer how much of a good deal they are getting.
So Joe is correct that publishing is strange putting prices on paper books, but that has been standard for 60 plus years now and part of the business and never stopped anyone from discounting, which was the thrust of Joe’s post. And his points about the problems with agency agreements between major publishers and bookstores of all types.
So I honestly don’t think it is an important point. I think indie publishers should have prices on their books, if nothing else to make their books look the same as all other publishers.
By the way, a little more history. Agency pricing is not really new to electronic books, although that’s when it got it’s name. Bookstores were forced for a long time by publishers to not discount books with the threat of no returns. They were held to limits allowed by the publishers to discount. Often a book was shipped back to a publisher for a full credit, then reshipped to the same store at a discounted rate so that the store was allowed to discount and put the book on a discount table. It was not until just lately that publishers allowed bookstores to “discount in place.” Not exactly like the contractual terms of the agency pricing put on electronic books, but it functioned very much the same. Just a point. There is nothing ever new in this silly business.
Now that Houghton Mifflin Harcourt has filed for bankruptcy, it is very obvious that even at price fixing at the inflated “K-12 education” level (which is only a slightly smaller gouge than the king of the hill – college text books) is not sufficient for publishing endeavors that have been subsidized by debt for far too long.
And that’s what happens in price fixing: by attempting to control wholesale profit by inflating retail, the publisher then builds all sorts of relationships that draw investment away from innovation and improvement and plunge it into wealth destruction.
In other words, fixing and agency clouds measurable demand. The moment you can’t automatically measure demand is the moment you can’t efficiently supply. The moment you can’t efficiently supply is the moment that, instead of producing product, you produce waste.
There’s no money in garbage production, and the only money in garbage collection is in that little utility we call the bankruptcy industry.
Agency pricing for books is a model of lost opportunity.
But caution, folks, on what xdpaul said above. The HMH bankruptcy has nothing to do with the world at the moment and everything to do with bad business decisions they made before the recession hit. And they are not going out of business in any stretch, just clearing a few million in debt and restructuring the rest. This has been expected for three years now and has nothing at all to do with the situation at the moment with agency pricing.
Just wanted to be clear there. I have heard indie writers trying to make the connection before this and wanted to let xdpaul’s post through to attempt to stop this way of thought.
To be clear. HMH bankruptcy has NOTHING to do with the agency pricing, agency pricing lawsuit by the DOJ, or indie publishing. Period.
Thanks, Dean. Completely agree with you. I wasn’t clear at all: my intention was not to equate agency pricing with bad debt as similar or linked – but actually to the underlying point that O’Callaghan’s bad debt is a symptom of how successful large companies can become disconnected in the environments they create and or participate in – and that’s way off point.
I didn’t mean to suggest that agency pricing was the culprit at all, but I was lumping agency, along with bad debt and the subsequent debt-inflated pricing policies as among many of the “noisy” economic policies that publishers take on in an attempt to grease their numbers without enhancing their content.
I was more generally talking about business bubbles that companies, large and small, blow up in lieu of content production and market pricing.
Bankruptcy, both personal and business, is almost always a correction to some form of debt-fueled bubble blowing. They want more money for ebooks, so they are restructuring – basically shifting their debt to creditors in exchange for ownership. Agency pricing is another (again, totally unrelated) way to blow a bubble: you guarantee your income and then dictate resale to artificially corner a market. It clouds efficient measures of demand, and can, ultimately contribute to oversupply (especially w/ a returns system).
You are completely right, and thanks for heading off my daft semi-sense before it became nonsense.
Back to agency pricing!
Thanks, xdpaul. No bombs. All good. This confusion on this topic, (which it is clear you were not mixing the apples and grapes of the two discussions, it just seemed that way) needs to be cleared and I’m just glad you gave me a chance to do it. I have a hunch as the bankruptcy goes on, there will be more people mixing the two topics. Glad to have a chance to draw the line between the two. And thanks for your great comment. Appreciated.