Agency, Pricing and the Seven Things Publishers Need to Remember

Posted by Kobo Help February  02, 2010

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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