Agency pricing didn’t restrain Amazon; it strengthened them

57 thoughts on “Agency pricing didn’t restrain Amazon; it strengthened them”

1. Supplementing C.E. Petit’s insights above:
   Real quants aren’t glorified spreadsheet jockeys.

   First, the best quants are hired by government contractors and cloud-oriented ventures.
   If the next-tier quants had an offer from a major publisher, the response would be:

   1) Please up the first digit by 5, since I have to live in New York, and please show me the estimated growth for the stock options you will offer plus the data you used to project that growth.

   2) Show me the kind of interesting data I’d have to work with, and give me examples where executives have listened to your data-guys to make long-term decisions.

   After #2, the hiring conversation ends, because the major publishers don’t have significant customer and social-trends data with which there’s anything interesting to do.

   And even the next-tier quants recognize that no top CEO would take a job in any of these corporations, because there’s no significant growth potential upon which to build a billionaire’s career.

   Without a CEO who can be relied upon to advance the long-term growth of the company, a good quant isn’t going to take a miserly salary for the pleasure of struggling day-to-day in a sub-par corporation.

   • There’s more and better analytics jobs in pro sports anyway. No stock options but the job is more fun.

2. It’s amazing how innumerate some of these publishers are.

   We’ve got Steve the CEO of Kensington commenting over on the original Shatzkin blog post that “Amazon isn’t this big a customer” for his company… totally failing to understand that the percentages Mike quotes include both traditional & indie sales.

   Oh, dear. 😀

   • Well, as they say in bureaucrat lands: “Your mileage will vary”.

     Just as some Indies do significant business at Nook or Kobo while others see nothing, different trad publishers *should* be seeing different percentage sales via Amazon. It would be shocking if all publishers saw the exact same performance in all channels because the different channels have different customer base profiles and each publisher has a totally different mix of authors and thus reader bases. Which is why some publishers are shutting diwn SF&F imprints and others are making a big thing out of (marginally) growing theirs. Every publisher is different. (Except when they collude.)

     Some depend more on casual, drive-by impulse buys (Walmart, Target) while others rely more on avid, regular buyers. Some do significant business at their own ebookstores (we all know who, right?) while others can’t get their bookstore to even list their books properly.

     Not being as dependent on Amazon as the industry average could be a good thing (you are tapping into alternative channels more effectively than your competition) or it could be a bad thing (you aren’t tapping the biggest pool of sales as effectively as your competitors). But what isn’t safe is to assume your experiences and practices apply to anybody but you.

     Bad experiences lie down that road.

     • I’m told by romance authors who’ve “gone wide” that all the non-Amazon e-platforms combined equal 2-5% of the amount they make on Amazon-for-Kindle. And it’s still apparently glitchy and labor-intensive to load a book to any of those platforms. Plus there’s the widely reported fear that Nook may implode soon, leaving 2-3 non-Zon platforms.

       Amazon-for-Kindle makes indie publishing easy. Why cope with the others’ temperamental interfaces for so little return?

   • There are none so blind as those who will not see. Trad pub has been sliding their gaze past what’s happening out here in the real world for years, and it won’t stop any time soon. It won’t end until it’s no longer profitable for the conglomerate masters dump publishing, and then it will likely be too late for them to recover.

     As sad as that would be, it’s something we will have to accept. Maybe some would recover as small, boutique presses, though.

     • KKR’s column last week covered Data Guy’s session at the DBW conference and how tradpub attendees, lulled in by the pre-session spin in mr Anderson’s white paper, must’ve been gobsmacked by the reality of the data they saw.

       And now, there’s this:

       http://the-digital-reader.com/2017/02/02/following-declining-conference-attendance-dbw-loses-staff/

       Not sure if DBW might really be folded over their reality disconnect but heads are rolling…

       Spin and denial only goes so far.
       There’s a lot of canaries pining for the fjords out there.

3. So if the original point to the agency strategy was to reduce the power of Amazon, it isn’t working.

   The purpose was to max the paper market share as long as possible.

   The wisdom of tactics depends on the objective of the strategy.

   • What could be the advantages of maximizing paper market share for as long as possible?

     Profit differential depends on pricing levels and how common costs are accounted for across how ever many different editions exist. But it is safe to say that paper market profits are not necessarily higher per unit sale than digital market sales. So we can set profits aside as a motive.

     Maximizing paper market share allows big publishing houses to leverage their substantial advantage in controlling physical distribution and cut out many potential competitors. This advantage only holds for brick and mortar stores who have to physically shelve books and want either guaranteed sales or guaranteed no cost returns. Amazon will happily sell offset printed books and print on demand books. The more paper sales go through Amazon, the less the competitive advantage big publishing realizes through paper sales.

     At the moment, publishers using offset printing could undercut the lowest price publishers using print on demand could manage. So far they have not chosen to do so, and this is a temporary situation. Technology continues to advance so that probably within ten or twenty years a POD focused publisher with low overhead could price match an offset printing focused publisher with high overheads.

     Amazon discounting paper and not discounting ebooks is providing a boost to paper market share. It is also providing a boost to Amazon’s share of the paper market share, which reduces the competitive advantage paper provides big publishers.

     • What could be the advantages of maximizing paper market share for as long as possible?

       Paper provides the big publishers’ competitive advantage. They do paper better than anyone else.

       Without paper, what is the publisher’s competitive advantage? What does he do better than anyone else?

       Paper is the basis of his eBook sales, and paper provides carry-over promotion for eBooks.

       • In other words, big publishers had a competitive advantage in a marketplace that no longer exists – a tightly controlled oligopoly of trade and mass-market print distribution. By trying desperately to delay the adoption of ebooks, they only increased their competitive disadvantage in the new market.

         • And ebook agency games couldn’t save them if there were any other games in town.

           If only they had done that agency game on their hb/pb books …

       • Paper provides the big publishers’ competitive advantage. They do paper better than anyone else.

         True for paper sold through brick and mortar outlets. Online the big publisher’s competitive advantage in paper is reduced. It is not some magic quality of paper itself that provides the advantage, anyone can do paper, but dominance of distribution channels to limited physical shelf space. As paper sales shift to online and the market share served by limited physical shelf space shrinks, the competitive advantage of dominating the limited physical shelf space also shrinks.

4. The simplest explanation for the failure of the Big 5 to adapt to Amazon and the ebook revolution is not that they are collectively stupid (otherwise, at least one of them might have had some brains and competed effectively).

   The most likely explanation is that selling books and serving readers is a secondary goal of the upper managament. The primary goal is to maintain their position as cultural curators of what is “important” and “popular.” They do this out of their own snobbery and also to maintain their social position and ability to peddle influence. Their primary goal is to control what people see on the bookshelves. They care much less about whether people buy it. Readers are supposed to buy what they want them to buy and they aren’t able to cope with the reality that readers now have choice.

   Part of their desire to protect high pricing is to justify ridiculously high advances they give to politicians and celebrities, as well as pet writers of literary fiction that’s unlikely to move many units. They want genre writing to remain in a ghetto, which is why they don’t support romance novels the way they should.

   They have to protect print because online has unlimited shelf space, and that means all books are equal, other than a readers desire for them. That means they aren’t needed.

   • “Their primary goal is to control what people see on the bookshelves.”

     Sadly for them, most of their market has moved online, where they have no ‘control’ at all.

     I had to laugh at those ‘trad-published authors’ whining that Amazon had reduced their discount on their pbooks. I wanted to suggest to them that instead of Amazon they should take their books being overpriced up with their publishers, but we all know that won’t happen.

5. Ignoring also the fact that a large percentage of those trade-pubbed books didn’t get an iota of marketing or promo push from the publisher, so “it didn’t earn out” can cover a multitude of publisher tactics that boil down to complete indifference.

   The reason I’m aware of part of this is that it happened to me. My publisher said, “We want this to be your breakout book, so we’ve already negotiated lots of placement in bookstores.” When it didn’t happen, her distributor made a single phone call to one of the chains, which wasn’t returned. No copy of my book EVER appeared in a bookstore. So much for “reasons” the book didn’t pay the publisher back major-ways, which we all wanted…

   Why shoot yourself in the foot? I’ve never understood much about this event, even after seven years of reflection on that time.

6. “…ignoring, for the moment, that so many published books don’t earn out their advance so the effective royalty rate is higher than the contractual royalty rate.”

   Ignoring, for the moment, that the author signed away their IP rights almost forever and then didn’t even earn out.

7. I have one small quibble, but in the end it’s a big one.

   Publishers rely on a lot of quantitative analysis and quantitative material, beginning during the acquisition process with cost-sales (sometimes — inaccurately, and I’ve been fighting this for twenty years with extremely limited success — called profit-loss) forecasts. And they are relentlessly quantitative. So, too, are administrative reports on employee time allocation, royalty reporting, fulfillment cost projections, and so on.

   What I believe Our Gracious Host really means, though, is that the second level of mathematics doesn’t get invoked: A search for relationships among quantitative data. For example, nobody looks for a positive correlation between proportion of authors who jump ship for another publisher and the proportion of that publisher’s late royalty payments/reports. In other words, if it’s not straight accountancy, it’s just as mysterious to publishing management as a value judgment (pun intended) between the merits of individual works.

   My point is that “quantitative” ultimately means more than “appears on a spreadsheet” — but the latter, unfortunately, is what Mr Shatzkin appears to mean by “quantitative” based on his years of… um… pontificating and following the trade publishing industries’ default process of embracing the inductive fallacy as their only rationale for change.

8. As far as big5 managers listening to anyone, they’re not going to bother. They’re all owned by giant conglomerates, and those are the bosses THEY have to satisfy in order to keep being managers. Every word out of their mouths, and every statistic they quote, is going to be spun to make their companies and themselves look as good as possible to the big guys. Reality just gets in the way.

   All decisions are made with the short term in mind. They’re just trying to hold on until their platinum parachutes kick in.

   • (
     “We have secretly been replacing the platinum with lead, they’ve noticed them getting heavier — but it seems they haven’t realized ‘why’ just yet. Should be entertaining when they try pulling those ripcords.”
     )

     • Uh, lead is about half as dense as platinum.

       (Yeah, I know, picky picky. But the joke only works if it works, y’know?)

       • Yeah, but that only tells you just how big those parachutes have been getting. Looks impressive but won’t be when they open it and find themselves holding the bag.

         • I like the idea of platinum parachutes for the Big Five.

           Platinum is shiny, which always attracts semi-intelligent animals – magpies, pack rats, publishing executives…. It is also rare, which is of no interest to magpies or pack rats, but sufficiently attractive to publishers. So they can easily be sold platinum parachutes as a prestigious substitute for ordinary silk or nylon.

           Fortunately for our purpose, platinum is one of the densest substances under Earth-surface conditions. Though it is extremely ductile, it does not have the same tensile strength as high-strength fibrous materials, and is liable to tear. It is therefore a singularly poor material to use for parachutes. (‘But shiny!’ says the Publisher.)

           Platinum is also extremely rare, and is not available in parachute quantities for more than a handful of those Big Publishing executives who may wish to take advantage of it. We can easily inveigle them into spending a large corporation’s entire parachute fund on one platinum ’chute, instead of many more ordinary ones. Thus, the CEO will unfortunately be at some risk of surviving the inevitable crash, but all the lesser executives will be abruptly removed from the gene pool. (‘But shiny!’ say all the small fry, who vainly hope for promotion to the platinum ’chute ranks before the plane spins into the river.)

           An ineffective parachute for one human, and none at all for the rest? This is the sort of outcome my department would give years of its collective life to secure. Or preferably, years of someone else’s life; but that is in the nature of our remit.

           (Signed)
           H. Smiggy McStudge

9. I note, his blog also says he co-authored 6 books that were published with established companies, but I can only find 3 on Amazon, not counting his ebook that he published himself.

   If he’s co-written six trad books, so far I haven’t found them.

10. It says this:

    “Mike Shatzkin is the Founder & CEO of The Idea Logical Company and a widely-acknowledged thought leader about digital change in the book publishing industry. In his nearly 50 years in publishing, he has played almost all the roles: bookseller, author, agent, production director, sales and marketing director, and, for the past 30 years, consultant. His insights about how the industry functions and how it accommodates digital change form the basis of all of the company’s consulting efforts”

    He’s the THOUGHT leader about digital change in the book publishing industry?

    Who awarded him that role? Did he give it to himself?

    I read every link you’ve posted from him over the years, and it’s always been a twisting labrynth of … projection, diversion and sometimes outright falsehoods.

    It really bothers me, his intellectual dishonesty, I must say.

    He may be a nice guy in real life, but… it’s bothersome.

    • Well, I can’t blame Mike for trying to present himself in the best possible way. I could shill myself as “award winning romance author,” and it’d be true, to a point — as long as you include an award only relevant in a tiny and shrinking niche market.

      • It is like “best-selling author”. If you score a bookbub promotion, you are pretty much guaranteed to be on some best-selling list on Amazon….and often even without a bookbub promotion, you can still make it onto some sub-category list. If your book is one of the many books that author-earnings crawls, then you are a “best-selling author.”

11. What I always find interesting is that people like Mike assume indie authors only earn from Amazon. It’s not true. Each author has a different mix of revenue, and some earn more from ibooks or Nook, and some are earning decent money at Kobo. The possible demise of Nook is a scary idea, though.

    • He also assumes indies don’t sell audio or print-on-demand print books.

      If you release in those formats, too, and you are writing adult fiction, you’re giving up at most 25% of your potential customer base by not being in bookstores.

      If you are writing romance or science fiction, you’re giving up 10-15% at most by not being in bookstores.

      Nook’s demise will affect the authors doing disproportionately well at Nook, but there really aren’t that many of them. The latest numbers have Nook at less than 5% of US ebook sales and shrinking.

      • But what publishers are selling is the dream of being one of the 0.001% of authors who make it big in print. They do extremely well, but it’s an unlikely occurence.

        • And they’re not doing quite as well in the market as they used to. Their next contracts might shock them.

      • “If you release in those formats, too, and you are writing adult fiction, you’re giving up at most 25% of your potential customer base by not being in bookstores.”

        Technically, you’re giving up potential sales, which is different than “customer base”. It seems to me that purchases by casual readers are happening at brick and mortar stores at a higher rate than heavy consumption readers. So, even though there’s less sales happening there, there’s more potential customers than 25%.

        I have no idea if this really matters or not, though. its probably just splitting hairs.

        • It is an important distinction, but it’s impact varies depending on what you’re looking at.

          For example, say as a publisher you abandon brick and mortar print sales entirely and give up on the casual one book a year purchaser. You might lose 50% of your customers but only 10% of your sales.

          Or if you decide digital is the death of culture and only publish on paper, you might give up 10% of your customers and 50% of your sales.

          I’ve just made those numbers up, but several surveys suggest that heavy readers are switching disproportionately to digital. Even so, they still tend to buy more paper books per capita than casual readers. If you publish a book that is read by everyone, the casual reader is a large part of your audience. Very few books are read by everyone. If your goal as an author is to retire on one book, the casual reader is vital. Very few authors retire on a single book.

12. If my commercial success depended on knowing the landscape, I’d want him to inform me about the market for each book I published.

    I find this a really funny comment for a “veteran publishing consultant” who’s commercial success depends on knowing the landscape well enough to inform publishers about the market…

    • No, his commercial success depends on knowing just how close to the truth he can get without scaring off his clientele. 😉

      (Which is why it’s always so off base, his clientele can’t handle the actual truth.)

      • Ok, well… Good point. 😛

        • Not picking fights. 😉 When allowed to I calls ’em likes I sees ’em, and there’s no way Mike can’t see what’s really going on — unless of course he’s actually underground with a 2.4K dial-up connection as his only link to the outside world.

          • He reminds me of conversations I’ve had with people where I try to share information on a topic that contradicts their opinion, they listen and say they understand, and then the next time the topic comes up they are back at the beginning and forgot or pretended to forget everything I said before.

            • Can you imagine the balancing act he has to perform, how much he shades which truth how far in which report who would read? And then keep track of it for next time? (And SDA pointed out below that even he can’t keep it all straight in his head.)

              The mind boggles — if it’s safe to use that word/phrase here.

              • If he were that good at inventing stories, keeping track of who knows what, and concealing the truth from his clients just enough to keep them paying him money… he would be making millions as a mystery writer. My guess is, he’s just || that much less a fool than the people who pay him.

                • Maybe he tried but kept losing the plot?

      • Notice how Mike says: “indie authors are missing out on a big part of the market” and then later, he points out how three quarters of adult fiction purchases (print, ebook, and audio) are now online…

        Oops.

        😀

        • That’s okay, his ‘clientele’ won’t notice it — not the way they do that whale math(TM).

        • One quarter is not an insignificant sum. But that one quarter is shrinking.

        • Hard to see the downside of Indy writers focusing on the growing online market where profits are bigger and there is less risk.

          • I know I can’t see a downside. It’s how we’ve grown over the last decade or so to the point where we’re eating their lunch and making them run home to mother.

      • Maybe he’s considering that the market’s changed enough that there might be as much (or more) money to be made outside of BPH.

        • Then he’s going to have to get a lot more ‘real’ before anyone else starts listening to him (other than for comic relief of course.)

13. Somebody’s got a man-crush.

14. I wrote this article almost exactly a year ago. Glad Mike is finally catching up.

    http://genedoucette.me/2016/02/the-collective-madness-of-the-publishing-industry/

    • Mike is somebody BP trusts. You? Not so much.

15. And yes, naturally Amazon was going to figure out how to use the changes to its advantage. That’s what a successful business does. And Amazon has always been a successful business.

16. He just noticed this? Come on Mike.

    • It’s a proven medical fact that, occasionally, a comatose patient will wake up after years in an obtunded state.

      • I’m not sure what “obtunded” means, but I really like saying it.

        • “Mentally clouded.” (Yes, I had to look it up myself. Thank you, Deb!)

          • My pleasure & privilege.

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