One bad Apple don’t spoil…on second thought 
On April 11, the US Department of Justice filed suit against Apple and five of the largest US trade publishers over what’s called the Agency Model and e-book pricing.
What does that mean for authors?
First, let me briefly tell you what the Agency Model did.
In the old “Wholesale Model” (which is how paperbooks work), a retailer like Amazon bought the books from the publisher, usually at half the list price (set by the publisher), and then resold them to customers for whatever they wanted.
In the Agency Model, the publisher sells the books to the customer for the price the publisher sets…the former retailer just processes the sale, acting as an “agent” for the publisher (that’s why it’s called the Agency Model).
The publishers involved raised the prices on New York Times bestselling hardback equivalents: where Amazon had generally been selling them for $9.99, the Agency Model raised them to $12.99 and more (usually).
It also, significantly, meant that Amazon and other former retailers couldn’t discount the Agency Model books.
That created a huge opening for independent publishers (and if you are an author who makes your books available to the public, you are a publisher).
If this suit puts the pricing power back in the retailers’ hands, that changes the whole dynamic.
Amazon could price a new Stephen King at $2.99 (even if it was only for a day or two), changing who your competitors are at that price.
Amazon could feature traditional publishers’ books in the way they now feature non-Agency Model books (in the 100 books for $3.99 or less, for example).
Overall, if the suit gets rid of the Agency Model (and some publishers have already settled), it’s good for readers, and probably good for the e-book market all together.
Is it good for indies, though?
Time will tell, but it could level the playing field. Yes, the tradpubs had hobbled themselves by taking on a pricing disadvantage, but with that gone, it’s a whole different race.
Another change is that Amazon has really been pushing doing their own traditional publishing, in part to get around the publishers, in my opinion, because the publishers reduced Amazon’s control over the process. That has worked well for them: it will be interesting to see if they continue that big push if the Agency Model becomes irrelevant and that part of the process (but not the market) returns to what it was before.
Does Amazon continue AmazonEncore, which has taken independently published books and made them much more prominent? My guess is yes…so that opening may still be there for you.
Bottom line: things are constantly changing in complex ways. 
Stay tuned…
Further reading:
Frequently Asked Kindle Questions: Special Agency Model Edition
That is one of my “splinterviews” (where I interview myself)…it was done some time ago, but it will give you a better sense of what the Agency Model means. It was written for consumers.
If you are into the legalese, that’s the actual filing, published by the Wall Street Journal.
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Recent posts in the I Love My Kindle blog which may be of particular interest to WG2E readers:
- Five words I never thought I’d say: “I have enough to read” (Are people not driven to buy in the same way they used to be?)
- Sales versus borrows versus giveaways (Some analysis of my own patterns)
- Why are you paying for e-books? (I poll my readers: why do they ever choose to pay for a book?)
- Tweading in the bookstream (A new live chat feature in every Kindle book on the Kindle Fire)
- Snapshot April 1, 2012 (My monthly statistical analysis of the Kindle store: sounds like fun, right?)
- Amazon updates updating (What happens when you upload an updated version of your book? It’s changed)
- Downward trend in the Kindle Owners’ Lending Library (Are you in KDP Select? Interesting numbers…)
Bufo Calvin is the author of the popular I Love My Kindle blog and six titles in the Kindle store, including the #1 bestseller Love Your Kindle Fire: The ILMK Guide to Amazon’s Entertablet. Bufo is proud to be a part of the WG2E family.
Bufo:
Thank you for a concise explanation about something that was getting confusing. Now I feel I have some knowledge of the issue. And thanks for listing the additional links.
Mitzi
Thanks for writing, Mitzi!
I love understanding things (and then regularly challenging myself on my understanding), and I love even more helping other people understand things.
In the mythology, a traditionally published author wouldn’t have to worry about issues like this: their agents would take care of the compensation, and their publishers would be looking at the marketing and legal issues.
Indies are responsible for all of that. I was a bookstore manager, and there’s an old saying: “When you own the store, the store owns you.”
I think that applies to indie authors…and knowledge and understanding (two different things, by the way) help you manage that.
Thanks, Bufo, for helping us all keep on top of the news. I still feel the way I felt a couple months ago… who knows what the publishing world will look like this time next year? I’ve read blogs where folks speculate the price of ebooks by traditional publishers will not decrease (because they still want to pay for fees like editing, etc.) and I’ve seen where Amazon lists Rowling’s new ebook release at $19.99! Whoa!
Thanks for writing, Tamara!
Nobody know where it will be…but we can make educated guesses.
It’s less important than it used to be, because prices can be flexed so much more easily in the world of e-books than p-books (paperbooks). When I ran a bookstore, the list price was printed on the dustcover for hardbacks and actually on the book itself for paperbacks. If you wanted to change a price, you had to take your “sticker guns” and label every copy of a book.
In the e-book world, you can just enter the new price online, and it changes.
That means you can be more nimble on pricing, so you don’t have to project as far ahead. The production cycle is also much, much faster. A print run in paper needs some serious lead time (typically). There really isn’t a supply issue for a single title in e-books.
Still, having a sense of whether you are going to make, say, $50 or $500 in a month a year from now can matter.
As to the $19.99 price for The Casual Vacancy by Rowling, that’s going to be a fascinating one to watch. The $19.99 price is not unprecedented: when I last did a price point analysis on April 1st, there were 395 titles at that price. Pillars of the Earth by Ken Follett was at that price.
However, the book is being published by Little, Brown which is part of Hachette: and they’ve already agreed to settle the DoJ case.
If that takes the pricing out of Hachette’s hands before the release of this book in September, I think you’ll see a real price war on it…meaning you as an author could be competing at the same price point as Jo Rowling (even if it’s for a short period of time during a sale).
A very important point on tradpubs wanting to pay editors and such: the publisher makes the same money regardless of what price the consumer pays, under the wholesale model. It’s the retailer that eats the loss. Let’s say a publisher sets the list price at $25, and Amazon pays $12.50 to the publisher for it. If Amazon sells that book for $9.99, it’s Amazon that takes the hit…the publisher still got the $12.50. The higher overhead for tradpubs over indies isn’t directly impacted by Amazon discounting the book.
Thanks again, Bufo! I really appreciate your insight.
Bufo, you have laid out (so well I might add) a concept that I knew about- but after reading your post, I now understand (thanks to you)- much better:)
Thanks for writing, Lois!
I’m happy to hear that…thanks!
I’ve looked to you, Bufo, through this entire Agency Model Heist to help me figure out how all this could impact Indie Epub Authors…and thanks for always having great, up to the minute scoop and analysis!
I welcome this change because I think it will allow us as Indie Epub Authors to be seen in the same streams as many of the TradiPub Authors that the Agency Model pricing effectively blocked us from. We’ll be introduced to an entirely new set of superfab voracious readers…those readers who were taught to believe that if a book wasn’t $9.99 or above, it wasn’t worth reading.
And without the Agency Model (which is just horrible for readers…forcing them to pay ridiculous prices to maintain a distribution system not even involved in the format of the book they’re buying), once more…PRICE will be king!!!
I do think, just like with KDP Select, there will be huge changes in Amazon’s Algorithms. So that will be interesting to see shake out. Also, more than ever before, we as authors must really work our social media and pricing strategies to get the visibility we need.
Good point, D.D., about Indie Authors being seen in the same streams as the TradiPub Authors. Your “taught to believe” phrase regarding pricing is spot-on.
Thanks for writing, D.D.!
Excellent point!
This “price value perception” issue is why the publishers didn’t like Amazon promoting a $9.99 price for a new book in the first place. The problem wasn’t that consumers were paying less…the tradpub got the same money regardless.
The fear was that people would see a hardback advertised for $14.99 (after being discounted), and think it was too expensive…because Amazon would have taught them that $9.99 was the appropriate price (even though it was for a different, somewhat less expensive to produce format).
Consumer goods don’t necessarily sell the most at the lowest price, which might seem odd. When I ran a game store, that was especially obvious. An item ending in ninety-nine or ninety-eight cents suggests a bargain. An item ending in zero suggests quality. We had wooden full size chess sets for something like $8.99. We also had $500 chess sets. We would never have priced that $500 chess set at $499.99: it would have reduced the sales. If you are paying $500 for a chess set, you want to believe you are buying quality, not a bargain.
We may see some of that pricing for e-books, both from indies and tradpubs.
For example, there are indie e-books in the Kindle store that are priced at $200…including this one:
This Book Shows Everyone Just How Rich You Really Are by Mon E. Bags
Thanks so much, Bufo, for your very clear and concise account on what is a complicated issue! I guess only time will tell what knock on effect it will have for us indies
Thanks for writing, Sibel!
I’m glad that helps!
While the subtleties are complicated, I was surprised it wasn’t front page news when the Agency Model went into effect. If all of the soda companies had suddenly made a policy that all the grocery stores had to sell the sodas for the same price, I think there would have been an uproar. If Apple wasn’t involved in this lawsuit, I don’t think it would get what mainstream attention it has…I saw headlines that didn’t even mention the publishers.
The book market just isn’t seen as “sexy” as the iPad market…
I think I know the difference now. Be interested to see what happens to everyone, esp us indie authors.
Thanks for writing, Julie!
Oh, I agree! I think indies got an extraordinary opportunity when tradpubs chose to give themselves a different set of rules than indies. Amazon encourages indies using Kindle Direct Publishing to enable lending, not block text-to-speech access, make their books available to borrow for free, and so on. Tradpubs didn’t do all that consistently…and that may have hurt their marketshare.
Bufo, thanks for the clarity. As the Chinese say: Interesting times.
And, as Bob Dylan, said: the times they are achangin’.
And, as Ruth Harris says: the times KEEP changin’
Stay tuned!
Thanks for writing, Ruth!
People quote that as a curse: “May you live in interesting times.” It’s one of the things about being a geek like me: all things, and all times, are interesting.
So great to finally get a clear explanation of this confusing issue. Since subscribing to your blog I’ve learned so much about all things Amazon, Kindle and the Indie marketplace.
Thanks, Bufo!
Thanks for writing, Alicia!
That’s so nice of you to say! Thanks also for subscribing.
That’s really what makes my ability to stay on top of these things so much more possible.
I read your analysis of the current state of affairs with interest, Bufo, but am inclined to disagree with your conclusions. Amazon is not levelling the playing field so much as trying to continue to grab market share. Using the Justice Department to clobber others into submission doesn’t change the fact that it is still about corporate greed ~ this time, Amazon’s. Bringing a Stephen King novel down to $2.99 does not help the indie whatsoever, because to compete, the indie will have to sell at $0.00 This does not worry Amazon so much because it means people will continue to buy their Kindles for the free stuff; in the meanwhile, unless the Indie is writing out of pure indulgence, as opposed to trying to make a living, the glut of free stories on the market (which is already happening with Amazon’s prime programme) will ensure that most will NEVER have to buy another book again. I actually interact with Kindle owners who don’t write, and they will happily download anything that is free from an indie, but asking them to buy? Not so much so. In the forseeable future, traditionally published authors will continue to have readers because they have the marketing behind them; amazon will have a much larger cut of the pie (their publishing foray has been seriously pushed back by the fact that Barnes and Noble have no interest in carrying any of their print titles, period, so it’s just wasting trees); and the indies will be those who are willing to work for free in the hope they will make enough of an inroad to be picked up by a traditional publisher.
Some good points, Hope, and thanks for sharing ‘em with us…but here’s where I take exception to what you’re saying here…you said:
“In the forseeable future, traditionally published authors will continue to have readers because they have the marketing behind them…”
NO tradipub authors have any marketing behind them that translates into any meaningful sales numbers except the major brand authors who don’t need it anyway. Ask 90 percent of authors who are tradipubbed, and they’ll tell you this is true and in addition, that they’re not getting contract renewals even with the Agency Model pricing making supposedly more money for The Big Six.
I’m making over $100,000 per year now as an Indie Author with one Free Book, a gazillion 99 Cent Books and a couple $2.99 Ebooks, so I wouldn’t call that “writing out of pure indulgence” but rather yes, writing “to make a living”…and a very good living at that.
And I talk to my readers every day, who are more than happy to pay for my books because they are reasonably priced and they luuuvvv ‘em…so yes, they will BUY books by the authors that perhaps they’ve discovered they luuuvvv because of that author’s gift to them first of a Free Ebook.
We can never discount the fact that readers don’t give a crap WHO publishes a book…they simply want great books for great prices.
And now that the TradiPubs books will be at our Indie Prices too, readers won’t have that perception bias that higher priced books are better books.
And with today’s economy, lower prices are wining out across all markets.
Thanks for writing, Hope!
I’m curious as to what you thought my conclusions were?
We seem to agree that Amazon being able to put brand name authors on sale is potentially bad for indies.
You might find the post I linked where I polled my readers about why they ever pay for e-books interesting. It was fascinating to me that one option I left out was cited a few times in the comments: “Because I want it”.
They don’t care what the book costs…perhaps don’t even look to see if it is free or not.
Obviously, an author with fans benefits from that…and in the world of social media, that fanbase can certainly belong to indies. I’m a former bookstore manager: people bought from my store, in part, because they liked me.
Sometimes, people buy an indie’s books because they like them…even if they think that particular book is flawed.
As to Amazon “Using the Justice Department…”, I’d be interested to see something that suggested that Amazon has more influence over the DoJ than Apple does.
I do think the DoJ likes the big score, and with Apple as respected a brand as it is, that would certainly be a big score…but I don’t they’d go after Apple and the Agency Five just because Amazon asked them to do it.
The use of the phrase “corporate greed” is always interesting. Naturally, corporations want to make a profit, and should. Greed suggests, to me, excessive profits at the cost of societal good.
Amazon makes a ton of sales…but as all the grumpy investors will tell you, they aren’t very good at profits.
That’s especially true lately.
As to societal good…I think it’s very difficult to judge the motivations of others, and I try not to do that (although I certainly might repeat their actual statements). What I will say is that, in the past couple of years, I would be above poverty level based on my writing royalties alone…for the first time. That’s come entirely through electronic distribution through Amazon, without an agent. Prior to Amazon’s release of the Kindle, then the Digital Text Platform, then blogs for sale through the Kindle store, then Kindle Direct Publishing, then KDP Select, that was much harder for independents to do.
I write about Barnes & Noble, and it’s been an intriguing decision on their part not to carry particular things based on non-economic reasons. One of the ones that really got me was when they stopped carrying the paper version of DC graphic novels because DC made an exclusive electronic deal with for the Fire. That doesn’t help those authors, and it doesn’t help their customers. That can be seen as a principled move, or as spite…I’m more interested in the impact than on the emotion behind it.
To me, and again, this is just my opinion, Amazon’s actions aren’t any worse for indies than Barnes & Noble’s or Apple’s, and are actually quite a bit less so. One last example of that: Amazon lets authors retain their rights when they use Kindle Direct Publishing (although they do require exclusivity for KDP Select for 90 days). Apple’s book authoring program (iBooks) requires you to go exclusively with Apple if you sell something you create with it.
These are just my thoughts on the situation, of course.
Thank you, Bufo and D.D., for helping me wrap my head around the whole DOJ issue. Hope makes some excellent points, too. We’re still in the Wild Wild West stage — lots of gunfights and no laws. It will be interesting to see how the DOJ decisions pans out.
Thanks for writing, Debra!
Well, it might seem like the Wild West…but the DoJ is wearing the Sheriff’s shiny star.
There certainly may be gunfights…but to switch the analogy, they took down Al Capone on tax laws.
The market in e-books is certainly still rapidly evolving…no question, it’s going to be interesting to watch a lot of different aspects of it.
When I read all of the doom and gloom of the settlements…I went a different direction. http://eawestwriting.blogspot.com/2012/04/what-makes-us-different-indies-vs.html
I don’t think it’s just price that made readers consider indie books. Certainly that drew attention, but after the price catches a reader’s attention, then it’s on the author to keep it. That comes down to other factors, not just price. We all hear the terms “Oh the ‘crap’ that’s all priced $.99″ etc…. the reality is that most readers never even see/consider the “tsunami of crap.” It doesn’t show up in their Also Boughts. It doesn’t show up on the genre lists. Occasionally, an author with no business publishing stories will use social media to try and raise awareness about their titles, but for the most part, what is one reader’s crap is another reader’s joy. I have many friends who are far more successful than I am in this publishing gig and I cannot finish reading their books. Can’t. Hate them. But yet, they have glowing reviews from readers.
If we keep focusing on delivering what readers crave (and no, it’s not electrolytes), great stories, and capitalize on not just price but other areas we can over-deliver where a large publisher can’t, we’ll all be okay.
Thanks for writing, Elizabeth!
Yes, I agree…it’s not just price.
Putting aside the quality of the writing itself, which, as you note, is to some extent subjective, there are other places where indies can outshine tradpubs:
* Not protecting other formats…indies aren’t concerned about text-to-speech affecting audiobook sales (I actually think it may increase them, by the way) because they don’t typically also sell audiobooks. They aren’t worried about hardback sales, because they aren’t tied to them in the same way tradpubs are (although they may have Print On Demand offerings)
* Access to the author: that’s the number one benefit. D.D. and I have both chatted with our readers inside our books, for example. Even though that feature is available to brand name tradpub authors, I’d be surprised if its being used much
* Speed of production: indies can get the next book in a series out much more quickly than a tradpub can
That’s just a few…