Historical and Contemporary Romance Author

Why Agency Pricing is BAD for Self-Publishing Authors

In the midst of the wrangling over the DOJ’s case against Apple and a collection of the Big 6 publishers (don’t ask me to remember which ones off the top of my head, okay?), which alleges the publishers colluded in setting up the so-called agency pricing1 scheme for digital books with retailers (Amazon, Apple, B&N, etc.), I’ve seen a lot arguments from self-published authors and small independent publishers is good because it gives “small fish” a chance to compete in the market. If agency pricing went away, the reasoning goes, the price of digital books published by the major NY houses would drop (despite claims from a lot of the defenders of agency pricing that it didn’t raise prices!), which would harm the sales of books that aren’t agency priced. I have a ton of reasons for objecting to this, the primary one of which is that, independent of whether agency pricing is good for sales of my books, anything that primarily harms consumers (and I don’t see how it’s possible to claim that unnaturally high book prices aren’t harmful to the people who buy them) is bad. But that’s not where I’m going with this blog post.

No, what distresses me about this line, particularly from self-published authors, is that they seem not to realize that they are subject to agency pricing. That’s right, kittens–most self-published books are, in fact, agency-priced. (Insert Edvard Munch Scream face here…)

To make this clear, I have to explain the two basic pricing models for digital books, so bear with me while I bore you with details.

Wholesale Model: Under this model, which was the dominant one until agency pricing took hold, the retailer pays the publisher a percentage of the book’s list price (typically 50%) for each unit sold, regardless of the actual sale price of the book. This allows retailers to discount books, offer coupons and other incentive programs, and generally do whatever they want with the sale price of the book. In some cases, this might lead to retailer paying the publisher more than the actual sale price for each unit, but that is of no concern to the publisher, which gets its share of the pie no matter what. If the retailer wants to to take a loss on the item, that’s the retailer’s problem, not the publisher’s.

Agency Pricing: This is actually a misnomer for what really ought to be called Retail Price Management but it boils down to this–the publisher sets the sale price for the book, and the retailer is not allowed to discount or adjust it in any way. In this scenario, the publisher is generally paid 70% of the sale price for each unit, while the retailer keeps 30% as its “cut”. This seems on its face like a better deal for the publisher, because the publisher gets a larger percentage of the book’s price, but if the publisher has to cut the price of the book dramatically in order to sell it (say from $7.99 to $4.99) rather than allowing the retailer to choose to discount, the publisher actually winds up losing money per sale (50% of 7.99 is $3.99 and 70% of $4.99 is $3.50). Of course, it also means all discounting occurs at the publisher’s discretion, so it doesn’t have to just hope the retailers discount the “right” books. (Still, in the scheme of things, I’m guessing major publishers can twist retailers’ arms to discount the “right” books under the wholesale model, too.)

So, as you may have guessed by now, pretty much all of the self-publishing venues out there work more like the agency model than the wholesale model: the author sets the price of the book, and then, depending on a host of factors including which retailer is involved and the selected price point, is paid anywhere from a high of 85% down to a low of 35% for each unit. What remains constant is the price. Under the typical terms of service, the retailer does not have the right to discount your book (although in some cases, they do offer incentive plans/coupons on them) below your list price, with the exception of Amazon, which says they’ll discount you if they find your book cheaper elsewhere.

Note, however, that all of these TOS explicitly forbid the self-publishing author from setting the price of his or her book differently depending on the retailer. In fact, pretty much all of the retailers have a Most Favored Nation (MFN) clause, which states that you may not price your book lower anywhere else than you have priced it on their site. This essentially prevents authors from pricing their books based on the percentage they’re getting from the retailer (which to me makes a lot of sense–why WOULDN’T I price the book based on how much I will earn per unit instead of how much the buyer will pay?).

So, from my perspective, agency pricing is bad. For me. I’d much rather tell the retailer how much I want to be paid per unit (by setting the list price) and then let <i>them</i> duke it out over whether to discount the book. Granted, this gives me less control over the actual sale price of my books, because I’d be relying on the retailers to decide how much to sell the book for, and they might wind up selling it for more than I’d like, but I can always adjust that by adjusting my list price downward.

The biggest advantage to this over the agency model we have now is DISCOUNTS SELL BOOKS. I don’t know how else to say that. When The Lesson Plan was discounted on Amazon (because they were price-matching its lower price elsewhere), it sold far more copies at $1.96 than it’s selling now at 99 cents. That red slash through the price is the best marketing money can’t buy, IMO. And I’d like to let the retailers fight amongst themselves over how little they can charge for my books and still pay me my per unit price than have to decide whether to take a 70% royalty by pricing at $2.99 or take only a 35% royalty so I can charge less.

Now, maybe other authors don’t see it the way I do. But from my position, agency pricing is not just making NY books more expensive than they need to be; it’s making my books more expensive than they need to be. And I think that’s a bad thing.

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