Legacy publishers scored an apparent victory back in November when, as a result of heated negotiations with Hachette Group, Amazon reinstated agency pricing for the Big Five. The first batch of sales reports since the agency model’s return show that the Big Five took a big gamble and lost.
For those who are unfamiliar with the term, agency pricing is an alternative to the more common wholesale model. The main difference is that with wholesale the retailer sets the price and with agency the price is set by the publisher.
|Source: Publishing Trendsetter|
Here’s a fact that seems odd at first glance: under the wholesale model, publishers and authors made more money. One of Amazon’s main arguments against agency pricing was that they, as the #1 eBook retailer, knew the pricing sweet spot that yielded maximum profits. They even warned that the prices sought by the Big Five under the agency model were far too high.
The situation doesn’t appear to make sense. Why would publishers fight for a pricing scheme that earns them and their authors less money?
But if you consider the fact that legacy publishers’ only real competitive advantage is their dominance over paper distribution, the picture becomes crystal clear.
For decades, the only way a book could succeed was if a publishing house let it into the paper distribution system that they controlled. Their power to make or break books and authors was absolute.
Then Amazon came along and invented a whole new kind of publishing that the old guard didn’t control. Instead of beating Amazon at its own game through innovation, the Big Five jacked up eBook prices in a misguided attempt to protect their paper sales.
That approach almost made sense when the Big Five had 60% of the eBook market. They figured that they could drive readers away from Kindle and back to Barnes and Noble by charging the same for a string of ones and zeroes as for a slab of ink-stained lumber. Once again, they thought they could leave readers without a choice.
But there was one thing that legacy publishing didn’t count on.
Outfits like Publishers Weekly have been reporting on declining sales of print books and eBooks. It’s been pointed out that these reports rely on figures from Nielsen BookScan, which only tracks sales from a handful of legacy retailers. Many self-publishing advocates have voiced suspicions that the Big Five’s abuse of power is driving readers and authors to go indie, but there was no hard proof.
Compare the chart above to the one below. The ratio of legacy to indie dollar sales on eBooks is almost exactly the reverse of the ratio of legacy author earnings to indie author earnings. The best interpretation of these data? Indie authors are massively outselling overpriced legacy eBooks.
An eventuality unforeseen by the Big Five has thrown a wrench in their plans. Readers and authors are leaving legacy publishers for indie, reader-centric traditional publishers like Baen, and small publishers like Castalia House.