Recently I wrote a post The Race to the Bottom, where I talked about the disturbing trend of low priced ebooks. After the post went live I had an excellent discussion on line with a number of people including author Django Wexler, Brian McClellen, J. S. Morin, and editor Peter Ahlstrom. This conversation made me think about the various factors in today’s landscape so it begged for a follow-up piece.

Amazon and the Race to the Bottom

First and foremost, I want to say that I love Amazon and it, more than anything else, is responsible for making my career as an author. I know there is a lot of anti-Amazon sentiment out there, and many think that they are focused on world domination that once achieved will crush authors under their boots. More often then not I’m the one defending Amazon, saying, “I’m not going to condemn a company for something that they might do – I’ll wait until they actually do something that I find disturbing.”

A few years ago Amazon became a publisher rather than just a distributor. My wife has tried to convince me to have a title or two with one of their imprints because they have an amazing marketing reach, and in general (from what I’ve heard) they have better contract terms than the big-five. So far I’ve been resistive…not because I don’t like them as a company — I think they are the smartest tool in the shed right now (and for quite some time) when it comes to the book industry. My main concern has been with their pricing model, which doesn’t align with my ideas on the subject. If you look at titles by 47 North (fantasy/science fiction), or Thomas and Mercer (mystery thriller) they are always priced low, even for newly released titles.  In October they released: The Palace Job ($3.99), Katabasis ($4.99), Poe ($4.99), Ink Mag ($1.99), The Obsidian Heart ($4.99). I rarely see any of their titles over $4.99 and often see them at $2.99 or $1.99. I just feel like it would hurt me as an author to have books permanently at this price point.

Ever since the Amazon Imprints have come out I have  kinda been considering them as  “publishing light” — something between self and traditional. They can’t get books into bookstores and rely on low pricing to drive high sales. I think they have done a lot of great things for their authors, it just seemed a bit of a step backward for me given where I am now.  The fact that they have low prices for their books doesn’t bother me, just as low prices for self-published works are something that I’ve grown accustomed to.

Post DOJ landscape

Maybe you have heard about the lawsuit filed by the Department of Justice against Apple and the big-six publishers about price fixing.  If you have not, I’ll give you a really simple run down about the parts that are important for this post.  In the “old days” there was the agency model where publisher set the price of the books and the distributor (apple, B&N, Amazon) couldn’t change the price (except by price matching a lower price somewhere else because all their contracts had “favored nation clauses”).  The distributor kept 30%, gave the publisher 70%.

If we roll back in time further (pre agency model) ebooks were sold like print books.  The publisher set a price, the distributors paid a discount off of list, but then they could set the price to the consumer to be whatever they wanted.  In the early days Amazon was willing to sacrifice profits for market share so they sold books for less than they bought them for. The whole reason the agency model came into being in the first place is because the publishers were afraid of their books being undervalued, and they were worried about the low ebook prices undercutting their print book sales.

The DOJ suit is now over. Some of the publishers settled out of court (mine was one of them) and the upshot is now distributors get to set the price again. It is because of this change that my ebooks are priced at $8.89 even though the list price is $9.99.  The publisher (and myself) are still getting paid as if the ebook is selling at $9.99. Amazon is just taking some of their profit away to lower the price of the book to hopefully get more sales.

Loss Leaders

As I mentioned above, one of the people that I had a twitter conversation with was  Peter Ahlstrom.  In addition to be a freelance editor he is also Brandon Sanderson’s assistant and as such he is plugged into pricing with regards to Brandon’s works.  What he noted, and the whole reason for this post is the current price (as of 11/19/2013) of Brandon’s The Way of the Kings ($1.99) and the previously low price of $1.26 was NOT being set by Tor but rather is being set by the distributors.  I’m going to assume that Tor has an industry standard discount with Amazon (30%). What that means is Amazon is paying Tor $6.29 for every copy they sell regardless of what price so they sell it for so they are losing $4.30 for each sale. This sheds new light on the subject as the publisher and the author are actually making out pretty well in such an arrangement. My concern is always whether the writer can afford to earn a living and in this scenario they are getting the best of both worlds…a low price that draws in lots of readers…and full price income because it was the distributor who did the discounting and not the publisher (in which case any loss in income would hit both the publisher and the author – but obviously the hope would be to pick up readers who didn’t buy at the higher price.

According to Peter, Amazon is allowed to sell at a loss as long as they show an aggregate profit for each publisher. I trust what Peter said, but I’m a believer in trust and verify so I looked up the ruling, and you can as well here. The ruling is long, the relevant section starts on page 14 (C. Permitted Conduct (Section VI: B). Peter is indeed correct, here is a bit from the ruling:

An e-book retailer that enters an agency agreement with a Settling Defendent under Section VI.B would be permitted to discount the Settling Defendent’s individual e-book titles by varying amounts (for example, some could be “buy one get one free, some could be half off, and others could have no discounts), as long as the total dollar amount spent on discounts or other promotions did not exceed in the aggregate the retailer’s full commission from the Settling Defendant over a one-year period.

When the low price comes from the distributor, the only person that is really being harmed in this is Amazon. The publisher gets full price, the author gets full price and the readers gets a great deal.  The only problem still lingering is whether readers will expect this deep discounting and put off buying books at their “normal list price”.  Of course there is no way of knowing (except with insider information like Peter’s whether the price drop is because of the distributor or the publisher. And as Django pointed out during our discussion he actually wants his publisher to drop his price like Orbit did for Brian – and Brian was glad that Orbit did it for him, so if they are okay with it, who am I to argue.

Peter did confirm that earlier in the year Tor indeed reduced the price to $2.99 on The Way of Kings and Amazon kept it at $2.99 even after Tor returned the price to normal.  He also mentioned that it could have been Apple that reduced the price to the current $2.99 and Amazon is price matching.  So it appears there is a fair amount of both going on.

The Bottom Line About the Race to the Bottom

There are many players that are racing to the bottom:

• Self-published authors have always been low – but I see this as an incentive for someone to give an unknown author a try. I get it. – Many have earned well with that type of pricing and I’m glad to see that – I hope they will continue to do so.
• Amazon imprints have a low-price strategy – virtually all books priced $1.99 – $4.99  and again, many of their authors sell very well – so I think they have a system that is pretty good at moving products for their authors. As I said, I don’t think it is a good fit fore me, but I’m glad for those that it is working for.
• Publishers using low price to boost sales of low-selling titles, or as “shot in the arm” reader infusions for limited time promotions is, in my eyes, a good thing. The important thing is to not do it permanently or for too long.
• Amazon deeply discounting top-selling titles – presumable to continue their market share dominance, actually makes a REALLY good payday for the authors they are doing this to. I’m sure most of the times it’s going to be those that are already earning well – but I’m always happy when authors get more income, even those that don’t need more.

What all this means is there are a lot of really, really cheap books, which is good for readers, myself included and it seems to be working for the people who are doing it. My guess is they are making more money then they would at the higher prices, or they wouldn’t be doing it.  My wife (who is the one that watches these things) worries abut devaluing the novel and setting an expectation in the reader’s mind that all books should be low priced all the time.  I’m thinking she is probably wrong and I’m still bullish overall on the health of being a writer for a living. I’m trying to assure her she won’t have to get a day job…but I can understand yer paranoia in such a fear.

I do think this new pricing will make it harder on “the little guys.” In such an environment when you can get New York Times bestselling books like The Way of Kings, A Game of Thrones, A Dance with Dragons, and The Lies of Locke Lamora for a few bucks, everyone else’s sales are going to be hurt. Will we have a situation where everyone has to come down to these prices? I guess time will tell. I know I, and Robin, will be watching the situation. As for me and my books…well the ones sold by publishers I have no say over…I trust them to do what is good for them and hence good for me, and to date I’ve been pretty happy with the choices they have made.  For my own books, I’m going to stay out of the bargain basement, because I do think my readers appreciate the stories I tell and are happy to support me in such endeavors.  I may be completely wrong…and I might change my mind later…but this is the plan I’m going for now. As with everything in this business, it will all change in 6 months and it’s the agile author that can change with the times that will ultimately survive.