Friday, May 11, 2012

Simon Says

Joe sez: This is a letter I received from a mid-level legacy publishing insider who wishes to remain anonymous. I have his or her permission to post the letter here, and will add some thoughts of my own afterward. Let's call her Guy Fawkes. So here's Guy...

Guy sez: Writers House president Simon Lipskar has posted an open letter in response to the Justice Department’s suit alleging price-fixing among five of the Big Six publishers and Apple (there is also a similar suit brought by the Attorneys General of sixteen states).  In the letter, Lipskar argues that the DOJ is mistaken, and calls for “every one of us — publishers, agents, authors, retailers, wholesalers and device makers — impacted by the DoJ’s quite literally bizarre misunderstanding of the ebook, publishing and bookselling businesses... to stand up and make their voices heard.”  

I hear you, Simon.  And here I am.  I hope other publishing insiders will follow suit, and particularly hope we’ll also hear from readers -- the group we serve; the group most affected by the DOJ’s suit and the publishing practices at the heart of it; and the one group you neglect to mention in your call for greater public involvement.

Lipskar’s argument has two main premises.  First, that whatever publisher collusion might have been behind the simultaneous industry-wide imposition of the agency model on retailers, the collusion caused no harm to consumers because the collusion made only some books more expensive.  Second, and related to the first, consumers can’t be harmed by some books being priced higher because books are essentially fungible.  I’m not an antitrust lawyer, but I think I’m qualified by my position to examine these premises in turn.

1.  Publishing Collusion Caused No Harm.  This line of argument -- that “there has been no discernable [sic] consumer harm from the advent of agency pricing” -- is interesting because it functions as an implicit acknowledgement that collusion did indeed occur.  And unless the DOJ and sixteen states’ Attorneys General are fabricating the extensive allegations of collusion (including admonitions to “double delete” incriminating emails) in their complaints, it seems Lipskar’s lawyers are being tactically astute in steering clear of what would pretty clearly be a losing fight over collusion itself.  Their better bet is to essentially acknowledge collusion, instead arguing, “All right, fine, but nobody got hurt -- so no harm, no foul.”

And how do they argue that nobody got hurt?  Well, because:

2.  One Book Is Pretty Much The Same As Any Other.  Lipskar acknowledges, as he must, that the prices of New York Times bestselling books went up following the simultaneous industry-wide imposition of agency pricing (“prices for a limited number of titles published by these publishers increased, i.e. those ebooks that were digital editions of newly released bestselling hardcover titles.  Amazon had quite explicitly promised its consumers that these titles would be available at $9.99, and with the switch to agency pricing, these titles did indeed increase in price, mostly to $12.99”).  But, he claims, these higher prices couldn’t hurt anyone because the prices of other books decreased (“No Price Increase for Non-Bestselling Titles”).

Now, I want to say that I think Lipskar’s numbers are cherry-picked, and that using only 80 out of 100 titles from a single hour of a single day, with traditionally published titles and self-published titles mixed together, is for many reasons an inappropriate data set.  But for now I'll accept for the sake of argument that Lipskar’s numbers are accurate -- because I think his argument would still be terribly problematic even if his numbers were right.

So let’s just assume Lipskar’s broad argument is correct (“Even if an individual consumer was unhappy with the agency pricing of bestsellers, the existence of other options, including new competitive ones that have thrived since agency, means that harm cannot be ascribed to the decision to buy a $12.99 ebook”).  Let’s accept that alleged publisher collusion on agency pricing made bestsellers more expensive but didn’t affect the prices of non-bestsellers, and examine the premise that therefore readers couldn’t have gotten hurt because they could still find other books cheaper than the newly expensive bestsellers.

Implicit in Lipskar’s argument is the notion that a reader will be as happy with one book as she would be with another.  Because if the notion is untrue -- if, in fact, readers are drawn to certain titles more than they are to others, and if readers find some books are more attractive, more enriching, more life-changing than others -- then it’s impossible to argue a reader would be unharmed if the books she found most worthwhile were made more expensive.

Now, I can’t really prove readers don’t find all books to be of equal attractiveness, equal importance, and equal worth.  It’s possible, as Lipskar suggests, that books are pretty much as fungible a commodity as a bunch of M&M’s in a glass bowl, none of which has any special merit a consumer might weigh in making a selection.  Can’t easily reach that one you want at the bottom?  No problem, there are a bunch of others just like it right at the top.

Still, you’d think that if readers were as indifferent about picking books as they are about picking M&M’s, different books wouldn’t have different titles.  Or different covers.  Or different prices.  You’d think publishers wouldn’t be so fixated on increasing the prices of certain titles -- certain bestselling titles, as Lipskar himself is forced to acknowledge -- that they would allegedly collude, and then allegedly “double delete” the evidence of their collusion, to do it.  You’d think, in fact, that there was barely a reason for publishers to exist at all.  What are we nurturing, and curating, and passionately presenting to the public, if in the end it’s all just a bunch of fungible widgets?

But again, I can’t really prove books aren’t like M&M’s.  I can only say that as a lifelong reader and lover of books, I know there are certain titles that I want more than others, that have added more meaning to and had a more profound impact on my life than others, and that cannot be replaced by others, even if those presumptive others might carry a lower price point.  And I can only solicit readers who share my passion for books to chime in with your own thoughts about Lipskar’s “all books are fungible” theory, and to share your thoughts with the DOJ directly at the address below (even though -- no, make that because -- Lipskar forgot to mention you when he was encouraging all those other people to act).

I have to add, on a personal note, that Lipskar’s argument makes me sad.  Not just because, in suggesting that books are fungible, Lipskar implicitly devalues them.  But also because Lipskar has made me aware of how hollow it is when the leading lights of my industry claim to value rich literary culture, and the special author-editor relationship, and the high-value, carefully vetted, professionally prepared books we curate and produce.  I believe all that -- believe the raison d’etre of publishing is to select, nurture, and collaborate with authors to produce books of lasting value and substantial impact.  And yet here is a top literary agent arguing that one book is pretty much the same as another -- traditionally published, self-published, genre, literary, whatever.  Obviously both these things cannot be true.  And yet publishing’s luminaries claim both, depending on which position suits them at any given moment.  Doing so isn’t just devaluing.  It’s dishonest.

So if you’re a reader, and you feel you’re being harmed when my industry increases the prices of the books you care most about, do something about it.  Post on your blog.  Share a tweet.  Most of all, send your thoughts to John Read at the Justice Department at the address below to let him know that although Simon Lipskar thinks that books are just another fungible commodity and that you don’t count, you beg to differ and you demand to be heard.

Yours sincerely,
Guy Fawkes


Letters should go to:
John R. Read
Chief, Litigation III Section
United States Department of Justice
450 5th St NW
Suite 4000
Washington DC 20530

Joe sez:

First off, I thank Guy Fawkes for her insights, and for contacting me. I did some checking via Google and she indeed appears to work within the publishing industry. But that's not the point. She could be a hobo who emailed me while squatting in her own filth, and she still makes a solid argument. No offense, Guy.

I agree with 100% of what Fawkes said, though she was a lot kinder than I'm gonna be.

I haven’t examined the data Simon claims to have because he didn't provide titles and prices. Maybe it’s correct. Maybe it’s cherry-picked, as Fawkes mentioned. Maybe it’s flat-out wrong. I'd guess the DOJ has ample evidence that prices went up, or they wouldn't have brought the suit. The one who has ALL the numbers, both sales and prices, is Amazon, and if needed they can be subpoenaed, which would be a lot more informative than the tiny sample Lipskar has presented.

But is Simon wrong only because he apparently thinks books are all fungible? Or is he wrong in other ways, too?

Here's what Simon says:

In fact, prior to the change to agency pricing, many ebooks were sold by Amazon for significantly more than $9.99 (the price that is widely and incorrectly perceived by the government and the public to be the highest price for an ebook before agency).  As reported by Publishers Lunch, an industry newsletter, on February 24, 2009, “Using two different methods for checking Kindle price data in Amazon’s system, we find that roughly 30 percent of the 240,000 or so Kindle titles sell for more than $9.99 (and well over 20 percent sell for more than $20).”

Joe sez: Amazon priced ebooks for more than $9.99 because at $9.99 they were losing money. As I have shown in my blog post, The Agency Model Sucks, under the wholesale model publishers were selling ebooks to Amazon for around $12.50. Is it a surprise Amazon sold at least some of them for more than that?

What drove publishers to collude was the fact that Amazon sold many of these titles for less than wholesale. Which, if memory serves, was what their customers wanted, and continue to plead for in the form of negative reviews and boycotts of ebooks priced above $9.99.

But publishers didn't care about readers, or their opinions. Publishers wanted to control price, and they didn't like Amazon discounting below wholesale cost. Hence the collusion, and the Agency model.

So let's be perfectly clear. The reason ebook prices were high under the wholesale model, and are still high under the Agency model, is because that's how publishers want it. But at least under the wholesale model, Amazon could discount some ebooks as they saw fit, even at a loss. And publishers and authors made more money per ebook sold.

With the Agency model, publishers exchanged a larger percentage of the sale for control over pricing.

So how'd that pricing control work out?

Here's what Simon says:

What this means is that, counter to the endless claims made by the government that agency prices for ebooks raised the consumer price of all ebooks, in fact, by setting most hardcover-period ebooks to $12.99, agency publishers were raising the consumer price of a small set of bestselling titles but simultaneously decreasing the price paid by the consumer on many other hardcover period ebooks.

Joe sez: I'd love to know what the ratio of bestseller sales to midlist sales were.

I could raise the price of a product that sells a million units by 30%, and drop the price of a product that sells ten thousand units by 30%, and that doesn't mean prices overall stayed the same.

Bestsellers are so-called because they (say it with me) sell the best. So if the agency model decreased the price on some titles that weren't popular, while increasing the price on those that were popular, then the AVERAGE price of ebooks would have gone up, based not on titles, but on the number of units sold overall.

But then Simon says something that sounds like it could be persuasive:

the price of the average bestselling ebook has decreased significantly, from approximately $10.20 in Q3 2010 to $8.29 on April 27 – a decrease of 19% in the two years since the introduction of agency pricing – and that, furthermore, the average price today is in fact lower than it was before the introduction of agency pricing.

Joe sez: Wow. That's pretty damning.

But is it correct?

In the graph Simon refers to, included in the DOJ papers, the average ebook bestseller was $8.91 in the first quarter of 2010 under the wholesale model. It then rose to $12.11 by third quarter, 2012, under the Agency model.

According to Simon's info, on April 27th of this year the average price of a Kindle bestseller is $8.29.

Is that right? I decided to check for myself. At 5pm on May 10, 2012, I cataloged every Top 100 Kindle Bestseller. (I managed to do it all in under an hour, so I didn't limit it to 80 like Simon did.)

Here's a link to the spreadsheet.

The sheet shows there were 48 ebooks priced under the Agency model at that specific time on that list. Two of them were short stories priced at 2.99 and .99 cents. Whether or not we average those in with the full length ebooks is a judgment call. I would say it depends on if shorts were included in the DOJ's or Simon's counts, but neither listed titles so it is impossible for me to know. If we do exclude them, what is the average price of an Agency full-length bestseller?

$11.81 per title.

Hmm. That seems to be higher than the $8.91 from first quarter 2010, which was under the wholesale model. It also seems higher than the $8.29 Simon reported. Feel free to check my math. Unlike Simon, I'm posting a spreadsheet with titles, publishers, and prices, rather than just expecting you to take my word for it.

But numbers and facts can be manipulated to prove different points. Of the 48 Agency model bestsellers I listed, two were short stories, two were compilations, and two were obviously sale prices--in other words, the Big 6 publishers behind them had temporarily lowered the price for a small period of time. Hmmm, who was it that predicted that would happen? Hint: me, back in 2010.

So we can easily crunch the data other ways. We can remove the two sale-priced titles and we get $12.21 per Agency bestseller title. Or we can break up the bundled ebooks and average out their sale prices (A Game of Thones set would be $7.50 each, and the Shades Of set is $9.99 each) and put in the sale priced ebooks and the short stories, giving those Agency model ebooks every possible shot at looking cheaper. What's the average then?

$10.33 per title. Still markedly higher than Simon's total. Still two bucks more than the pre-Agency Model total.

So what have we learned?

Depending on how we do the counting, and on what day we count, numbers can fluctuate considerably. Now, I believe I've made a better case that average prices under agency went up than Simon made that average prices under agency went down, but the only one who can accurately gauge the veracity of this is Amazon, who has all the numbers.

And you can bet the DOJ will get those numbers if they need them. And they'll be more accurate than the attempts by Simon and me to figure it out using limited data. What we both did is called cherry picking, and it is a logical fallacy. 
A fallacy, of course, is  "an error in reasoning that renders an argument logically invalid". The Top 100 changes every hour. Simon's data, cherry-picked two years after the Agency model started, was 1 data point out of 17,520. (Two years is 730 days times 24 hours in a day, each hour a different data point.)

In other words, I believe it is entirely reasonable to throw out all of Simon's questionable data, and the conclusions he based on it.

What else can we pick on Simon for?

Plenty.

Simon says:

agency has fostered more competition at every level.  It has increased competition between retailers (the market is no longer dominated by a single retailer with 90% market share, but is now a competitive field with multiple retailers with significant share, and there is reasonable likelihood that we will see more competitors enter the market).

Joe sez: Can someone explain how ebooks being equally priced in every market increases competition? Because under Agency terms, THE PUBLISHER CONTROLS PRICES. This isn't a case of Wal-Mart undercutting Barnes & Noble on the cost of a hardcover, which is indeed competition. If publishers set retail, retailers CANNOT COMPETE on price. That's one of the big reasons price-fixing and collusion and cartels are bad. They inhibit competition, not foster it.

Simon says:

One specific area of competition that benefits from further illustration is the way that agency pricing has fostered aggressive competition in the area of the e-reading devices, leading to extraordinary consumer benefit in the form of fast-paced innovation and dramatically lowered prices for the devices themselves.

Joe sez: Ack. The Sony, Nook, and Kobo ALL EXISTED PRIOR TO THE AGENCY MODEL!

As for innovation and lower prices, there's that magic causality again. Can you say pirates and global warming?

Guess what, Simon? Technology keeps improving, and prices drop, ON EVERYTHING! THAT'S HOW TECHNOLOGY WORKS!

Did the Agency model make 32" LED TVs drop from $1199 a few years ago to $399 today? Did it make DVD players drop from $400 to $29 too? Can the Agency model also help me lower my mortgage payments, and improve my eyesight? Damn, it's like the Superman of pricing structures! Let's collude and force it on everybody!

Again, as I said yesterday, I wonder which is preferable in an agent; a smart man trying to use bullshit to fool people, or a moron who believes the bullshit?

Let's continue, shall we?

Simon says:

Absent demonstrable consumer harm, there is no competitive reason for the United States to punish the alleged collusion in the manner suggested by the settlement; rather, the terms mandated by the settlement should have focused on the collusion itself, not the damages from it, since there are none.

Joe sez: I agree. No damages, except for those readers forced to pay more for ebooks, and your clients, who got paid less. Other than that, a victimless crime.

Speaking of authors, in the post I mentioned earlier I break down, step by step, how authors were financially damaged by the Agency model. In short, under the Agency model, writers sold fewer ebooks, while making less money on each ebook sold. I know they sold fewer because cheaper sells more copies. I've done the math, many times.

Now, it’s natural that publishers didn’t consult with their authors before thrusting the Agency model upon retailers--after all, authors typically have no say regarding where or how publishers exploit the rights they've secured.

But if you’re an agent, tell me: have you ever had an honest discussion with your clients before publicly supporting a pricing system that is costing your clients money? And don’t tell me you honestly believe that yes, although Agency pricing costs authors money today, it’ll make authors more money tomorrow by fostering healthy competition and greater choice and blah blah blah. You can’t ethically make a decision to cost your clients money today because you speculate doing so might make them more tomorrow without even having a conversation about that decision beforehand.

So now we have agents publicly supporting Big Publishing at the expense of their own clients' finances--without even consulting those clients. Think about how insane that is. How widely unquestioned. Whose interests do these agents represent? Those of their authors? Or those of Big Publishing?

Shame on you, Simon. Not only for touting this bullshit, but for forgetting who you really represent. I'm thrilled you're not my agent. And I feel bad for those stuck with you.

Now, please, PLEASE can a few agents stand up and show they have the stones to disagree with Simon and all the AAR garbage? You can't all buy into this. Someone’s got to have some integrity.

Anyone?