Friday, November 5, 2010

The Agency Model in Australia - wtf??

This distressing piece was in the WBN yesterday:

Hachette Australia CEO Malcolm Edwards has confirmed the publisher has signed with both the iBookstore and Kobo under ‘an agency agreement', but declined to comment on the publisher's pricing strategy.

Under the agency model agreements between Apple and publishers currently in use in the US and UK, publishers set the price of their ebooks and discounting by retailers is not allowed.

The Weekly Book Newsletter understands that Hachette Australia is the first publisher to come to an agency agreement with Kobo, however other publishers may also come to an agency agreement with the Canadian-based ebook distributor in future.

However Malcolm Neil, communications manager for REDgroup Retail which offers ebooks through the Kobo platform, said that ‘observing the situation in the UK, if publishers do move to an agency model in Australia in future, it will take a while for [associated price changes] to wash through the market'.

I know I keep banging on about this, but let me repeat: in Australia the agency pricing model is clearly and unambiguously AGAINST THE LAW!

No doubt Hachette has legal advice to the contrary. Well bugger me - legal advice that corroborates with what you want to do anyway! Who would have thought? (Although I'd love to see the hedging in that advice!)

Here is what the ACCC says about our Resale Price Maintenance provisions in our Trade Practices Act. It's pretty clear:

Any arrangement between a supplier and a reseller that means the reseller will not advertise, display or sell the goods the supplier supplies below a specified price is illegal.

It is also illegal for a supplier to cut off, or threaten to cut off, supply to a reseller (wholesale or retail) because they have been discounting goods or advertising discounts below prices set by the supplier.

A supplier may recommend an appropriate price for particular goods but may not stop retailers charging or advertising below that price. In most cases, a supplier may specify a maximum price for resale.

This is a succinct summary of what the actual provisions say.

One source of publisher confusion could be that Apple has thousands of Apps that have been legally supplied under the agency model in Australia since day one, so an Apple ebook is simply one more App. But 99.9% of those Apps are Apple exclusive and specific. The problem comes when other competing resellers get into the act and producers/suppliers attempt to force the model onto them. This is the danger with ebooks, which are far from being Apple specific. They need to be available on multiple devices. And foisting price control on them is restrictive of competition.

In Hachette's case they've gone to Kobo and presumably muscled them into meekly submitting. How bad is that?

This is dangerous legal ground. You really don't have to be Einstein (was he a lawyer?) to know that.


Felice Howden said...

This is really interesting - I haven't heard many/any people in publishing speaking out against the agency model in the UK, really.

I'm finding it difficult, though, to understand your beef with it aside from the fact it's against the law. I think in light of new circumstances, laws can and should be amended and this is probably a good example of that.

My understanding of discounting was that it will be at the publisher's discretion, as will any special offers and price changes. I can't believe this to be a bad thing - the price is being set by those who know what the product is worth rather than a retailer who are willing to sell EVRYTHING below cost price. Who gets stiffed in the competitive price wars? The authors, isn't it?

Peter Donoughue said...

Thanks for your comment Felice.

Just about every developed country has laws that promote competition by prohibiting monopolies, cartels, collusion, third party forcing, etc, from working against the real interests of the consumer.

In my view the agency model is anti-consumer because it puts all power in the hands of the producers - power over pricing, discounting, special offers/terms, etc. It neuters competition.

A vibrant and competitive marketplace where consumers have the power to shop around and walk away from businesses who are ripping them off is best for everyone.

Publishers who think it's a good thing to retain pricing power are seriously deluded. They are dictating to consumers, not listening to them. No business or industry can survive that way.

Your last sentence is seriously misguided. Competitive price wars are part and parcel of everyday commerce. They come and go. The last people who could possibly be disadvantaged by an aggressive rush to snatch the consumer dollar are the authors! They can only win.

Don't fall for the nonsense publishers are spreading that the whole ebook industry might be still-born if Amazon is let off the leash.

Blue Tyson said...

So when we get some evidence of it, we write to the ACCC, I believe?

Felice Howden said...

As we have already witnessed a retailer that is willing to reduce their price to the point that profit margins for the publisher let alone the author are minimal, some level of control will ensure that there's always going to be money flowing in and out of a creative industry. By setting a minimum cost for ebooks, publishers are ensuring longevity of their business rather than creating a cartel.

A consumer will always go to the cheapest retailer for books as the actual product (in this instance) won't vary. The danger here is that other retailers will have to drop their price, too, and then suddenly this competitive marketplace turns into a stagnant swamp of mediocre writing, as there is no money going around to throw at new and exciting authors - publishers will have to play it safe, and sell a small list in massive numbers to turn any kind of profit.

You talk about walking away from businesses who are ripping people off. I don't see any evidence of the agency model power being abused in this way - no publishers are selling their books for a ridiculous £50 as they know they would just lose their customers. What they are doing is setting a standard against a retailer who is ripping them off.

This isn't superstition or an anti-Amazon thing, it's business. If something cost £5 (or $5) to produce and is sold for £2 (or $2), it's not sustainable. Creative industries will be damaged by retailers who drive prices down rather than up, whether that's Amazon or anyone else. And authors will always, as far as I can see, be on the bottom of the pyramid.

Peter Donoughue said...

There is no relation between retailer margins and publisher margins, at least for the wholesale model. The parties trade at arms length, which is its inherent strength.

If a publisher prices the ebook at $20 and extends a 50% discount to Amazon, then the publisher pockets $10 in net receipts, off which the author royalty is calculated. If Amazon then sells it to a consumer for $5 and takes an almighty loss, then Amazon and no one else loses. The publisher still gets $10.

This is why Amazon's losses are unsustainable in the long term, and why most other retailers won't match them.

And don't think that Amazon is really only interested in selling Kindles and can therefore sell ebooks at a loss forever. No hardware manufacturer is making any money at all out of this business given how competitive it now is (where prices are aggressively being brought down).

So your apocalyptic, stagnant swamp scenario is pure fantasy.

Ryan said...

I agree with Felice's 'fantastical apocalyptic, stagnant swamp scenario', and it concerns me that your 35 years of experience left you in the unwielding position that books can happily exist in a pure, free market, as suggested by your vehement, narrow-minded advocacy of fierce competition in this trade.

As with Australia's woefully concentrated media market: you give the guys with the engorged market share free reign to increase that market share by flatlining book prices and, as I've written elsewhere, our book industry will go the way of our media industry: homogenous, mass-produced, tasteless.

You mentioned a "vibrant and competitive marketplace". Your vision may be of rampant competition, but the vibrancy will be gone, guaranteed, for reasons Felice stated about publishers winding up less likely to invest in new, innovative authors.

The words "vibrant and competitive" in the same sentence as "market" smacks so strongly of unoriginal, fallacious, neo-conservative skullduggery it's no wonder you consider a critique of your position must be fantastical. Open your ears, Peter: publishing (and the global economy) has changed a lot since the 70s.