By Emily Williams, co-chair, BISG Rights Subcommittee
Earlier this month, the folks at the Diesel eBook Store posted a must-read post mortem on their transition to the agency model with the Agency Five – the five major publishers (Hachette, Macmillan, HarperCollins, Simon & Schuster, and Penguin) who used the arrival of Apple’s iBookstore as a catalyst to switch from a reseller model of ebook sales to agency.
Under the agency model the publisher maintains control of pricing and the bookseller takes a commission. The whole point of switching to agency was to prevent an Amazon ebook monopoly – a goal that, in theory, should benefit both publishers and ebook retailers like Diesel and indie heavyweight BooksOnBoard.
So how’s that change been working out?
Well, as Diesel stated, “retailers don’t have to lose their shirts through price-cutting, anymore” and “providing a great customer experience is now much more valuable than underselling”. On the other hand, no promotional flexibility for the bookseller takes some of the fun out of the business, and as for the implementation… don’t get them started.
How Steep the Learning Curve
The short version is that publishers – who are, after all, brand new to the ebookselling business – stumbled badly as they made the switch, sending off mixed messages as they figured out their own end of the supply chain and undermining established indie retailers in favor of the device makers.
BooksOnBoard founder Bob LiVolsi laments the lack of direct communication. “Without communication with publishers directly on some of these issues that are strategic and mission-critical to them, misunderstandings can happen and inefficiencies are inevitable,” he says. “We have championed these publishers and their titles long before Barnes & Noble, Kobo, Apple and others came to the scene. On March 31, our ebook sales were much larger than Kobo, Apple and Sony. We lost that edge because those companies continued to receive product while we did not during the months that publishers negotiated with the wholesalers.
“This was very costly to us,” says LiVolsi, “over a million dollars in revenue, which is a major blow to a self-funded business like ours.”
BooksOnBoard suffered a drop in sales both because of the interruption in supply and because some long-standing ebook customers are put off by the higher prices set by publishers. “Agency titles represent only about 6.5% of our total catalog, although agency sales represent about 35% of our total revenue today,” says LiVolsi. “It was 57% before they pulled product from us for an average of 4 months while they negotiated new agreements with Ingram and Overdrive. The fixed pricing itself has caused many older customers to defer purchases, but the publishers are not seeing those lost sales because, with a rapidly growing overall market, the lift in eBook sales in general masks the disaffection experienced by older customers.”
LiVolsi attributes most of the messy transition to the publishers’ “steep learning curve” and lack of open communication.
“The wholesalers and publishers spent four months incessantly modifying metadata and tweaking the format of their reporting requirements, resulting in frequent changes to our systems,” he says. “Communication from the publishers to us has been weak regarding agency issues, with our two wholesalers as the primary filters, so notice on these changes often was a matter of hours.”
As an example: “We received a threat to pull product regarding one change at 9:50am August 31st, and then received the very first notice of the change requested 80 minutes later. So the change notice came after the threat. We had no prior insight into that change, a significant one. Yet we completed and deployed the code modifications and testing by that night.”
Taxing New Requirements
Sloppy communication with the wholesalers put booksellers who depend on them for supply into a serious bind. “The wholesalers often had conflicting information,” says LiVolsi.
“Both wholesalers had very different reporting requirements in the early months, causing us to build and maintain three different systems for accounting for book sales – one for each distributor/fulfillment provider and one for our traditional retail sales. It also threw a monkey wrench into our accounting because of changes in revenue recognition associated with being an agent versus a retailer for these books [and] the application of different sales tax rules per publisher.”
Diesel has also wrestled with the tax issue . “In the past, publishers did not collect sales tax for digital product,” explains Kelley Allen, Director of the Diesel eBook Store. “Digital retailers quickly had to comply with this new requirement. Not an easy task considering sales tax rates in the United States vary by county, municipality and, in some cases, subsections within a given municipality. So, if a customer from Plano, Texas buys an eBook, he or she will be charged the Texas rate of 6.25% plus the Plano county rate of 2%. Each agency publisher now supplies to us a list of the states in which we, as a retailer, must collect tax. We then use a tax research service that regularly compiles all state and local taxes rates into a feed for us.”
Despite the trials of the transition period, both Diesel and BooksOnBoard see agency pricing as a positive in the long term. “Over the long haul, agency is a good thing for the collective ebook retailing industry,” says Allen, “and also for preventing Amazon from monopolizing the whole ebook pie. However, during the initial switch from wholesale to Agency, there were a lot of bumps that one could argue were detrimental, particularly to the smaller independent retailers.”
LiVolsi is likewise trying to move beyond the short-term negative consequences and look at the big picture. He points to BooksOnBoard’s agility as a born digital company as key to overcoming the setbacks they’ve endured in the past few months. “We’ve been at this longer than any of the big retailers and have deep DNA in the business,” he says, “and our team owns this business, having built it with our own hands one brick at a time. We don’t have the financial backing of a billion dollar corporation. The members of our team have a very different level of commitment. Each of us, for example, angsts daily over individual customer issues. And when we have un-resolvable ones, we take it very personally.”
For his team and his customers to see the upside of agency, LiVolsi hopes that going forward publishers will see fit to talk to him directly to work out important issues – all in the interest of selling more ebooks.
“We think – and hope – that all of this is finally starting to settle down now. The change overall could prove to be good, but we’re looking for more direct communication with publishers at a strategic level. We have great communication with several at the marketing level, but that’s not where strategic decisions are being made, and our customers need us to be in that conversation so that we can better serve them as publishers learn from this experience and iterate in the future.”
Emily Williams is co-chair of the BISG Rights Subcommittee and a former literary scout who currently works as an independent publishing consultant.