June 25th, 2014

Germany e-book market


These guys do a Global eBook Report at intervals and have been for a few years. It's gotten a lot longer lately. From page 33 (of the pagination, NOT pdf pages), Germany as of spring 2014 (I love it when German people try to do English capitalization. They tend to overshoot. It is Hilarious.) has had terrible book market growth through 2013 with declines in some categories and a big bankruptcy in a vertical (Weltbild, a book retailer AND publisher). Ebooks did well throughout the German speaking and reading community. Deutsche Telekom closed its "ebook and digital media shop". The largest chain bookstore in Germany, Thalia, delisted from the stock exchange while it tinkered with its business model.

Amazon did well during a horrifying year. "the Seattle based giant owns roughly one quarter of the online retail business in Germany". It is unclear whether that is all-products, or just books, or books and media or what. "Amazon is estimated to control around 43 to 45 percent of all ebook sales in Germany, followed by the Tolino alliance with around 37 percent ... and Apple ... with 15 percent."

So the publishers are targeting Amazon out of desperation, and hoping that some way can be found to slow them down. Their best bet, after reading a lot of Euro Lex and Bundeskartellamt pages about competition policy, is to (a) argue that Amazon enjoys market dominance as a buyer AND a seller in German markets and (b) they are abusing that market dominance. (A) should be a no brainer. (B) is going to be trickier. A whole lot of regulatory authorities, in Germany and at the Euro level, are going to be wanting to look at a lot of internal information at the publishers AND at Amazon. One of the resolution options at the Euro level involves voluntary commitments on the part of the, er, perpetrators which have sanctions (fines and so forth) built into following through on. I _think_ this is akin to a settlement over here.

This is _so much fun_. Who knew exploring competition law in other countries could be so entertaining! Okay, maybe not for anyone but me.

A Few More Remarks about Germany, Books and Pricing

As near as I can tell, the German Fixed Book Price Agreement is agency model. It used to be a "gentleman's agreement", then it was a contractual system, and when it ran afoul of Euro antitrust law (because, seriously, _that_ is a cartel and _that_ is price fixing), the publishers association convinced the German government to embed the agency model in law. Publishers decide retail pricing, and they determine the cut that the retailer, distributor, publisher, etc. gets on the deal. If someone _imports_ a book into Germany, they get to make these decisions. All retailers, distributors, etc. are required to abide by this price system. There are provisions for abdicating (after a book has been out for a while, the publisher can decide to let retailers price it as they wish) and for various kinds of discounting (volume, etc.). There are strict rules saying you cannot give other stuff away with the book (with a 2% exemption, so you can give the kid a lollipop with the book if you want). Agency model, pure and simple; it does _not_ apply to books sold across the border. With the increase in cross border sales, there were efforts to group the German reading market together, but that did not survive the encounter with the European Union.

Source for all of this (details that are wrong are my fault):


It's a bit old -- 2004 -- but in English. Nothing about ebooks in it.

Obvs, in this system, you want to be the publisher AND the retailer, and German law is not particularly tough on verticals (which is why there was a Weltbild to go under last year). If you're thinking KDP in this context, you are not alone. You should also be thinking about AmazonCrossing.


I'm less sure how the Bonnier/Amazon relationship is impacted by fixed pricing. If Amazon is importing Bonnier books into Germany for sale, then Amazon gets to set the price (Bonnier isn't German; it is Swedish. I don't know which part of Bonnier is currently entangled with Amazon). But if the negotiation involves a Bonnier-owned German company (of which there are several), then Bonnier is deciding pricing AND cut for each participant in the chain. Bonnier is _really interesting_. First off, it is operating in a lot of languages in a lot of countries, and some of those countries _had_ fixed price agreements and some of them no longer do, and some of them got rid of the agreements and then brought them back. And it's a family operation, if wikipedia is to be believed. Among other things, they funded the super awesome app maker, Toca Boca.

I would like to point something out about the German book distribution system, which is directly related to the pricing controls. There is a dense network of retailers of books, but they cannot stock everything. There is a widespread network of distributors, and the claim made in the 2004 summary above is that even in the countryside, at a tiny book dealer, you could get any book you wanted within 24 hours. This would be accomplished by going to the bookstore, the bookstore getting the book from the distributor, and then returning to the bookstore to pick it up after the bookstore got it. This is _exactly_ the model which Amazon has re-adopted while negotiating with Hachette and Bonnier. This is in fact the original model that Amazon operated under, back when I was one of its early employees.

Who Cuts the Pie?

There's a big hairy chunk of several academic disciplines devoted to trying to scientifically determine pizza, pie, cake, inheritance, etc. allocation. It's all basically fairly stupid, because it's a bunch of nerd boys (almost overwhelmingly male) with negative social skills trying to reify, using "science", something that primates have spent a bunch of time and resources on and come to multiple, constantly evolving, partial solutions for.

There isn't ONE answer.

The German answer for splitting up the pie on books involves explicitly treating books as both market objects and as cultural things, and then identifying publishers, in particular, NOT authors and definitely NOT retailers as the people who are Creating Culture. I really cannot emphasize this enough. Publishers believe that they take dross from authors, make it Culture, and then retailers and distributors handle the messy market bits involving getting it out to us schlubs who need to be cultured (they apparently think we are yogurt or something). Publishers actually kind of universally believe this, but in Germany, it is Enshrined.

While publishers decide what kind of cut the retailer and distributor get, they cannot just say, you get nothing, because nobody requires the retailer to carry their books. Which honestly, at this point, I am a little surprised at. I foolishly believed that you never really, as a business, HAD to carry a product you didn't want to, and then R. pointed me at a long-standing and further delayed case involving a pharmacy in Olympia, WA, Plan B, and the state Pharmacy Board. That case sort of weirds me out (I'm all in favor of Plan B -- that's not the issue), but on balance, requiring all Pharmacies to carry the full formulary doesn't seem nuts to me. Requiring a bookstore to carry all books DOES seem kind of nuts to me, but if you showed me evidence that Germany did that, I'd shrug and go, "Germans". In any event, the retailers get something.

And obvs, a powerful retailer can have some impact in the cut "given" to them by the publisher. German antitrust law has spent my entire life struggling with this kind of negotiation issue over in food retailing, and the perversions of market definition they have engaged in really boggle the mind.

What seems to be happening right now with Amazon, Bonnier and the Börsenverein is a power struggle over the cut a retailer gets for ebooks. Amazon wants the cut for ebooks to be the same as the cut for pbooks. Historically, they've gotten LESS of a cut on ebooks than they have on pbooks, at least if The Bookseller is to be believed (if anyone can find me the full Amazon response, I'd love to read it).


"The Börsenverein claimed that Amazon was seeking to increase terms on e-book sales to the retailer from 30% to between 40% and 50%."


"In the UK, publishers have told The Bookseller that they too are facing tough negotiations with the giant retailer, with Amazon seeking parity on trade terms for e-books and p-books, and the ability to POD title where a publisher has run out of stock, or is having delivery issues."


" In a statement Amazon said: "We would like to present some local context: it's generally accepted that e-books should cost customers less than the corresponding print edition - in digital there is no printing, freight, warehousing, or returns.

“We believe that this fact should be reflected in the terms under which booksellers buy their books from publishers, and this is the case in our terms with most publishers around the world, including in Germany. For the vast majority of the books we sell from Bonnier, it is asking us to pay significantly more when we sell a digital edition than when we sell a print edition of the same title.""

Where I come from, if one person cuts the cake, the other people get to pick which piece they want first. I don't know how Germans do things, but if publishers get to make these decisions with no feedback from retailers? Why would anyone in the US side with _that_ approach, much less argue that Amazon's refusal to meekly accept these terms is somehow a good justification for indies in the US to side with TradPub in fighting to stop Evil Amazon from Asking for More?

I'm chalking it all up to confusion.


Should the Audible Royalty Cut Cause Fear of Amazon by Indie Publishers?

Earlier this year, Audible/ACX (the self published audio book platform) changed their royalty structure.


"Up until now, Amazon was offering an escalating rate of 50%-90% on ACX titles sold exclusively; now it is dropping the rate to a non-escalating 40%. (ACX audbiobooks distributed non-exclusively are dropping to a non-escalating rate of 25%.)" Amazon paired this rate change with an increase in their "bounty" program. At the time, this change was met with a lot of negative response, which honestly confused the hell out of me because as near as I could tell, this was a relatively new service (started 2011) not just for Audible/Amazon, but for audiobooks anywhere. Even more fab, ACX titles show up on iTunes, not just Amazon.

When something is new, like _really_ new, it is often not at all obvious how to price it. And even if you do know how you want to price it, you might have a teaser for the first while in order to reach critical mass of participation, and then raise prices. That royalty change was a big shrug to me, however, I have no pony in that.

What is more interesting to me is the way this royalty change has entered the Amazon is Evil discussion, in much the same way that the clawback of the illegal edition of _1984_ did. In both cases, people use these solitary incidents and all their In Real Life details -- but they scrub off the details, act like there are a Ton of Examples Just Like This and Everyone Knows It and then try to convince people it's a trend, and they should fear Amazon, who will take their books away because they don't really own them, or will drastically reduce royalty rates for self-pubbers, or whatever.

Anyone who digs around in the _1984_ incident knows that this was NOT a pattern, the book should never have been for sale in the first place, and people who lost their highlights and notes had them restored. We may have to wait a while to find out whether the current ACX royalty structure is stable or not.

It would be nice if someone else offered a platform like ACX to people who want to publish audiobooks. The fact that we see few entrants in this field suggests that probably at existing royalties, no one who might want to enter the field thinks they can make money at it. That, in turn, suggests that if ACX were to drop the royalties still further, at least some of those people might decide that this thing could make them some money, and they might enter the field. Amazon has a history of reducing margin whenever new entrants appear (c.f. AWS -- every time people in the cloud field get excited and think they can beat AWS on service and cost, AWS rates get dropped and the rest of the cloud field cries. Because that's what clouds do. Rain), to reduce the attractiveness of the business activity in question.

So, no, you shouldn't worry too much about ACX royalty rates. If they get too appalling, someone will show up to provide an alternative platform at more competitive rates. The fact that no one else is doing that is an indication that the margin is Too Damn Low.

When the Rocket Ebook was first created, there was a bunch of discussion by the Authors Guild and others about who was gonna get that juicy margin that was no longer going to be expended on shipping pallet loads of paper around. Because no way in hell were B&N, TradPub, etc. going to pass the savings along to the customer. A decade slid by, and the next thing you know, Amazon showed up and passed the savings along. "Your margin is my opportunity." When you think about how much of the German ebook pie should go to authors, publishers, distributors and retailers, remember that German publishers have everything that Traditional Publishers here in the US got slapped with a 2 year judgment for trying to get. And they are using that power in exactly the way the Price Fix 5/6 wanted to.

It's Summer!!! Aka, News Silly Season

I have this entry in my calendar that says STOP WATCHING TV NEWS. It's there, because for several years, I kept watching TRMS, the Daily Show, the Colbert Report and some Bloomberg, etc., through the summer. I'd focus on it a bit more, even, because other TV shows were on hiatus. And the effects were BAAAADDDD.

I figured out that two things happen around the middle to end of June, but are in full swing by July 4th weekend. (1) Boring, bourgie family types are suddenly a lot more busy. As annoying as the regular school schedule is, it's more or less consistent for 9 ish months of the year. The summer schedule is tricky -- day camps, sleep away, baby sitters, goddess only knows, it gets patched together every year and every year it comes unglued somewhere. So the boring, bourgie types in the NEWS are as distracted as all the other upright citizens. (2) Boring and bourgie or not, a lot of people go on vacation this time of year. These two things add up to (3) the work that still needs to be done is now being done by people with less seniority, less experience, less family life (and the stability both required to get family life going and the stability life that families require to function ongoing).

Which is to say, a bunch of newbies, young'uns and all around idiots are in charge. I have a terrible temper. The combination is awful. So I have this entry in my calendar that says STOP WATCHING TV NEWS.

I haven't decided whether I should give up on internet news and blogs for the summer as well. But if you start seeing exclusively book reviews and updates on my family life over the next few weeks/until mid-September, this may be part of why.