Most Favoured Nations – the lesser of 2 evils

I was not happy when I first came across this clause in an ebook retail contract, so my initial reaction was relief when it came under the same black cloud as The Agency Model, as one of the bad-boys of price fixing.

 However, now I’m not so sure that I’ll be glad to see it go. 

 It occurs in contracts where the publisher sets a suggested retail price for the retailer to base their own price on.  The retailer may sell at the suggested retail price (srp) – and a lot do, or they may offer their customers discounts – it’s up to them. 

The most favoured nations clause is in the contract between the publisher and the retailer, and by signing it, the publisher agrees not to give a title a lower srp at another retailer than the one he gives for that book to this retailer.  This sounds fair enough – the price (srp) is the price, and don’t confuse things by setting different prices in different shops, even your own website bookshop.

But some contracts take it further.  In order to put this into practice, the retailer asks the publisher to agree that the book may not go on sale anywhere at a lower price than their price.  This gives the retailer the right to trawl the web, to see if the book goes on sale anywhere in the world at a lower price, then drop their own price to match it. 

This is good for the retailer, because it gives them the right to match any special offer or price promotion or local price set to suit a poorer country.  This undercuts the effect of any retailer’s special promotion which is intended to attract customers.  It gives Amazon the right to never allow itself to be ‘undersold’; it gives any other retailer with that clause in their contract the right to price-match Amazon.  Which is why publishers fear it triggers a “race to the bottom”.

It is not good for publishers because it takes all control over pricing completely out of their hands.  Publishers cannot favour their own websites with special offers, because those offers will be discovered and matched.  They can’t do exclusive short-term promotions with particular retailers, perhaps in conjunction with a local radio interview, or newspaper extract, because that special limited offer will immediately be replicated all over the world.  What you do for one, you have to make available to all.  Perhaps it means publishers will come up with more creative marketing offers than price promotions, as they had to in the days of the net book agreement!

So why am I now better disposed towards the dreaded Most Favoured Nation clause?

Well there are a lot of dangers to ebook publishing, and admittedly one of them is the race to the bottom in pricing (exacerbated by many factors).  But what I see as a greater danger is the over-dominance of one retailer.  The Most Favoured Nation clause works for smaller retailers as well as large, so it gives them the chance to price-match the strategic discounting used by a big retailer trying to undercut them.  By allowing all the retailers to compete on the same terms, the publisher frees them to compete on price with the big ones. 

The problem is, dropping the price is an expensive pursuit because someone has to pay for that discount in lost revenue.  Under most contracts the retailer will have to pay the publisher the same amount (the wholesale price), regardless of how much they sell it for.  It takes nerves of steel to drop the price close to, and perhaps even below that wholesale price – and only certain retailers can afford to do that for long. 

So the ‘race to the bottom’ it provokes is not good for small retailers, but at least the favoured nations clause permits them to run in that race, rather than being left on the starting line with their wares priced out of the market. 

So the reason I favour the Favoured Nations is because it’s the lesser of two evils: although it’s bad, it’s not as bad as the alternative – life without bookshops.

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Ebook sales? Not telling you.

The Problem

One problem with selling ebooks is that it’s very hard to know exactly how many copies other titles have sold.  This means there is no best-seller list and very little data on the relative success of different genres.  It’s almost impossible to do a comparative analysis of the market as a whole, of the kind that magazines like the Bookseller do for print books on a regular basis.   As an ebook distributor, I only know how many copies my titles have sold, and I can’t compare their performance with sales of similar titles from other publishers.  Unless we are a publisher with huge lists across multiple genres, we can’t get a balanced picture of the market.

The Reason for the Problem

The reason for this is that there is such a small number of retailers selling ebooks in large quantities.  All the sales data for printed books is collected from the retailers, who report to Nielsen how many copies they’ve sold of each title.  Because there are so many bookshops giving this information, you can’t tell how many copies any one shop or company has sold.  The problem with ebook sales is that they are concentrated in so few retailers who are reporting their sales to Nielsen, that if those figures were published, it would expose their individual sales figures to the public, because by looking at the different formats (Kindle or ePub) we could deduce who had sold what.  As this kind of  information is normally considered confidential, the figures have not been released.

Will the Problem Go Away?

I hope that this problem is just a symptom of an immature market, and that it won’t be long before so many bookshops are selling ebooks that none are identifiable from the aggregated data.  However, as long as Amazon remain almost the only  retailer selling Kindle versions, their anonymity is never going to be protected, unless the format information is left out of the data.  That would again limit the usefulness of the data to publishers, who need to be able to make informed decisions about formats as well as topics and overall figures.

Maybe One Day

The news (on Moco News) that some publishers are opening up their book sales data to authors,  saving them from having to wait for their six-monthly royalty statement may well (as Laura Hazard Owen hopes in her article) prompt calls for greater openness about sales generally, and pressure to find a way round the commercial confidentiality risks of reporting ebook sales in particular.

Waterstones eReader next Spring

I’ve been longing for Waterstones to bring out an ebook reader and a better ebook shop, so I was intrigued to hear what James Daunt would say about his plans.  He was interviewed on You and Yours (BBC Radio 4, Friday 9 September), when he also explained some of the rationale behind ending Waterstones’ 3 for 2 offers.  Here are my notes of what he said on Friday.

James Daunt on a Waterstones ereader:  “We want one and we will have one, and our new owner has the means to invest in it”.   He’s been wanting to face the challenge posed by Amazon and the Kindle:  “We can do so many things better than Amazon”.  As Barnes and Noble and the Nook have proved, digital sales combined with a physical bookshop is a powerful combination that makes perfect sense.

He said Waterstones’ ereader would be at least as good as Amazon, and preferably substantially better so Waterstones will give customers a better buying experience for physical and digital books .  Timescale: Spring.

What is he reading?  Anna Funder, All That I Am, which is “fabulous”.  He loves having a job where he has to read wonderful novels, although he reads more books he needs to know about than books he chooses for pleasure.

James Daunt on the 3 for 2s:  Waterstones are not ditching the 3 for 2 “as a concept” but don’t want to penalise people who just want to buy one book.  The trouble is, that type of offer encourages “all sorts of strange behaviours other than focusing on buying the best book”.

But books only got into the 3 for 2 offer “if cheques are written” which was bad news for authors who were not subject to those deals.  Much more stimulating bookshops will result, that are not the same all across the country because bookshops should be run by their managers, not centrally.  Central buying of offers etc strangles the individuality and passion in local shops.

Is he trying to remake the Waterstones chain in his own image?  In James Daunt’s own words:  “We’ll see”.