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.

Evolving Ebook Clauses

Ebooks have always been difficult to define.

Publishers used to claim that the ebook was just another delivery method for the author’s work, so naturally belonged implicitly under volume rights.  That didn’t last.  In 2001 Random House Inc lost a court case against Rosetta Books for trying to define them as part of volume rights.

Once it was established that ebook rights needed to be explicitly defined in the contract, definitions emerged which confined the ebook to being an electronic replica of a printed book.  They used words like ‘verbatim’, ‘in whole’, ‘unaltered’ etc in a form ‘primarily designed for reading’.

But it is very difficult to make a water-tight definition that can’t be mistaken for anything else.  On the Ebook Strategy course I teach at Book House, we always try, but ebooks are very difficult to pin down.  But although we can’t define it, we feel we instinctively know what an ebook is when we see one.

Now it looks as if ebooks are becoming even harder to pin down.  The ebook clause is evolving again.  This time the definitions aim to allow for enhanced editions, giving the publisher scope to make full use of the the features of ePub3 described in my last post.   Recent examples include the use of words such as ‘additional materials’ of various kinds to ‘enrich’ and enhance’ the reading experience.  Does the intuitive “knowing it when we see it” still apply?  If it has the full text of the book at its heart, with extra material added at the beginning or end, yes, we are happy to say it’s still basically an ebook.  But if the text itself is broken up, re-interpreted with images and audio, and perhaps even accessed non-sequentially, is it still an ebook?  Or has it become something else?  If so, what?

This is very exciting for readers, but the worry is that if the ebook is defined too broadly, it will encroach onto other rights, such as film, or app rights.   The challenge now is to hammer out new definitions that accurately describe the ebook in all its glory, without being so loose that anything goes.

Or will the divide disappear altogether, and this become another front line of convergence of media.

Ebooks have been around for just over 10 years, and in the mass market only for about 3 years.  It’s very early days for this new technology.  We are still making ebooks that look like books.  The first cars looked just like carriages.  Just as the very first car manufacturers could not imagine our sleek, fast cars of today, so we cannot imagine the ebooks of 2111.  I wish we could fast-forward, and take a look.

 

Publishing Contracts are Changing

Publishing contracts are changing.  Many clauses are having to be redefined to take account of the new realities of digital publishing.

Traditionally rights often revert to the author when the book goes out of print, because that’s the end of its life with that publisher.  But if the book never took the form of print on paper in the first place, that definition is very misleading.  The book is selling hundreds of copies a week in ebook format and print-on-demand, and yet there are no copies in the warehouse.  According to the contract, it is technically ‘out of print’, and has been since day one.

Clearly neither the publisher nor the author would want rights to revert with that level of sales, so we need a new way of determining the end of a book’s life.  The solution I favour is to agree on a level of sale, so rights will revert if sales fall below a certain number, and stay there for an agreed amount of time.  An example might be “fewer than 10 copies sold in three consecutive royalty periods”.

The ‘out of print’ clause is just one of the ones having to be redefined to reflect the way books are actually being published.  More thoughts on how digital publishing is changing contracts in my next post.