Monday, February 8, 2010

And Then There Were Three

(Image courtesy of Gizmodo)

In the continued battle over the price of e-books, Hachette has joined Macmillan and HarperCollins in adopting Apple's agency model over the existing wholesale model. (You can read their letter to agents here.) That leaves Simon & Schuster, Penguin, and Random House (not pictured) as the odd men (and women!) out.

First, I've received a few e-mails from you asking what, exactly, the agency model is. In short, it's a sales model predicated on the theory that the publisher is selling directly to consumers, and that any agent (oftentimes a retailer like Amazon) conducting a sale on the publisher's behalf is entitled to a commission on that sale (under Apple's model, roughly 30%).

The wholesale model, on the other hand, is based on the theory that the retailer is the only one selling directly to customers, so publishers are essentially out of the picture once they sell their goods to said retailer (usually at a 50% or so discount). This means that the retailer can then turn around and sell their books at pretty much whatever price they want (in Amazon's case, $9.99). Amazon lost money under this model because they were buying new e-books from publishers at roughly half the retail price ($15 or so). This was fine with Amazon, since they were selling books as loss-leaders for their Kindle devices and building significant mind and market share while doing it.

While there are some, like TechCrunch blogger Paul Carr, who believe the agency model is an anti-competitive throwback to the UK's Net Book Agreement of 1900, most believe that with publishers earning more money per sale and shelling out less in terms of overhead (printing, binding, shipping, &c), the agency model could translate into significantly higher profits for houses and, in turn, higher royalties for authors (no guarantees as yet, though).

What do you think, mes auteurs? Is the agency model the way of the future?


  1. I think the agency model makes pretty good sense for eBooks since it is not physical inventory. You could also make a case for it with paper books since the publishers currently agree to take back any stock that the bookseller doesn't move. This really does make the seller more similar to an agent than a wholesale account.

    If you buy a product and can't return it, it's yours. You are entitled to try and sell it at whatever price you choose. If you buy it with the understanding that you won't be doing anything more risky than housing it until it sells seems more like consignment to me.

    Although I'm not entirely comfortable with the notion that the producer dictates to the seller what the price will be, it is not without precedent. High end salon brands do this on hair care products, Ty did it with Beanie Babies when they were hot, etc. At the end of the day the market will still work. If the publishers set a price that the public doesn't like, the books won't sell. But piracy will spread like wildfire.

    In the long term it seems like this will open up the market for other eSellers, which is a good thing.

  2. It sounds as if the agency model is best for publishers. I'm still not sure about what's best for writers though.

  3. It might be a convincing argument if publishers weren't simultaneously lowering the ebook royalty rate for authors. (Macmillain's announcement on a Friday when fewer people are paying attention sets their new e-royalty down to 25%.)

  4. If all the publishing houses unite then Amazon will have two choices: pull down the links to most of their books in another hissy fit, OR go take what the publishers decree. It's going to end up agency model since the publishers are slowly uniting first there was only one now there are three.

  5. I say both models are outdated when it comes to e-books.

  6. Actually Macmillan raised their e-book royalties from 20 to 25%. Some industry folks believe that number will continue to rise. One can only hope.

    And for the record, I'm good with the agency model.

  7. I think the agency model will be better for publishers in one and only one regard - it can potentially level the playing field and allow new entrants into the eBooks store sphere. If the publisher is setting one price for all retailers, then theoretically new entrants can enter the market without the need for bargaining leverage and compete with Amazon on price.

    However, from the numbers of the current setup, publishers (and by extension, authors) are going to receive less revenue on both a per-unit basis, and through reduced volume. Higher prices mean fewer initial sales, and due to the nature of the marketing beast, by the time prices drop to a level most consumers feel comfortable paying the book has lost mindshare.

    Of course, if the argument stands tha the initial price point was created specifically to protect hard cover sales, then publishers have created a de facto windowing scheme. And that brings us back to the loss of mindshare.

  8. I think I prefer the agency model, as it will generate some money to bookstores. However, I'm wondering about the logistics: how will the agency = bookstore sell the ebooks? Via their own website or will publishers maintain a ebook website where you select your preferred reseller?

    If the former, will a small, independent bookstore have the resources and knowhow to build a webstore? If the latter, how will the store deliver the ebook to the consumer?


  9. Wait, wait, wait. The UK was selling netbooks in 1900!?!

    I don't know too much about What Is Best, but the idea behind the agency model makes the archaic no-return policy seem a tad more sensible.

  10. The agency model makes sense to me. After all, if the publisher really wanted to slit the retailer's throats all they need to do is invest some cash in their own web sales site. We'd lose the 'one stop' convenience of the retailer, but we'd all fast learn the names of the publishing companies.

    As far as the pricing model goes, video games have done this for years. Early adopters pay higher prices and those of us who want lower prices learn patience. Come to think of it, I like this idea a lot. Instant gratification has a higher price tag than patience. Gonna have to use that on my kids.

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