Continuing Saga: The EBook Agency Model
On and on, a bitter battle has hit message boards like a virus. If you are in any way concerned about how ebooks will be priced in the near future, then you should know that the ebook agency model is a hot topic nowadays. Amazon, makers of the best-selling ebook reader Kindle, has definitely made its position clear by defending the consumer and boycotting a top publisher but HEY, what about the authors? They have to eat too – say the proponents for the authors.
Enter the biggest retailer of books – Walmart. Walmart has this great policy (for consumers) that they will match their competitor’s lowest prices. Walmart doesn’t want to sell brand new hardbacks at $9.99, so they sometimes choose NOT to stock certain books. Imagine what this does to the author. It hurts their profit.
So, what’s the point of the Walmart story? Macmillan threatened that they would delay ebook releases for several months because of the lower price. But some authors have already placed clauses in their contracts that would delay the release of digital copies because of Walmart’s aggressive pricing.
In addition, electronics giant Apple significantly contributed to this whole scenario by adopting the agency model and signing up with the country’s top publishers: HarperCollins, Hachette Book Group, Macmillan, Simon & Schuster, and Penguin. Here’s how the agency model for ebooks started it all:
Before the Ebook Agency Model
The publisher offered the ebooks at 50% of the hardcover price, and then allowed the retailer to sell them for whatever price they liked.
So let’s say a book has a list price of $30. Macmillan sells it to Amazon for $15.00, and in turn, Amazon sells it for $9.99, taking a $5 loss.
Critics of Amazon have said that putting a $9.99 price tag on the ebooks, devalues the author’s work. Consumers, however, have gotten used to paying this price which is one of the reasons why they are now stomping their feet.
So how does the agency model compare to the original arrangement?
Ebook Agency Model
The publisher sets the price for the ebook, takes 70% of the sale, and leaves 30% to the retailer.
Using the same example above: Macmillan sells the ebook for $15, and then takes 70%, or $10.50. They actually make less than they were making before. Amazon then gets $4.50. This is actually more than what they were making before but it also forces Amazon to sell the book for $5 more than they normally would ($15 vs. $9.99). The consumers don’t want that and neither does Amazon.
Some wonder why Amazon would want to take a $5 loss on every ebook sold under the old arrangement. My guess is Amazon wants to dominate the market and basically crush the competition by making it impossible for them to compete over the long-term. Only a company the size of Amazon can sustain a money-losing model like that for the long-term. Regardless of the motivates, it is a great deal for consumers and not such a great deal for authors.