E-Books and the Agency Model

If you’ve been following e-publishing lately, you may have heard that today, 5 out of the “Big 6” publishers forced Amazon to agree to an “agency model” when selling e-books instead of the previous “retail model.” Under the retail model, publishers set a “list price” for e-books (usually the same $25 or so they set for the hardcover), and retailers like Amazon pay them a fixed percentage of that price, such as 50%. Amazon would then pay the publisher $12.50 for each e-book sale, and price the book however they wanted: $12.51, $19.99, $25, or even $9.99 (as a loss leader).

As of today, 5 large publishers told Amazon they must sell their e-books under the agency model (physical books remain on the retail model). Under the agency model, the publisher sets the final sale price, and Amazon gets a flat 30% cut of each sale. That means Amazon is not allowed to have “sales” on e-books, and that a particular e-book should be the same price everywhere. This shift was caused in large part by the entry of the iPad (which I am still not convinced will be a popular place for people who actually buy and read e-books) and Apple’s embracing of the agency model (just like in their iTunes Store and App Store).

Apparently, the large publishers weren’t happy about Amazon taking a loss and selling NYT bestsellers for $9.99 (even though they sent the publishers $12.50 per sale), because they are concerned Amazon is “devaluing e-books.” If you ask me, the large publishers are terrified of e-books, since they require a massive shift in their business model (involving costly layoffs, restructuring, reduction of rent and other overhead, changing contracts and relationships, etc.). They know that some publishers might adapt well and stay on top … but not all of them will. So they seem intent on stalling e-book adoption as long as possible (as evidenced by them trying to raise prices in the face of clear consumer outcry, attaching invasive DRM to their titles, disabling TTS access, delaying e-book releases, and generally releasing poorly-formatted scans of physical books).

So, today, most large publisher e-books will go up in price from $9.99 to $12.99 or $14.99.

It’s times like this that I’m glad to be an independent author … while the idea of a huge book deal with a traditional publishing house had always been my dream, I’m thinking more and more of the benefits of being nimble in a quickly-changing e-book industry. I wonder if the big publishing houses read forums and blogs and comments like I do; I wonder if they have any idea what their customers are feeling or how they think. Sometimes I wonder if they “get” e-books at all. It sure seems like they see them as a threat to be fought, instead of an amazing opportunity to be embraced. “Let’s delay releases! Jack up prices to double that of paperbacks! Infest books with DRM! Format them like crap!”

One thing I know for sure is that the vast majority of Kindlers are passionate readers (in a world where readers are an endangered species). In other words, the publishers’ very best customers. Or, as I see it, the reason I write.

I hate to say it, but the big publishers jacking up prices can only make the prices charged by most indie authors look that much better in comparison ($0.99 vs. $14.99 — wow). But, if they succeed in killing the fledgling e-book industry before it can really take off, then we all lose.