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Posts Tagged ‘agency model’

Amazon's new model: speak loudly and carry a big stick

In the past few years, Amazon has become one of, if not the, premier book retailer. Now, as the online retailer attempts to cultivate its e-book market, that strength is paying off.

One account, published in the publishing-industry news letter Publishers Lunch, says the retailer is pressuring all but the biggest publishers (i.e. Random House, HarperCollins, Hachette Book Group, Simon & Schuster, Penguin, and Macmillan) not to pursue the new agency model introduced by Apple earlier this year. Independent publishers looking into the agency model risk being dropped from Amazon all together. In the newsletter, Publishers Marketplace‘s Michael Cader says:

“At least one independent publisher of scale was told categorically by Amazon in a recent phone call initiated by the retailer that Amazon would not negotiate agency selling terms with any other publishers outside of the five initial Apple partners. This publisher was told that if they switched to an agency model for e-books, Amazon would stop selling their entire list, in print and digital form. In conversation, Amazon is said to have reiterated that as matter of policy they are declining to negotiate an agency model with any publisher outside of the five who have already announced agreements with Apple’s iBookstore. Another sizable independent publisher we spoke to has not discussed an agency model with Amazon yet, but is resolved to work with Apple regardless. ‘We’re committed to going forward with Apple,’ a senior executive told us, underscoring, ‘we don’t see how we could allow one retailer, no matter what threats they make, to block our authors’ works from being available at another retailer.'”

It’s hard to say what Amazon’s stance on the agency model will mean in the long run. The agency model appeals to publishers by giving them the power to price books. The retailer then receives a portion of that price. Apple revealed its plan to implement the agency model in conjunction with iPad content earlier this year.

This difference in the two companies approach could make all the difference. After all, what good is an e-reader without content? Some (see Mashable’s Chistina Warren) have even described the divide as an “e-book war.” And it probably is; to the victor go the market.

The crucial question becomes how Amazon will be affected. Will loosing (if they loose) indie titles make a difference? It’s just another dimension to the industry’s zeitgeist question: what will people pay for content?

Macmillan's 'agency model' victory over Amazon = publisher pricing power?

February 21, 2010 1 comment

The past couple weeks have been ripe with speculation over the new pricing model for e-books originally proposed by Apple: the “agency model.” The model would essentially give publishers power over the pricing of e-books instead of retailers like Amazon — a dream for publishers.

Well, the agency model could be more than a dream soon. Last month, publisher Macmillan demanded power over pricing in their dealings with Amazon, leading the key-market retailer to pull nearly all Macmillan titles from their store. But a few days later, Amazon reneged on their position, announcing that they would yield pricing power to the publisher — setting a ground-breaking precedent in the e-book retailer-publisher relationship. A week later, Hachette USA followed suit.

Summed up by IdeaLogical’s  Mike Shatzkin, the agency model lets publishers sell directly to consumers with retailers acting as more of a cut-taking conduit.

“The ‘agency’ model is based on the idea that the publisher is selling to the consumer and, therefore, setting the price, and any ‘agent,’ which would usually be a retailer but wouldn’t have to be, that creates that sale would get a ‘commission’ from the publisher for doing so.”

This model would set a new standard for book pricing, giving more power to e-book publishers than in the current physical-book supply chain. Success would also provide a powerful incentive for publishers to promote the e-book market, particularly larger publishers that own the most titles (i.e. Random House, HarperCollins, Hachette Book Group, Simon & Schuster, Penguin, and Macmillan).

It remains unclear, however, how all this would work in reality. Would publishers keep and serve e-book files? What will the not-Amazon retailers do? How will smaller publishers with less leverage fit into the market? And most importantly for consumers, what will determine the price of an e-book?

For now, speculation reigns. Pricing power is a powerful weapon, but the model’s success ultimately rests with consumers, who must decide what an e-book is worth and whether publishers’ expectation of value matches it.