Random House switches to e-book agency model; little bookseller chagrined
Under the agency model, publishers set prices on their e-books and keep 70% of the sale price, while digital book sellers keep the remaining 30%.
Apple released its iPad, and the Apple-run iBookStore, in April of last year. Around that time, five of the six major book publishers -- Penguin, Harper-Collins, Simon & Schuster, Macmillan and Hachette Book Group -- agreed to the agency model. As with all content sold through Apple's iTunes store, Apple keeps 30% of the retail price of e-books.
Random House held out, and its bestselling books ("The Girl With the Dragon Tattoo," "Da Vinci Code," etc) have not been available through Apple's bookstore.
Now, that may change. Random House would not comment on whether its 17,000 e-book titles will arrive in the iBookStore, potentially when Apple announces a new version of the iPad this Wednesday in San Francisco. But it did offer the following statement:
“We are making this change both as an investment in the successful digital transition of our existing partners and in order to give us the opportunity to forge new retail relationships."
Under the previous model, which still dominates the world of physical books, publishers sold books to retailers at wholesale price, and retailers could then charge customers whatever price they liked, rather than being obligated to sell at a fixed price dictated by the publisher.
Amazon.com Inc. used that flexibility to sell e-books to consumers at $9.99 -- a price that was often less than what Amazon had paid for the books. The theory was that Amazon was taking a loss on each book to attract users to its Kindle e-reading device with the promise of low-cost titles.
Publishers were not happy with this situation, with many feeling that Amazon's approach meant the ballooning number of e-book consumers might get used to paying less for books than they were worth.
Now, a year after publishers have adopted the agency model, the prices on many of Amazon's e-book titles have risen above $9.99.
Random House said in its statement that "the agency model guarantees a higher margin for retailers than did our previous sales terms."
But at least one electronic book seller disagreed. Dennis Morin of Irvine-based BeamItDown Software said that for small book vendors who have built their business on Apple's iOS, keeping 30% of the proceeds is not as lucrative as it sounds.
That's because, over the last several weeks, Apple has strongly suggested that apps selling books on the iPhone and iPad will have to pay Apple 30% of the sale price.
But, Morin said, if the agency model leaves booksellers 30% of the price, and Apple then takes 30% of the price, booksellers on Apple's platform can't possibly operate at a profit.
"The economic damage that Apple has wreaked on small ebooksellers is enormous," he said in an e-mail. "It is all pocket change for Apple, but life and death for many. There is something fundamentally wrong when companies can wield such power."
Apple declined to comment on the issue.
Updated, 5:00 p.m.: L.A. Times book industry writer Carolyn Kellogg has pointed out on the Jacket Copy blog that the American Booksellers Assn., which counts 200 indepedent bookstors in the U.S., lauded Random House's move. Those retailers, many of which are brick and mortar stores, sell via various online and physical channels, and therefore may not feel as much pressure as booksellers who have built their businesses largely on the Apple platform.
-- David Sarno
Photo credit: Bryan Moore / Flickr