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Random House is Agency now.

03.04.2011, Uncategorized, by .

Earlier this week, the USA’s largest book publisher, Random House announced a change of terms regarding eBooks. They switched from the ‘wholesale plan’ to an ‘agency plan.’  By doing so, they joined the five other largest publishers with this plan. They comprise 65-70% of the published titles and closer to 85-90% of bestsellers. So an industry standard has been established.

Wholesale plan:  Based on the policies for physical books (esp. Amazon). The publisher establishes a “digital list price.” It is usually pegged to the retail price of the lowest print edition. The retailer generally pay 50% of this price to the publisher. The retailer is then free to charge the consumer any price they prefer. So if an eBook comes out when the HC is issued, it’s price would match. The publisher may put a $30 price tag on the HC and the same on the eBook. The publisher would receive $15 (50%). The retailer can price it at anything, many bestsellers were listed at $9.99. The retailer took the hit.  The revenue for the publisher was fixed tagged to the digital list price.

Agency Plan: Based in the policies for iTunes and established by Apple. The publisher establishes a “consumer price.” This is usually set at $9.99; $12.99 or $14.99 although there are many other pricing bands. The retailer is forced to charge the consumer the price set by the publisher. Under this plan, the retailer pays the publisher 70% of the price. The account takes 30%. If the consumer price changes, then so does the revenue that goes to the publisher.

When the iBookstore went live a year ago, five of the biggest six publishers changed their terms of sale to Agency. HarperCollins, Penguin, Macmillan, Simon & Schuster and Hachette all set the standard. Random House held out and their books were excluded from the iBookstore. But they were still available on Amazon’s Kindle and sold very well. After a year of holding out, Random House and Apple have come to an agreement and now 17,000 RH titles are available on the iBookstore. This is good for choice and consumers. But the prices on eBooks is rising because of it.

So, for most of the eBooks, prices are set across all retailers. Some feel this is a good thing. I am not as much a fan. I feel it artificially keeps prices higher than they should be. I would like to see price competition.

Now that the biggest publishers are all Agency plans, will the smaller, independent ones follow? Probably. It will depend on whether the retailers will accept it. Apple requires it, but it will be seen if the others do too.

These terms of sale issues are invisible to the consumer – and they should be. But publishers will now be responsible for pricing strategies. Historically this is a skill reserved for retailers. I believe publishers will create upper-level positions responsible for manipulating and dictating eBook pricing. Because the pricing is fluid and can be changed easily, publishers can start to experiment and track the effectiveness of price changes.

This is potentially a position that can earn (or lose) publishers millions of dollars each year.

It’s a brave new world. I love it!

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