The New York Times ran an article today: J.K. Rowling’s ‘The Silkworm’ a Boon for Other Booksellers as Hachette and Amazon Brawl.
What’s interesting to me is the article’s discussion of the strategy booksellers are using to avail themselves of this ‘opportunity’:
- Third Place Books (Seattle) – 20% off a $28 list price
- Books-a-Million – some Hachette titles at 40% off, and ‘The Silkworm’ at up to 30%
- iTunes – selected Hachette titles, including ‘The Silkworm’, at $9.99.
- Hudson Booksellers – Hachette titles at 30% and 40% off, along with an ‘I Didn’t Buy It on Amazon’ sticker.
Prior to ebooks, publishers sold ‘real’ books to retailers at an agreed upon price. The retailers then sold the books to customers at whatever price made sense to them. This is the wholesale mode, same as for most of what we buy. The retail price could vary for lots of reasons: marked down to run out old stock, to grow market share to beat a competitor’s price, to promote an item, etc.
After the 2007 rollout of the Kindle, Amazon began selling New York Times bestsellers for $9.99. The low prices could cause sales of hardback books to decline, hurting the entire industry, both retail and publishing.
Five of the six largest publishers (Hachette, HarperCollins, Macmillan, Penguin, and Simon and Schuster), in private meetings and communications with Apple, agreed to a different model, in which Apple would sell books as an ‘agent’ of the publisher at a retail price the publisher determined, and would take a 30% commission. The ebooks would be priced in tiers with a fixed relation to the hardcover price. This would result in ebook prices of $12.99, $14.99, or $16.99. In less than one week in January of 2010, the five publishers signed deals with Apple using this model. For Apple, this was a wise move; in one stroke it became a player in the ebook world, just in time for the iPad rollout. The publishers then went to Amazon and demanded that it adopt the same model, or they’d refuse to sell to Amazon. With little choice, Amazon agreed to their terms.
The Justice Department did not, however. In April of 2012 it filed a lawsuit against the publishers and Apple, charging restraint of trade under the Sherman Act. All five publishers settled, for roughly $166 million. Apple fought on, but in July 2012 lost its case, which it has appealed. In the proposed settlement, Apple would be barred for five years from entering contracts that would limit its ability to discount. The publishers’ settlements with DOJ were for two years, after which (in 2014) they were free to return to a full agency model. They have all jointly filed an injunction with the DOJ claiming that the terms of the Apple punishment effectively abolish the agency model for the five year period.
Interestingly, authors with hardcover deals limned with the Big Five are taking a hit under the agency model. For example, according to information cited by the government, Macmillan concluded that the royalty payment for an ebook sale of a book with a $26.99 hardcover list would go from $4.04 to $2.28 under agency. Despite this, the Author’s Guild supports the agency model, claiming that publishers have “no real choice.”
These are the facts as I understand them. Draw your own conclusions. But before you do, take another look at the New York Times article, and try not to smile at the discounting.