The dispute between Amazon and Penguin--the online retailer stopped selling new Penguin e-books last week--over the agency model only added to the rising levels of uncertainty and apprehension already surrounding the launch of Apple’s iPad and the switch to the agency model by major trade book publishers, and what it will mean to different players in the e-book marketplace.
Although at present only a handful of publishers (albeit all the largest houses with the exception of Random House), are moving to the agency model to sell e-books, the speed of the change is causing disruptions in the supply chain as publishers, wholesalers, and retailers scramble to carve out new deal terms.
The switch to the agency model will end promotional discounts and customer reward programs offered by retailers; some are also complaining that the speed of the transition is likely to result in some stores being unable to offer e-books from certain publishers, at least for a while. E-book retailers such as Books on Board owner Bob LiVolsi said the speed of the change has the potential to cause serious problems for small e-book retailers, who, he said, have not been given enough time to update the metadata in their shopping carts and digital delivery systems. “These are major changes, and I have not received all the requirements I need,” LiVolsi said. “This is set up to favor Apple and big players. It will be disruptive and devastating to small players.”
“For some retailers,” LiVolsi predicted, “it could mean 60% of their revenue disappearing for weeks until this is straightened out.” And while LiVolsi has been critical of Amazon’s $9.99 price point--which he has called “predatory” in the past--he said the switch to higher prices under the agency model “has not been done smoothly”; his customers will see prices on e-books rise by as much as 30%. “I understand what they’re trying to do, but they’re hurting the middle-class consumer.”
LiVolsi said digital wholesalers are facing the same problems, and OverDrive’s Steve Potash essentially agreed. Although Potash emphasized that OverDrive will be ready, he acknowledged that the change has been a challenge. “Some titles will not be available,” he said, noting that the change has been “a big burden on retailers,” who will now have to separate traditional wholesale model titles (which can be discounted) from agency model titles, which cannot. He also acknowledged both the possibility of disruptions in supply, as well as loss of revenue for some retailers. “A variety of big and small retailers will have big holes in their catalogues,” Potash said, emphasizing that it will likely take a few weeks to correct the problems.
How ubiquitous the agency model will become is unclear. While it is the model favored by Apple, Amazon and Barnes & Noble.com have reservations, as Amazon’s inability to reach a deal with Penguin shows. B&N has endorsed the agency model, at least for the major houses, but new CEO William Lynch told PW last month that B&N will evaluate the use of the agency model for other publishers “on a case by case basis.”
What is clear is that Apple will be playing catchup with Amazon and B&N.com in terms of the number of e-books it is selling. Apple wouldn’t disclose the number of e-books that could be used on the iPad at launch, but discussions with the publishers that have committed to having titles available for the iBookstore suggest that they are supplying a total of 50,000 to 60,000 e-books. By comparison, there are now over 400,000 new e-books available for sale in the Kindle store and over one million at B&N.com (a number that includes public domain books). Publishers who do not currently have titles in the iBookstore welcome Apple’s entrance into the e-book market, but were circumspect about their plans for the iPad and their views on going to the agency model.
“We’re excited about what Apple can bring to e-books,” said Cheryl Cramer-Toto, the head of the digital group for the trade and reference division of Houghton Mifflin Harcourt, who acknowledged that HMH has had discussions with Apple about adding titles to iPad. Cramer-Toto said HMH is particularly intrigued with how the company’s children’s books can make use of the color offered by the iPad. As for moving to an agency model for e-books, Cramer-Toto said HMH is evaluating the idea. “We’re always looking for new models that will benefit authors and publishers,” she said. Philip Ruppel, president of McGraw-Hill Professional, the business, technical, and medical publishing unit of McGraw-Hill Education, said MHE “is in discussion with everyone in the e-book world.”
McGraw-Hill Professional is making its titles available only in the iTunes store through Scrollmotion, and Ruppel said MHE is interested in seeing how devices like the iPad can help it exploit opportunities in the reference and education markets. In those categories, Ruppel said, MHE believes the digital transformation “will go far beyond the plain e-book.” For the type of products MHE envisions, the pricing models are much different from those proposed for trade books, Ruppel noted. “We are playing wait-and-see on pricing for e-books for the reference and education market, and we don’t believe that the agency model as currently presented is appropriate for reference and education e-books and content.”
Kensington Publishing CEO Steve Zacharius said Kensington will use the agency model for titles offered via the iPad and the traditional wholesale model for all other vendors. He acknowledged the possibility of titles being offered for different prices. “All we’re doing is giving the suggested digital list price,” Zacharius said. “It is possible that the different models will cause Apple versus other accounts to have a different digital list price for the time being. It seems as if the major online retailers don’t have an issue with this.” Zacharius said he wanted to monitor sales and see “who becomes the major players. The market and players are changing all the time, and I want to give it a little time before we make an important decision. In the interim, I think it’s important to have our books available on the iPad.”
Doug Seibold, publisher of Agate Publishing in Chicago, was thrilled about the iPad and the agency model. “I’m in favor of anything that gives publishers more control over how their books are priced. This is all less about Apple vs. Amazon, or even about e-books, and more about how new technology can enable publishers to assert more autonomy after a few decades of steadily losing pricing control to the big retailers.”