In the wake of the Department of Justice e-book price-fixing settlement, retailers have entered into new e-book contracts with the settling publishers—HarperCollins, Hachette, and Simon & Schuster—agreements some retailers call “Agency 2.” Under the terms of the DoJ settlement, agency model pricing has not been prohibited, but in its new hybrid form, the settling publishers must allow retailers to discount prices. Macmillan, which is fighting the price-fixing allegations in court, continues to offer conventional agency pricing, but is also offering retailers some flexibility for discounting.
Under the terms of the DoJ agreement, settling publishers can still use the agency model, but for the next two years they cannot control consumer prices. Instead, the agreements allow e-book retailers to discount prices up to the aggregate cost—generally a 30% commission under the agency model— of the discount computed over the course of the contract, which is generally a year. “We can do whatever we want with discounts,” a retailer, who declined to be named, told PW, “with one caveat, we can’t exceed a 30% discount over the long haul.”
According to the retailer, who has seen the new contracts for Hachette, HarperCollins, and Simon & Schuster e-books, the settling publishers will continue to use the agency pricing model in its new hybrid form. However, under this so-called Agency 2, “discounts may be applied by retailers to the PRP [publishers’ retail price] at any time,” and those discounts will be applied to the retailer’s share of the sales transaction. Under the agency model, publishers receive 70% of the PRP and retailers receive 30%, out of which a percentage also goes to e-book distributors such as Ingram or OverDrive. According to the retailer, the new contracts specify that “any discounting applied will reduce the amount of the [30% retailer’s] commission earned.”
While retailers can apply discounts at any time under so-called Agency 2, new agreements mandate the “aggregate amounts of the discounts during any twelve (12) month period must be less than or equal to the total commission earned on sales of the publisher’s e-books in such twelve month period.” A retailer called it a “cumulative maximum discount; you can’t go below cost. I can sell e-books for 99% off for a time as long as I stop before I go over 30% off over the course of a year’s sales.” The retailer said the settling publishers are also setting up shorter periods, from a month to 90 days, during which time they will monitor any retailer price discounts to prevent overdiscounting.
A retailer has “heard nothing” from Penguin, which is fighting the DoJ price fixing charges and continues to offer conventional agency pricing, “as far as we know. Now, with the merger with Random House, we don’t know what will happen.”
Things have been changing quietly at Macmillan, which is also still fighting the DoJ charges. In recent months, Macmillan began to allow their agents to discount e-books that are priced at $13.99 and above by up to 10% of the digital list price on a title by title basis. For instance, Thinking Fast and Slow and Bring Up the Bodies both have an e-book list price of $14.99 on the Macmillan Web site, but are available at Amazon for $13.49. One retailer called the new Macmillan discount, “a fundamentally new pricing system,” and said that implementing a discount that small was causing technical problems in its computer system, “but we’ll get to implementing it later.”