Random House Adopts Agency Model for e-Books, Coming Soon to iBookstore?

[MacRumors]

In a brief press release (PDF), publisher Random House yesterday announced that it will immediately adopt the agency model for e-Book pricing in the United States, paving the way for its content to be included in Apple's iBookstore should the companies come to a final agreement.

Random House, Inc. is adopting the agency model for e‐book sales in the United States effective March 1, 2011. Going forward, Random House will set consumer prices for the e‐ books we publish, and we will provide retailers with a commission for each sale. There are no changes to our terms of sale for physical books.

Random House, the world's largest publisher, as been the highest-profile holdout from the agency model, with most major publishers having reached agreements with Apple, Amazon, and others nearly a year ago as the iBookstore launched in the United States.

The agency model allows publishers to set retail prices, with retailers earning commissions for each sale. The traditional system had allowed retailers to set their own prices, with some such as Amazon even selling select content at a loss in order to draw in customers. Many publishers viewed the practice as devaluing their content and threatening the long-term viability of the industry, but Random House has been reluctant to shift away from it. Even with today's announcement, Random House will continue to use the traditional model for its physical books.

Random House's announcement does not include specific mention of the iBookstore, but given that its refusal to move to an agency model appeared to be by the most significant stumbling block to the two companies reaching an agreement, it seems likely that Random House's books will make their way to the iBookstore in the relatively near future.

Article Link: Random House Adopts Agency Model for e-Books, Coming Soon to iBookstore?

 

[notabadname]

This is good news!

 

[sockatume]

I was under the impression that Amazon preferred the wholesale model for ebooks. They only provide the agency model as an concession to publishers who are bound by Apple's iBooks terms, which require that a publisher only sell its books under the agency model.

Also FWIW Random House UK say they won't be making this change, as they wait for the outcome of the OFT investigation into ebook selling practices.

 

[nipo]

I was under the impression that Amazon preferred the wholesale model for ebooks. They only provide the agency model as an concession to publishers who are bound by Apple's iBooks terms, which require that a publisher only sell its books under the agency model.

Also FWIW Random House UK say they won't be making this change, as they wait for the outcome of the OFT investigation into ebook selling practices.

This is true. The agency model leads to higher prices for consumers with some ebooks selling for the same price or more than the hardcover version.

Publishers are shooting themselves in the foot with their pricing encouraging the group who reads the most and invests in ebook readers to resent their pricing structure.

 

[NATO]

This is good news!

I hope you're being sarcastic, it's the most anti-consumer thing they can do, the Office of Fair Trading in the UK is investigating publishers for their use of this 'Agency Model' on the basis that it's essentially price-fixing, so I am curious whether Random House will roll this out to the UK as well, or wait until the OFT investigates the other publishers first.

 

[ghostlyorb]

Good news for Apple! Another success!

 

[davidgrimm]

This is true. The agency model leads to higher prices for consumers with some ebooks selling for the same price or more than the hardcover version.

Publishers are shooting themselves in the foot with their pricing encouraging the group who reads the most and invests in ebook readers to resent their pricing structure.

Yes, the old school media companies have been very slow to change their business model. You would think that ebooks would be substantially cheaper than print books. The paper, printing, shipping, and inventorying costs all disappear with ebooks.

But no, the publishers will likely do what the record companies wanted to do and charge full retail for the ebook. I suspect adoption for ebooks will be slow. I only buy them when there is a considerable savings over the print versions.

Although, why was Random House so slow to adopt this? You'd think they would be all for controlling the price in the ebook stores.

 

[Popeye206]

Publishers just trying to find their way in the new digital world. Things will keep changing until the new business model is found that works for all.

Ultimately... it's the consumers who set the price based on what they will buy.

 

[Glideslope]

The Assimilation Continues.

 

[Boomchukalaka]

While this is good news in the sense that there looks to be more selections coming to iBooks, I see that his is being rolled out in the US only right now.

As a Canadian, I'm kind of pissed by this. The iBooks selection on the Canadian iBook store blows. Several months ago Apple Canada announced a major deal that would get more Canadian publishers works on iBooks. Hasn't happened. The Canadian iBooks store selections in all categories remains putrid.

How is it that authors from around the world can sell hard copies of their work in Canada, in bricks and mortar stores and yet e-books by the same authors aren't available? Robert Jordan is an example of this. Guy Gavriel Kay, a noted Canadian author, has some of his novels available in the US store, and yet none are available in the Canadian Store. Madness!!!

Looks like I'll be giving my brother who ives in the US a call and getting some more US iTunes cards again.

 

[troop231]

Great news!

 

[notabadname]

I hope you're being sarcastic, it's the most anti-consumer thing they can do, the Office of Fair Trading in the UK is investigating publishers for their use of this 'Agency Model' on the basis that it's essentially price-fixing, so I am curious whether Random House will roll this out to the UK as well, or wait until the OFT investigates the other publishers first.

Nope, no sarcasm. I want an agreement that moves the publisher to the iPad (iBooks). I'm not one of the people worried so much about the pricing. I don't mind paying hard-cover pricing for books when they are released. I just want the widest selection possible digitally. Pricing in a competitive and growing e-reader market will fix itself over time. I want choice.

So, as I said, for me, this is good news

 

[nipo]

Nope, no sarcasm. I want an agreement that moves the publisher to the iPad (iBooks). I'm not one of the people worried so much about the pricing. I don't mind paying hard-cover pricing for books when they are released. I just want the widest selection possible digitally. Pricing in a competitive and growing e-reader market will fix itself over time. I want choice.

So, as I said, for me, this is good news

So you'd rather pay $15 to read a book on your ipad from ibooks than $10 to read it in in the kindle or nook application?

Do you read a lot? That change in pricing would cost me around $700-1000 more a year. I guess apple is more concerned with the people who read one or two books a year. We all know Steve said: "“Forty percent of the people in the U.S. read one book or less last year. The whole conception is flawed at the top because people don’t read anymore.”

 

[womble2k2]

It is the one thing I think Apple, and to some extend Amazon, has wrong. In the UK, most paper books are now selling at so many cut price outlets including supermarkets and online at incredible low prices, their ibook equivalents are much higher.

For a quick example;
Caught by Harlan Coben is £4.49 at Tesco's (and part of a two books for £8 promotion) [Tesco's are one of the UK's biggest supermarket chain so you can get this anywhere]
http://www.tesco.com/books/product.aspx?R=9781409117209
Also on Amazon for £3.99 with free delivery

On the iBook store, it is £6.99
http://itunes.apple.com/gb/book/caught/id375210241?mt=11

So if you bought it as part of the promotion at Tesco's or via Amazon, it is almost half of the price of the iBook store.

It would seem that the publisher is tied to the Agency model as it is also £6.99 for Kindle.

However, when you look at the costs of getting the book to the consumer;
Printed copy: Manfacturing costs (paper, card, ink, packaging, quality control, machinery maintenance, etc), Distribution costs (packaging palets, fuel, etc), Retail costs (unpackaging, display, products damaged / stolen whilst on display). Retailers (slim) profits.

These costs increase as you sell more copies. There is also the issue of forecasting sales, and if you print / distribute too many copies, there are costs with no return.

eBook: formating into ebook format, storing file on servers, cached by CDN, small transactional charges. ebook retailers (fat) profits.

These costs are more or less static and quite small. The only thing that increases with sales is the retailers profits.

So why do books following the Agency model cost so much more?

I think the trick should be to have Apple take 30% only on say the initial first 10,000 sales of each title, and then 10%. This would allow them to make a good return on initial sales and cover the costs of keeping the book on the store to attract new customers to the iPad.

I get the feeling something will change in the near future, as the Agency model is limiting sales.

Phil

 

[iSee]

It never made sense for Random House (or any publisher) to resist this. It puts them in the driver's seat:
(1) They set retail prices;
(2) they can negotiate the comission (well, using whatever leverage they can muster)

Retailers lose the power to differentiate themselves based on price. They need to complete by other means (Hmm... wonder why Apple preferred this model?)

This is probably bad for customers in terms of retail prices, at least in the short term. But publishers should start to complete with each other (and even their other sales channels within the publisher) on retail prices as they get used to this.

 

[nipo]

This is probably bad for customers in terms of retail prices, at least in the short term. But publishers should start to complete with each other (and even their other sales channels within the publisher) on retail prices as they get used to this.

Why would publishers need to compete with each other? If a consumer want to read a specific book only one publishing company has the rights to it and can set whatever price it wants. If you want to read it you have to pay for it, there is nothing encouraging them to sell cheaper.

This agreement is like letting movie studios decide the price of a movie ticket to see their film at all theaters and then setting the DVD price for retailers.

 

[bmturney]

iBook Store still too expensive

This is just greeted with a *shrug*... The iBookStore is way too expensive... I was looking at some technical books recently... the iBook Store was 25% more expensive than the Kindle version of the same book... I ended up buying my three books from Amazon and reading them on my iPad with the Kindle App... until Apple gets over their premium price fixation for books I'll continue shopping at Amazon.

 

[samcraig]

It will be interesting to see cause/effect.

Fact is - that with Random House not on board at launch of the iPad and iBookstore - it hurt the overall marketplace for Apple as the iBookstore is sorely lacking in content and higher prices on many items in comparison to Amazon.

I have no doubt people have gone "all apple" and bought from the iBookstore - but the iBookstore without question has been limping along as a true competitor.

Will this news change that with the launch of the iPad 2 and if RH enters the iBookstore? Will the adoption rate be higher with more selections in the iBookstore - or has that ship semi-passed/will it take awhile for people to change their purchasing habits.

Time will tell.

This doesn't really bode well for the customer regardless

 

[kenaustus]

So you'd rather pay $15 to read a book on your ipad from ibooks than $10 to read it in in the kindle or nook application?
\”

The problem is that you don't always get the savings. Amazon sent me an email in December on a new WEB Griffin book. When I checked the Hardback was 50¢ cheaper than the ebook. What crap.

Also missing is the "Now In Paperback!" editions. You'll still be paying hardback prices when paperback versions are available at lower costs.

Then there is the Warehouse Clearance books - the Bargain books at B&N. $5 or $6 for a "$27.50 Book" that will still be $15 as an ebook.

The ebook sector has a long way to go before they march some areas of the dead tree segment.

 

[qtx43]

The problem is that you don't always will never get the savings. ...

Fixed that for you. When the publisher sets the price, it doesn't matter where you buy it. Same price everywhere. With the prices they're setting, I don't think publishers really want to distribute digitally.

 

[geko29]

Although, why was Random House so slow to adopt this? You'd think they would be all for controlling the price in the ebook stores.

Because they made a LOT more money under the wholesale model. It worked like this:

Hardcover has a MSRP of let's say $28. Wholesale price of both the pBook and eBook are 50% of this, so $14. Amazon chooses to sell the book for $10. Random House makes $14 gross revenue, Amazon loses $4.

Agency model: Random House sets the price of the eBook at $14. Amazon/Apple takes 30%. Random House's gross revenue is $9.80, Amazon makes $4.20.

 

[sockatume]

It never made sense for Random House (or any publisher) to resist this. It puts them in the driver's seat:
(1) They set retail prices;
(2) they can negotiate the comission (well, using whatever leverage they can muster)

Retailers lose the power to differentiate themselves based on price. They need to complete by other means (Hmm... wonder why Apple preferred this model?)

It's also conveniently similar to the way they handle the App Store and in-app purchases. I'll be surprised if they're not pushing for similar terms on iTunes in the fullness of time.

 

[HiRez]

Wirelessly posted (Mozilla/5.0 (iPhone; U; CPU iPhone OS 4_2_1 like Mac OS X; en-us) AppleWebKit/533.17.9 (KHTML, like Gecko) Version/5.0.2 Mobile/8C148a Safari/6533.18.5)

Woo hoo, finally I can read my favorite books in iBooks format, George R R Martin's Song of Ice and Fire (Game of Thrones) series. they are published by Bantam, which is a Random House subsidiary, I'm assuming they'll come along. Selection was one of my main problems with the iBooks store, this should help a lot with making iBooks useful.

 

[Glideslope]

It never made sense for Random House (or any publisher) to resist this. It puts them in the driver's seat:
(1) They set retail prices;
(2) they can negotiate the comission (well, using whatever leverage they can muster)

Retailers lose the power to differentiate themselves based on price. They need to complete by other means (Hmm... wonder why Apple preferred this model?)

This is probably bad for customers in terms of retail prices, at least in the short term. But publishers should start to complete with each other (and even their other sales channels within the publisher) on retail prices as they get used to this.

You are good.

 

[Bulldogger]

once you're done reading the book...

No one has talked about what then you do with the book when you're done in iBooks. There's still no mechanism in iBooks that addresses this. I find it still very frustrating that the consumer is expected to buy an ebook that will never change in price and then not allowed to "loan" the book, or even give the book away to someone. I would like to give the rights to the book to someone else when I'm finished. I see no sense to be stuck with the book. I would even like to be given the option to give the rights to say a library. Some libraries are now allowed to "loan" an ebook out for a specific time just like a typical brick and mortar library.

We are being penalized as ebook readers just for the shear fact we love convenience.

Is this even fair?