Much has been made of Random House’s refusal to embrace Apple and the other five big publishers’ agency pricing model, pleading inexperience at setting its own prices. As we mentioned a few days ago, Mike Shatzkin thinks Random House wants to maximize its short-term profits by being the only big publisher receiving full wholesale price from Amazon for its e-books.

Erik Sherman of BNET has another theory: he thinks Random House is opposed to agency pricing because it would give authors access to too much information.

He points out that publishers often use a number of creative accounting methods to disguise the actual royalty rates that authors are getting—”deep discount” sales, royalties based on wholesale rather than cover price, “reserve for returns”—and that agency pricing would make everything, of necessity, much simpler.

Sherman concludes:

[I think] Random’s big concern is the agency model itself. For the most part, the transactions are clear and the exchange of money straightforward to follow. A publisher sells a given number of copies and gets a fixed percentage of list price for each. Forget reserves, confusing discount levels, and effectively dropping author royalties. There is no way to obfuscate the business details, and authors can demand what they should make, rather than have complexities and “mistakes” that leave authors poorer and a publisher richer.

Is this simply authorial paranoia, or could there be some truth to it?

Related: Google patents method of splitting magazines into articles


  1. I’m not sure that Sherman has it correct, unless I’m missing something. The agency model is currently only for ebooks. eBooks aren’t subject to the vagaries of pbook accounting. There are no returns. There is a single sale at a single price, whether it be wholesale or retail (agency). If RH sells 1,000 ebooks of a title through Amazon, it seems to me pretty straightforward to calculate the royalty. No reserve for returns is required because there are no returns. Even if there are several discount levels, that isn’t hard to calculate.

    If Sherman’s theory has any validity, it would seem to me to be on the pbook side and so far there has been no movement to also put pbooks on the agency model.

  2. It’s so simple, and Random House sees it.

    For a $22 list price e-book (surprising how many are listed at that high a price), TRADITIONAL WHOLESALER arrangement usually gives publisher 50% of the publisher-set list price, or $11 in this case. If Amazon sells the e-book at $10 Amazon takes a loss — loss leader method. Publisher gets more than the selling price to book customers. It’s a guarantee even during special sales.

    Publisher and author still get $11 regardless of what the bookstore sells the book for.

    AGENCY: For a $22 e-book sold at $14 “Agent” gets 30% commission on fixed-price, or $4.20.

    Publisher gets $9.80 — less money to give to the author.

    ($11 goes to publisher on the wholesale plan on a $9.99 book, which is more likely to sell than a higher-priced one.

    $9.80 goes to publisher on a $14 ebook NOT likely to sell and even if it does, there’s less to give the authors.

    They get to say the e-book is more ‘valuable’ –

    but, as mentioned, the customer is likely NOT going to buy the $14 e-book and so the publisher/authors get even less than that.

    Random House is not stupid. The examples are for the same e-book selling at (first) $10 under the wholesaler plan (traditional and (second) at $14 under the new Agency plan.

    That’s more like best scenario for the publisher using the agency plan — they get even less when the book price IS reduced to $10 or $12.

  3. Calling my view paranoia does seem a bit extreme. 🙂 Seriously, if you send any quality time with authors and the people who represent them (agents and lawyers), you run into enough documented stories to make you shake your head.

    As far as e-book accounting as it currently stands, it comes under the same contracts that control other areas of royalties. Remember, hard copies of books are sold in a countable way, so it should be easy to track them, except it’s not. There is some reduced complication in e-books, but not none.

    But I also followed my first post up with a second as I heard how Apple was limiting what publishers could charge for an e-book, depending on the cost of a paper version:

  4. Well, if RH won’t do agency pricing, does this mean they won’t sell any iPad iBooks?

    As far as I know, Apple is ONLY offering the agency price model. And so, either RH figures out agency pricing for the iBookstore, or it loses any and all sales directly through that store. They are placing the greatest number of their eggs in the Amazon basket.

    And this, I suspect, is the real reason behind RH’s announcement. They have made special arrangements with Amazon. These arrangements are so far secret, since if they were public, Amazon would be asked to offer them to everybody else.

    So my guess is that, going forward, Amazon will be losing EVEN MORE money selling Kindle-edition RH books. In effect, Amazon will be taking all the subsidies they gave all the big publishers to reach the magic $9.99 cover price, and throwing them into the RH pot. Now RH Kindle editions cost less than the competition, and RH gets even greater subsidies, higher profits (unshared with the authors?) and higher sales, pushing all the RH editions higher on the Kindle best seller lists.

    — asotir

  5. Asotir,
    RH has estimated they’d lose about 7% of revenue if they agreed to the Agency deal, using both stores.

    I’ve already said why ANY publisher will lose with the Agency deal, where they’ve acknowledged they are accepting less $ from the stores (not so great for their authors) than they got under the traditional wholesaler plan and Amazon’s willingness to guarantee their average 50% of publisher-set List Price even when books sell at $9.99.

    They think people will buy in sufficient numbers at $13 to $15 and more. Guess again. It is NOT going to happen.

    They will not only make less per book (as they realize is what is happening) but they will sell FAR LESS books.

    They’re chasing an illusion based on wishful thinking in reactionary mode to paper books not selling as well in this economy AND in a digital world.

    They think this at least saves them from the potential domination of Amazon and Bezos but they’ve rushed into the arms of Apple and Steve Jobs who actually, once he has you, controls everything much more than Amazon does.

    There’s no mystery here. Random House will make money (no under-the-table deal is even needed) while the Big 5 will find themselves losing it. They have decided to not accept the money that increasing legions of e-reading book buyers want to give them.

    BAD-will, poor PR, narrow to no vision, and a look of real desperation accompanied by a disdain for the e-book reading public.

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