Macmillan CEO John Sargent on the agency model, availability and price

Macmillan-Logo.pngHere is the complete text of Sargent's post on the Macmillan blog: After the events of the past several weeks, I have been in touch with many of you. It has become clear to me that there is far too little accurate information available in this time of unprecedented change. The issues we all face together are complex, and no news story or 140-character snippet can adequately address them. Therefore, I propose to write you occasionally, when I get a sense that there is a need for direct information. The first topic is the e-book agency model, and how it will affect our business in the near term. Starting at the end of March, we will move from the “retail model” of selling e-books (publishers sell to retailers, who then sell to readers at a price that the retailer determines) to the “agency model” (publishers set the price, and retailers take a commission on the sale to readers). We will make this change with all our e-book retailers simultaneously.

Rather than address the long-term or author royalty consequences of the change (I’ll save that for next time), I’ll focus on the two major effects at retail. Note that these changes will apply to every e-book retailer with whom we do business:

1. Availability. All the new adult trade books for which we have the rights to publish in e-book format will be available at the first release of the printed book. We will no longer delay the publication of e-books (read: no windowing). Readers were clearly frustrated at the lack of availability of new titles, and the change to the agency model will solve this problem. We are also working hard to make more books available in digital editions. The consumer will have broader choice and much greater availability.

2. Price. We will price our e-books at a wide variety of prices. In the ink-on-paper world we publish new books in different formats (hardcover, trade paperback, and mass market paperback) at prices that generally range from $35.00 to $5.99. In the digital world we will price each book individually as we do today. Generally e-book editions of hardcover new releases will be priced between $14.99 and $12.99; a few books will be priced higher and lower. This is a tremendous discount from the price of the printed hardcover books, which generally range from $28.00 to $24.00. E-book editions of New York Times hardcover bestsellers will be priced at $12.99 or lower while they are on the printed list. E-book editions of paperback new releases will be generally priced between $9.99 and $6.99.

For physical books, the majority of new release hardcovers are published in cheaper paperback versions over time. We will mirror this price reduction in the digital world. It is too early to estimate the timing of the price reductions for those cases in which we do not issue a paperback edition. If we do issue a paperback, we will drop the digital price to $9.99 or lower at publication date (if not before). The price differential between the book and the e-book will become smaller at the lower price points.

There has been a lot of concern from e-book readers that $9.99 books will no longer be available. Most Macmillan e-books will still be priced below ten dollars. Our e-book sales over the last year clearly indicate that only about a third of our e-book business is in the digital versions of new release hardcovers. Unit sales of older books far exceed our new release hardcover sales, so the $9.99 and lower prices will continue to represent the largest portion of our business.
In short, we will continue to do what we have always done: provide the reader with a vast selection of great books over a wide range of prices.
I have not addressed illustrated books or books for young children. That will be a topic for the future as the technology advances beyond e-ink screens. I hope this has been in some way helpful. Please remember that I can’t tell you how other publishers will handle availability and pricing. I can only speak for Macmillan.

Meanwhile, there are millions of you and one of me. So, please feel free to post questions or comments below.

Thanks!

John

19 Comments on Macmillan CEO John Sargent on the agency model, availability and price

  1. Common Sense // March 2, 2010 at 1:29 pm //

    “E-book editions of paperback new releases will be generally priced between $9.99 and $6.99.”

    Why would I pay that much for the e-book version of a paperback that I can get for $5.99 or less at Target or Walmart?

    The physical version has far more value – I can lend it, sell it, or give it away. I can’t to any of those things with the e-book version.

    I have physical books that are over 100 years old; I can guarantee that I won’t have these e-book versions for the next 100 years.

    Bottom line, my e-book reading thus far is only for throwaway materials only I would read. If someone else I know wants to read the book, or I want to keep it (collected author, etc.) then I will buy the physical book.

    These publishers and online book sellers need to at least adopt the music model. When I purchase music, I get it DRM-free to use as I wish, just like we used to do with mix tapes back in the day.

    If I want to sign my rights to an e-book over to someone else, i.e. sell it or give it away, I should be able to.

  2. OK, what’s wrong with this:

    “we publish new books in different formats (hardcover, trade paperback, and mass market paperback) at prices that generally range from $35.00 to $5.99″….

    “E-book editions of paperback new releases will be generally priced between $9.99 and $6.99”

    So if a mmpb is priced at 5.99, why would I ever pay between 9.99 and 6.99 for the same e-book with no first sale rights, no lending rights, poor formatting and proofing, and DRM limited devicing?

  3. On the other hand, you can grab the e-book version instantly from anywhere you have an Internet connection rather than having to go to a bookstore or wait for shipping, it doesn’t take up physical space adding to the amount of clutter in your home, you can word-search it, read it in bed without disturbing your spouse (for the backlit readers at least), and carry dozens of them in your pocket, briefcase, or purse without adding any weight.

    It’s like wondering why anyone would pay $26 for a hardcover book when you can get it from the library or wait for paperback. Many people wouldn’t, but enough people would because they feel its advantages (availability now, more durable construction) outweigh the disadvantages (price, bulkiness) enough to make it worthwhile.

  4. Chris you make a valid point but there is a weakness with it in:

    “On the other hand, you can grab the e-book version instantly from anywhere you have an Internet connection” …..and access to google for the cost of nothing from file sharing sites.

    This has the potential to be a huge concern if the BPH don’t provide a quality product at rational (for consumers) pricing. This is why you can now get DRM free music tracks for low costs – the music industry already tried what the publishing industry is tripping over now.

  5. Then given time, they should learn the same lessons the music industry did. Pricing will seek and find its equilibrium point.

    The best antidote to piracy is reasonable pricing. Music piracy is way down since it became possible to buy what you want from iTunes cheaply, easily, and without any risk of snagging a trojan (or a lawsuit).

    Most people aren’t techies like you or I. Give them the choice of paying a reasonable price (for their own personal values of “reasonable”) for an e-book they want in a format they can use, and using unfamiliar and potentially risky software (remember the flap about how much confidential information got shared out by people who installed peer-to-peer software without knowing what they were doing?) to find a book that may not even be there, let alone in a format they can load onto their device, and they’ll happily shell out.

  6. Lets see.

    The retailers get guaranteed 30% for performing a simple electronic transaction but lose all ability to grow or protect market share via efficiencies and price. They’re left trying to find other means like exclusive offerings.

    The consumers get stuck with the resulting exclusive deals, incompatible DRM schemes, the inability to transfer their purchases, no competition and higher prices.

    What’s not to like?

  7. The prices that Macmillan mentions are list prices. In the same way as Walmart sells the book cheaper than the list price, most ebook providers will offer various discounts from that list price.

    And isn’t everyone happy that Macmillan is finally paying attention to readers?

  8. Marilynn, um, agency pricing means Macmillan sets the price. Then read point#2 again. I give a big KMA to Macmillan on overpriced ebooks. I’ll buy the reasonable ones, and skip the others.

  9. Felix Torres // March 2, 2010 at 5:56 pm //

    Paying attention to readers or shoveling PR manure?

    Do they really think readers will be *thrilled* at paying US$1-4 for the privilege of a DRM-encumbered digital paperback?

    This baloney might fly if the 6 BPHs were the only game in town. But they aren’t and this kind of condescending, take-it-or-leave-it “pronouncement from olympus” is going to ensure they won’t remain in control much longer.

    This forced 30% price increase is going to cost them a whole lot more down the road.

  10. Jesslyn says, “Marilynn, um, agency pricing means Macmillan sets the price. Then read point#2 again. I give a big KMA to Macmillan on overpriced ebooks. I’ll buy the reasonable ones, and skip the others.”

    Publishers have always set the list price to paperbacks, and it’s always been higher than necessary so a distributor can give you a “deal.” Ebooks will follow the same pattern. That’s the way the game works.

  11. But now, with agency pricing, Macmillan sets the price, not suggests the price, only sets list price, etc. All Macmillan ebooks will come from Macmillan with the ebook price already set. No more Amazon discounts.

  12. Marilynn–I am not clear at all–sorry. The agency model means fixed pricing from the publisher for all ebook vendors that are on an agency model.

  13. Felix Torres // March 2, 2010 at 7:04 pm //

    Agency pricing is fixed *retail* pricing, not fixed list price. Under the agency model, any retailer that offers even a one cent discount is in violation of their contract and can and will be sued.
    That simple.
    Price fixing by any other name is price fixing.
    What MacMillan and their accomplices are betting is that:
    1- Their bought politicians will keep the trust-busters off their backs
    2- ebook price elasticity is 1-to-1 linear *at worst* so that a 30%price increase wil result in *no more* that a 30% drop in sales.

    They may be right about the first, but they are most likely wrong about the second; existing evidence is that a 30% price hike will likely result in a 50%+ drop in sales of the over-priced ebooks.

    At that point they will either admit they screwed up (riiigghht!) or pretend there is no ebook market and stop offering ebooks altogether.
    Buggy-whips forever!

  14. Well, I guess now it’s clear why so many of us cry foul at agency model (aka price fixing.)

  15. I think Macmillan’s strategy here will work, if and only if they can also force their p-books booksellers to go along with the ‘agency model’ for sales. But since he doesn’t even mention this, I imagine that’s not even something they contemplate trying.

    Thus, we will continue to be presented with the phenomenon of the new hardcover on sale at Amazon for $16 next to its ebook edition at $10 (if it’s a ‘best-seller’ but otherwise the ebook edition will be, oh say, $15).

    And who will buy the lesser-quality, DRM’d, soon-to-be-unreadable ebook when the higher-quality, free, readable-for-a-century, hardcover is only $1 more?

    This whole move by publishers is a chimera. Indeed, I suspect they are just trying either to strangle ebooks in the cradle, as usual, or trying to delay the impact of ebooks until ‘we can figure it out — who knows, I might be retired by then’ — also as usual.

    Massive fail. “This will not stand,” as one of our presidents said once.

    – asotir

  16. One thing that should be said—in fact, Stephen Windwalker said it in this blog post, which he reposted to the comments of Sargent’s blog—is that for the first time, Sargent is engaging with the general public, rather than pitching his entries to industry insiders.

    He posted a follow-up comment saying that he was going to be reading and responding to comments, and making a list of unanswered questions.

    So at least that’s something.

  17. Felix Torres // March 3, 2010 at 7:03 pm //

    1- Deeds speak louder than words
    2- Hearing isn’t listening
    3- Price fixing is still price fixing

  18. If any attorneys are lurking, what is the possibility of a class-action lawsuit? DTBs don’t seem to fall under this agency model, the bookstores, whether b&m or online buy them, then sell at sometimes drastically discounted pricing, but this agency model means that ebook consumers are forced to deal with a fixed priced.
    Anything.

  19. I am not a lawyer, but according to the legal analysis from someone who is a lawyer it would likely be very difficult to get a court to find agency pricing in violation of anti-trust given the current legal precedents.

The TeleRead community values your civil and thoughtful comments. We use a cache, so expect a delay. Problems? E-mail newteleread@gmail.com.

wordpress analytics