decline.jpegApril 2011 is the month to prepare for armageddon in ebookdom. It is when the 2010 agency model pricing scheme will be buried by publishing’s 2010 savior, Steve Jobs and Apple. You read it here first.

All the stars and moons and planets will align and the caterwaul of panic will be heard throughout ebookdom, because that is when the Agency 5 — Macmillan, Simon & Schuster, HarperCollins, Penguin, and Hachette – will realize they have been snookered by the snooker master.

“Why is April 2011 so important,” you ask? Because it turns out that Steve Jobs did the Apple version of bait and switch on the big 5 — the agreement for agency pricing was/is only for 1 year. Come April 2011, I’m willing to bet that Jobs will drive the final spike into the agency pricing system for ebooks. Not necessarily the agency model, just the pricing — $9.99 (or less) will become the Jobs mantra.In April 2011, publishers will discover that the iBookstore is a losing proposition. Oh, Apple will have sold many millions of iPads, fulfilling expectations for a successful tablet, but the buyers, it will soon be discovered, either aren’t buying ebooks at all (maybe 1 or 2) or what they are buying they are buying from Amazon or Barnes & Noble or Smashwords. (By the way, nothing could be worse for the Agency 5 than if Smashwords is a bigger success on the iPad than the iBookstore, because that success would be price based.) If the iBookstore is a flop for Agency 5 books, the Agency 5 are out of the catbird seat and Amazon is back in.

Not only does it matter that the iBookstore may be a flop in terms of Agency 5 sales, but if Steve Jobs determines that agency pricing is hurting his income or the iBookstore, he will scrap agency pricing in a heartbeat — or even quicker if he can (again, pricing parameters not the model for the split). eBookers know who to blame for the high pricing, and if they don’t, Amazon reminds them constantly and Amazon controls (or so it is claimed) 80% of the ebook market.

Even if Amazon’s share of the ebook market drops to 50% by April 2011, it won’t have dropped enough to salvage the agency pricing system. To salvage it, the iBookstore has to command at least 35% of ebook sales and probably 50% of Agency 5 ebook sales — plus there can’t be much dropoff in sales of Agency 5 ebooks from pre-agency levels. The Agency 5 are already losing a significant percentage of money on the agency split as compared to the traditional wholesale split, so a drop in sales will compound the problem.

So what’s the backup plan? My bet is there isn’t one. It will be more of the same crying and complaining from the Agency 5, a wailing lament about how ebookers simply do not value ebooks. And then the moment of truth will come — that moment when Apple and Amazon each pressure the Agency 5 to lower prices; that moment when Amazon decides that the Agency 5 needs Amazon more than Amazon needs the Agency 5; that moment when authors decide it is better to cast their lot with Amazon than with the Agency 5; that moment when the Agency 5 realize they have doomed themselves to oblivion unless they take immediate, bold steps.

Jobs and Apple have demonstrated repeatedly that they are no friend of anyone but Jobs and Apple. (Do we need to go any further than the raid on the reporter’s home at the behest of Jobs because one of Jobs’ minions lost his cell phone?) Apple proclaims an open system as it closes its doors; it offers a carrot to publishers while hiding the stick. And there is no doubt that Jobs and Apple will decide on “proper” ebook pricing based on what is good for Jobs and Apple, not for anyone else’s survival.

April 2011 will be the moment in ebook history that historians will be able to point to as the turning point. If the iBookstore succeeds in eliminating Amazon’s dominance of ebook sales and in selling a lot of Agency 5 ebooks, then agency pricing may have a longer life. But if Apple fails to topple Amazon and if the iBookstore sales of Agency 5 books aren’t spectacular, agency pricing will die. The clock is ticking. If I were one of the Agency 5, I’d be working on a new plan and doing a lot of heavy public relations work in preparation for doomsday. Will Google be proclaimed the next industry savior?

Editor’s Note: Rich Adin is an editor and owner of Freelance Editorial Services, a provider of editorial and production services to publishers and authors. This is reprinted, with permission, from his An American Editor blog. PB


  1. I really don’t think the ‘Agency 5’ will wait a year to adjust things. If the anecdotal reports are true about people buying less books already (see my earlier article for Teleread on this—over 130 people answered my poll and only TWO are buying more than they used to) then I think they will tweak things sooner. They still will control the price, they’ll just control a lower price—in the range of $9.99 or so 🙂

  2. I can’t agree. The reason being that Apple and Jobs don’t care about selling books or music at all. They only care about selling iPads and iPods. The Books and Music are a means to that end.

    Let’s look at the iPad figures. Apple have just announced that they’ve sold a million of these. Apple’s gross margin on the iPad is unknown, but it’s low. It’s so low it’s going to reduce Apple’s overall gross margin next quarter by 1.5%. But I rather doubt that it’ll be under 20%. The cheapest iPad is $499. Let’s see… 20% of $499 million is (close enough) $100 million. In the first month of sales of iPods.

    How much did they make from ebooks? Well, let’s suppose they get 50% of the market in ebooks sales for the month of April, and let’s further assume that April’s figures were about the same as for February ( ) Gross ebooks sales then would be about $30 million, retail ebooks sales about $60 milliion, Apple’s cut of 30% of 50% of that would be $9 million. less than 1/10 of the profit from iPad sales. (Note that I’ve almost certainly underestimated fprofits from iPad sales and overestimated the profit from ebook sales.)

    Ebooks sales will continue to rise, but this is unlikely to make sale of books a significant profit centre for Apple, just as their profit from Music sales is still far outweighed by profit from iPod sales.

    Apple probably wanted a longer deal from the publishers (Back when the iTunes music store opened, they only managed to get short term deals from the music companies then, too.). If the agency pricing does go in April 2011, it won’t be because Apple wants to drop it.

  3. I’d be interested to see what Amazon’s contract says. From the circulating rumors, it sounds like they pushed for a longer contract (which the pubs didn’t want). Wonder what the contract says about time when Amazon’s still under contract and someone else isn’t… It wouldn’t surprise me if they had a trick up their sleeve to either prevent Apple from being the “savior” of ebooks…

  4. An interesting piece, Rich. I’m looking forward to an update come next year.

    For my money, the 1-year agreement is a trial — on both sides. As others have remarked, Apple sells hardware; but the company is making an increasing amount of change from its percentages selling songs, renting and selling movies and tv shows, selling apps … and now ebooks. So I’m guessing that you’re right in this regard: Steve Jobs brought the publishers on board with the agency model and promise of higher copy prices, but he recognizes that the $9.99 price is magical, and next year he will push the publishers to lower the price range. The publishers might then be pushing to raise the price range, or alter the deal in another way — say by shrinking Apple’s piece of the pie to 25%, or 20%.

    One big wild card is still textbook sales. The iPad should be a big hit on campuses (for a lot of reasons that have nothing to do with ebooks!) and if the textbook publishers come out with a good deal (and no doubt negotiations are under way now), it might well salvage the iPad as an ebook platform — even if mainstream fiction readers remain wedded to their Kindles. The eink screens so far just are not too great for the full textbook experience (outside such areas as literary criticism, say). But that Periodic Table of the Elements app for the iPad will no doubt be required for all chem students in any iPad-heavy school, and others of that sort will follow.

    Another big wild card lies with Amazon: just how will they respond to the iPad challenge? We’ve only seen a few of their many possible moves. They can come out with new reading devices, and of course if you are committed to gaining market share by losing money (which is a strategy that some laws frown upon, of course) there are other cards Amazon might play. They have already floated the balloon of maybe giving Kindle readers away to millions of customers, and another path might be to sell the ebook at the approved ‘agency model’ high price, but throw in the wholesale model paperback or hardback at below-wholesale price, as a bonus — Amazon’s pages usually give you the option to buy something along with the item on the page at a bargain total price.

    Finally, I don’t know if we can really say that publishers are losing money with agency prices vs. wholesale prices. Yeah, they do lose money in the Kindle store, but I thought the publishers were very concerned with upholding sales of paper editions in bookstores. And only they will know if they feel satisfied that revenues foregone by losing Amazon’s Kindle subsidies are made up by stabilized print edition sales.

    — asotir

  5. i thought the point was the the agency model is not self sustaining for the agency-5 publishers, not apple. so, if they have to drop prices to $9.99, they will lose significant revenue because they are getting less for the book plus paying the 30% agency fee. whether apple seeks to renegotiate, the publishers will face serious pressure unless there are a lot of spendthrift ipad users.

  6. I have to agree with Mr. Adin on this one.

    From past history, Steve Jobs sees himself as a the technical guru of all things computing. Bezos see himself as a marketing guru – especially when it comes to books.

    Jobs opened this war with “Shock and Awe” to bring attention to his new baby. The introduction of new technologies is his forte. In a year, Jobs will have moved on to a new piece of technonlogy to verify his status as top techie. Sooner or later ibooks will have to stand alone finantially and Jobs has given over marketing to a bunch of publishers with little or no end end sales experience.

    The end game will be one of attriton and maneuver – a hard core slug fest of marketing, sales and delivery. This is Bezos’s forte and he is armed to the teeth.

    Amazon has 80% of the e-book market and the e-book market is growing exponitially. Outside of Amazon, these are the only reliable numbers that the competition and the pundits have.

    Amazon has extreemly detailed information on what their customers are doing with e-books and enough of the market to infer what the other 20% is doing. There are a lot of people guessing on what is happening basis this extrapolation or that technology. Only Amazon has the hard data and they are not telling.

    If we are placing bets, my money is on Amazon unless something really earth shaking happens

  7. Ignored in all the hype over iPad vs Kindle is the Adobe-DRM ecosystem.
    Much as I dislike Adobe’s hijacking of ePub and *approve* (for long-term anti-DRM reasons) of Apple’s proprietary DRM, I can’t believe that all the gadgets and bookstores drinking the Adobe kool-aid won’t have an effect on the “debate”.
    One effect I can see is Amazon losing market share to the Adobe fronts and iBooks getting no significant traction.
    At that point, the BPHs have their hoped-for counter to Amazon and can tell Apple to pound salt. At that point, they *could* revert to wholesale pricing or they could try to stick it out. Probably the latter, I think.
    Remember, the appeal of Agency Model to the BPHs is in the price-fixing power, not in the actual price. And not in the ebook revenue it might be losing.
    They want to make themselves relevant by cartel-izing ebooks because they (rightly) fear that in the frictionless online marketplace they can be all-too-easily replaced by their own suppliers (Agents) or their distributors (Amazon, B&N, etc), or both.
    Having committed to cartel-izing the ebook business, they have to stick with it. At least until their golden parachutes vest, anyway. 😉

    I don’t think those guys will be ready to eat crow after just one year. It’ll take at least three.

    (Or a stockholder revolt.)

  8. I don’t see how Apple gets leverage over the publishers. If Apple tries to require lower prices, the publishers can pull out entirely. Overall, iTunes has to be a small fraction of the ebook market in 2011 and Amazon and others can take up to slack on the iPhone and iPad anyway.

    Since the ebook market is growing so fast, it is going to be hard to tell if the Agency model is a failure. It clearly represents less money per ebook to the publishers today, but they knew that going in. Five years from now will Agency publishers be a larger or smaller fraction of the fiction book market? My guess is a significantly smaller fraction, and largely because of the Agency model.

  9. Ficbot: “They still will control the price, they’ll just control a lower price—in the range of $9.99 or so :)”

    Except, in the pre agency model, the iDiotic 5 get more $$$ per book sold than in the $9.99 agency model.

    There’s one born every minute 😛

  10. Paul D.,
    Yes, very unlikely.

    1.5 million books downloaded for 1 million iPads sold so far.

    The first thing we tend to do with a new e-reader is to try out the download of a Free book, plentiful at all e-book stores, and iBookstore’s 60,000~ books include about 30,000 of those Project Gutenberg books (which are also directly available to Kindle device users via a special Kindle catalog file for Project Gutenberg books).

    A recent survey showed just how few of the many book apps for the iPad are of downloadable interest to iPad users. The stats will be interesting after some time, but they probably won’t be impressive insofar as using the iPad as an e-reader is concerned, overall.

  11. @Andrys: I agree that, for all its hyped “Kindle-killing” power, iPad’s impact on the ebook business is going to be underwhelming for the first year or two, at least. (Maybe forever.)

    The hypesters tend to forget that the iPad is to all intent and *purposes* a large format iPod. Its an over-sized media player first, a second rate web-browser second, a third-rate gaming platform third, and (if reports of a lack of compelling apps are true) not particularly useful as a netbook replacement. ( And, as noted, its ebook–selling prowess is, so far, non-existent.

    Apple will of course fix all these issues but it’ll take time. And its not clear that ebooks are particularly high on Jobs’ agenda considering the half-baked nature of the iBook app and the free ride iPad is getting from Kindle, Nook, Stanza, Txtr and the other ebook reading apps.

    Bottom line, it is unlikely the Price-fix-Five are going to get any sales boost out of that corner. Which is why I’m suggesting we keep a close look on the performance of B&N and Borders/Kobo and the horde of smaller ADE-dependent bookstores. If anybody is going to keep the Price-Fix-Five dreams alive its going to be them.

    It is only if *those* guys fail them that they’ll be forced to, eventually, eat crow.

    And I still think this will take more than just one year to play out unless the Price-fix move turns out to be a bigger debacle than even current ea-leaf readings indicate.

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