Agency Modeling for Dummies

Whether you're a publisher, writer or just an avid reader, if you haven't been following the Department of Justice's e-book suit against Apple and five of the big six publishing houses, you might want to look into it. Or at least the basics of what it could mean.

Starting in 2008, many of the major publishing houses switched to an agency pricing model (you may remember hearing about the Amazon/Macmillan dispute about it). So what is agency pricing?

In the very simplest terms, pre-agency-model, publishers sold their books wholesale (like you'd sell a whole bunch of fish to a store) to online retailers like Amazon. Amazon could then sell their newly-purchased fish for whatever price they wanted.

Under the agency model, publishers are not selling their books to the retailers. Instead, they are taking their hypothetical fish to the fish store, setting up a stand, and selling their fish directly to the customers -- but giving the store owners a 30% cut of their profits for letting them use the space.

Essentially, this allows the publishers to set the price of their own fish/books, rather than letting the fish store/Amazon sell them for whatever low-ball figure they want. Now, as a reader, I appreciate a deal. Don't get me wrong. $0.99 for a Hunger Games e-book? Yes please!

But as a writer (and semi-professional publishing-type person), I understand why this is a problem. Say you write a book. Okay, that's 2-3 years of your life right there, writing, editing and rewriting and throwing the book at the wall, etc. Then the editors at your publishing house expend their time and energy editing it again. And proof-reading. And making fancy covers and fluffing it up to look pretty on an e-Reader (since this is e-books we're talking about).

As the author you receive, let's say, a 10% cut on each book sold. Since so many people own e-Readers, a lot of your new readers are purchasing the e-book rather than the print book. Which would be fine, except now instead of making 10% of $9.99, you're making 10% of $0.99. Or whatever price the online retailer deigns to set.

You can see why the non-agency business model was a problem for publishers.

Now, back to why this is relevant today. There's a great post on everything you need to know about the DOJ lawsuit if you're looking for the long explanation, but I'll summarize here.

The US DOJ filed a lawsuit against Apple, Penguin, Macmillan, Hachette, Simon & Schuster and HarperCollins, accusing them of colluding* to raise e-book prices.

Is the agency model itself illegal? No. But according to the DOJ, the way these big-5 publishers and Apple went about agreeing to the agency model was. I am not a legal expert (thank you, Captain Obvious). Wikipedia says "collusion takes place within an industry when rival companies cooperate for their mutual benefit." As I am not a super-awesome industry spy person,** I don't know if these companies really did this. Macmillan and Penguin are fighting the suit, but the other 3 companies have settled to avoid court costs (though they still refute any wrongdoing).

The settlement they signed means that those publishers must "terminate contracts with other retailers (like Amazon and Barnes & Noble) that contain any “restrictions on an e-book retailer’s ability to set the retail price of any e-book”." In addition, "for the next two years, retailers may set, change or lower e-book prices and may offer discounts and other promotions “to encourage consumers to purchase one or more e-books.”"

So now we reach my biggest personal concern with the whole dilemma (aside from, you know, being afraid that e-books will go the way of the $0.99 iTunes songs).

In other words, A GOVERNMENTAL BODY has decided that because there may have been illegal activity involved in settling on the agency pricing model in publishing, it's now banned for 2 years at three of the top publishers in the industry. I don't know about you, but this makes me more than a little uncomfortable? I mean, not that there's no precedent for governmental intrusion on our supposed free enterprise economy, but still... I wonder if the DOJ would benefit from some light rereading.

* read: conspiring/dastardly plotting/etc.

** yet! ... ahem.