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Amazon is currently in talks with book publishers Macmillan and Hachette about selling e-books via an “agency” model, in which the publisher sets the price and Amazon takes a 30% commission.
Analysts are worried that if the whole publishing industry goes this way, Amazon’s ebook dominance (and revenue) will suffer, because publishers will keep ebook prices high to protect physical book sales.
However, one major book publisher we spoke with sees no reason to shift to that model right now or anytime in the near future.
The reason is that book publishers make less money from the agency model than they do from the traditional wholesale model (in which Amazon buys a book licence at the full wholesale price, and then sells each copy for whatever it wants, often losing money on the sale). The agency model, therefore, also leaves publishers less money to pay authors and agents.
According to one executive we spoke with, it’s also still unclear if Amazon will continue to command its dominant 90% share of the e-book market, so there isn’t much reason to set a precedent by adopting a model that makes everyone less money per book.
The scepticism about the agency model is bad news for Apple since it means for the time being Apple won’t have every major publisher on board with high ebook prices and a 70%/30% revenue split for its iPad e-reader bookstore. This could allow Amazon to undercut Apple significantly on price and, thereby, limit Apple’s sales.
For Amazon, meanwhile, the publisher’s position is helpful in that the whole publishing industry isn’t likely to quickly shift to the agency model. Thus, Amazon can continue to sell some e-books at a lower price than competitors, which should help it maintain strong market share. However, since Amazon is already caving to two major publishers, the agency model precedent will have been set to some degree and it will lose its pricing power for some of its books.
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