An American Editor

May 3, 2010

The Decline & Fall of the Agency 5

April 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?

10 Comments »

  1. BRAVO! Apple never has “played well with others” and I cannot fathom the slavish adoration they engender in their customers. Well, SOME of their customers – my ipod Touch was a disappointment from day 1.

    Smashwords is amazing. The Kindle, Nook & Sony won’t shine light in your eyes when you read in bed at night, thus upseting your system’s melatonin levels.

    Onward and upward, everyone.
    Kris

    Comment by Kris — May 3, 2010 @ 11:00 am | Reply

  2. 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 technology to verify his status as top techie. Sooner or later ibooks will have to stand alone financially and Jobs has given over marketing to a bunch of publishers with little or no end sales experience.
    The end game will be one of attrition 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 exponentially. Outside of Amazon, these are the only reliable numbers that the competition and the pundits have.
    Amazon has extremely 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

    Comment by Joe J. — May 3, 2010 @ 11:24 am | Reply

  3. [...] И Пятый материал – о роли агентской модели, появившейся в связи с появлением iPad The Decline & Fall of the Agency 5) [...]

    Pingback by Планета е-книг » Blog Archive » Обсуждение “животрепещущей” темы — May 3, 2010 @ 1:19 pm | Reply

  4. [...] 5 pricing scheme for the ebooks (for some background, see Agency in eBooks: Just the Start? and The Decline & Fall of the Agency 5) that allows the publisher to set the ebook price and the ebookseller to set the pbook [...]

    Pingback by Ripping Off is Soooo Easy to Do: The Charade of Pricing « An American Editor — October 7, 2010 @ 5:26 am | Reply

  5. I agree with your take on things. Until things within the market mature more and the agency model is fleshed out more I’m not ready to sign on just yet.

    Can you let me know where you found your information regarding the April 2011 change of the terms and conditions?

    Thanks!

    Comment by Chris Rainey — November 4, 2010 @ 4:29 pm | Reply

  6. I’m not convinced. Apple kicked off the agent system (and more or less forced Amazon and B&N to follow suit). But publishers are already discovering the flaws with this system (Amazon dropping their hardcovers to below the ebook prices to make readers angry at publishers), so I don’t doubt that there are some misgivings about the system on the publisher side, too.

    As for iBooks, the problem there is really that they’re starting out the gate well behind the leaders. Amazon and B&N both have huge sales leads on them (Amazon at roughly 75% market share, last I had heard, and B&N in the teens). They had less books, made it harder to add new books, didn’t have as user friendly an environment, limited buyers to only Apple devices, haven’t marketed the platform very well, and in general have screwed up by the numbers on their launch and post-launch. Meanwhile, most iPad book readers are using Kindle-for-iPad.

    Of course, that’s a win for Apple too in the short term, since their iPads have Kindle use as a good bonus feature.

    Anyway, this article doesn’t do anything to suggest why going from agency pricing to retailer pricing will help Apple. Amazon is doing pretty nicely with agency (although I do get the STRONG idea they’d prefer the retail system). Agency pricing isn’t causing iBooks to have such dismal sales though – it’s just not as good a store, not as well marketed, and not as broadly usable. Retail pricing isn’t going to fix that for Apple. And a shift to retail pricing by Apple will allow Amazon to do the same – which will probably benefit Amazon far more than a shift will help Apple.

    Comment by Kevin O. McLaughlin — November 5, 2010 @ 6:06 pm | Reply

  7. Here in the UK I believe that the Agency Model has been a Godsend to independent publishers and authors. Indies have shown that ebooks can be produced at reasonable prices and that a substantial number are at least as good as, if not better than, many of the treebooks available. There is also the thrill of possibly being one of the first to discover the next J. K. Rowlings or Ian Fleming. The UK Amazon Kindle Forum often receives comments that the reader is exploring, and enjoying, new genres which he / she would not normally have dreamed of. This can only be a good thing. Treebook authors are already building a dangerous reputation in the ebook world by their publishers inability to proofread ebooks. Ultimately, such shoddy workmanship reflects on the author. Many of us in the UK have downloaded enough “cheap” and free books to last us for months, if not years. By the time we “need” to buy another book our favourite indie author will have the next available. My bet is that we will choose those rather than expensive new offerings from treebook authors. It will be a while before treebook sales are badly affected, but they will be eventually. Treebook authors have a great opportunity right now – which is to release new ebooks at reasonable prices and put their whole back catalogues up at highly discounted prices. The “boxed set” model comes to mind. There are an awful lot of Kindle owners who would love to own all the books by their favourite authors in ebook form even though they have them as treebooks. I suspect that this is a potential gold mine waiting to be opened up.
    Sorry for the English spelling and any typos – my keyboard doesn’t like me!

    Comment by Andy Jenkinson — January 5, 2011 @ 9:18 am | Reply

  8. [...] would be another, better way. Regular readers of my blog may recall my post from 9 months ago, The Decline & Fall of the Agency 5, in which I wrote: April 2011 is the month to prepare for armageddon in ebookdom. It is when the [...]

    Pingback by Never Give a Sucker an Even Break! | The Digital Reader — February 28, 2011 @ 10:21 am | Reply

  9. [...] Regular readers of my blog may recall my post from 9 months ago, The Decline & Fall of the Agency 5, in which I [...]

    Pingback by Never Give a Sucker an Even Break! | Write Your Own E-book — March 1, 2011 @ 12:05 am | Reply

  10. Apple has done a great job
    Great Post

    Comment by felipe nunez — May 7, 2011 @ 8:45 am | Reply


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