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?

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