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Is the agency model good for consumers and publishers?

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Recently, Smashwords, the largest distributor of independent eBooks, announced they had renegotiated their contracts with Kobo, Barnes & Noble, and Sony to follow the agency model instead of the wholesale model. When Amazon launched the Kindle a few years ago, they used the wholesale model which meant the publisher sold the book at a discount to Amazon, then Amazon would sell that book for whatever price they chose to consumers, usually at a loss. When Apple launched their iPad, they popularized the agency model where the publisher sets the price. Now almost all eBooks are sold using that model. But is it good for consumers and the market as a whole?

How has the agency model affected consumers?

Since Amazon moved to the agency model, prices of books rose from $9.99 to as much as $14.99. Also, Amazon now collects sales tax on certain titles, because they are no longer sold by Amazon. In addition, many publishers who feel threatened by eBooks can and have set the price higher than what a consumer can purchase a paperback copy for.

How has this affected retailers?
Under the agency model, some retailers no longer sell books at a loss, which means larger profits for them, but it also means they sell fewer books. Many markets begin by selling a product at a loss (like digital watches). That's an acceptable way of building a market. How many fewer books will be sold is unknown, because retailers arenít releasing numbers except for a few from Apple. Also, the eReader market is growing, so the number of eBooks sold is naturally going up further obscuring the difference.

What will this mean for the future?
eBooks are here to stay. Their flexibility and ease of reading with eInk are just too marvelous for a few dollars increase in price to stop. And they are a great way for new authors to break into the industry.

The agency model is an attempt on the large publishing houses to maintain power by setting the retail price. But this is an anti-market move which almost always kills an industry. This could very likely backfire. Independent book publishers are willing to charge the low prices the market would naturally trend towards and therefore have an advantage. Many successful companies in the past have driven themselves out of business for resisting new technology such as A&P grocery stores, a large national chain before World War II, that didnít adapt when cars and refrigerators changed the way people bought food.

So why is an independent like Smashwords opting for this model? That's what I would like to know. They claim it is good for the author, but how is price fixing good in the long run? Retailers know their customers. Their goal is to sell books and maximum profitability. So why shouldn't we let them?

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  1. expatrie's Avatar
    Well, eBooks can't be 'returned' and there's no inventory of any significant sense. They also can't be remaindered and have virtually no production per copy costs, and next to no distribution costs.

    That's what the 40% markup was supposed to be for, historically, so drawing a comparison between ebooks and hardcovers (say) is a little dubious.

    If what you're thinking actually happens, it won't kill the market itself, it will kill smashwords, leaving Amazon and Apple to duke it out. Things trend in this direction -- a lot of small operators at the outset, eventual consolidation. In this case, it's happening with a finger on the fast-forward button, as it seems Amazon and Apple want to be the 'last two' playing.