March 1, 2011

The last holdout to the agency model is no more: Random adopts the Apple pricing model

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Everyone who wondered how long Random House would be the lone major publisher to hold out against the agency pricing model championed by Apple now have their answer: about a year.

As Jeffrey A. Trachtenberg reports in a Wall Street Journal story, the nation’s biggest publisher announced late yesterday that it would be switching to agency pricing for its ebooks today, although the announcement — coming two days before Apple is expected to announce an updated version of the iPad — did not say whether that meant Random House books would now be available in the iBookstore.

As Trachtenberg explains, “The agency model calls for publishers to set the retail prices of their digital titles, with the retailer taking 30% of the sale and the publisher receiving the remainder. Agency pricing effectively eliminates discounting and assures retailers of a profit on each digital book they sell.” That’s mostly true, although Apple’s version of the agency model gives it plenty of control over the pricing supposedly set by publishers, which is one reason Apple’s pricing policies are under investigation by at least a couple of states’ attorneys general.

In any event, the history of Random’s decision, as the WSJ report details, is that …

Five of the country’s six largest publishers switched to agency pricing last year when Apple introduced its iPad tablet. Publishers believed the iPad would sharply expand sales of e-books and challenge Amazon.com Inc.’s popular Kindle e-reader….

Random House, the nation’s largest publisher of consumer books, had declined to change its digital strategy, sticking with traditional wholesale pricing. As a result, its digital titles haven’t been available for sale directly from Apple’s iBookstore, but are available for purchase from various retail bookstore apps on the iPad.

Of course, Random House books won’t be available to read on the iPad if Apple is allowed to go through with its plan to prevent people reading books purchased anywhere other than the iBookstore on Apple devices (another Apple policy that’s under widespread investigation). Which may be one inspiration for the timing of Random’s turn-around.

But as to the company’s stated reasons, according to a report in Publishers Weekly, a Random House statement explained:

The agency model guarantees a higher margin for retailers than did our previous sales terms. We are making this change both as an investment in the successful digital transition of our existing partners and in order to give us the opportunity to forge new retail relationships. We are looking forward to continuing to work with all our retail partners—both digital and physical—on our joint mission to connect our authors with as many readers as possible, in whatever format they prefer.

Whatever the reason, one thing seems certain: As Hillel Italie says in an Associated Press wire story, “Stieg Larsson‘s novels may finally be headed to the iBookstore.”

Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House.

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