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Why Random House's Surrender on "Agency Pricing" Is Good for Readers and Booksellers

Nearly a year after Apple (APPL) launched the iPad and the "agency model" of pricing e-books -- in which the publisher sets the retail price and the bookseller gets a 30 percent cut -- Random House finally got off the fence and joined the other five legacy publishers to adopt the pricing structure. And just like that, the book selling playing field just got a little broader.

Here's why it's a good thing:

For readers -- blockbusters everywhere!

Just in time for the next generation of the iPad (and about 8.5 million old ones), bestselling titles such as Dan Brown's Lost Symbol will be available for download at the iBookstore. There were a number of apps that allowed readers to buy Random House e-books through the store, but now readers can conveniently go straight to the source.

For big retailers -â€" better margins

From Random House's statement yesterday:

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.

What isn't explicit, but is implied, is that when the publisher sets the retail price, the retailer can't then be undercut by competing discounts.

For independent booksellers â€"- staying competitive

Champion of indie retailers, the American Booksellers Association (ABA), was quick to support the move. ABA's CEO Oren Teicher said:

We have believed from the beginning that the agency model is in the best interest of not only the book industry, but the consuming public as well. We appreciate the careful and thoughtful deliberation Random House has brought to this issue, and applaud their decision to adopt agency pricing.

Indeed, over 200 independent booksellers are peddling Google e-books using the agency model.

For publishers -â€" holding the value line

In today's downloadable world, the equivalent to cheap e-books are are music singles. However, even with the colossal number of songs downloaded (think over 10 billion!), iTunes runs at just above break-even. Good thing Apple relies on hardware as its cash cow.

Traditional publishers couldn't generate enough revenue to sustain operations if the only thing "hard" they're selling are hardcover books. By setting the retail prices of e-books themselves, they can keep their own margins steady while they buy some precious time to figure out a better business model.

The potential pitfall

Random House and all publishers would do well to work quickly on more competitive pricing. Customers are still resistant to paying high prices for books they can't actually stick on a shelf. Publishers Marketplace (registration required) notes:

Lisa Gardner's Alone, which had been priced at 99 cents for the last few weeks (and reached the top of the NYT e-book bestseller list with that price) is now back up to $7.99 on the Kindle and Nook, with Amazon's customary note for agency e-books that "this price was set by the publisher." The first two Stieg Larsson e-volumes are now agency priced at $7.99, with The Girl Who Kicked the Hornet's Nest, being a newer title not yet available in paperback, now priced at $11.99.

RH says once the agency model is fully implemented across channels, it will take focus on "experimenting with a variety of price points for our titles." Let's hope it doesn't take them -- and other publishers -- another year to figure out the sweet spot.

Image via iBookshelf


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