If the Government Makes Agency Go Away

This post, by Mike Shatzkin, originally appeared on his The Shatzkin Files blog on 3/8/12.

The Wall Street Journal reports that the Justice Department has notified the Agency Five (Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster) and Apple that it plans to sue them for colluding to raise the price of electronic books. I have no standing to comment on the law here. But if this does mean the end of the agency model, it would seem to be a cause for celebrating at Amazon and a catalyst for some deep contemplation by all the other big players in the book business.

Agency pricing, for those who have not been following the most important development in the growth of the book market, enabled the publishers to enforce a uniform price for each ebook title across all retail outlets. This was Apple’s desired way to do business, and it addressed deep concerns the big publishers had about the effect of Amazon’s loss-leader discounting.

Although the WSJ article and Michael Cader’s follow up in Publishers Lunch make no “agency is dead” declaration and there are quotes from publishers and others indicating that there are a range of possible outcomes, including a version of agency that is modified to allow some discounting, everybody in the industry now has to contemplate what it would mean if the agency model is legally upended.

To Amazon, it would mean they would be free to set prices on all books again, including the most high-profile and attractive ones that come from the big trade houses. That is an opportunity they are likely to seize with loss-leader discounting of the biggest marquee titles.

To Barnes & Noble, it would mean they have to devote cash resources to ebook discounting that they might have preferred to dedicate to further development of the Nook platform, maintaining the most robust possible brick-and-mortar presence, and improving the user experience at BN.com. Unconfirmed stories abound that B&N is about to announce an international expansion. Whether that will produce cash flow immediately or require it for a while is not yet known. For B&N’s sake, it would always better if it were the former, but if they’re about to fight discounting wars, it might be critical.

 

Read the rest of the post, which includes commentary on possible impacts to authors and others, on The Shatzkin Files.

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