The Agency Model and How it Will Change Publishing

Posted on October 18, 2010 by Melita M. Pereira

A Brief Overview of the Agency Model
The agency model has been the talk of the publishing town of late, especially since the launch of the Apple iPad earlier this year. A lot of the talk seems to be focusing on just how much the implementation of an agency model would change the way the publishing industry operates.

Mike Shatzkin of IdeaLogical (19 January 2010) provides an excellent and pithy explanation of the agency model.

He states that the agency model is:

“based on the idea that the publisher is selling to the consumer and, therefore, setting the price, and any “agent”, which would usually be a retailer but wouldn’t have to be, that creates that sale would get a “commission” from the publisher for doing so”. (My bolding. IdeaLogical’s italics).

The agency model is therefore to be distinguished from the wholesale model in which books are sold by publishers to retailers who are then responsible for determining the price of the book.

Shatzkin points out three “advantages” that the agency model would afford publishers. Namely, a publisher will:

• obtain a robust control over the pricing of ebooks;
• be able to “rewrite the supply chain splits of the consumer dollar”; and
• “institutionalise” an advantage that large publishers have “over smaller players on the e-book margins”.

Recent Discussions of the Agency Model
While debates about the agency model are so persistent as to have galvanised a place for the model in contemporary publishing discourse, a recent article by Graeme Neill of The Bookseller (15 October 2010) has cast a spotlight not only on continuing discussions about the model, but also the continuing clash of ideologies that it represents.

Many major publishers in the United Kingdom are seeking to adopt the agency model in relation to their e-books. In the United States, the model has already been adopted by Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster. Recently, Amazon.co.uk Kindle Team posted an email to customers (14 October 2010) on its forum opposing the implementation of the agency model. In the email, the Amazon.co.uk Kindle Team state that they believe that UK publishers will “raise prices on e-books for consumers almost across the board”, just as prices have been raised in the United States. They further contend that “this is a damaging approach for readers, authors, booksellers andublishers alike”.

Amazon.co.uk Kindle Team use the experience of publishers in the United States to substantiate their contention that the price hikes seen there have “not only frustrated readers, but have caused booksellers, publishers and authors alike to lose sales”. The Amazon.co.uk Kindle Team further states that “when prices went up on agency-priced books, sales immediately shifted away from agency publishers and towards the rest of [the Kindle] store”.

Since – according to their own observations – Kindle have much to gain from the agency model, it would seem then that their primary objection to its adoption is the increase in prices such a model would impose. Many exchanges about the agency model have taken place recently– perhaps too many to summarise here – but, it is interesting to note that as debate over the model continues, the distinction between hardcover and paperback books and their digital counterparts are beginning to fade away. It was originally anticipated that the digital format of e-books would enable a departure from the prices previously used for hardcovers and paperbacks, bringing in lowers costs, however the adoption of an agency model may hinder such a lowering of prices for any format, whether hardcover or e-book.

While the agency model may have ramifications for author royalties, it would also affect the retail sector directly. Indeed, the agency model would displace the role of retailers and booksellers as we currently understand them (under the “wholesale” model). Under the agency model, retailers will take the role of intermediaries who pass books on to customers at prices which are designated by publishers. The costing arrangements between authors, publishers and booksellers will be pre-determined. Macmillan chief executive officer John Sargent commented (2 March 2010) that the two major effects of changes to the relationship between publishers and retailers would be manifested in the availability of e-books and pricing. Specifically, under an agency model, e-books will be released simultaneously with hardcovers while each e-book will be “priced individually” as it is priced today. Indeed Macmillan asserts that its “$9.99[USD] and lower prices will continue to represent the largest portion of [its] business”.

In response to the email sent by Amazon.co.uk Kindle Team, Penguin chief executive officer Tom Weldon comments (15 October 2010, scroll down) that Penguin’s “first and foremost concern is that [they] protect the value of [the] author’s books, as well as the long-term health of this exciting new segment of the publishing industry”. Interestingly, Weldon comments that Penguin understands “that digital books are less expensive to produce than physical books, and that the benefit of this cost saving should be fairly allocated between readers, authors and publishers”.

It seems that every argument in the debate regarding the agency model has an equal counter argument and it will be interesting to see how the implementation of the agency model operates in the United Kingdom, in contrast to the United States. That aside, there is so much information to consider in relation to this topic, that I have only given it a very cursory examination here and will no doubt find myself posting again in the near future as further developments take place. Speaking for myself, I think its important to provide better prices to consumers in order to ensure fair access to literary (or other) works; however, I also believe in the importance of valuing the work and contribution of authors. The models implemented by publishers, authors and booksellers must mediate this tension to satisfy the considerations of both readers and authors.