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Old 12-19-2012, 05:37 AM   #1
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Publishers Now Offering Agency Pricing 2.0 (big win for Publishers)

http://www.publishersweekly.com/pw/p...-agency-2.html

Quote:
According to the retailer, who has seen the new contracts for Hachette, HarperCollins, and Simon & Schuster e-books, the settling publishers will continue to use the agency pricing model in its new hybrid form. However, under this so-called Agency 2, “discounts may be applied by retailers to the PRP [publishers’ retail price] at any time,” and those discounts will be applied to the retailer’s share of the sales transaction. Under the agency model, publishers receive 70% of the PRP and retailers receive 30%, out of which a percentage also goes to e-book distributors such as Ingram or OverDrive. According to the retailer, the new contracts specify that “any discounting applied will reduce the amount of the [30% retailer’s] commission earned.”

While retailers can apply discounts at any time under so-called Agency 2, new agreements mandate the “aggregate amounts of the discounts during any twelve (12) month period must be less than or equal to the total commission earned on sales of the publisher’s e-books in such twelve month period.” A retailer called it a “cumulative maximum discount; you can’t go below cost. I can sell e-books for 99% off for a time as long as I stop before I go over 30% off over the course of a year’s sales.” The retailer said the settling publishers are also setting up shorter periods, from a month to 90 days, during which time they will monitor any retailer price discounts to prevent overdiscounting.

Things have been changing quietly at Macmillan, which is also still fighting the DoJ charges. In recent months, Macmillan began to allow their agents to discount e-books that are priced at $13.99 and above by up to 10% of the digital list price on a title by title basis.

So it is not wholesale anymore but agency pricing without the "most favored clause" that kept retailers profit margin at 30%.

Example: Publishers set the price at $15. Retailers will get 30% of this in commission or $4.5 if they choose to offer the book at Publisher Agency Price. Retailers can discount it as much as they like as long as cumulative maximum discount won't go below cost (overall catalog).

Publisher set the ebook price at $15. Retailer

Sell it at $15 = 30% profit
Sell it at $13.5 = 20% profit
Sell it at $12 = 10% profit
Sell it at $10.5 = 0% profit (at cost)
Sell it at $9 = 10% loss

Look like this is a big win for publishers since they get to set the price and get 70% of whatever price they set. And with prices being lower, they will sell even more.

No wonder MacMillan is joining in with agency pricing 2.0

Last edited by Top100EbooksRank; 12-19-2012 at 05:42 AM.
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Old 12-19-2012, 07:06 AM   #2
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And are they all offering these terms? What a coincidence!
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Old 12-19-2012, 08:43 AM   #3
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I'm shocked!
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Old 12-19-2012, 10:02 AM   #4
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So in brief, the publishers are still dictating discounts
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Old 12-19-2012, 10:04 AM   #5
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Quote:
Originally Posted by joehunt View Post
So in brief, the publishers are still dictating discounts
The restriction [for the new Agency 2.0 publishers] is only that a retailer cannot take a net loss across all of a publisher's titles. As long as the time window that is measured across isn't too small, that doesn't seem particularly limiting. All it does is stop someone buying market share by running at a loss.
[The MacMillan restrictions are much more onerous.]

Isn't this Agency 2.0 essentially what was discussed during the earlier settlement discussions?

Last edited by murraypaul; 12-19-2012 at 10:07 AM.
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Old 12-19-2012, 12:17 PM   #6
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Quote:
Originally Posted by murraypaul View Post
Isn't this Agency 2.0 essentially what was discussed during the earlier settlement discussions?
I believe so.
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Old 12-19-2012, 12:32 PM   #7
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It sounds reasonable to me. Publishers set an RRP and sell to retails at 70% of that price. Not much different to paper books, except that there the publishers sell to retailers at 45% to 55% of the RRP.

The main difference is the "no long-term loss leader". Retailers can't sell at a loss to gain market share over a significant time period.

However, efficient retailers can sell at a discount to RRP permanently.
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Old 12-19-2012, 12:34 PM   #8
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I haven't kept up with all of this in detail, but this sounds like somewhere on the road to a better middle ground for customers, doesn't it?

It seems like this will allow retailers a larger leverage to discount as they see fit, while at the same time help prevent a company from first selling at a loss and then, once the competition is eviscerated, raise prices as they like.
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Old 12-19-2012, 12:52 PM   #9
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We may see larger discounts toward the end of the reporting period. Retailers then will know how much of their accumulated commissions they have to play with.

Currently, I see discounts of well under 30% although it may be difficult to determine as the list prices have changed also.

And Kobo and BoB still don't seem to permit promo codes for these settling Agency publishers.
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Old 12-19-2012, 12:56 PM   #10
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The 12 month period seems interesting, but I'm not sure if it can be properly implemented. For example, if a book has the set price of $15, a retailer can sell it for 11 months at this price and then have a higher discount and sell it for 1 month at $7.50. But if the loss per book encountered in the discount month exceeds the profit from the previous 11 months, then the retailer is in breach of contract.
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Old 12-19-2012, 01:01 PM   #11
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Quote:
Originally Posted by Fbone View Post
We may see larger discounts toward the end of the reporting period. Retailers then will know how much of their accumulated commissions they have to play with.
I don't think that is correct (emphasis mine):
Quote:
“aggregate amounts of the discounts during any twelve (12) month period must be less than or equal to the total commission earned on sales of the publisher’s e-books in such twelve month period.”
Any retailer has to also consider that the following 11 months after a discount they have to accumulate a higher commission.
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Old 12-19-2012, 01:16 PM   #12
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Quote:
Originally Posted by Sil_liS View Post
The 12 month period seems interesting, but I'm not sure if it can be properly implemented. For example, if a book has the set price of $15, a retailer can sell it for 11 months at this price and then have a higher discount and sell it for 1 month at $7.50. But if the loss per book encountered in the discount month exceeds the profit from the previous 11 months, then the retailer is in breach of contract.
Yes, that is basically the point.
It allows retailers to either have a constant discount, or to run weekly/monthly/yearly promotions. Or just to have random discount days.
But they have to balance the books overall.
I see it as benefiting retailers who have better control over, and knowledge of, their operations, vs those who are poorly managed.
In other words, good for Amazon
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Old 12-19-2012, 01:22 PM   #13
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Originally Posted by Sil_liS View Post
I don't think that is correct (emphasis mine):


Any retailer has to also consider that the following 11 months after a discount they have to accumulate a higher commission.

We're not seeing large discounts now when there is only one 12-month period possible. December 2012 starts one period then January starts the second. Retailers may be waiting to see how sales develop for several months to see how much more they can discount. Or they may do special time limited sales. Daily Deals, weekly highlights, movie-tie ins, etc.

In any case. Amazon isn't, as far as I can see, discounting up to their full 30% commission. Maybe they are content matching other retailers. They must have good reasons for their strategy.
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Old 12-19-2012, 01:24 PM   #14
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However, I don't know what this means:

Quote:
The retailer said the settling publishers are also setting up shorter periods, from a month to 90 days, during which time they will monitor any retailer price discounts to prevent overdiscounting
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Old 12-19-2012, 01:36 PM   #15
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Quote:
Originally Posted by Sil_liS View Post
The 12 month period seems interesting, but I'm not sure if it can be properly implemented. For example, if a book has the set price of $15, a retailer can sell it for 11 months at this price and then have a higher discount and sell it for 1 month at $7.50. But if the loss per book encountered in the discount month exceeds the profit from the previous 11 months, then the retailer is in breach of contract.
One possible remedy is that they could only sell a certain number of books before the discount ends rather than ending a deal after a certain amount of time.

That way, they'd be able to automatically stop the discount before the loss per book exceeds profits.
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