Screen shot 2010-03-26 at 10.29.26 AM.pngEditor’s Note: The following comment was made by Bob to our article Agency model causing problems for wholesaler Ingram; may disrupt ebook distribution. It contains so much interesting and useful information that I thought it should be “promoted”. I’ve done some minor corrective editing and paragraphed the text. PB

Wholesalers provide hosting services and lines of credit to help the industry grow and help publishers bring their product to market. Without distributors, the eBook industry may have died in the middle of the last decade when Barnes & Noble, Books-A-Million, and Amazon all left the business and hundreds of thousands of customers ebook shelves were deleted. Distributors like Overdrive and Ingram funded the industry and kept the flame alive, recruiting and supporting retailers like BooksOnBoard, Powells, and Fictionwise.

The relationship is symbiotic, providing focused skills in distribution from the distributors and focused merchandising and customer service skills from the retailers. BooksOnBoard dual sources from both Overdrive and Ingram. If Ingram doesn’t play because of the agency model, BooksOnBoard will have product from Overdrive and from publishers with whom we work directly. (These do NOT include the 5 publishers that will require fixed eBook prices as of next Thursday.)

Let’s be fair to the distributors: as of Thursday afternoon, March 25, the 5 publishers still do not have all the necessary info to the distributors for cut over to new system – items such as sales tax nexus (because, under the new model, they will now require sales tax where the publisher has nexus/locations), ONIX feeds of the changed metadata that includes the new Required Ebook Pricing (REP), and rules for promotion, etc. These things require more than a few days notice to code and test for well over 100,000 titles. So we and others may not have all titles on April 1, but we’ll still have over 200,000 to choose from, including thousands from our top publishers Random House, Harlequin and Samhain, none of whom are playing in this new pricing game.

The distributors’ problem has nothing to do with clinging to old systems. It has everything to do with publishers, desperate for better profits in these hard times, trying to force a change on very short notice. This is a change that increases prices for consumers – many nearly doubling in street price with this change – eliminating by mandate all discounts and rewards programs for the 5 publishers’ titles in an effort to create a somewhat surreal level playing field. Unfortunately, the 5 publishers have chosen as of this writing to push this program through without having the plan fully spelled out. Even if they spelled it out tonight, that still leaves only 5 days for major systems changes and testing.

We’re told this is in order to both meet the deadline for the Apple iPad’s release in early April in order to deliver a message to the two other multi-billion dollar giants that have been selling below cost (Amazon and Barnes & Noble). The iPad, interestingly, is a product that our in-house surveys indicate 90%+ of our customers will never touch because they view it as impractical, incredibly expensive and targeted at the very affluent – unlike 98% of all readers who are working extra hard to make ends meet these days. And why would a typical reader, with household income of less than $60k during these hard times, spend up to $800 to read a $7 eBook?

BooksOnBoard will continue with our discounts and rewards for all other publishers and offer the 5 publishers’ titles at the Required Ebook Price (REP) when the publishers get their program together and deployed through the distributors. Meanwhile, the Required Pricing scheme guarantees Apple – anything but a struggling company – huge margins on eBooks, raises consumer prices (including forcing sales tax to be charged in approximately 24 states where it is not typically charged for eBooks today), and squeezing out many of the independent ebook stores that rely on Ingram for product. Unfortunately, the agency pricing scheme turns consumers wallets and small independents into collateral damage to “friendly” fire. End result will be to further concentrate economic power, including the selection of who gets published and promoted, in the hands of a few multi-billion dollar behemoths and drastically inhibit the free enterprise that in the last decade encouraged eBook pioneers like Baen, Overdrive, BooksOnBoard and others to keep eBooks alive during years when high-flying Barnes & Noble and Amazon both abandoned the business and hundred of thousands of customers ebook shelves to address quarterly earnings objectives.

BooksOnBoard will, in fact, come through this intact, but many of our peers will not. And our typical customer’s choices will be diminished by significant price increases. Neither of these are good things for customers, authors (who get no additional royalties from the increased prices), or the industry over the long run. Over the months and years to come, as eBook adoption advances, we can expect actions like this – if unchecked – to result not only in the closing of some of our ebook store competitors, but also in the closing of traditional independent print bookstores around the globe. For those of us that love to browse the likes of BookPeople in Austin, Oxford Books in Atlanta, City Lights in San Francisco, Tattered Cover in Denver, and more – those will be very sad days.

And, as a footnote, most eBook readers also like to read print books as well. In 2009, our active eBook customers who had been with us since 2008 or earlier purchased on average 20 eBooks and 21 print books. Print’s not dead. It just has a companion.


  1. President Obama made a visit to Iowa City yesterday. He stopped in at Prairie Lights bookstore and if you look at the NYT front page picture you will see him at a photo moment holding up Rove and Romney print books. Imagine him achieving this iconic moment with electrophoric devices.

    There really is no particular linkage between e-book growth and indie book store prospects. Amazon is actually using e-book sales to predict print sales. And both print-on-demand and ultra high speed print copy scanning suggest new two-way transactions between paper to screen and screen to paper in a larger growth of book reading.

  2. If I’m reading this correctly, the move to the agency model means that sales tax is determined by the publisher’s location, not the ebook retailer’s location? So this means that when I buy books for the Kindle I will sometimes pay sales tax, depending on the publisher and whether they have a nexus in my state? I guess that’s one way to get readers to notice the publisher…

    Currently I pay sales tax on every ebook I buy from Amazon because I live in Washington.

  3. The big five are…

    Hachette (Grand Central, Little Brown, Faith Words, Windblown, Orbit, Center Street, Yen Press)

    Penguin (Penguin, Ace, Alpha, Amy Einhorn Books/Putnam, Avery, Berkley, Dial, Dutton, Firebird, Frederick Warne, Gotham, Putnam, Grosset & Dunlap, HP, Hudson Street, Jove, NAL, Pamela Dorman Books, Perigree, Philomel, Plume, Portfolio, Prentice Hall, Price Stern Sloan, Puffin, Razorbill, Riverhead, Sentinel, Speak, Tarcher, Viking)

    Harper Collins (Amistad, Avon, Caedmon, Ecco, Eos, Harper, ItBooks, Rayo, William Morrow)

    MacMillan (Farrar, Straus and Giroux, FSG, Hill & Wang, Faber & Faber, First Second, Henry Holt & Co., Metropolitan Books, Times Books, Nature Publishing Group, Palgrave Macmillan, Picador, Quick and Dirty Tips, Scientific American, St. Martin’s Press, Minotaur Books, Thomas Dunne Books, Tor/Forge, Orb Books)

    Simon & Schuster (Atria, Folger, Free Press, Gallery, Howard, Pocket, Scribner, Simon & Schuester, Threshold, Touchstone/Fireside)

    Books on Board has a page up on their site about it…

  4. Random House knows what it’s doing. I think the other big publishers are shooting themselves in the foot. With e-books at the higher prices, readers will be MUCH more selective about the titles they buy. Looking on the bright side, it may be a good thing for my savings!

  5. Just in from CNN:

    “…and in related news, ISP’s noted a huge increase in P2P traffic on April 1st, 2010. Causes for this spike have yet to be determined…”

    Just one more way to anger the individuals who pay for your salary and are the basis for your business.

  6. I just worry that publishers will see sales decline and reach the wrong conclusion. They may think it means people are not interested in ebooks when really it might mean people think their new pricing strategy is too high and have chosen to get books from the library or wait for paperback prices. I want to see the ebook market grow for the benefit of authors and customers, and I worry that if they reach the wrong conclusion, they could set the whole thing back a decade or so.

  7. In response to ficbot’s comment:

    I believe the Agency Model can only be sustained if Random House joins in. If they do not, consumer backlash will build until incentives are once again allowed by the Big 5–or until the Agency Model is abandoned altogether in the face of a furious reading public.

    That said, the large houses have been functioning for decades on a model that allows for tremendous losses while making them up with a minority of sales. Ebooks have changed that paradigm. I see this as a short-term solution to a long-term problem that belongs entirely to Big Publishing and is only harming everyone else, from consumers to retailers. I think it will work itself out given some time.

The TeleRead community values your civil and thoughtful comments. We use a cache, so expect a delay. Problems? E-mail