Collusion And The Agency Model

Ever since the electronic book was invented, publishing houses have struggled with pricing.

There's no paper or printing or trucking. It doesn't cost much to produce or distribute. What's the author's cut? What's in it for the publisher? How much can they get away with before the public stops buying?

The last component of the price equation is based on what the competition is doing. You won't last long if your competitor undercuts your price. At the same time, your competitor risks bankruptcy through excessively deep cuts, which isn't an ideal situation either.

If you could only get together and come to some mutually agreeable price point.....

Which you can't do if you do business in the U.S. of A., where collusion on pricing is forbidden.

As far as the Justice Department is concerned, the 'agency model' of pricing on e-books smells a lot like collusion, with publishers trying to fix the price so they all make money at the expense of the book-buying public, instead of allowing competitive pressures to bring prices in line with the free market.

Word is, several of the big houses are looking to settle the anti-trust lawsuit that's been threatened.

Steve Jobs is the one to blame.

In the dark ages before digital, a publisher would sell a book at 50% off retail and the seller could set the final retail price. Along came Steve Jobs, who thought it best that publishers sell e-books to one and all at a fixed price, with the seller (Apple in this case) getting a 30% cut for the effort. Every book wholesaler had to agree to that price, or be cut off from the supply.

That's why Congress, many years ago, made it illegal to fix prices. There's nothing in it for the consumer, and the robber baron publishers get to rake in the cash without limit.

The agency model has been much debated, with literary agents wondering if it's best for their clients or damaging to an author's financial picture.

Now the Feds have stepped in, and are about to settle the matter.

Good-bye agency model. There are no short-cuts to profitability. There is no easy road away from red ink.