Apple's role in the shifting role of the eBook publisher

Mike Shatzkin at The Idea Logical Blog has a fascinating look at the potential changing relationships in the book publishing business.

He cites a report by Publisher's Lunch (the actual article available only to paying customers) that publisher's have worked out in principal an agreement with Apple to switch from a wholesale to an agency model.

Wholesale: Publisher "sells" books to a retailer or distributor who then resells the book at whatever price they choose, typically with a markup to allow for profit. (That profit has been elusive in eBooks, of course.)

Agency: Publishers are in essence selling to you, the consumer, at a price they set. The person who facilitates the sale (Apple, Amazon, what-have-you) takes a set, pre-negotiated commission.

Great explanations (I've paraphrased him), and if you think to the iPhone you'll see this is exactly how the App Store works. You, the developer set the price for your app and keep 70% of the sale price, the rest goes to Apple who facilitates the transaction.

Michael senses this can be great for traditional publishers:

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. Since Apple’s normal “take” at the App Store is 30% and discounts from publishers have normally been 50% off the established retail price, publishers can claw back margin even if they don’t get Apple to concede anything from the 30%.

He cites three specific benefits to publishers. First, they gain control over book pricing, potentially breaking the $9.99 model. The second is lowering overall margins as they see a 50% split potentially come in much closer than 70%/30% - in their favor. The third is a potential leg up for large publishers versus smaller, independent ones.

He further opines that non-Amazon merchants (Barnes and Noble, Kobo, and others) will be thrilled, since they won't have to sell books at a loss to compete with Amazon any longer. Remember, Amazon can handle a few $10 books thrown in when you're buying Kindles and TVs and computers from them as well.

This is a must read article, and highly recommended!