Why the Agency plan worries Random House & why authors should worry

At Teleread (a great site to keep up with daily), this question was posed.
  Does Random House fear agency pricing because it gives authors too much information?

Two of us didn't think that was the reason.  The following is my response in connection with why Random House (at this time) appears to be avoiding Apple's Agency plan in favor of Amazon's traditional wholesaler plan which offers Amazon customers lower e-book pricing on NY Times bestsellers.

  (On the other hand, there's still time for Random House to change its mind for iPad-day tomorrow morning.)  Here's what I posted there in connection with why I think Random House is hesitating to sign up with Apple's iBookstore and why authors with other large publishing houses should be concerned too, no matter what their publishing houses tell them.

' It's so simple, and Random House sees it.

  For a $22 list price e-book (surprising how many are listed at that high a price), TRADITIONAL WHOLESALER arrangement usually gives publisher 50% of the publisher-set list price, or $11 in this case [from Amazon]. If Amazon sells the e-book at $10 Amazon takes a loss -- loss leader method.

Publisher gets more than [the $10] selling price to book-customers. It's a guarantee [of $11 for the publisher] even during special sales.

  Publisher and author still get $11 regardless of what the bookstore sells the book for.

  AGENCY: For a $22 e-book sold at $14 "Agent" gets 30% commission on fixed-price, or $4.20.

  Publisher gets $9.80 -- less money to give to the author.

  ($11 goes to publisher on the wholesale plan on a [$22 list-price-book even if it's sold as a] $9.99 book, which is more likely to sell than a higher-priced one.

  $9.80 goes to publisher on a $14 ebook NOT likely to sell and even if it does, there's less to give the authors.

  [The publisher] gets to say the e-book is more 'valuable' -

but, as mentioned, the customer is likely NOT going to buy the $14 e-book and so the publisher/authors get even less than that.

  Random House is not stupid. The examples are for the same e-book selling at (first) $10 under the wholesaler plan -- traditional -- and (second) at $14 under the new Agency plan.

 That's more like best scenario for the publisher using the agency plan -- they get even less when the book price IS reduced to $10 or $12. '

($7 or $8.40 instead of $11)

(Adding for the blog)
  The Big 5 publishers seem to hope people will decide to buy the hardcover books under that scenario -- more for almost the same price, on discounted hardcovers -- or at least easily pay the higher ebook price.
  They're in for a big surprise if so. Below are ways to Share this post if you'd like others to see it.
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New 70 Percent Royalty Option for Kindle Digital Text Platform - Update

Today AMAZON announced, through Business Wire, its new 70 percent royalty option for the Kindle Digital Text Platform (DTP) that will enable authors and publishers to earn more royalties from every book sold.  For now, this is "available only for books sold in the United States."

I imagine this must be a fast response to Apple's offer to give publishers and authors more of a cut than Amazon has in the past - though the option is for publishers and authors who submit books through Amazon's Kindle DTP.  I don't know how that works with the big companies like Harper Collins, but ZDNet opines today that this would "throw them a bone" while still trying to keep prices down and reader-popular features intact.

  The option of course comes with an agreement that publishers and authors agree to allow several features such as text-to-speech for the book (well done!).

  The new option is "70 percent of list price, net of delivery costs" and "will be in addition to and will not replace the existing DTP standard royalty option.  This new 70 percent royalty option will become available on June 30, 2010."

  In addition, Amazon explains:

' Delivery costs will be based on file size and pricing will be $0.15/MB.  At today's median DTP file size of 368KB, delivery costs would be less than $0.06 per unit sold.  This new program can thus enable authors and publishers to make more money on every sale.  For example, on an $8.99 book an author would make $3.15 with the standard option, and $6.25 with the new 70 percent option.

"Today, authors often receive royalties in the range of 7 to 15 percent of the list price that publishers set for their physical books, or 25 percent of the net that publishers receive from retailers for their digital books," said Russ Grandinetti, Vice President of Kindle Content.  "We're excited that the new 70 percent royalty option for the Kindle Digital Text Platform will help us pay authors higher royalties when readers choose their books." '

And here's the important part:

' ... Books from authors and publishers who choose the 70 percent royalty option will have access to all the same features and be subject to all the same requirements as books receiving the standard royalty rate.  In addition, to qualify for the 70 percent royalty option, books must satisfy the following set of requirements:

 * The author or publisher-supplied list price must be between $2.99 and $9.99
 * This list price must be at least 20 percent below the lowest physical list price for the physical book
 * The title is made available for sale in all geographies for which the author or publisher has rights
 * The title will be included in a broad set of features in the Kindle Store, such as text-to-speech. This list of features will grow over time as Amazon continues to add more functionality to Kindle and the Kindle Store.
 * Under this royalty option, books must be offered at or below price parity with competition, including physical book prices. Amazon will provide tools to automate that process, and the 70 percent royalty will be calculated off the sales price.

The 70 percent royalty option is for in-copyright works and is unavailable for works published before 1923 (a.k.a. public domain books).  At launch, the 70 percent royalty option will only be available for books sold in the United States.

The Kindle Digital Text Platform is a fast and easy self-publishing tool that lets anyone upload and format their books for sale in the Kindle Store. To learn more about the Kindle Digital Text Platform, visit http://dtp.amazon.com/ '

Excellent analysis by Silicon Vally Insider. Below are ways to Share this post if you'd like others to see it.
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Some Kindle stats lost in the main stories

Gizmodo writer Mark Wilson was at first aghast that Amazon would offer newspaper publishers only 30% of the revenues, which left 70% for themselves.  He updated his article to say this:

"Maybe the NYT doesn't have a better deal than the Dallas Morning News.  According to a reliable source in the know, The New Yorker's Kindle split is divided 33% New Yorker, 33% Amazon, and 33% wireless carrier. Without ad subsidies, it's hard to view this model as sustainable."

Business Week's Dan Frommer noted a statement from Jeff Bezos' announcement last Wednesday (the 6th) during his live-blog of the event and wrote:

"[Bezos} said that when Kindle titles are available, they now represent 35% of those books' sales.  There was a huge spike when Amazon started shipping the Kindle 2 earlier this year"

Below are ways to Share this post if you'd like others to see it.
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