The Agency Model: Not a Good Idea After All

The court proceedings against Apple and five major publishers are in process of getting resolved after extended legal fighting and lawsuits. Three of the major six, namely Simon & Schuster, Hachette and HarperCollins have finally agreed to settle the discord with the Department of Justice and with other legal cases which were held against them in various US courts. Apple, Penguin and Macmillan are still undergoing court proceedings.

After the final agreement reached in legal court, the publishers that settled have one week, after the waiting period ends, to suspend the agreement with Apple about the cost of ebooks. The annulment of this agreement will allow major retailers such as Kobo, Amazon and Barnes & Noble to give discounts on books they publish.

After these proceedings, the publishers will be free to change or renew contracts with any retailer and that will give Amazon a chance to apply the wholesale model they were using before. Apple completely lost its previous price point of $9.99 when it approached major publishers trying to convince them to switch to an agency model. This fatal move was made by Apple in order to crush the sales of Amazon, which was retailing ebooks at lower costs to boost the sales of their Amazon Kindles.

The sixty day period after the settlement will expire in the coming month, meaning that from next week, discussions among retailers and publishers to reduce the ebook prices will hopefully begin. Therefore, customers who were waiting for the summer vacation will get to buy their favorite books at reduced rates. Many critics believe that the fixed price rate model has taken about $260 million from the customers.

In April, the Department of Justice announced the terms of the agreement that included the five clauses:

1. to terminate their contracts with Apple within a week of court’s acceptance of terms;

2. to end all contracts with ebook retailers that restrict their ability to set final prices for books;

3. to renew contracts with Apple or other retailers but no new contract can be made for the next two years;

4. to notify the Department of Justice before entering into any joint ebook venture with other publishers;

5. to accept and choose an antitrust officer and update the Department of Justice with any new agreements, four times a year for the next five years.

All these clauses are aimed to the prevention of the agency model from surfacing again. All the future ventures and contracts between publishers and ebook retailers will be regulated constantly and ebook retailers will be able to give discounts on their ebooks without any restriction – discounts that will come out of their commissions, whereas the publishers will get the full price for their ebooks.

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