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DIGITAL RESELLER AGREEMENTS:
WHOLESALE VS. AGENCY
IN THE BEGINNING,* THERE
WAS WHOLESALE
*IN THE BEGINNING OF DIGITAL BOOK SELLING
PART I
Wholesale Model:
How it Works
Standard model used in print publishing

Trade discounts apply when the goods are sold on
wh...
Wholesale Model:
What it means for digital retailers
Retailer can apply
a discount to the
price

Different retailers
can se...
ENTER APPLE.
The App Store Model
App publisher sets the price

Apple gets 30%, and the publisher
gets 70%

Apple brought this model to ...
The Agency Model
Goods are sold directly to the consumer
by the publisher, and the retailer takes a
commission on the sale...
And then it spread…
The big five publishers signed agency agreements
with Apple, which then prompted Amazon, Kobo,
Barnes a...
Agency Model:
What it means for retailers
Retailers cannot
apply a discount to
the price of the book

Prices must match
ac...
70% IS BETTER THAN 50%,
RIGHT?
Not always.
Under the wholesale model, there are two prices:
the (higher) Digital List Price submitted by the
publisher, a...
2 MINUTES OF MATH
Wholesale Digital List Price: $24.99
Discounted Digital Sale Price: $12.99
Wholesale Sales Percentage Split: 50%
24.99*0.5...
Under the wholesale model,
no matter what the
discounted sale price is, the
publisher gets paid their
50% percent on the l...
KDP and KWL give
authors agency rates
(70%), as long as
they keep their list
prices below $9.99
USD/CAD
Self-Publishing Pl...
THE DOJ SUIT
PART II
U.S. vs. Apple, Inc. et al
Civil anti-trust lawsuit launched in the U.S. against
Apple, along with Hachette Book Group,
Ha...
Judge Denise Cote rules that Apple
violated antitrust law
Appoints an external monitor, Michael Bromwich to ensure Apple
d...
payback.
In March 2014, Amazon started issuing refunds to
American customers who purchased books at
agency prices between ...
Agency LitePost-settlement, publishers have switched to the
agency lite model

Uses the agency model, but prevents publish...
THE CANADIAN CONNECTION
PART III
On February 7, 2014, the Canadian Competition Bureau
announced a settlement with Hachette, HarperCollins,
Macmillan and Si...
sez….
Kobo filed an objection to the Competition Tribunal in
March 2014

Stated that they would suffer “significant unrecover...
To be continued…
Kobo was granted a stay on March
18th, 2014, pushing back the
agreement’s scheduled
implementation until ...
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Digital Reseller Agreements: Wholesale vs. Agency

When the Kindle broke big in 2007, the wholesale model was the dominating force in the then nascent digital publishing world. However when Apple entered the market, it brought with it the agency model.

What are the differences between the two? Is agency still relevant following recent legal developments in both the US and Canada? This presentation provides an in-depth overview of the competing models used to sell digital book content in the US and Canada

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Digital Reseller Agreements: Wholesale vs. Agency

  1. 1. DIGITAL RESELLER AGREEMENTS: WHOLESALE VS. AGENCY
  2. 2. IN THE BEGINNING,* THERE WAS WHOLESALE *IN THE BEGINNING OF DIGITAL BOOK SELLING PART I
  3. 3. Wholesale Model: How it Works Standard model used in print publishing Trade discounts apply when the goods are sold on wholesale or business-to-business terms Bookseller purchases the book at a reduced price (retail price minus the trade discount), then sells it to the consumer Trade discount is the potential margin for the bookseller Retailer in effect ‘owns’ the goods in their store
  4. 4. Wholesale Model: What it means for digital retailers Retailer can apply a discount to the price Different retailers can set different prices Pay publishers royalties based on the list price, rather than the discounted sale price
  5. 5. ENTER APPLE.
  6. 6. The App Store Model App publisher sets the price Apple gets 30%, and the publisher gets 70% Apple brought this model to the iBookstore, and created the Agency model in digital book selling
  7. 7. The Agency Model Goods are sold directly to the consumer by the publisher, and the retailer takes a commission on the sale Retailer provides a service to the publisher, but never owns the goods Deals with commissions rather than discounts
  8. 8. And then it spread… The big five publishers signed agency agreements with Apple, which then prompted Amazon, Kobo, Barnes and Noble and other retailers to follow suit and renegotiate agency contracts Publishers provide a lower list price under agency, because the retailers were not allowed to apply a discount to the LP on site Most smaller publishers retained wholesale arrangements
  9. 9. Agency Model: What it means for retailers Retailers cannot apply a discount to the price of the book Prices must match across different retail sites Pay publishers 70% royalty on list price
  10. 10. 70% IS BETTER THAN 50%, RIGHT?
  11. 11. Not always. Under the wholesale model, there are two prices: the (higher) Digital List Price submitted by the publisher, and the (discounted) Digital Sale Price offered by the retailer With a wholesale contract, the publisher typically gets 50 - 60% of the sale on the DLP Under agency, the publisher submits one (lower) price, and they get 70% on that sale
  12. 12. 2 MINUTES OF MATH
  13. 13. Wholesale Digital List Price: $24.99 Discounted Digital Sale Price: $12.99 Wholesale Sales Percentage Split: 50% 24.99*0.5 = $12.50 ! Agency Digital List Price: $9.99 Agency Sales Percentage Split: 70% 9.99*0.7 = $7.00 For example…
  14. 14. Under the wholesale model, no matter what the discounted sale price is, the publisher gets paid their 50% percent on the list price provided in the metadata.
  15. 15. KDP and KWL give authors agency rates (70%), as long as they keep their list prices below $9.99 USD/CAD Self-Publishing Platforms
  16. 16. THE DOJ SUIT PART II
  17. 17. U.S. vs. Apple, Inc. et al Civil anti-trust lawsuit launched in the U.S. against Apple, along with Hachette Book Group, HarperCollins, Macmillan, Penguin Group, and Simon and Schuster Alleged that executives at the 5 publishing houses conspired with Apple to raise prices, and then forced Amazon to match them
  18. 18. Judge Denise Cote rules that Apple violated antitrust law Appoints an external monitor, Michael Bromwich to ensure Apple doesn’t enter into any further collusion Publishers have to renegotiate contracts with Apple, Amazon and other retailers All publishers settled out of court with specific agreements
  19. 19. payback. In March 2014, Amazon started issuing refunds to American customers who purchased books at agency prices between April 1, 2010 and May 21, 2012 Apple, Google, Sony, Barnes & Noble are also issuing refunds or store credits, and Kobo is expected to begin issuing refunds in the near future as well
  20. 20. Agency LitePost-settlement, publishers have switched to the agency lite model Uses the agency model, but prevents publishers from dictating sale prices Requires a variable pricing model Booksellers can discount up to 30% Banned the “most favoured nation” clause, which protected the retailer from the impact of other retailers’ pricing decisions within that nation
  21. 21. THE CANADIAN CONNECTION PART III
  22. 22. On February 7, 2014, the Canadian Competition Bureau announced a settlement with Hachette, HarperCollins, Macmillan and Simon and Schuster to end agency pricing in Canada Deal is intended to lower prices on digital books by allowing discounting and preventing price-matching Settlement is the result of an 18-month investigation by the Bureau into conduct that they suspected reduced competition for ebooks in Canada
  23. 23. sez…. Kobo filed an objection to the Competition Tribunal in March 2014 Stated that they would suffer “significant unrecoverable losses” if the restrictions on discounting were removed Alleged that Amazon would gain a monopoly on the supply of eBooks in Canada Indigo joined Kobo in making the complaint, pointing to the exit of Sony from the US ebook market and Nook’s falling sales as a result of the ruling in the US case
  24. 24. To be continued… Kobo was granted a stay on March 18th, 2014, pushing back the agreement’s scheduled implementation until after their challenge is heard by the Tribunal

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  • JaclynHeeney

    Oct. 12, 2014
  • monnibo

    Nov. 24, 2014

When the Kindle broke big in 2007, the wholesale model was the dominating force in the then nascent digital publishing world. However when Apple entered the market, it brought with it the agency model. What are the differences between the two? Is agency still relevant following recent legal developments in both the US and Canada? This presentation provides an in-depth overview of the competing models used to sell digital book content in the US and Canada

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