1. Market Data
December 21, 2014

Amazon and Macmillan compromise with new deal

Retail giant Amazon.com and publishing house Macmillan have signed a multi-year deal reaching a consensus on the sale of both digital and print books after controversies surrounding the share of profits.

Retail giant Amazon.com and publishing house Macmillan have signed a multi-year deal reaching a consensus on the sale of both digital and print books after controversies surrounding the share of profits.

According to John Sargent, CEO of Macmillan, the agreement will come into effect January 5, 2015 onwards, where the publisher sets the prices of digital books with retailers getting a percentage from the sale, in a book pricing strategy called the ‘agency model’.

A spokeswoman from Amazon stated: "It allows us to grow our business together with Macmillan and their authors. Importantly, the agreement specifically creates a financial incentive for Macmillan to deliver lower prices for readers."

Last month, an agreement with Hachette Book Group turned sour ending a six-month disagreement between the two, in which some of the New York-based publisher’s titles had been cut off by Amazon. Hachette had defied Amazon’s move of seeking e-book discounts to boost sales, which the retailer argued would result in better revenues. Many authors backed Hachette saying that such a strategy was causing them to lose money in the form of author’s commissions and publisher’s profits.

Amazon had argued that it was better for the consumers, who would go in for more books; in turn, generating more revenue.

Simon & Schuster of CBS Corp. also has a multi-year deal with Amazon, signed in October. All three publishers have the ‘agency model’ book pricing agreement with Amazon.

As per Sargent, a deal signed with Macmillan consents to Apple being the only retailer having unlimited discounting power. Ironically, an anti-trust case was levelled by the Department of Justice against Apple and five publishers alleging that they had hatched a plot to go one up over Amazon by fixing prices earlier. All five publishers ultimately settled out of court, while Apple is still appealing against the allegations as well as a penalty of $450m.

Sargent also said that a separate ruling in the Apple case allows the California company the luxury of discounting book prices till October 5, 2017, which will "ensure a muddled and inefficient market", according to him.

In a letter to the author’s of Macmillan, Sargent wrote: "Under our deal with Amazon your net percentage of the proceeds will not change. You will be affected, as you always have been, by our changes in price. Your books will continue to be featured in Amazon promotions and deals."

Forrester Research reports that e-book sales are dominated by Seattle’s digital book market pioneer Amazon, which owns 60% of the market share.

Germany-based Verlagsgruppe Georg von Holtzbrinck’s Macmillan, owns imprints in Germany, the US, Australia, etc.

Sargent said, Macmillan is trying out a new subscription model where customers "pay per read". The plan is to use the strategy on titles which are rare at retail outlets.

Macmillan has corroborated that better terms will be coming from Amazon as lower prices are offered on its books.