Agency returned

Agency returned

After more than six months and some of the most heated arguments I've ever seen in the book business (although rarely between the two protagonists) Amazon and Hachette USA have settled their terms dispute, in a deal that feels remarkably similar to the one agreed earlier between Amazon and Simon & Schuster Inc.

So who won? Overall, Hachette takes home the cup. The result feels like a score-draw between two sides neither of whom could quite net the winning goal, and simply grew too fatigued to keep pumping the ball up the pitch.

But Hachette won the penalty shoot-out. Agency was always going to be the deal-breaker and that's what Hachette comes away with, just as Simon & Schuster had before it. S&S called it a a "version of agency". Hachette said the deal gave it responsibility for setting consumer prices for its e-books.

We should not underestimate the importance of this. One publisher told me during the summer that they'd take a shift downwards in discount if it meant getting back to full agency.

It is important to understand why. Moving to agency in 2010 marked a fundamental shift in how this business worked, halting what was then considered to be Amazon's destabilising e-book push, and allowing publishers to focus on protecting their print businesses and nurturing a diverse retail market. The subsequent Department of Justice Investigation and settlements were a disaster for the sector reputationally and probably commercially. At the same time, Amazon's 70% royalty offer to authors and publishers (made just as publishers made their original agency move) moved the goal-posts overnight, and created the self-publishing market we know today.

But after two years of agency-lite, or modified agency, that allowed limited discounting, we are getting back to Original Agency.

But Amazon doesn't come away empty-handed. It clearly gained some additional margin, while it has put in place "specific financial incentives" for Hachette to price e-books cheaply. Amazon's PR has been that lower e-book prices create greater revenue, and it is in its business interests to reward that. Similarly, those publishers operating under agency will need to demonstrate how higher e-book prices create a more diversified marketplace without disadvantaging authors or readers.

By incentivising lower e-book prices, some have argued that these new deals (the Hachette one, and the S&S agreement) are a form of KDP. Under KDP terms writers set the list price, but they have no control over the consumer price, and their royalties are paid on the sale price when Amazon decides to discount or price-match. [Similarly, they had no say when Amazon rolled their titles into its Kindle Unlimited subscriptions programme earlier this year.]

Traditional publishing deals don't work this way, and neither does it look to be in publishers' interests to accept such arrangements. When Amazon discounted a number of e-books to 20p at the end of 2012 it paid publishers the wholesale price; similarly during September this year Amazon discounted a number of agency-priced e-books to zero because they were part of a rival's promotion, and again it was Amazon that took the hit on this, not the publisher (or author). Publishers are generally smart enough to know the value of their own content, even if others aren't: wholesale contracts protect this to some extent, but agency reinforces control over what the consumer pays, which for the e-book business looks to be key.

One important aspect of both deals is that they are "multi-year", which as Michael Cader noted on Publishers Marketplace, "could alleviate the business from constant concern over business terms and business interruption". Amazon has been looking for multi-year deals in the UK too, with some publishers suspicious that it simply gives Amazon lee-way to renegotiate at will. That may be too cynical.

The worry about the prolonged battle between Hachette and Amazon is that it has sucked a lot of energy and goodwill from this business, with authors pitched against other authors.

The important thing is that the deals now being put in place in the States (and which will almost certainly come over here) promise a return to more sustainable market conditions, while allowing Amazon (and others) to continue to make the commercial case for lowered e-book prices.

Most significantly, the settlements mean everyone can refocus on what really matters - selling more books, and understanding what readers want from the digital future. When this game is re-played in a few years time, everything will be different again.