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Macmillan Signs New eBook Contract with Amazon

7540816300_024236f792_m[1]Macmillan CEO John Sargent has just revealed in a public letter posted on that Macmillan has signed a deal with its biggest ebook customer and will soon be dabbling in the subscription ebook market.

To start, the ebook deal was signed last week, and while we have less than complete info Sargent did say that:

Late last week Macmillan reached an agreement with Amazon on a multiyear deal for print books as well as a multiyear deal on the agency model for e-books, starting on January 5, 2015. All our other retailers will also be on the agency model, leaving Apple as the only retailer who is allowed unlimited discounting. Irony prospers in the digital age.


Sargent is less than specific on the terms of the contract, but I would be willing to bet that the deal is probably much closer to the deal Amazon signed with S&S, which might best be described as modified agency (or so it appears from what few details have been leaked).

Update: The WSJ confirmed that this is a modified version of agency similar to the S&S deal:

“We are happy with this agreement, as it allows us to grow our business together with Macmillan and their authors,” said a spokeswoman for Amazon in a statement. “Importantly, the agreement specifically creates a financial incentive for Macmillan to deliver lower prices for readers.”

Macmillan confirmed that it will receive better terms from Amazon when it offers lower prices on its titles.

Macmillan is the third major US publisher to sign a new contract with Amazon in the past two months. S&S went first, inking a deal not quite two months ago, and Hachette settled its dispute with Amazon a few weeks later. (There’s no news yet on whether PRH or HarperCollins are talking terms with Amazon.)

These 5 publishers have had to renegotiate their deal with Amazon and other ebook retailers following their decisions to settle the ebook price fixing antitrust lawsuit brought by the DOJ and states' attorneys generals in 2012.

Llike Hachette, which relies on Amazon for the majority of its ebook sales, Amazon has Macmillan over an ebook barrel. Sargent has revealed that Amazon is the single largest seller of Macmillan ebooks:

In reaching agreement with Amazon, we have not addressed one of the big problems in the digital marketplace. Through great innovation and prodigious amounts of risk and hard work, Amazon holds a 64% market share of Macmillan’s e-book business.


He goes on to explain how Macmillan will respond to Amazon’s dominance of the ebook market, namely by looking for other markets:

In our search for new routes to market, we have been considering alternative business models including the subscription model. Many of you know that we have long been opposed to subscription. We have always worried that it will erode the perceived value of your books. Though this significant long-term risk remains, we have decided to test subscription in the coming weeks.

The details are less than complete, but he says that Macmillan will test the subscription market first with "backlist books, and mostly with titles that are not well represented at bricks and mortar retail stores". No partners are named, but I would expect that Macmillan will sign with Oyster and Scribd, but not Kindle Unlimited, which doesn’t pay as well.

Oyster and Scribd have already signed deals with HarperCollins, S&S, HMH, and other publishers big and small, few of which have signed with Amazon.

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Ebook Bargains UK December 19, 2014 um 6:53 am

So for the third time Amazon doesn’t get its way with discounting, but Apple does.

Nate, you say Macmillan won’t be signing up with KU "which doesn’t pay as well" as than Scribd and Oyster.

That’s very true for indies, but surely if Macmillan did sign up to KU (not gonna happen, but if…) it would get the full royalty rate from KU like everyone else who isn’t indie, which would be the same as at Scibd and Oyster.

Nate Hoffelder December 19, 2014 um 7:17 am

"So for the third time Amazon doesn’t get its way with discounting, but Apple does."

Uh, what makes you think that Amazon didn’t get what they wanted out of the S&S and other deals? We know they got some discounting out of the one deal, and all we now about the third deal is what Sargent has said (and he has good reason to spin the contract so it looks like Macmillan won).

Is there something I missed?

As for KU, a lot of those getting the good deal were added against their will. Hugh Howey, for example. Given that Amazon hasn’t added ebooks from S&S and HC (both of which are in Scribd/Oyster) I don’t think that Amazon will pull that trick with a major publisher.

And I seriously doubt that Macmillan will sign a KU contract with Amazon, not when its stated purpose was to find new markets where Amazon wasn’t.

fjtorres December 19, 2014 um 7:54 am

If you read Sargent’s letter carefully you’ll see that Amazon *can* discount ebooks. At the absolute minimum, to match Apple and possibly on their own initiative.
What we know is that Amazon wanted tiered margins and they appear to have gotten that across the board. And they wanted the ability to discount and Sargent just confirmed what was generally understood to be true.
His "ironic" comment is quite appropriate:the BPHs threw in with Apple to control and raise retail prices through agency at a time they controlled wholesale prices and ended with a multi-year situation where through agency they control neither.

Nate Hoffelder December 19, 2014 um 8:05 am

The only sentence I can read that suggests Amazon can discount is

"Your books will continue to be featured in Amazon promotions and deals."

That doesn’t necessarily say that Amazon will be the one dropping the prices.

fjtorres December 19, 2014 um 8:18 am

It does when combined with the reports that Amazon will be adding a strip of coop promo content. 🙂

What we know for sure is Amazon gets to price match so their market share is protected on that end and that the higher the ebook price, the bigger their cut.

Both were things they wanted and they got both.
They may or not have "won" the negotiations but they certainly don’t look to have lost anything of significance.

I’d say their 60% share of BPH sales is safe for the length of the contracts. Indies… those contracts they have to earn regularly.

Nate Hoffelder December 19, 2014 um 8:16 am

I just found this in the WSJ:

“We are happy with this agreement, as it allows us to grow our business together with Macmillan and their authors,” said a spokeswoman for Amazon in a statement. “Importantly, the agreement specifically creates a financial incentive for Macmillan to deliver lower prices for readers.”

Macmillan confirmed that it will receive better terms from Amazon when it offers lower prices on its titles.

So Amazon did get what they want, and this isn’t really agency any more than the previous deal (which was referred to as agency lite).

fjtorres December 19, 2014 um 8:21 am

Tiered margins was the big sticking point that all the fuss was about.

Still, the deals are (on paper, at least) agency deals. They just aren’t fixed price agency. 😀

Nate Hoffelder December 19, 2014 um 8:30 am

The problem with calling this an agency deal is that you could just as well call it "wholesale lite". It actually lies somewhere on the spectrum in between, so calling it after either end of the spectrum is misleading.

Bob W December 19, 2014 um 8:47 am

I note that he doesn’t tell Macmillan authors and agents this in the letter.

"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. "

Why would the net percentage change as a result of the agreement with Amazon, that’s between the authors and the publisher. What’s important is that the net profit that the authors (should) get a percentage of will change depending on how Macmillan prices the ebooks, yet he doesn’t tell them that. Interesting…

fjtorres December 19, 2014 um 9:02 am

It’s not just how Macmillan prices the books, it’s also how Apple chooses to discount. That is what he is bemoaning.

Macmillan can set an ebook at $10 and take in $7… unless Apple puts it on sale for $8… in which case they take in $5.60. From Apple *and* Amazon.

Under wholesale, their take was predictable.
Now it isn’t.

Tim F. December 19, 2014 um 2:38 pm

I don’t understand why Amazon supporters are contorting to redefine agency, which this most certainly is —well, other then the fact that some of them have been proclaiming it as a great evil for almost 5 years.

When the producer sets the retail price, guaranteeing their revenue as a percentage of that price — that is agency. "Agency lite", "incentivized agency", "tiered agency" — this is all agency.

It is most definitely not wholesale — when a producer only can guarantee their revenue in relation to the reseller and has no control of the price/revenue from a sale to the end user. Tiers with different percentage shares at different price points doesn’t make it NOT AGENCY. The ability to offer limited discounts doesn’t make it NOT AGENCY (Apple and Google frequently offer discounts and freebies on apps on their app stores; does this mean they aren’t agency.)

A few things are very clear: 1. agency pricing has won (despite Apple being barred from using it); 2. Amazon actually benefits from agency (which was always quite obvious, better than selling at a loss, they had considered it earlier in dealing with the Big 5, and always used it with self-publishing and other independents); 3. even though the publishers receive less revenue, they’d rather have the control over end-pricing than not.

I.e. The reality is that Apple’s introduction of the iBookStore and the subsequent settlements/trials effectively transformed the economic model of eBooks from wholesale pricing to agency AND the government actually gave Amazon more control of the market in relation to its competition and publishers (they get MFNs, a larger cut of the revenue when prices are outside their desired range, etc.)

The contortions that Amazon supporters are going through to rationalize these clear facts points to a disturbing cognitive dissonance that should be very alarming to them.

Nate Hoffelder December 19, 2014 um 3:24 pm

"I don’t understand why Amazon supporters are contorting to redefine agency, which this most certainly is —well, other then the fact that some of them have been proclaiming it as a great evil for almost 5 years."

If that is really your understanding of my motives then there is no point in trying to explain to someone who is so hostile.

But for everyone else, let me add that I obsess over these kind of details because I think that you can only understand something after it is properly defined. By using the wrong label, one can be lead into misunderstanding a topic or issue and its relationship to other matters.

Scroll up this page and look at the first comment. That is the kind of mistake I am trying to avoid, and that is why I would rather have a new name for this type of deal.

Tim F. December 19, 2014 um 2:49 pm

"His “ironic” comment is quite appropriate:the BPHs threw in with Apple to control and raise retail prices through agency at a time they controlled wholesale prices and ended with a multi-year situation where through agency they control neither."

This is a bizarro take. The publishing agencies knew that agency reduced their revenue but gave them control of pricing. And they DO have control of retail pricing under this deal. Just because they receive less at certain tiers doesn’t mean they don’t have control of pricing. Just because there is mention of the ability to discount doesn’t mean they’ve lost total control of pricing — we don’t have enough info but I would imagine this discounting is very similar to deals and offers on apps in Appstores by Apple and Google — in those cases, you wouldn’t claim that the developers have lost control of their pricing.

(I’m not even sure what you mean by they control "neither" — resale and wholesale pricing? There is no wholesale pricing in this agency model and they certainly control resale pricing…)

Tim F. December 19, 2014 um 3:00 pm

However, Sergeant is correct that it is bizarro that everyone but Apple will be using agency. That only Apple can provide deep wholesale discounting (which they are unlikely to utilize as a weapon — they never wanted to antagonize the publishing world and they want to make a profit). That only Apple could affect universal price changes by offering these wholesale discounts (again, not going to happen) forcing all of these other agency with MFN agreements kick in, causing them to price match, etc.

Tim F. December 19, 2014 um 3:05 pm

The need to adjust pricing based on Apple’s resale pricing mean there is a MFN clause. Beyond that, I’m not seeing the clear signaling of the ability to discount — whether or not it is there.

Amazon’s publicity campaigns have always put $9.99 at the forefront of the debate — they did’t get that, even if non-$9.99 pricing actually nets them more revenue.

Ebook Bargains UK December 19, 2014 um 10:26 am

Howey could have withdrawn his books at any time, just like all the Select authors who were put in first and then given an option to opt out. It wasn’t against his wishes, just not with his consent. As he then got the best of both words he of course stayed in.

Amazon fought a very public campaign against Hachette demanding all ebooks be priced at $9.99 or less. They even stooped so low as to beg indie authors (who benefit from trad pubs higher prices) to write to Hachette and demand they cave in to Amazon’s self-interested demand. and drop their front-list ebook prices below $10.

Amazon made very, very clear to everybody that their demand for ebooks below $10 was a central issue in the dispute.

Then with the disastrous Q3 results about to go public Amazon signed with Simon & Schuster with not a word anywhere about all ebooks being $9.99 or less. Then suddenly the demand is dropped for Hachette. And clearly the same demand , if it was ever put to Macmillan, is not part of the agreement Macmillan has just signed.

Re Sribd, Oyster and KU: our point was that Macmillan, were it ever to entertain the idea (agreed, it never will), would get the full royalty payment from KU, the same as Scribd and Oyster offer. So for Macmillan the payout from any of the big three subscription services would be the same. The wording of your piece suggested KU "doesn’t pay as well", but that’s only for indies.

Tim F. December 19, 2014 um 3:51 pm

"If that is really your understanding of my motives then there is no point in trying to explain to someone who is so hostile."

As I stated, I can only guess what the motivation is, I’m not asserting that my best guess is correct.

"By using the wrong label, one can be lead into misunderstanding a topic or issue and its relationship to other matters."

Well, you shouldn’t be suggesting it could be called "wholesale lite" which it is not then.

Again, this is most definitely agency and not wholesale. If we are going to qualify these models, I would say it’s most appropriate to call KDP pseudo-Agency — Amazon gives the impression that it’s an agency model while having sole discretion of final retail price.

I agree that these new publishing deals are modeled after KDP. Suggesting that Amazon’s discounting ability remotely approaches the "sole discretion to set final retail price" despite a KDP member setting a list price when each of these details has stated that final pricing resides with the publisher while there are some small exceptions for discounting is unsupported and disingenuous. I would expect KDP to provide the model but the terms and limitations to be much better for large publishing firms than the self-published.

Nate Hoffelder December 19, 2014 um 4:15 pm

"Well, you shouldn’t be suggesting it could be called “wholesale lite” which it is not then."

Honestly, when I look at that and then look and see that yesterday I called it "a modified version of agency" in the post, I can’t help but wonder why I wrote that. Perhaps the fact I’ve been violently ill all day is affecting me more than I had realized.

Tim F. December 19, 2014 um 4:29 pm

Your reply is appreciated.

As far as I can see, the only factor that could clearly modify how this should be classified is the extent to which Amazon is able to offer "limited discounts" and we simply do not have enough information to judge this as yet.

We know Amazon has sole discretion on retail price with KDP — thus, KDP is fundamentally wholesale with a pseudo-agency pricing model. If Amazon likewise has unfettered ability to set final retail price with the large publishing firms, I would agree that it’s fair to say that these details are similar to KDP and give Amazon everything they want.

If the "limited ability to discount" is wholly tied to the possibility of matching steep wholesale discounting by Apple via a MFN clause, then this is still strictly agency.

If the "limited ability to discount" is actually very strictly defined and controlled by the publishers (such as small windows for discounts, tying discounts to a very small number of titles, setting narrow ranges for discount %s, etc), such that Amazon does some discounting but the publishers are still receiving close to what they expect in terms of revenue and final price, I would say it’s still agency.

If the "limited ability to discount" isn’t strictly controlled by the publishers giving Amazon broad discretion at setting final price beyond the intentions of publishers, then… and only then, would I say it’s appropriate to qualify this as some modified form of agency. Tiers and MFN-dscounting are wholly irrelevant to the agency model. What defines the agency model is the ability of the producer to set the retail price of a reseller.

Mackay Bell December 20, 2014 um 11:44 pm

You are certainly correct that according to your own definition of agency, the deal is agency (unless, of course, there are details you don’t know about, which is highly likely). I’m glad you’re clear on your own opinions.

However, you are certainly incorrect trying to portray supporters of Amazon in the Hachette negotiations as “proclaiming” agency “as a great evil for almost 5 years.” (Maybe you can share a link to someone who claimed that.) Or that Amazon supporters are wasting any time rationalizing facts simply because they don’t accept anti-Amazon commentaries that this some kind of “win” for agency.

Amazon supporters, generally, are claiming victory in the fight against the anti-Amazon crowd over the Hachette dispute, because, as best as any rational person can tell, they did win.

First, the fight wasn’t about agency. It was primarily about demands from the anti-Amazon crowd for unspecified government action to punish Amazon. The threat of that has pretty much vanished. It was probably a pipe dream to begin with, but we don’t know what happened if the pro-Amazon side hadn’t spoken up. So I think we can mark that up as a win.

Two, it was a response to calls for people to boycott Amazon, which pretty much failed also. That’s two points in the win category.

Three, the pro-Amazon crowd argued against those who claimed that Amazon was destroying literature. That argument has pretty much dissolved also. So win there.

Four, the pro-Amazon crowd argued against crazy statements like Amazon was censoring writers (which they weren’t) and banning books (which they weren’t) other general misinformation.

Five, and probably most importantly, the pro-Amazon crowd pointed out that the big publishers share s0me very nasty anti-writer business practices, like standard contracts that strip away copyright, and that most writers are probably better off working with Amazon.

As far as agency was concerned, the main leaders on the pro-Amazon side, like Hugh Howey and J. A. Konrath, etc, frequently explained in great detail (if you bothered to read them) that it wasn’t just about agency and that self-publishers already had a form of agency with Amazon that worked well. And they repeatedly said that agency wasn’t inherently evil.

The argument, as they both (and many others) explained in detail, was against the way the big publishers were trying to use agency: to support the print market and generally suppress growth of the ebook market and to undercut Amazon in general. That they were doing this by first illegally conspiring together, and then secondly by lying about Amazon’s business practices (they didn’t ban books) and finally by saying that literature was going to die. That was the real issue. That the anti-Amazon crowd also arrogantly argued that self-publishers should jump on the bandwagon of helping big publishers suppress the ebook market was also so absurd that it deserved to be trashed.

Now, you might have found a comment here or there that didn’t explain every nuance of the argument that agency in itself isn’t evil, but the way publishers wished to used it against Amazon was bad for self-publishers. And it’s fine if you don’t agree with the idea, and still hold on to the silly “high prices for trad books are good for self-publishers” argument which Hugh and Kornath took apart over and over again.

But if you want to try to rewrite history so that Amazon “lost” the Hachette negotiations, you’re going to need come up with something better than “agency won.” The pro-Amazon crowd has already moved on. And so have the major publishers. The main reasons they fought for agency are going away. At this point, it’s not clear they really even want agency. As Kristine Kathryn Rusch states, “Ebooks—at any price—are an astonishing revenue boon to traditional publishers… The protectionism that sparked the price-fixing case from the Justice Department? That desire to make sure no ebooks sold so that customers would only buy hardcovers? That’s so 2012.”

Frankly, I don’t think Hachette was even fighting primarily for agency. I think they simply didn’t want to make a deal with Amazon until they found out what the other big publishers wanted. But then Amazon said, “okay, we’ll show you what not having a deal looks like” and stopped overstocking and discounting their books. The funny thing is what hurt Hachette most was they got a form of agency-lit from Amazon. Which included prices closer to retail, and less discounting. That’s what hurt them so much. As for the anti-Amazon crowd’s antics, they never had any clear end game other than to hurt Amazon, which didn’t happen.

Finally, it’s patently untrue that Amazon insisted that all ebooks must be priced at $9.99 or less. They simply said more books get sold at that price than at higher prices and that everyone makes more money in the long run with reasonably priced books.

Publishers main goal in originally pushing agency was to suppress the ebook market, which failed, and to establish a higher price point of $14.99, which has also largely failed. (The publicity value of Amazon’s $9.99 argument is pretty priceless. I’m sure that’s what the average customer expects to be the high end now.) Eventually, more details about the Amazon deals will leak. If Amazon gets a bigger chunk profit on books priced over $9.99, that will be huge win for Amazon. And it’s really not clear to what purpose that battle was fought on the publisher side, other than to support a print market that is, according to some good data from Rusch, falling apart rapidly.

And if there is any doubt about who won, just take a smell of Macmillan CEO John Sargent’s letter to writers. He ain’t doing an end zone dance.

Tim F. December 23, 2014 um 8:47 pm

My statement that agency won is made without regard to anyone "winning" a dispute between Amazon and Hachette.

However, despite your insinuations that I’m not informed — I’m not, your retelling of the still ongoing conflict is wholly revisionist and not something I recognize whatsoever. Sorry.

"And if there is any doubt about who won, just take a smell of Macmillan CEO John Sargent’s letter to writers. He ain’t doing an end zone dance."

It’s my position — although not stated in this specific comment — that the DOJ case and settlements also gave Amazon much more power and control than they already had (which was already quite immense) so you seem rather confused and presumptuous of what my views actually are.

Tim F. December 23, 2014 um 9:05 pm

And, actually, going back — I did specifically state this… Very confused by the majority of what you are saying. Much of it doesn’t match reality, is something I don’t contend, is self-contradictory, or something I said or believe anyway.

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