Apple's iPad deal gives Hachette pricing leverage against Amazon
While the letter from Hachette CEO David Young did not specifically mention Amazon or changing prices of new books to between $12.99 and $14.99, it did state the company intends to transition e-book sales to an "agency model." That model allows the company serving the content to take a cut — in Apple's case with the App Store, 30 percent of all sales.
"There are many advantages to the agency model, for our authors, retailers, consumers, and publishers," Young wrote. "It allows Hachette to make pricing decisions that are rational and reflect the value of our authors' works.
"In the long run this will enable Hachette to continue to invest in and nurture authors' careers— from major blockbusters to new voices. Without this investment in our authors, the diversity of books available to consumers will contract, as will the diversity of retailers, and our literary culture will suffer."
Though the terms of the deals Apple has struck for the iPad's iBookstore are officially unknown, it has been widely rumored that publishers will price new hardcover bestsellers at $12.99 and $14.99. Publisher Macmillan wanted the ability to set those prices on the Amazon Kindle e-reader, which led to a temporary suspension of sales of the publisher's content from Amazon.
But shortly after, the two companies reached an agreement, with Amazon reluctantly agreeing to sell most hardcover releases between $12.99 and $14.99. Amazon, however, noted that it felt the prices were "needlessly high."
In addition to Macmillan, Hachette is joined by publisher HarperCollins, which also intends to renegotiate its deal with Amazon for e-book prices. News Corp CEO Rupert Murdoch said the new prices will be "slightly higher," but in the wake of Apple's iPad agreements, Amazon is finally "ready to sit down" and have discussions.
Hachette CEO Young, in his letter to agents, said the move to an agency model is not a way to make more money on e-books.
"In fact, we make less on each e-book sale under the new model; the author will continue to be fairly compensated and our e-book agents will make money on every digital sale," he said. "We're willing to accept lower return for e-book sales as we control the value of our product— books, and content in general. We're taking the long view on e-book pricing, and this new model helps protect the long term viability of the book marketplace."
All three companies — HarperCollins, Hachette Book Group and Macmillan — were specifically highlighted by Apple last week when it introduced its new iBooks application for the iPad. They, along with Penguin and Simon & Schuster, have agreed to content deals with Apple.