UPDATE 1-Publishers, Amazon in flux in e-book pricing fray

* Macmillan in talks, says Amazon working in “good faith”

* Hachette announces new agency model for e-books

* Arrival of Apple gives publishers more clout–analyst
(Recasts with detail about Hachette, agency model, adds
bylines)

By Phil Wahba and Alexandria Sage

NEW YORK/SAN FRANCISCO, Feb 4 (BestGrowthStock) – The chief
executive of book publisher Macmillan said on Thursday his
company is still in talks with online retailer Amazon.com Inc
(AMZN.O: ) over the pricing of its books, even as Hachette Book
Group vowed to protect its authors through a new model for
prices.

Publisher Hachette said it would transition to a “agency
model” for the sale of its e-books, but provided few details
and did not name Amazon. Analysts define the model as one that
transfers the retail pricing power to the publisher and gives a
fixed cut to retailers.

Amazon has come under fire from a number of publishers for
the low prices it charges for e-books to spur demand for its
electronic reader Kindle, hoping to fend off new rivals such as
Apple Inc (Read more about Apple stock future.) (AAPL.O: ) that are set to join the e-books fray with
their own devices.

Publishers fear that low e-book prices will cannibalize
sales of its higher margin hardcover books.

Over the weekend, Amazon told its consumers that it would
agree to Macmillan’s demand that Amazon charge $12.99 to $14.99
for most of the publisher’s books sold at the Kindle bookstore.
Amazon currently charges $9.99 for the e-book version of most
new releases and bestsellers. [ID:nLDE611028]

On Thursday, however, Macmillan said talks were still
ongoing.

The public jockeying between publishers and retailers in
recent days points to the importance of electronic books in the
nascent digital market, a growth driver for e-reader and
content sellers like Amazon.

The chief executive of Hachette, David Young, sent a letter
to agents about the company’s new move to control the value of
its books.

“This new model helps protect the long term viability of
the book marketplace,” wrote Young, in a letter provided to
Reuters on Thursday.

Young did not disclose terms of the agency model in his
letter.

“There are many advantages to the agency model, for our
authors, retailers, consumers, and publishers. It allows
Hachette to make pricing decisions that are rational and
reflect the value of our authors’ works,” wrote Young.

He added that without investment in authors, “our literary
culture will suffer.”

DEAL IMMINENT?

Macmillan Chief Executive John Sargent’s post on the
company’s website gave no hint of what the terms of a new deal
with Amazon could be.

But he said: “Macmillan and Amazon as corporations had our
differences that needed to be resolved.”

Sargent said both companies had been in discussions since
the weekend and praised Amazon for working “very, very hard and
always in good faith” with Macmillan.

“I cannot tell you when we will resume business as usual
with Amazon,” Sargent wrote. “You can tell by the tone of this
letter though that I feel the time is getting near to hand.”

An Amazon spokesman did not return a request for comment.

Amazon temporarily removed all titles published by
Macmillan, whose imprints include Farrar, Straus and Giroux,
and Henry Holt and Co, from its website last weekend.

Barclay Capital analyst Douglas Anmuth wrote in a note on
Thursday he expects market share for the Kindle to decline to
45 percent in 2011 from 64 percent now, given more competition
from the Apple iPad and other readers.

“The emergence of a (potentially) strong distribution
alternative in the form of Apple’s iPad has given publishers
the much-needed leverage to demand a change in the existing
book model,” Anmuth wrote.

Anmuth wrote that the agency book model could raise the
price of best-sellers and new releases by as much as 50
percent, reducing demand for the Kindle.

At the same time, Amazon’s margins would get a bump from
the higher prices, he said.

He estimated that Amazon loses about $4 on each $9.99 title
it sells — assuming the list price is $27.50 — but could make
a gross profit of $4.20 on the same book under the agency model
where it takes a flat 30 percent distribution fee, given a
retail price of $13.99.

News Corp (NWSA.O: ) Chief Rupert Murdoch, who oversees a
media empire that includes HarperCollins books, criticized
Amazon’s model on Tuesday and said Apple’s deal with
HarperCollins allowed for a variety of slightly higher prices.

Stock Market Research

(Reporting by Phil Wahba in New York and Alexandria Sage in
San Francisco; editing by Andre Grenon and Carol Bishopric)

UPDATE 1-Publishers, Amazon in flux in e-book pricing fray