Here's the clearest explanation I can find of it.
(Bolded comments my own.)
At issue is a shift from the wholesale method of selling books, to the “agency” model. [Currently,] Macmillan and other publishers offer Amazon their e-books at 50 per cent of the hardcover price, then allow Amazon to sell them for whatever price it chooses. Around $9.99
This, critics say, has devalued the e-book, conditioning consumers to pay too little and jeopardising the publishing industry in the long term.
Under the agency model, the publisher sets the price for e-books and takes 70 per cent of the sale, giving 30 per cent to the retailer.
Apple is reported to have adopted the agency model with the five publishers it has initially signed up – HarperCollins, Hachette Book Group, Macmillan, Simon & Schuster and Penguin. The latter, like the Financial Times, is owned by Pearson.
John Sargent, Macmillan’s chief executive, defended his position in an open letter, saying he had met Amazon and proposed that it adopt the agency model, threatening to delay the retailers’ access to new books if it did not.
So let's take a look at a practical model, St. Martin's (a division of Macmillan) author,Janet Evanovich's Finger Lickin' Fifteen, which has a list price of $27.95 (so let's call it $28.00 for ease of math).
Macmillan sells it to Amazon for $14.00, Amazon turns around and sells it for $9.99, so essentially at a four dollar loss.
Under the agency model, the publisher sets the price for the e-book at fifteen dollars and takes 70 percent, so they make $10.50 per book, which is less than they were making before and Amazon makes $4.50 per title, which is more.
So what's the problem and why is Amazon throwing a hissy? Because they don't care if they make a profit on e-books. As was explained to me by a NY Times Bestselling author, she said that Bezos knew he was taking (roughly) a five dollar loss on each e-book sold and had plans to do so for at least five years, in an attempt to establish a monopoly in the digital book market, trying to outprice his competitors. And he would have, too, if it hadn't been for
Oh, and about that whole threat that Macmillan levied about delaying e-book releases for several months, it's already happening. It started with authors who had the power to do so having clauses inserted in their contracts that would delay the release of the digital copies of their books for up to six months following the release of the hardcovers, which has to do with Wal-Mart.
See, Wal-Mart, with their policy of matching competitors' lowest prices, didn't want to sell brand new hardback releases at a $9.99 price point. So they would often opt not to stock a title at all. Which hurts an author's numbers like damn and whoa since they're currently the single largest book retailer.
And while this is likely to continue changing, an author's Amazon sales (including Kindle sales) really don't amount to that much-- average that I've heard from my friends is less than 5% of total sales.
In terms of numbers, where do you think the publisher is going to concentrate their efforts?
In this case, no matter how much the loud minority of Amazon minions may screech, it's not Macmillan who was the bully-- it was Amazon.
Oh, and the minions trying to blame this on authors and saying we're all greedy bastards who are already grossly overpaid?