Royalties on ebooks - a view from authors

[Argel]

What follows is the text of a very interesting article which appears in the Winter edition of The Author, the magazine of the UK Society of Authors. It is reproduced in full, with permission. I apologize for the length but I think it would lose some of its force if summarized. It seems to me a fascinating insight into the way the market is developing and the degree to which publishers are out of step with authors as well as readers.

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Members will be aware that sales of ebooks in the UK are said to be increasing rapidly, although they still account for only a small proportion of publishers’ turnover. The launch of Amazon’s Kindle, already the dominant ebook reader in the USA, is expected to expand the market considerably. Experts predict that sales of digital products are going to rise fast, but forecasts of where the market will be in a year’s time, let alone ten, vary hugely.

The major publishers have invested heavily in establishing their digital infrastructure and ebook lists. Conscious of their large write-offs, they have been negotiating very firmly with authors and their agents over ebook royalties. At present trade publishers tend to insist on royalties of between 15 and 25% of their receipts. Authors writing for academic, educational and specialist non-fiction publishers will find that they are frequently stuck with even less.

It is perhaps revealing that no publishers have yet explained in any convincing detail how they arrive at fair ebook royalties. Yet authors are being invited to sign contracts which last for the duration of copyright (the author’s life plus 70 years). We are very uneasy about members being obliged to accept, so early in the development of ebooks, fixed royalty rates that could apply for so many years.

In our view publishers need to explain to authors and agents far more persuasively the economics of publishing ebooks and to justify much more precisely why they consider that authors should not receive a substantially higher proportion of their receipts. Meanwhile, we make the following proposals to agents, bestsellers and other authors who are in a strong bargaining position:

1. Consider granting publishers a licence for 10 or 20 years, rather than for the full duration of copyright;

2. Limit any grant of ebook rights to the verbatim text. Wider electronic rights (e.g. for enhanced ebooks) should be negotiated separately and only if there is a definite intention to exploit the rights.

3. Royalties on ebooks should be much higher than they are. Until the economics and scale of the market become clearer, we consider that publishers should share ebook income equally with their authors. In any event we particularly encourage authors to try to negotiate steep increases to their royalties at agreed sales thresholds (as publishers recoup their set up costs). When a book has become well-established, it may be reasonable for the author’s share to rise to as much as 75%. On other forms of electronic access – e.g. rental and pay-per-view – authors should receive at least 50%, preferably nearer 85%, of the publisher’s receipts. In suggesting these royalties we have taken into account that:

a) publishers need to cover overheads and make a profit; but

b) the direct costs of originating, producing and keeping an ebook ‘in print’ are low (e.g. no printing costs); and

c) the cost of making an ebook available through a third party distributor such as Amazon is minimal. Publishers’ warehousing and distribution costs are eliminated, as are losses from dealing with returns and unsold stock.

4. Authors should have the right to initiate a review of ebook royalty rates every two years and have the right to insist that royalties be increased to match those then prevailing in the trade.

5. If enhanced ebooks are developed, authors should have the right to approve – and be involved in – adaptations, abridgements, and dramatisations, as well as decisions on musical, interactive or other embellishments.

6. Contracts must allow authors to regain rights, if they so choose, once sales have all but ceased.
Authors should be able to terminate their publishing contract on one month’s notice if sales in the home market fall below an agreed level (or if the author’s income falls below an agreed amount) over 12 months, once the advance has been earned or more than, say, three years have passed since publication, whichever is the sooner.

You are reminded that members are welcome to seek advice from the Society when negotiating their contracts. General guidance is given in our Guide to Publishing Contracts, which can be found in the members’ section of our website or sent to members free of charge on request.

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[brecklundin]

very interesting insight. I for one would feel better about ebooks if I knew the authors were earning a better percentage than for print editions, something to remember is readers pretty much expect the price of an ebook to be significantly lower than a print edition so the publisher is getting squeezed from both ends...sort of feels right somehow after how all but the top of the top selling authors have been treated for so long.

[kennyc]

Thanks for that!

[neilmarr]

To an extent, ebooks must share the not inconsiderable investment of editorial, design, technical, admin and legal work that goes into the treebook from which they're hatched. Other expenses being so low, though, there is no excuse for publishers to be tight-wads when it comes to ebook royalties. My own wee house, for instance, has for the past eight years passed on the ebook savings in printing and lower retail commissions directly to our authors, who pick up a royalty of 40-45% on their ebook editions as opposed to 10% of paperback. Neil

[barnacle]

For which you should be applauded, Neil - but has anyone done the research necessary to find the sweet spot which maximises ebook revenues? The main difference between a paper sale and an electric sale is the ongoing cost of production; essentially, once the network and server overhead is out of the way (and how much does it cost to host a couple of hundred *k* these days?) there's no cost on ebooks.

It strikes me that the price could be a *lot* lower for an ebook, particularly if the initial development costs have been absorbed by a print run... is there a price at which people will buy *in bulk* rather than pirating, and it which it simply isn't worth pirating the book, and where the author still gets a sensible amount?

I'm thinking of the intersection of the two curves: books bought against price, and cost of book against number delivered...

I know there's been research in which youngsters have repeatedly declared that their expected price for music is *zero* but I don't know whether the book market is similar; I suspect that it is both older, more affluent, and less willing to pirate in the first place.

[neilmarr]

Yup, Barnacle. In our own case, we also pass savings onto readers and our ebooks are never much more than half the price of our treebooks.

All this, though, is just stabbing in the dark until publishers know the way the wind will blow.

*Authors will take a bigger slice of ebooks that carry a lower cover price. But on balance, for a few years yet, author income will remain about the same as digital replaces print. (I'm talking here, of course, about authors working with traditional all-service publishers -- self-publishing authors are a different kettle of fish.)

*As ebooks make a greater and greater dent in treebook sales (which they will), ebook cover prices must share more responsibility for costs like editorial, admin, legal. In other words, they will no longer be almost a by-product of the publishing process. Author ebook royalties may fall as a result.

*Publishers who are exclusively ebook producers (IF they are selective, editorially driven and responsible rather than mere push-button uploaders of content) might find that current high author royalties are a mite steep.

Interesting times, eh? Hoots. Neil

[K-Thom]

All this, though, is just stabbing in the dark until publishers know the way the wind will blow.

I'm one of the few eBooks-only publishers in Germany, and I had some time since 2003 to gain some experience.

After 7+ years I know how much copies a title will sell (no bestselling authors). I know hoch much it does cost to produce an eBook and to put and maintain it online, either on my site or in third-party shops.

To cover my overhead and make a profit in a reasonable amount of time I cannot offer more than 20-30% royalties. Even then some of the titles will never make a profit, being subsidized by the bestselling eBooks.
I had to reduce my product line by about 100 titles last summer which simply cost me money and never really earned some. No whining, publisher's risk.

If a title doesn't cover it's initial cost in the first two years, it's supposed to be a non-starter and I consider it a loss. Each additional month just is an attempt to regain part of the investment.

My contracts have a duration of 5 years, with an optional prolongation. The contracts only cover digital distribution of the text as an eBook. All other rights remain with the author.

So, you see, some decisions are that of a "classical" publisher while others take into account the new medium. It's a progress. Harder and longer for learn for those publishing houses with printed books.

But then, authors do have more than one choice nowadays. Consider a publisher, consider self-publishing, consider print on demand, consider eBook, give it away for free. More choices than ever. If you don't feel fine with a certain agreement, use one of the other approaches.

[neilmarr]

Interesting, K-Thom. Thanks. Of course, though, you're looking at things entirely from an exclusively-ebook publisher's point of view. Your in-house investment is entirely in the digital product, so I can understand slightly lower author royalties than we can currently offer. We're still in the position where we budget for treebooks and ebooks are the jam on the toast. I've no doubt at all that this will change long before I grow many more grey hairs. Good luck to you and your authors in the new decade. Best wishes. Neil

[NightGeometry]

Very interesting K-Thom, one part I don't really get though is:

Originally Posted by K-Thom

...Even then some of the titles will never make a profit, being subsidized by the bestselling eBooks.
I had to reduce my product line by about 100 titles last summer which simply cost me money and never really earned some. No whining, publisher's risk.

If a title doesn't cover it's initial cost in the first two years, it's supposed to be a non-starter and I consider it a loss. Each additional month just is an attempt to regain part of the investment.

After the initial investment is there really much of an ongoing cost? I.e. why would you ever drop a book.

I understand that there is a potential cost to accounting, and that maybe the extension after 5 years is a further cost. But surely the accounting should be mostly automatic, and the server/disk/bandwidth cost of ebooks must be so close to zero that it doesn't matter. I guess IT costs include backups and maintenance, which in bulk could start to add up.

In short, and if it's not a business confidential issue, would you be able to expand on why you'd drop an ebook, and what the extra costs are? Apart from contract expiry, which I assume is reasonably straight forward.

This is a completely honest question, with no subtext. I know I assume unit costs are pretty much zero, I suspect a number of other readers here assume the same, so a bit more info on this may help those of us with these assumptions learn more.

Of course, if it is business sensitive, fair enough.

Thanks.

[ShellShock]

I am interested in whether there is any recognition by authors/publishers/trade associations etc that geographically restricted contracts do not make sense for ebooks, and, arguably, encourage piracy.

I would like to see an end to royalties with instead a flat fee that is recouped against future sales. Copy editing and distribution should be sold as separate services, particularly the latter where costs should be much lower than for traditional publishing. Such an open, transparent fee structure would make it much easier for authors to shop around for the best deal, and aid competition between publishers.

[Gaurnim]

Thanks to Argel for sharing this article and to neilmarr and K-Thom for adding their personal experience to the thread.
It is indeed very interesting.

K-Thom, I share NightGeometry's curiosity about the reasons behind dropping ebooks from your catalogue.

[darius]

Just imagine if Apple pass their 30/70 business model onto ebooks. Publishing houses would almost be destroyed overnight. All you would need is a tiny team of people with the author to produce the book and then rest would go to the author. Middlemen are the bane of creative people.

[DawnFalcon]

In the RPG industry, selling online (via, say, DriveThruRPG) you're looking at...well, a similar cut to Apple's figures. Most of the online-only RPG houses are only a few people and they contract out as-necessary.

It's hardly impossible it'll spread to books...