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Old 02-03-2011, 02:13 PM   #1
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Amazon (w/ Macmillan) to pay authors royalties for books not sold

Remember back when Amazon pulled all of Macmillan's books because of them demanding a switch to Agency Pricing? Well, it looks like Amazon and Macmillan are going to estimate how many books an author would have sold during that time period and then provide them royalties for these books, and Amazon and Macmillan will split the cost of these royalties. See this article for details.

Additionally, the article says that Macmillan will start paying authors 25% of net instead of 15% of list in royalties, as contractually required, and presumably 25% of net is more than 15% of list.

To me this smells like reactions to threats of lawsuits. I'm just speculating here, but I wouldn't doubt it if some author(s) threatened to sue Macmillan for the lost Amazon sales, and in return Macmillan threatened to sue Amazon. This would explain why Amazon is willing to contribute to the lost royalties.

More interesting, at least to me, is the revision to the royalties in general. I always thought that authors were getting hosed on this Agency Pricing scheme. Before agency pricing most authors with Macmillan received 15% on list price, so a hardcover with a $25 list price would be $3.75 in royalties. Under agency pricing the list price of ebooks is now set by the publisher, so now the author is getting 15% of a book that has a list price of around $15 (i.e. $2.25 in royalties). By giving the authors 25% of net it gets them back into the range they were making before. Nevertheless, I wouldn't be surprised if authors file some type of class action law suit against their publishers that switched to the agency model. I bet they have lost quite a bit in royalties this last year.
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Old 02-03-2011, 02:28 PM   #2
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This is a really useful and interesting piece of news you give us! I never really thought about author royalties, but I'm going to look up how they work in the next few days. Food for thought!
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Old 02-03-2011, 02:36 PM   #3
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Interesting. Thanks for posting.
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Old 02-03-2011, 02:51 PM   #4
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Elsewhere in the letter, which is worth reading in its entirety, Sargent takes credit for fostering much of the health and expansion of the e-book market over the last year. “Since we moved to the agency model,” he writes, “Apple has entered the market, Barnes and Noble has increased its investment in the business, and independent booksellers, working with Google, are now selling your books competitively in the electronic book market.”
I find this humerous. Apple entered the market only after it forced the Agency Model on folks. BN was already in the market and was probably looking at expanding its foothold before the Agency Pricing mess. I am a bit surprised that they didn't try and say that the increase sales of K3's and the existance of the Nook Color is due to the Agency Pricing.
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Old 02-03-2011, 06:20 PM   #5
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Thanks for that link through to John Sargent's letter, Daithi!

Very interesting that they unilaterally agree to increase the royalties.

I notice that he doesn't say what percentage of the phantom royalties Amazon is paying.
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Old 02-03-2011, 08:26 PM   #6
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Thanks for the link! Very interesting.
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Old 02-03-2011, 10:51 PM   #7
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Where are all those people that were arguing in the Amazon book banning threads that Amazon has the right to sell/not sell whatever they want :P

Anyways, glad that the publishers are raising the royalties as well.
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Old 02-04-2011, 12:13 AM   #8
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Quote:
Originally Posted by Valentino View Post
Where are all those people that were arguing in the Amazon book banning threads that Amazon has the right to sell/not sell whatever they want
Interesting perspective.

Regards
Caleb
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Old 02-04-2011, 12:54 AM   #9
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The Authors Guild just released a statement about ebook royalties, in which they assert that 25% of net is worse for authors than 15% of list. (Coincidental timing, as far as I can tell; they made no reference to this announcement by Sargent.) I don't agree with them, but I mention it to point out that everyone's still arguing about all this.

I'll say to both parties that I wish they'd stop babbling about 15% royalties as though that's what most authors get. Most hardcover contracts pay 10% royalties, escalating toward 15% after x-thousands of copies are sold (e.g., 10,000 copies). In fact, many books never sell in such numbers, and thus many authors are getting 10% of cover price, not 15%. By my calculations, ebook royalties based on 25% of the net should be an improvement.

As for the reparation for the Amazon Event, I doubt that it was motivated by a lawsuit. Probably motivated by public relations. I applaud them for it, even though I don't expect to get more than pennies. (What I got killed on was sales of a new paperback, and they're only making reparations for estimated losses of Kindlebook sales.)

EDIT: Here's the link to the Authors Guild statement:
http://authorsguild.org/advocacy/art...h-the-big.html
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Old 02-04-2011, 10:15 AM   #10
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Originally Posted by starrigger View Post
The Authors Guild just released a statement about ebook royalties, in which they assert that 25% of net is worse for authors than 15% of list. (Coincidental timing, as far as I can tell; they made no reference to this announcement by Sargent.) I don't agree with them, but I mention it to point out that everyone's still arguing about all this.

I'll say to both parties that I wish they'd stop babbling about 15% royalties as though that's what most authors get. Most hardcover contracts pay 10% royalties, escalating toward 15% after x-thousands of copies are sold (e.g., 10,000 copies). In fact, many books never sell in such numbers, and thus many authors are getting 10% of cover price, not 15%. By my calculations, ebook royalties based on 25% of the net should be an improvement.

As for the reparation for the Amazon Event, I doubt that it was motivated by a lawsuit. Probably motivated by public relations. I applaud them for it, even though I don't expect to get more than pennies. (What I got killed on was sales of a new paperback, and they're only making reparations for estimated losses of Kindlebook sales.)

EDIT: Here's the link to the Authors Guild statement:
http://authorsguild.org/advocacy/art...h-the-big.html
Thanks for the link to the Authors Guild perspective. I tend to agree with their take on the royalty situation, although I understand your perspective as well. If the publisher is only paying royalties that are 10% of list then a $25 book will make $2.50, but 25% of net for the ebook version at $15 is $2.63 (70% of $15 is $10.50 and 25% of that is $2.63). So authors making 10% royalties are coming out ahead (but it's actually not this simple).

From what I understand Macmillan has pretty much standard contracts with their authors at 15%. Furthermore, publishers that only give 10% royalties also pay larger advances to the authors. More often than not the author doesn't sell enough books to earn back this advance. Many of these authors then think they're getting over on the publisher, but the truth is that publishers do this on purpose. The publishers know they can sign an author by giving a bigger advance that won't be "earned" back, but they then offer a smaller royalty. If you include the portion of the advance that wasn't paid back into the royalties that the author is making then he is really making around 12-13% royalties not the 10% his contract indicates.

With all of that being said, I don't have much sympathy with the Author's Guild. When Agency Pricing was first announced they were huge supporters. It would have been nice if someone from the Authors Guild had done some basic math a few months ago.

Last edited by Daithi; 02-04-2011 at 10:20 AM.
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Old 02-04-2011, 11:16 AM   #11
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The general rule I've heard, at least for print publishing is that taking royalties on net starts at stupid and goes downhill from there.

When I managed a bookstore, we paid about 55% of list to the distributor. I don't know the current numbers, but I would imagine the most a publisher is likely to see on a book is 45-50% of list - and probably closer to 45%.

So if we take net receipts as being 45% of list - then 25% of net turns into 11.5% of list. This is an improvement over 10% of list - but not over the 15% of list they're talking about.

It will be an improvement on Amazon e-sales though.
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Old 02-04-2011, 11:21 AM   #12
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This strikes me as very odd. Amazon are under no obligation to sell any publisher's books, any more than any other retailer is. I don't know what possible reason they could have for paying royalties for books that they didn't sell!
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Old 02-04-2011, 11:25 AM   #13
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This strikes me as very odd. Amazon are under no obligation to sell any publisher's books, any more than any other retailer is. I don't know what possible reason they could have for paying royalties for books that they didn't sell!
I don't think Amazon has any obligation to sell. I think it's a savvy company that happens to support reading. Nothing wrong with goodwill and trying to do the right thing, especially when it's a piddling amount of money for a company like Amazon.
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Old 02-04-2011, 11:52 AM   #14
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For those interested in the "bigger picture" of publishing today and the changing ground, you really should read the (now up to 16-part) series of articles by Kristine Kathryn Rusch at:
Business Rusch
She's got a LOT of material on her site, but the "Business Rusch" series of articles about the recent changes in the publishing business is quite enlightening. She adds a new post every Thursday.
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Old 02-04-2011, 03:05 PM   #15
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If Macmillan contracts now start at 15% royalty for hardcover, that's a change since I last signed a contract with Tor (now part of Macmillan). But I've not heard anything about a general shift to contracts starting at 15%.

Quote:
Originally Posted by Lemurion View Post
The general rule I've heard, at least for print publishing is that taking royalties on net starts at stupid and goes downhill from there.

When I managed a bookstore, we paid about 55% of list to the distributor. I don't know the current numbers, but I would imagine the most a publisher is likely to see on a book is 45-50% of list - and probably closer to 45%.

So if we take net receipts as being 45% of list - then 25% of net turns into 11.5% of list. This is an improvement over 10% of list - but not over the 15% of list they're talking about.

It will be an improvement on Amazon e-sales though.
The whole discussion about royalties based on net refers to ebooks, not paper books. If Amazon pays the publisher 70% of list, then 25% of that is 17.5% of list. That's how the agency model works. (There may be a subtraction off the top for DRM fees.)

I still think it's way too low, but the Guild seemed to be mixing up their argument by saying that 25% of net is worse because the list prices are lower on ebooks. Part of their point, I think--but not too well expressed--was that publishers are making more profit on the ebook deal, and aren't sharing as much with the authors as they should. I agree with that.

To criticize the Guild because they supported the agency model and now don't like the royalty cut misses the point, I think. The agency model has in many cases resulted in lower ebook list prices. Where it hurts the consumer is in eliminating healthy price competition among retailers (such as the discount program at fictionwise). But it's hard to factor in with plain dollars and cents the other thing it did, which was eliminate Amazon's loss-leader pricing, which publishers and the guild alike felt was predatory, and which had Amazon on the road to a near-lock on the ebook market.

I'm not saying I like the agency model. On balance, I don't. But I don't see it as black and white the way many here at MR seem to.
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