Kerfuffle of the Week: E-Book Royalties

One hot topic in publishing this week was Macmillan’s announcement that their new boilerplate contract, across all their trade imprints, will feature a standard royalty of 20 percent of net receipts. This is 5 percent less than the rate offered by some major houses such as Simon & Schuster, Random House (and my own, Bloomsbury). Some houses have paid royalties as high as 50 percent of net.

Here’s an area where, as I've said in an earlier post, we see how our industry has gone from a mature one—where basic contract terms were well established, virtually universal across houses—to what’s almost a state of nature free-for-all as we thrash out how the new, electronic pie is going to be divided.

The 50 percent royalties I just mentioned were blithely agreed to by many publishers back when e-books were mostly hypothetical and e-book receipts were basically zero. For that matter, many agents agreed to rolling them back to 25 for the same reason—it was 25 percent of nothin'.  Now there’s real money flowing in the door and if you’re giving half, or even a quarter of it, to an author, it’s a significant chunk off your bottom line.

Some people make the argument that "e-books don't cost anything to produce," so e-royalties should be correspondingly higher. There are at least two problems with this position:

1. There are many costs that go into creating a book beyond those of printing the physical volume. These might be a lot smaller if we only produced e-books. But as long as we create print books we're paying for jacket designers, typographers, warehouse staff, review copy mailings, etc. None of those costs go away just because you sell a book on Kindle. (For more on this see Bob Miller's post and the comment thread on HarperStudio's blog.) Maybe what publishers should say is, we’ll pay you a 50 percent net royalty as long as you don’t mind that an e-dition is the only one.
2. Publishers are also concerned because we don’t know how much the sales of e-books are cannibalizing p-books. It’s one thing if, as e-vangelists maintain, e-book sales are expanding the market and that revenue is additional to print sales. It’s another if the e-book, quite possibly at a lower price, is replacing the sale of a printed book. Again, in that case, the publisher is probably earning less money on the e-book. Its bottom line will suffer unless it can claw back some of the revenue from the author’s share. And right now publishers are more anxious about their bottom lines than ever. 

I can’t tell whether Macmillan is, as the British say, trying it on, or whether they’re drawing a line in the sand here. They are sure to get intense pushback from agents. But I think the skirmishes around this line will get more intense as e-book revenues grow, which they are doing rapidly.

P.S. Agent and e-publisher Richard Curtis has a typically smart and opinionated post on this at ereads.com. He suggests, and I agree, that maybe the bigger news in the new Macmillan boilerplate is their increased focus (and better royalties) on direct-to-consumer sales. The next frontier for publishers is selling books right to readers instead of being dependent on Amazon and the bookstore chains. How to do this while supporting independent booksellers, which is also vital, is a tricky one, but will have to be a subject for future posts.