Author Royalties in the Hot Seat
With ostensibly lower production costs and a rich vein of backlist titles to mine, it may have been inevitable that e-book publishers would leverage the advantages of their medium to offer authors a higher percentage roy-alty rate for their works. This did not make it any less of a jolt when celebrity author Stephen Covey signed a digital rights deal with e-book publisher RosettaBooks, garnering him more than half of net proceeds for e-book sales of two of his older backlist books, including the famous "The 7 Habits of Highly Effective People," which would be sold exclusively through Amazon.com for one year. (Covey's print books are published by Simon & Schuster, which released a statement reflecting its position that e-book versions of the company's print titles should remain part of the company's catalog.)
The much-publicized deal raised the curtain even higher on the issue of author contracts and negotiations in the age of e-books and other electronic delivery systems. While most publishers already take care to spell out the terms of electronic publishing in author contracts, the issue is relevant to many older titles, as well as to the sort of terms some authors will find acceptable in an age where unprecedented royalties are being dangled in front of a few.
The only thing all can agree on is that this is an issue very much in flux. As for its ultimate significance, this, too, is yet undefined.
"One thing remains clear: There are few successful e-books unless there is also a successful paper book [with it]," says Donald Maass, principal of the Donald Maass Literary Agency in New York. "E-royalties are important, but ancillary. Authors still must write great books, and publishers must publish them well. Welcome to the future—it looks a lot like the past."
That may be, but e-book rights also represent "a gigantic moving target," says Ethan Ellenberg of The Ethan Ellenberg Literary Agency in New York. "On the one hand, there is a concern about the nominal royalty—what will we be paid on each individual unit sale? And that royalty is up in the air. It's being negotiated in dozens and even hundreds of publishers."
Smaller, direct e-book publishers, especially in the romance area, are paying as much as 37.5 percent to 40 percent, Ellenberg says, while traditional publishers are "all over the place"—from 25 percent (Random House) to the same as paperback royalties (Harlequin).
The trend among traditional publishers has been to pay authors "a bit more" for e-books, he says, though it is universally true that electronic rights have been part of the equation for more than a dec- ade. The biggest shake-ups in new purchases of books have come when a title has already seen considerable success as an independently published book, and e-rights are bought by publishers as a secondary buy.
With traditional distribution channels for print books currently under siege in a changing retail landscape, publishers are understandably worried about the precedent set with any e-book deal, Ellenberg says. "Some of the most aggressive players in the e-book market don't share our concerns or our economics. Amazon is a good example, because Amazon wants to drive you through a gigantic Web site that sells everything from air conditioners to toys."
The Audiobook Precedent and Experimentation
With retail price pressure on conventional books sales increasing (as seen in last year's "price wars" between Amazon, Target and Wal-Mart), publishers are loathe to give up profit margins on emerging products. Still, a precedent does exist for the current situation of e-books entering (and shaking up) the mix: audiobooks.
"E-books may well create a large, distinct and profitable market," Ellenberg says. "The audiobook market is believed to be worth $3 billion, and not many people would argue that it has aggressively cannibalized hardcover book sales. We believe we've gotten new readers: the people who drive and listen, and the people who no longer can read that well. It's a revenue stream and a successful one."
In the meantime, however, uncertainty and anxiety will continue, especially as some of the most potentially marketable names—authors already commanding followings or having built up some kind of public profiles—begin to see high-royalty arrangements or even self-publishing as better deals than what traditional publishers offer.
The situation has led to some experimentation among traditional publishers, with Vanguard Press (an imprint of the Perseus Books Group) leading the way in trying a no-advance, profit-sharing model that offers much higher royalty rates in exchange for shifting a more balanced share of the risk (and profit) to the author (marketing commitments are spelled out in the contract to assuage fears that the publisher will have less incentive to promote the book).
Also going this route has been Harper Studio, whose concept of no- or low-advance author contracts emerged from President Robert Miller's experience at Hyperion.
"For me, it came from feeling frustrated that even at our most successful … the amount of money we left on the table in terms of unearned advances was frustratingly high," he says. "It seemed like [for] the big six publishers—competitive landscape publishing—the advances were just kind of spiraling out of control to a point where the level of risk was unacceptable. We were putting our ability to stay in business at risk.
"I wanted to find a way to share risk differently with authors," he says, "and I was willing to give up more of the profitability of a book if I were able to find an author who, in exchange, would not require us to bet our jobs every time we signed up a book."
The result was HarperStudio, which publishes two books a month (70 have been signed and 16 published since the imprint was launched in April 2008) and limits itself to a maximum $100,000 advance. In exchange, the studio offers a 50/50 profit split.
All of Miller's deals so far are with either proven, prolific authors or new authors with "their own tribe of people they can reach online," he says. These are individuals who feel they should get a bigger slice of the pie in exchange for delivering a guaranteed audience—Gary Vaynerchuk, author of the best-selling social media marketing guide "Crush It!" (one of three best-sellers for the imprint in its first year) is one example.
Miller's approach avoids all the uncertainty and complexity of negotiations over print versus electronic royalties. "For us, it's moot because [whether] audiobook, e-book or foreign rights, it all goes into a shared pool of revenue from which we subtract all our costs and then split the difference," he notes. "So authors who are working with us are getting 50 percent of the profits of e-books as well as all the other formats of the book, a 50/50 split across the board, which helps get you past having to count which splits are better or worse and how you publish the different formats. It tends to take the focus away from which formats are making which amounts of money."
This also means there's no wory about whether e-books should be released before or after print, or which format to stress in marketing. "It makes the e-book a less disruptive technology … so [authors are] more enthusiastic about leading with the e-book or combining it in various ways to use it as a marketing tool," he says.
Naturally, all this makes contracts simpler. Direct costs are taken out before the across-the-board revenue split, and these costs are agreed on ahead of time, including those for book tours and other marketing initiatives. Miller calls this arrangement "a true partnership."
Of course, this has only been proven to work with a certain type of author—nonfiction writers who see themselves as strong brands. For this reason, some see these new approaches—from no-advance models to special e-book deals to self-publishing—as a sort of cherry-picking of proven talent, leaving traditional publishers to take all the risk in developing, for instance, good fiction. (RosettaBooks CEO Arthur Klebanoff was quoted as saying, of the Covey deal, "There are superstars, and superstars are entitled to more.")
The Internet May Be a Game Changer, but Publishers (and Their Authors) Will Still Be the Players
Ellenberg, however, doesn't buy this. When the dust has settled on the transition to Web 3.0, he believes the traditional marketing and distribution advantages enjoyed by large publishers will keep them in good stead. "The Internet is a game changer in every sense of the word, and one of the ways it's changed the game is it has allowed information to flow much more freely," he says—which can be good or bad, depending on one's ability to get, and hold, a consumer's attention.
"The six big publishers remain the primary repositories of the absolute best in fiction and nonfiction," Ellenberg says. "I don't see that changing. I think their reach is going to continue to be what it is, and there's no reason why, if we can find a successful model for selling intellectual property … the big publishers won't continue to do well. The whole self-publishing market is really a variation of subsidy publishing of 40 years ago. It ultimately is going to frustrate the consumer, and they're not going to get involved. Who can browse 100,000 books and say, 'Oh gee, I really like this one?' We need tastemakers; we need professionals. I think publishers have tremendous strategic advantages that are not going to go away."
What does all this mean for publishers looking to negotiate contracts amid all these seismic shifts?
A publisher "has to understand that we need to agree on an e-book royalty that the author is happy with, and that may change. It may have to migrate upward," Ellenberg says. "They can't just simply say, 'OK, this is what we are paying,' and we're going to dig our heels in. We have to look carefully at what the e-book royalty is going to be."
Beyond this, Ellenberg says, authors are looking for what they have always wanted—support for promotion and publicity, and a very high level of professionalism throughout the process. "You want the book to be properly edited. You want to see a gorgeous cover on it. You want to see that a publisher is able to get the book into all possible outlets in an economically sound way and pay royalties," he says. "The basic process hasn't changed that much. In fact, if anything, authors will continue to complain that what's happening is they're being underserved by the lack of editorial involvement and the lack of publisher support.
"In some ways, the smoke is obscuring the fire in that I believe the digital market is only about 3 percent of the total market … so it's gotten all the noise, but a lot of what we need to do is still be successful print publishers and make sure we have a successful print distribution market," he says.