The Six-Percent Problem

November 22nd, 2006 · 6 Comments
by Kassia Krozser

While we presume our dear readers are doing whatever it is that they do one day before Thanksgiving, we got a free pass on the cooking thing this year. Which is fine because this six-percent royalty for e-books issue is gnawing at our soul. Heck, 10% and maybe even 20% would gnaw.

Book publishing, as we know it, is a highly inefficient business. After all the writing and editing is done, the physical production and movement of boxes of paper begins. Though publishers have handy computer algorithms and charts teeming with statistics, the truth of the matter is that they really don’t know how many of any single title that they’ll ultimately sell. So, being practical sorts, they often err on the side of optimism and over-produce.

Then, for a variety of reasons (including, but not limited to, achieving some sort of bragging rights for number of titles shipped of a potential blockbuster), publishers put these books on trucks (big motor vehicles that use a lot of gas and require real-live humans to drive) and trundle them far and wide. Retailers, those kind folks who eventually receive the books (there are middlemen and pit stops along the way, but that is the way of life), are often “encouraged” to purchase far more books than they really want.

They are, like so many of us who are urged toward a sweater we desire but can’t really afford and don’t really need, told they can always return them later. Unlike our sweater example (where it is human nature to immediately wear new clothes, making return not-quite impossible but less probable), retailers gleefully accept these terms. They buy stuff and then return it.

All of this — from editing to pick, pack, and ship to processing returns however they are processed, actual sending back to warehouses or destroying onsite — is expensive. And publishers bear these costs up front. The bills for printing books come due long before the checks arrive from booksellers. That nice man who drives the truck isn’t exactly doing the work out of the goodness of his heart.

Even authors get in on the act. Those lovely advances, small as they might seem, represent the future for the publisher. Publishers must pay a lot of money to other people before they receive money in return. The whole business works because lots of transactions happen in such a manner that someone else’s incoming cash is partially covering the outgoing dollars for your book.

All of this is our way of saying that certain royalty percentages make sense. Granted, they probably haven’t been adjusted for efficiencies in distribution and whatnot, but you have to acknowledge that publishers have legitimate expenses. And maybe some illegitimate ones as well, we do not judge.

But what of electronic books? Naturally, some of the original costs remain — editors, coffee (you wouldn’t deny your editor coffee, would you?), electricity — while other costs transform or even disappear. Publishing more physical copies of a book than could possibly sell? A thing of the past. Freight? It becomes bandwidth, though, in an interesting twist, the cost of “shipping” product to consumers is often borne by the retailer. This is a notion that we’re waiting for musicians and their agents to grasp — iTunes bears the cost of shipping the music to the consumer; the labels generally only have a one-time cost when they send the song to iTunes for selling.

Storage remains an important cost, though the size and shape of the warehouse changes. Servers replace shelves and maintenance of master media (i.e., a pristine digital copy of your book that can be deployed in a variety of formats for consumer pleasure) becomes critical. We all know that computers thrive on things like hard disk crashes and corrupt sectors — sure, we’ve never really seen a corrupt sector in person, but we imagine tawdriness and sleaze of the worst kind.

So what is happening here is that the general cost of doing business, at least when it comes to electronic media, is decreasing while the royalties being paid to artists are being calculated as if the world was still operating on 1919 mores. And the longer this type of standard language remains in agreements, the harder it will be to extract. Trust us on this one — we live for institutionalized standard terms.

To be fair (and we are nothing if not fair), e-books will have to bear their fair share of overhead when it comes to determining the proper royalty rate (we cannot fathom anything below 25% at this point, and would expect something higher, though below 50%). Right now, e-books do not comprise a sufficient share of the market to be factored into overhead distribution.

Six percent? That should be absolutely unacceptable. That should be considered an insult and if authors are truly serious about their work, accepting a six percent royalty on e-books should be a deal breaker.

Yeah, yeah, yeah, we know — easy for us to say.

File Under: The Future of Publishing

6 responses so far ↓

  • Racy Li // Nov 22, 2006 at 12:34 pm

    6% for ebooks? That’s ludicrous! Though I don’t think the situation is as dire as you may think, especially with the many epublishers, whom print publishers aware very aware of, offering much more. But then again, I’m speaking as an e-author myself :)

  • Diana Hunter // Nov 22, 2006 at 7:15 pm

    I guess I’m VERY out of the loop on this one. Six percent as royalty for an ebook? Who’s offering THAT? I publish at Ellora’s Cave Publishing, Inc. and my royalties are paid monthly (yes, I said monthly!) at the rate of 37.5%.

    Maybe the question is why would anyone ACCEPT 6%?

    Diana

  • ktwice // Nov 22, 2006 at 7:42 pm

    Because, frankly, there are trade-offs — print published authors have a wider audience and different distributions. Ellora’s Cave novels are not as widely available as, say, Avon’s. My understanding is that only certain of Ellora’s titles are released in print format. I’m not sure if the reverse is true for most print publishers.

    And since the electronic royalty currently constitutes a relatively small portion of the overall compensation, I would surmise that most authors aren’t really seeing the bigger issue (not a bad thing — I think about this stuff as a matter of course, most normal humans do not). I think it’s really important, however, to keep harping on this issue and raising awareness. Many publishers aren’t allowing authors much wiggle room when it comes to negotiations on this point. As I note as often as is practical, the benefits of the contractual arrangemente go to the party that writes the contract.

    It is really important for authors to weigh the benefits of each potential publisher — some might find traditional houses to be the best choice, others might choose to go with straight electronic publishers. Others might decide small presses meet their needs best. Heck, some might think self-publishing is the ideal option for their work. Each of these routes has good points and not-so-good points.

    As for the monthly statement thing, that’s another rant entirely. Believe me, it’s worthy of reams of blogspace.

  • Diana Hunter // Nov 27, 2006 at 10:30 am

    LOL Can’t wait to read that rant!

    You make good points about individual authors and their needs. A traditional house wouldn’t publish what I write, mostly because the subject matter isn’t mainstream enough. Publisher’s are in the business of making money and what I write wouldn’t help them do that. So a small press that offers both ebook and print releases…and that is willing to deal with niche markets…is best for me. It might not be right for someone else. I just don’t think authors should have to settle for such a small percentage if they’re dealing with e-publishing…no matter who they are or who the company is.

    Looking forward to your comments on monthly royalties!

  • Richard Nash // Nov 29, 2006 at 4:37 pm

    I’m interested to weight in on this but…as we talking a % of list, or a % of net revenue? 6% of either is ridicolous yes, but eBook retailers have discount schedules that are all over the place, but are averaging about the same as printed books…which means more that 25% of list is the equivalent of more than half net revenue, which would be a bit steep…

  • ktwice // Nov 29, 2006 at 4:55 pm

    I believe the contracts I’ve seen are based on list price rather than net revenue.It’s been a while since I looked at the language, but I’m certain I’d remember if the calculation was based on something out of the ordinary. But 6% is still low, be it list or net revenue.