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Simon & Schuster reducing e-book royalties
March 26, 2009 | 10:53 am
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By Paul Biba
This is being reported today in E-Reads :
In October 2008 Random House circulated a letter among literary agents announcing a shift in e-book royalties from one based on list price to one based on actual net moneys received. Five months later, Simon & Schuster has followed Random’s example. "Beginning March 1, 2009," writes Judith Curr, Executive Vice President and Publishers of S&S’s Atria Books division, in a Dear Agent letter, "all Simon & Schuster contracts worldwide will offer a royalty of 25% of net receipts for all sales of all electronic editions including eBooks and audio book downloads."
Although publishers’ royalties are presumably negotiable, the boilerplate on one recent (pre-March 1 2009) Simon & Schuster contract called for a 15% list price royalty. That means that on an e-book retailing at $10.00, the author would be entitled to $1.50. Switching to a 25% royalty on net receipts, the author will now receive $1.25. How is that number calculated? Most e-book retailers take a discount of approximately 50% of an e-book’s list price. If S&S collects $5.00 from the retailer, the author will get 25% of that, or $1.25. a reduction of twenty-five cents per sale from the previous arrangement.
There is more interesting detail in the post, itself.
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Comments:
Hmmm.. so on a $10 paperback, the author gets 8% list, and the publisher gets 35% list, 65% going to the distributor, out of which they pay (say) $0.5 for the printing, paper, etc.
$0.80 to author, $2.20 to publisher.
On a $10 ebook, author got 15% list, and the publisher got 50% list, out of which there is a fee for the DRM, say $0.20 (another reason why DRM is bad!)
$1.50 to author, $3.30 to publisher
And now, on a $10 ebook, author gets 25% net, publisher gets 50% list, and pays DRM of $0.20
$1.20 to author, $3.60 to publisher
Looks good for the publisher, especially with no cost for returns, etc.
Why does this remind me of the music industry, where the corporate fat cats get most of the money and the artist gets the least? I can understand the publisher getting a substantial cut (but not the largest), assuming that they are doing the job they are supposed to be doing. I don’t understand why the distributor gets the largest cut, as they are doing the least work. This is especially lopsided when we are talking about ebooks.
Before continuing to escalate fees, publishers may wish to consider the recent words of Clay Shirky:
I think that there will be upheaval in the industry but apocalypse will be delayed by the continuing popularity of paper books. Yet pushing up fees will practically force disintermediation of a company.
Smashwords offers authors and publishers 85% net, and “Net” = (retail price – paypal fee) * .85. Random House and S&S should put their books on Smashwords. Both they and their authors will do better. Of course, we don’t have the traffic of an Amazon, so they should publish there as well. But when they have the power to point their customer to one retailer or another, the math is pretty simple where they should send the buyer. Of course, I’m biased.
I wish I knew more information about the numbers here, but my expectations are a 40% discount off list based on my own observations (although it appears that Amazon has slightly higher discounts). At 40%, the author takes the same amount as the previous scheme. The article isn’t clear, but it sounds as though the rate is no longer reduced after reaching the advance.
Since the store wants to maximize profit, as well, this situation doesn’t immediately seem like a change for the worse with respect to authors. The major problem I see is that the lion’s share of the profit, the publisher’s, is set, and based on, the list price which the author and the store cannot control.
I’m not sure how authors make off better with Smashwords except that the list price always equals the retail price so authors would always make 25% of the list. The Smashwords difference appears to be that the customer never gets a discount. You assume that the publishers set the best list price for your store’s customers, and you aren’t allowing yourself to affect the author’s share.
However the discount off the list price comes from the retailer’s cut of the sale, doesn’t it? And the primary reason the retailers would discount an item is if they believe it will generate enough additional sales to compensate for the lower margins. The Random House/SS author only loses out when a retailer discounts their book in order to generate sales of another author’s item (i.e., a loss leader).
I suppose Amazon is the real motivator behind this change. Amazon’s cut is supposedly in the range of 55% of the list price, so the publishers increased the list price to keep their amount per sale about the same, the author’s cut then went way up (even though the revenue per book was about the same) and needed correcting.
At least, that’s my perspective.
Hi Logan, at Smashwords, an ebook sold for $10.00 nets the publisher $8.00 after we and Paypal take our cut, so the author of the publisher under this new 25% net plan would receive $2.00, or 20% of the list price.
Compare that to the same scenario of a book selling for $10 on Amazon. If, as you estimate, AMZN gets 55%, then for a $10.00 list price book the publisher is netting $4.50, so the 25% net to the author is only $1.12, or about half of Smashwords.
Of course, if an indie author publishes directly with Smashwords, they get the full $8.00 to themselves.
It’s not all apples to apples, because as you note, even if AMZN reduces the book price, since they paid the same amount the discount doesn’t affect the publisher or author. At Smashwords, the author/publisher sets the price. Let’s say AMZN offers a flat 20% discount off of list. The publisher can match that on Smashwords, in which case the new net to publisher for an $8.00 book is $6.35 and the 25% of that to the author equals $1.59, or 42% more than AMZN.
Looked at another way, if the publisher wants to make the same net as they do at AMZN but juice sales volume by offering the book for even less, they can price the book at Smashwords for $5.76 and the publisher still nets $4.50.
Anyone who wants can play with our numbers by registering for the site, then click “Publish” then scroll down to the pricing wizard and play with different pricing scenarios. There’s a dynamic pie chart that clearly discloses the net to the author/publisher, smashwords and paypal at each price point.
I don’t advocate publishers abandon Amazon for Smashwords, I’m just saying if someone publishes with Amazon, it’s kind of a no-brainer to publish with us too. And of course ALL our books are DRM-free and multi-format, so readers appreciate this.
The olde and current system:
Who makes the most profit on created content?
(arranged in order of highest profit to lowest profit)
1. The online bookseller/media seller
2. The publisher
3. The content creator (author, artist, musician …)
The emerging system:
Who makes the most profit on created content?
(arranged in order of highest profit to lowest profit):
1. The content creator (author, artist, musician …)
2. The publisher
3. The online bookseller/media seller
One hundred years from now, people looking back on these archaic times may shake their heads and wonder in amazement how and why the content creators (of our era) could fail to appreciate their own importance, and settle for such a small share of the publishing pie.
Michael Pastore
50 Benefits of Ebooks