signing-contract-pen-paperwork-jpg-640x360The split-personality issue of digital content “sales” rears its ugly head again, as author Dr. Sheldon Blau files a class action suit against Simon & Schuster on behalf of all S&S authors with e-book editions. The crux of the matter has to do with the e-book royalty rate. Publishers pay authors a 25% royalty rate on e-books—the rate used for “sales.” However, in actual fact e-books simply aren’t sold—read the terms of use for any e-book store and you’ll see that they’re actually licensed. This is important because licenses are supposed to pay out a royalty rate of 50%.

This follows on the heels of a 2007 lawsuit by Eminem’s managers against his record labels based on a similar rationale—the labels owed him more money because digital music “sales” are actually “licenses.” Eminem won that suit, and the Supreme Court declined to consider it in 2011. I’m a little embarrassed now that I thought that this would strengthen the publishing-industry position that digital content was just “licensed,” because the opposite had already occurred, three years earlier—publishers had changed their new contracts to indicate explicitly that e-books pay royalties at the “sale” rate. (The Authors Guild wasn’t happy about that, but what could they do except write angry letters about it?)

It took a few years, but it seems that chicken is finally starting to come home to roost. Dr. Blau’s lawsuit holds that e-books are licenses, not sales, and royalties should be paid out at the license rate—double the current sale rate. If this goes through, it has the potential to do some serious financial damage to publishers everywhere. If Dr. Blau loses on appeal, it has a strong potential to go to the Supreme Court the way the Eminem suit didn’t—a loss could set up a circuit split between New York’s 2nd Circuit and the 9th Circuit in which Eminem had his win, meaning SCOTUS would have to step in to break the tie.

This has been a known issue to e-book users for quite some time. For all that e-book stores feature a “Buy” button, not a “License” button, you don’t actually get the legal right to treat an e-book the way you would a print book—reselling it, or lending it to friends. That’s prohibited in the license, and enforced by restrictive DRM. This all came up in the House hearings on the First Sale Doctrine in 2014. John Villasenor thought that e-book sellers should just inform customers more clearly that they’re only licensing the e-book, not “buying” it, and that would make everything better by incentivizing “content providers to offer licenses that are more flexible”. I still think that outlook is far too optimistic.

In any event, it’s not clear yet whether the fallout from this case will have any effect on consumers’ purchases of e-books. If royalty rates have to go up, it’s possible publishers could try to raise their e-book prices even further to cover those outlays. But it’s still too soon to know. It’s entirely possible that the lawsuit will fizzle, given that Dr. Blau did sign a contract, which he needn’t have done if he found the terms objectionable. I’ll definitely be keeping a close eye on the progress of this lawsuit.

(Found via The Passive Voice and MobileRead.)


  1. I suspect this royalty v. license debate is and attempt by S&S et al to use an existing, pre-ebook contract, where licensing referred bringing out an edition or translation through a different publisher, i.e. a mass market paperback. The publisher was ‘licensing” this other publisher to do what they had a contract to do. That’s not typically what is happening with an ebook.

    I worry less about what payments are called than how much is paid. 25% or 50% are both less than what self-publishing can typically provide. Here are the details for the major ebook retailers:

    Here’s the ranking from best to worst:

    1. Smashwords Direct: 85% less a per sale financial charge. If you have a list of fans, you might send them there. There’s no DRM and the book is available in multiple formats for the same purchase and they can do additional downloads far out into the future. With Smashwords Direct, both you and your readers get the best deal.

    2. Apple: 70% at all prices. No download or financial charges. No meddling demands.

    3. Smashwords via other channels: Typically 60-65% when sold through other retailers. Precise details here:

    Smashwords also lets you sell to libraries at whatever price you choose.

    4. B&N: 65% for books priced $2.99-9.99

    5. Amazon: About 60-68%, depending on file size, for books priced $2.99-9.99. Download fees are a very expensive, 15 cents per megabyte. Note too that, while Apple pays 70% in all countries, in some countries Amazon only pays 35% even for “correctly” priced books.

    6. B&N: 40% for books priced under $2.99 or over $9.99

    7. Amazon: 35% for books priced under $2.99 or over $9.99. No download fee.


    As you can see, there is NO retail price where Amazon does not pay less than the others. Even its 70% less that huge download fee was a concession forced on the company when Apple entered the market paying 70% at all prices. But for Apple, Amazon would still be paying authors a miserly. bottom-of-the-market 35% at all retail prices. That illustrates why I think so poorly of author’s who’re Amazon fan boys.
    Some of Amazon’s royalty descriptions drip with lawyerly deception. For example this:

    “If you select the 35% royalty option, your royalty will be 35% of your list price without VAT for each unit sold. If you select the 70% royalty option, your royalty will be 70% of your list price without VAT, less delivery costs (average delivery costs are $0.06 per unit sold, and vary by file size), for each eligible book sold to customers in the 70% territories listed below, and 35% of the list price for each unit sold to customers residing outside the 70% territories. ”

    That’s, of course, utter bosh. You’re not selecting 35% or 70% royalities. If that were the case, everyone would select 70%. Instead, Amazon is dictating which you get depending on which of their niggling conditions about price etc. you meet. Alas, all too many authors fall for those lawyerly deceptions.

    Note too that, by charging that hefty pricing download fee, Amazon is imposing its “ebooks ought to be ugly” policy. You can see from my most recent book that I’m paying far more than that “$0.06 per unit sold” to include a rich set of colorful pictures with my most recent book. It’s for nurses, so feel free to pass the link on to friends in nursing.

    Click on the right to page through the book and see pictures of cute kids and pretty nurses. Some of the kids were once my patients.
    People should be able to enjoy reading ebooks not just endure page after page of endless, badly formatted text. What you see at that link is a fixed-format epub that looks identical to the carefully formatted and published print version of Senior Nurse Mentor. Apple’s iBooks can display that. Amazon’s Kindle reader can’t.

    –Mike Perry

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