The Unofficial AAR Blog

Alert – E-Book Industry Standards have Changed!

02 Nov 2011 1:12 PM | Digital Rights Committee (Administrator)

Dear Colleagues in the industry, remember all of those clauses we have in our contracts regarding e-books? The ones that say that when Industry standards change we will all be renegotiating new e-book rights? Well that time is now. E-book industry standards have changed.


Why have we not heard this news from our publishers?


Think of the number of contracts you have with that clause and then multiply it by x. This is the number of clauses that would have to be modified by publishers if they admitted to this obvious change. From a publisher’s perspective, the only possible change they would concede would be one where they would be raising the 25% royalty rate and overnight their profits would plummet. As you can imagine, this is not an attractive prospect.


Have industry standards changed? Yes


Will we first hear this from the publishers? No


What are these changes?


Well, there are, of course, the many emerging publishers doing business in the publishing world who offer much more lucrative e-book royalties. But they offer low advances or no advances. However we are starting to see that when publishers want a project enough, they find workable solutions with agents that are not the straight 25% we were given to believe was the 11th commandment. We are even seeing, the big publishers, developing creative e-book royalty solutions where rights were not clearly delineated in the original contract. And we are seeing authors make drastic choices, especially if they know that their books perform well in the e-book format – jumping ship, and working with the new publishers on the block who offer them a fairer piece of the pie.


What else has changed?


We are now often at 50% or more of total books sold for a particular title. When e-book royalties were first set at 25%, e-books were a fraction of the market (please refer to the many analyses that have been done over the years on the growth of the e-book industry). E-books are no longer a fringe subsidiary right but an essential format, just like print paperback and hardcover. I would even argue that e-book is the predominant format in the US, because, regardless of whether a book is published in hard cover, soft cover or in print at all, you can bet that practically every single US publisher acquiring rights to a new book today, will be releasing it as an e-book. The e-book format is the one guaranteed format for all of our future books. It has arguably swallowed up the custom of multiple print formats. In other words, whatever the print format for your first publication of a book may be, the future will see e-book as your second and possibly the only other format for your book. This is a major industry shift that has happened this year and publishers are now debating how best to handle it. Does this mean that we should only publish in Hard Cover and E-books or just Trade paperback and e-books? Forget about mass market! What we are seeing here is clearly an industry shift. This is a changed industry. Industry standards have changed.


Now what about the problems our publishers face if they admit to this change? Should we care?


I say yes, because, when we all agreed to these delightful industry standard clauses, we neglected to realize how we were painting ourselves into a corner. As Paul Aiken from The Author’s Guild pointed out in his article “Inertia, unfortunately, is embedded in the contractual landscape. If the publisher were to offer more equitable e-royalties in new contracts, it would ripple through much of the publisher’s catalog: most major trade publishers have thousands of contracts that require an automatic adjustment or renegotiation of e-book royalties if the publisher starts offering better terms… Given these substantial collateral costs, publishers will continue to strongly resist changes to their e-book royalties for new books.”


Should we then accept the status quo and abandon hope of ever effecting change with the big publishers?


This is not a solution because, by not demanding change, we not only create an unfair structure for our authors, we also allow authors to more easily abandon traditional publishers when we know this means losing out on the editorial, marketing and publishing help that these professionals do so well when they try.


Many have examined the e-book royalty math extensively and so I will only say that we must look at the origins of the Hard Cover 15% of list royalty. How did publishers, agents and authors come up with this percentage? Well, when you deduct the discount given to booksellers off the list price and the cost of producing a print book, half of the remaining proceeds roughly comes to 15% list. In other words, 50% net.


Consequently, the concept of offering 50% of the revenue is a long standing industry standard for Hard Cover royalties.


What is the solution?


Let’s take another look at Hard Cover royalties. While the lucky few are able to get a straight 15% hard cover royalty for their authors, this has not become the industry standard. Escalators are the standard and it is in escalators that we find the solution to the e-book royalty dilemma. With escalators, we can at last accommodate books whose sales do not justify a big piece of the pie and should stay at 25% as well as rewarding those authors whose major sales are happening in e-books. Escalators would allow everyone, including the authors and creators of the work, to share in success once the justified overhead costs are amortized.


This should be our new industry standard for e-books and it should not cause a massive shift in revenue for our publishers except for books that have earned it.


Now is the time to call our publishers and let them know. Remember that clause about e-book industry standards changing? Well now they have. That time is now.

 

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