Tuesday, 2 February 2010

Readers' interests lie with writers, not with publishers

This week Amazon.com -- the leading retail distributor of e-books -- and publishers of books in hardcopy have been squabbling over control, pricing, and which of them gets what share of e-book revenues.

The Macmillan publishing conglomerate demanded that Amazon raise the retail prices for Kindle Editions of e-books licensed from, and originally published in hardcopy by, Macmillan's multitudinous imprints, and allow Macmillan to dictate both the retail price and the division of revenues between Amazon and Macmillan (a small fraction of which is sometimes, although not always, passed on by Macmillan to the authors of the e-books).

Amazon responded that it would sell e-books licensed from Macmillan at a markup or loss-leader markdown of its (Amazon's) choosing, or not at all. When negotiations broke down, Amazon temporarily stopped selling any Macmillan publications in electronic or hardcopy formats, leaving the listings on Amazon.com but removing the "buy" buttons.

Since then Amazon has said that, "ultimately... we will have to capitulate and accept Macmillan's terms", but as of now that doesn't seem to have happened -- the "buy" buttons are still missing from Macmillan titles on Amazon.com.

Rupert Murdock, owner of HarperCollins parent News Corp., joined the fray today during a conference call with investment analysts: "We don't like the Amazon model of selling everything at $9.99."

So what? Left in the dirt, as often happens when behemoths battle in the spotlight, have been the interests of the little people on the margins: individual readers and writers, who too often have been forced to relate to each other through, and on terms set by, those centralized publishing and distribution intermediaries.

But this dispute does matter, a great deal, to both readers and writers, who have a common interest opposed to those of Macmillan, Murdock, and other print publishers. Here's how:

The key fact underlying the dispute is that the contractual terms already in place for tens of millions of copyrighted books provide, in almost all cases, for a radically different division of revenues between authors and print publishers for hardcopy books (regardless of whether they are in hardcover or paperback) and for e-books.

Of the gross amount paid by the retailer or distributor for e-book licenses, the author is entitled in most cases to at least 50% (under a clause governing the apportionment of receipts for licenses of "subsidiary rights) and often 100% (if the author never assigned electronic rights to the print publisher, which is the case for almost all books published before the last decade or so). The print publisher is entitled to at most 50%, and for older books often nothing at all.

For hardcopy book sales, on the other hand, the print publisher is typically entitled under those same contracts to 85%-90% of the gross proceeds (wholesale selling price), and the author to a "royalty" of only 10-15%. Aside from tradition and relative bargaining power, the lopsided revenue split reflects the costs borne by the print publisher of printing, warehousing, shipping, and returns (books are normally "sold" to bookstores on a fully-returnable consignment-like basis), all of whihc are absent in the case of e-books or other "sub rights" licenses.

This means that authors can make much more money on an e-book sale at $9.99 (under the latest 70% revenue share currently being offered by Amazon to self-publishers) than on a $30 retail ($15 wholesale) hardcopy sale at 15% royalty, as long as the author has retained or regained electronic rights and doesn't have to share e-book revenues with the print publisher. The problem for print publishers like Macmillan or HarperCollins with a $9.99 retail price is that it makes it more likely that readers will buy the e-book (for which the writer gets a larger share) rather than the hardcopy (for which the print publisher gets the lion's share).

The interest of print publishers is thus in protecting hardcopy sales and resisting any shift to e-books, while authors have an opposing interest in shifting sales from low-revenue (to the author) hardcopy to high-revenue (to the author) e-books. That's why it's print publishers who went to court (unsuccessfully) in Random House v. RosettaBooks to try to stop authors from making books that those publishers weren't print any more avaiable as e-books. And that's why it's print publishers, not most authors, who are trying to force distributors and electronic publishers to raise the price of e-books.

The Authors Guild, whose membership is limited to the small minority of commercially successful authors who receive "substantial advances" from large publishers, has sided with Macmillan. But that shouldn't be taken as representative of the majority of books or authors. Most e-books aren't going to be salable for more than $9.99. Only a few of the most popular books, or the highest-value textbooks, are likely to command higher prices. And only writers who receive substantial advances -- rare from small and/or academic publishers -- can afford to focus on their next book to the exclusion of efforts to maximize revenues, such as from e-books and other licensing of the "long tail" of their personal backlist.

Despite Murdock's claim in today's conference call that, "We're not against electronic books", the subtext is that he is against e-books, because they will cannibalize more profitable (for the print publisher) sales of hardcopy books. Make no mistake: The shift from hardcopy to electronic book distribution is shaping up as a battle between print publishers trying to hold onto their higher profit margin on hard copies on one side, and writers and readers together on the other. Cheaper e-books that eliminate printing, warehousing, and distribution costs enable lower costs to readers and higher per-copy profits for writers -- and reduce if not eliminate the need for the print publishers and their cut.

The proposed Google Books settlement is another attempt by print publishers to thwart their disintermediation in the e-book marketplace: Literary agent and authors' attorney Lynn Chu, speaking on a panel I was on in New York last month, described it as an attempt by the parties to "appoint yourselves literary agents for the world and cut yourselves in on a permanent commission". Publishers are happy to cede to Google electronic rights that those publishers don't own in the first place, in the hope that they will drive hardcopy sales, even if that undercuts authors' efforts to monetize their electronic rights through their own Web sites, direct sales of PDF copies, e-book licenses, and so forth.

Most authors support lower prices for e-books, and identify with readers against most print publishers, especially the large conglomerates like Macmillian, as the enemies of affordable e-books. To be clear, I authorized the Kindle Edition of The Practical Nomad: How to Travel Around the World, but my contracts give me no control over its retail price. But readers should understand that authors are on their side against print publishers, that most of the price of an e-book goes to the print publisher -- not the author and not the electronic distributor -- and that many e-books are effectively bootleg editions "authorized" by print publishers who didn't actually own the electronic rights, which the author may not have authorized and/or for which the author has been paid less than they are contractually entitled.

Right now, when you buy a hardcopy book, or most e-books, most of what you pay goes to the print publisher, not the writer. E-books should be cheaper, because nobody has to pay for printing or physical distribution. The way to give readers cheaper e-books, and authors more money to write them is to reduce or eliminate the unconscionably large cut of e-book revenues currently being paid to the publishers of the hardcopy editions of those works.

Readers of this blog know that I'm no fan of Amazon.com, which appears to have made no meaningful effort to verify that those who purported to license works to Amazon actually owned the relevant rights to electronic reproduction of those works. But in this instance, what's bad for Rupert Murdock, News Corp., and Macmillan is good for both readers and writers.

[Update: Shortly after I published this article, Macmillan published a new ad in the Publishers Lunch trade newsletter indicating that negotiations with Amazon were continuing but that those with authors over royalties and the division of e-book revenues were just beginning.]

[Further update: More from the Washington Post on how the changes might play out.]

Link | Posted by Edward on Tuesday, 2 February 2010, 10:50 (10:50 AM) | TrackBack (0)
Comments

Great post. I couldn't agree more that in all of the infighting between publishers and retail distributors, it's the acute passion and relationships of readers and writers that get hurt and/or lost in the shuffle.

Posted by: Anna, 4 February 2010, 04:26 ( 4:26 AM)

I have to disagree with one statement. Hardcover royalties are generally based on the cover price, not the actually selling price (at least at larger publishers). The latter arrangement is generally the arrangement for paperbacks. So a hardcover selling for $30 might typically bring the author $3 to $4.50 a copy. That changes the economics considerably.

Posted by: Erik Sherman, 13 February 2010, 22:49 (10:49 PM)

I'm aware that, as Erik points out, that hardcover royalties, especially with larger publishers are often based on cover (retail list) price rather than wholesale price. (There are all kinds of nuances and variation in contracts, and I tired to simplify somewhat in my examples.)

But I don't think that actually changes the bottom line. Most books (by numbers of books and numbers of copies) are published and sold in softcover under royalty agreements based on net (wholesale) price. More importantly, when the royalty percentage is based on list price, the percentage is typically substantially less than when they are based on wholesale net.

Maybe some big-name authors can get 15% of list price (or more) on hardcover sales, but that's not typical. 10% was the typical maximum, according to the most recent NWU survey of members, and typical royalty rates have only gone down since then. Congratulations, Erik, if you've been able to negotiate better than that.

Typical hardcover royalties of 7-10% of list price are equivalent to 14-20% of net. That's a bit higher than typical softcover royalties of 10-15% of net, but not much.

Posted by: Edward Hasbrouck, 14 February 2010, 07:20 ( 7:20 AM)
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