Ebook royalties: The House Always Wins

Mate Rocky Wood pointed me to this Authors Guild article entitled “E-Book Royalty Math: The House Always Wins“.

They key paragraph (which, incidentally, illuminated for me how publishers determined their hardcover royalties) was this (emphasis mine):

E-book royalty rates for major trade publishers have coalesced, for the moment, at 25% of the publisher’s receipts. As we’ve pointed out previously, this is contrary to longstanding tradition in trade book publishing, in which authors and publishers effectively split the net proceeds of book sales (that’s how the industry arrived at the standard hardcover royalty rate of 15% of  list price). Among the ills of this radical pay cut is the distorting effect it has on publishers’ incentives: publishers generally do significantly better on e-book sales than they do on hardcover sales. Authors, on the other hand, always do worse.

The article then did some interesting maths (or math for our North American visitors) where they determined that Kathryn Stockett’s bestselling book The Help lost out by 39% on ebook royalties. Using industry standard royalty calculations, the example was:

Author’s Standard Royalty: $3.75 hardcover; $2.28 e-book.
Author’s E-Loss = -39%

Publisher’s Margin: $4.75 hardcover; $6.32 e-book.
Publisher’s E-Gain = +33%

To be honest, the maths has kind of gone over my head, but it was the bolded line in the quote above that started me thinking.

Either publishers are trying to position themselves to take advantage of the current ‘fog of war’ that has enshrouded the hearts and minds of authors struggling with the shift towards ebooks and self publishing – or they themselves have lost sight of their traditional methods for splitting royalties with their authors.

I don’t know which is more disturbing.

4 Comments

  1. Sibel Hodge says:

    Thanks for posting this.

    I suspect there will be more trad-pubbed authors turning to indie publishing to put up their back list or future novels. It’s happening already, but in the long run a lack of foresight and willingness to change with the times will only shoot some publishers in the foot if they aren’t willing to grow with the ebook revolution.

  2. Shane Jiraiya Cummings says:

    I agree 100%, Sibel. The times they are a-changin’!

  3. Elfwreck says:

    Have you seen Konrath’s blog post, The Acquisitions Editor? It assumes a 25% “net sales” royalty, which comes down to 17.5% under the agency model. After covering the bookstore percentage, the publisher’s cut is 52.5%.

    Writer: (interrupting) Let’s say the ebook sells ten thousand copies. Which, at your inflated price of $9.99, seems unlikely. But let’s say it does. That means I earn $17,500…

    Editor: A respectable figure…

    Writer: …and you earn $52,500. Even though you only worked on it for three weeks.

    Writer: I can pay a guy $200 to format and upload the book. In fact, I can also pay a guy $300 to create a cover, and an editor $500 to do both content and copy editing. But you’re not charging me $1000, or even $4500. You’re taking $52,500. And that number can get even bigger. If I hire my own editor and artist, those costs are fixed. You continue to take your 52.5% forever.

    For beginning authors who aren’t sure their work will sell at all (and they should never rely on their own judgment for that), those expenses might be too much as up-front costs. But for anyone who knows they can write commercially, forking over 52% of the list price for the often-minimal services publishers offer seems awfully steep.

  4. Colour me confused on the maths as well – I did a bloody arts degree 🙂

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