Pub Rants

A Very Nice Literary Agent Indulges in Polite Rants About Queries, Writers, and the Publishing Industry

Redefining Net Receipts Where eBooks Are Concerned

STATUS: Lots to tackle today so getting the blog entry out early.

What’s playing on the iPod right now? THE BLACKEST LILY by Corinne Bailey Rae

And the fun of how electronic books are changing the publishing contract continues. Today, boys and girls, we are going to talk about net receipts in Ms. Kristin’s neighborhood.

In light of this new agency commission model where Amazon and Apple will no longer carry the product per se but have an agreement to sell titles via their site in exchange for a 30% commission on the sale (see earlier post to get up to speed), suddenly agents need to re-examine the whole definition of net receipts in publishing contracts.

The definition of net receipts (or amount received) for an electronic book is not the same as the definition of amount received for a physical book.

With the agency commission model, the biggest question is this. Will publishers deduct the 30% commission paid or will they absorb it when calculating net receipts and determining what is the total used to pay authors their 25% of net receipts? One major publisher has stated that their current thinking is that the royalty would be calculated BEFORE deducting commission. In current negotiations for contracts in play, I’m not seeing publishers as excited about redefining net receipts this way.

So what does redefining net receipts mean to the author? Let’s do a little math!

Let’s say a title will sell on Amazon or Apple’s iPad for $10.00 (might as well make it easy math).

Now let’s look at the difference between net receipts if the publisher absorbs the cost of the agency commission versus if they don’t in defining and calculating net receipts.

If Publisher absorbs commission:
eBook price: $10.00
25% of net royalty (all the rage with publishers as of late)
Royalty to author: $2.50 per title sold

If Publisher does not:
eBook price: $10.00
$7.00 received by publisher (after 30% sales commission to retailer)
25% of net royalty
Royalty to author: $1.75 per title sold

Yep, definitely worth the time to find out exactly how this term is going to be defined in the contract when it comes to electronic books.

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12 Responses

  1. Anonymous said:

    It’s also worth noting that while publishers and authors were queuing up to condemn Amazon and laud Apple … Apple snuck in a clause saying they could charge whatever they liked for ebooks.

    http://www.nytimes.com/2010/02/18/technology/18apple.html?ref=books

    So …

    Amazon’s deal: we’ll pay publishers a set amount per book and set the price – we might sell some ebooks as loss leaders, but publishers won’t have to bear the costs of that.

    Apple’s deal: you’ll get a set percentage of what we sell a book for. Isn’t it terrible that Amazon will be selling your books so cheaply? Oh, by the way, we reserve the right to charge what we want.

    Seriously? People fell for that? Here’s a clue: if Amazon are selling ebooks for $9.99 at a loss, and Apple can sell ebooks for a profit for $9.99, Apple are not going to be selling ebooks for $14.99.

    Or, if you want another clue, ask the record companies if they like the iTunes deal.

    The race for book publishers to take the novel, one of the cheapest entertainment products out there and the hardest to pirate, and to make them cheaper *and* easy to pirate is farcical. That they are willing to also hand over all their auditing powers to the people selling their product turns that into tragedy.

    Please, please could all publishers and agents just take a reality check. Think of the ebook as a new format. Call it the padback. Imagine it as a physical book, don’t get dazzled by the technology or think Apple or Amazon are doing you a favor or widening your reader base. They’re selling books, your books, and they’ll make money by paying publishers as little as they can.

  2. Seven said:

    Strange that the agency model will work for the Amazon and Apple stores, but a similar model can’t work for authors. I don’t see why it can’t be one pie, regardless of price, and divided by percentages accordingly.

    You don’t redefine a pie every time someone takes a slice. And the publishers are still getting the lion’s share. If they only want to offer 17.5% not 25%, then say so. Don’t hide it in the numbers.

  3. Malin said:

    Lots of interesting and important information about contracts! I try to mash it all into my head, but it’s not quite sticking. I hope that I will find an agent that is as knowledgable about all this as you are. I got a rejection from Nelson the other week, or I would say I hoped to get you as an agent. 🙂

    At least one day, I might be able to look at a contract and think “there was something smart said about ebooks and royalties and such in a blog I read, I should ask about that”.

    Like all other commentators, I want to thank you for taking the time to spread the word! So – thanks!

  4. Eridani said:

    @anonymous first poster guy: Thanks for that article! I hadn’t seen that one. And please note my complete lack of surprise. Jobs didn’t strong-arm the music business into the future by playing to the RIAA’s tune. If anyone expected him to be any less savvy on the ebook issue, I have a bridge I’d like to sell them.

    I think Macmillan had the reality check you suggested and tried to back Amazon into a corner on the ebook prices so they could have bargaining power with Jobs when this issue came to a head. But by then, the battle was already over. Apple will dominate the market, set the price range to what Amazon has set as ‘expected’ (i.e. 9.99 – 12.99), and the publishers will just have to live with it. This, unfortunately, means the authors end up living with it, too.

    If I were an author or an agent, I’d be pissed that the publishing houses declined to control this situation. By allowing Amazon to set consumer expectations of ebook prices so low, they did themselves a grave disservice. I can only think it stemmed from a relatively low original demand and no one in the publishing industry having the foresight to realize that this medium would be picked up by Apple and made into an integral part of one of their flagship devices – the tablet that’s been rumored to be in development for at least the last 3 years.

    This is what happens when you run along behind technology, hoping it won’t catch you up. Someone else sets the industry standard for you and you’re stuck with it. It ain’t pretty.

  5. Jess of All Trades said:

    This is usually the kind of stuff that makes my eyes glaze over and sends me packing off to the hills to write poetry about unicorns and rainbows…
    But you break it down nicely (thanks for using the number 10). And thanks for keeping everyone abreast. Very cool and helpful.

  6. Anonymous said:

    ‘This is what happens when you run along behind technology, hoping it won’t catch you up.’

    Yes. Publishers want to expand their reader base, and some dopey authors have fallen for the ‘give it away for free, more people will buy the expensive one’ line.

    More people may read the book. But if the author and his publisher don’t get any money, his *second* book ain’t going to get written.

  7. Maggie Jaimeson said:

    This has been an interesting business discussion to follow in many places. Back in 1998 when I published by first textbook, I “forced” the publisher to make it available electronically. In 2000 when I published my next textbook, I thought that negotiating a 25% royalty on electronic books was a great deal (much better than the 10% I was receiving on print books). Now, I’m wondering why I would want to sell my electronic rights to a publisher at all if I can get 70% from Amazon, Barnes and Noble, or others.

    Are current contracts such that you MUST sell electronic rights in order to get a print contract with NY?

  8. Anonymous said:

    I have a related question about ebook royalties. I received an e-mail from my publisher in regards to my picture book that went out-of-print last summer in which the e-mail states that they’re interested in publishing it in e-mail format, offering me a royalty of 25% net (split with the illustrator), all contingent on me signing an amendment to my agreement. While my gut feeling is that this is just an attempt to prevent rights reverting back to me, my real question is why would I consider this royalty rate when my sub-license royalty rate in the my agreement for ebooks is a split of 50% of net receipts. Your insights are welcomed.

  9. donaldlecanard said:

    After reading your comments, I contacted the publisher via my agent: Don has asked for a definition of ‘publisher’s receipts’. He has read on a website article by a US literary agent that one major publisher will be not be deducting the 30% commission in calculating receipts. Would you clarify your position for us, please.

    The Publisher’s reply #1: THE ROYALTY WILL BE BASED ON THE AMOUNT RECEIVED WHICH IS DEFINED AS AMOUNTS ACTUALLY RECEIVED BY THE PUBLISHER AFTER ALLOWANCES AND RETURN CREDITS, AND EXCLUDING POSTAGE AND SHIPPING COSTS, OR OTHER SIMILAR CHARGES AND SALES, EXCISE, OR SIMILAR TAXES.

    My thinking: This is the definition for a paper book, not an eBook for which a commission is paid. So, I added “and sales commissions” to the Publisher’s definition:

    THE ROYALTY WILL BE BASED ON THE AMOUNT RECEIVED WHICH IS DEFINED AS AMOUNTS ACTUALLY RECEIVED BY THE PUBLISHER AFTER ALLOWANCES AND RETURN CREDITS, AND EXCLUDING POSTAGE AND SHIPPING COSTS OR OTHER SIMILAR CHARGES, SALES, EXCISE, OR SIMILAR TAXES, IF ANY, AND SALES COMMISSIONS.

    The Publisher’s reply #2: I cannot agree to Don’s request to exclude sales commissions in calculating the royalty. We can’t pay a royalty on sums not received.

    In looking back over the notes I see we started with an offer of 15 percent based on the retail price but you later requested that we pay the current rate of 25 percent net receipts which is fine. If you prefer, however, to go back to the 15 percent list, we can agree to that.

    In doing some calculations you are better off with the 25 percent net though. Based on a retail price of $9.99 the royalty at 15 percent list would be $1.50. Under the agency model it would be $1.74. This rate would be equivalent to 17.5 percent of the retail price. And under the agency model because we can set the retail price, in most instances I think the price would be higher.

    My next request: So, why do we not just say it? “The royalty on eBooks will be 17.5% of the retail price.” I could agree to that for the five-year window. This is what XXX calculates, and we do not have to worry about definitions to figure out ‘net’. Don

    The Publisher’s reply #3 via my agent. XXX says she sees your point, but that calculation was based on a 30% commission, which may not always be the case. I take that as a no, so it’s still either 15% of publisher’s suggested price or 25% of publisher’s receipts.

    My latest proposal: _For electronic books, the author will receive either 15% of the Publisher’s price or 25% of the Publisher’s net receipts whichever amount is greater.

    HAS ANYONE ANY BETTER WORDING?

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