Pub Rants

Speaking of 25% Of Net Receipts

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Status: Gotta hit the shower and the ground running. RWA, day 2.

What’s Playing on the XM or iPod right now? NEVER THERE by Cake

An update from blog entry 8-4-2011:

In good news, we’ve now gone through all our Random House statements from the spring with a fine tooth comb and I’m delighted to report that RH is not doing a wholesale change to their electronic book royalty rate on existing contracts; there was simply an error that was resolved promptly. Contracts that have the royalty rate of 25% of retail will still have 25% of retail. Now, I have heard that they want to change any 15% of retail to 25% of net (which is actually to an author’s advantage) but I have not personally seen that so as far as I’m concerned, that’s simply a rumor for now.

Since we’ve been speaking of 25% of net receipts and it would have been easy to miss, if you publish with Random House, you might want to take a look at your April statements again.

Random House decided they were arbitrarily just going to use the 25% of net receipts to calculate their authors’ eBook royalties in this last accounting round—regardless of what is stated in the contracts. There was no mention of it to agents or letter circulated to authors–that I know of anyway. I’m assuming some folks just weren’t going to notice?

Now for some authors, this may be an improvement over what they were getting, depends on what is in the contract. However, for probably the majority, Random House used to pay 25% of RETAIL price that would then drop to 15% of RETAIL price after the title earned out. (and yes I’m capitalizing the word “retail” for a reason).

We had so much fun yesterday doing math, I can’t resist doing more today.

Let’s say you have a mass market paperback priced at $7.99. (we might as well use the same type of figures as yesterday):

25% of RETAIL of 7.99 = 1.99 of royalty per sale to the author.

Oh how I loved Random House back in the day….

Now, if RH switches to 25% of net receipts and because they did, as a company, switch to the Agency Model in March 2011, the math would look like this:

7.99 – 2.39 (which is the 30% to the distributor such as Amazon) = 5.60 to the publisher

25% of net receipts of 5.60 = 1.40 of royalty per sale to the author

Yep, the author just lost 59 cents per sale. Add that up over X number of sales and that’s a lot of dough.

However, if an author’s title has already earned out and they are now at the 15% of RETAIL price, it’s actually a better royalty to switch to 25% of net receipts.

15% of 7.99 = 1.19

Since the author would get $1.40 calculating the other way, then it might be worth considering (but make sure RH is not doing any other deductions beyond what they are paying to the distributor).

This concludes your moment of math. We will now return to our regularly scheduled programming.


23 Responses

  1. Vicki Rocho said:

    If half your authors benefit from the change and the other half are getting shorted, what do you do? Will fighting for one group automatically mess things up for the other?

  2. JP Kurzitza said:

    Or the author could just self-pub their novel to ebook format, price it lower, sell a greater volume, give up less in royalties, and therefore earn far more cashola.

    But that would be too easy…

  3. Christine Ashworth said:

    JP – in my book, nothing about self-pubbing is easy.

    Kristin, thanks again for your knowledge. When the time comes, I sure hope I have an agent on my side who’s as savvy as you are.

  4. Writer and Cat said:

    So the only thing most publishers do to calculate net is subtract the distributor costs from the retail or wholesale? Nothing else hidden in net to make the number go down? Is that specified in most contracts?

  5. Lucy said:

    Arbitrary change of contract terms without advising agent…. Ohh…boy….

    *Ducks for cover before crossfire begins*

  6. Anonymous said:

    The royalty rate went DOWN after the book earned out? AFTER the publishing house has recovered their initial expenses? You’d think it would go up, since isn’t it all mostly profit after this?


  7. P A Wilson said:

    While it’s nice to get money, I hate doing royalties. As an indi e-publisher, it’s my job to go through the retailers statements. Believe me it’s no simpler there. But – It’s still nice to get money.

  8. Anonymous said:

    25% royalty rate. Really?
    The simple math is fine but I suggest you recheck your assumptions.

    Assuming a more reasonable royalty rate of 10% an author would earn 80 cents on a paperback. The 25% of net earns nearly 1.40, an increase of 60 cents or an increase of 75% to the author.

    Please don’t be impressed by simple math, save the praise for rationality and logic.

    Don’t fight about the things that you are winning.

  9. Bob Mayer said:

    Well here’s the deal with Random House. I had a series published with them that sold over a million copies in mass market. Three years ago the agent who had done the deal for some of the books forwarded me their ebook addendum. No cover letter, no advice, just forwarded it (not a helpful agent move). Like an idiot I signed. Then things changed. RH didn’t have e-rights to two middle books in the series and I refused to sign the addendum they subsequently sent. Then, before ebooks took off, and given RH’s complete lack of marketing of backlist, my numbers were so low, that according to reversion clauses in my contracts, I sent them a letter asking for reversion of these titles. Of course months went with no response. I persisted. I became an irritant. Then three months ago the editor threw in the towel and said “Fine– you want your erights back, why not take them for all your books with us.”

    Throw me in the briar patch.

    So now I’m selling in one day what took Random House’s powerful brand and publicity department six months to sell. My first Area 51 book is in the top 10 in both US and UK Kindle.

    My point is, frankly, publishers have little clue what they’re doing and have no plan for the future for their backlist. They just want to squeeze every dime they can get out of what they can grab right now. That will work. For a while. But without a coherent plan that treats authors are equals, not dime producers, they will fail.

    This trend of publisher unilaterally changing contracts can’t keep happening. It’s called a contract for a reason.

    Regardless, I’m glad I don’t have to deal with that any more. And I make more now as an indie author than I did as a NY Times bestselling author with a traditional publisher.

  10. DearHelenHartman said:

    Bob – continue to check your ebooks online because RH gave me back rights to all but 2 books with them and yet they are selling at least 1 that they returned rights on as an ebook and I am getting zip for it (yes, my agent should do something but I am no longer with that agent and she is not interested) guess we’ll see what happens when I start selling it myself.
    The conclusion to tie all this together is, no matter what the paperwork says, a writer has to keep his/her eyes open all the time and even then we may have very little power over the events that follow.

  11. Amanda said:

    I am actually writing my dissertation for my MA in Publishing on this topic, especially focusing on how agents can play a role in digital publishing and digital rights. With agents, such as Andrew Wylie, forming their own epublishing companies or withholding digital rights in order to combat the 25% royalty rate, do you think that agents are playing a huge role in digital publishing at the moment, Agent Kristin?

  12. Anonymous said:

    This kind of info makes self-publishing even more appealing. The author does most of the work, but the payment doesn’t reflect that.

  13. Oliver said:

    Curious: Do you use an abacus, a bowl of dried lentils, an HP scientific calculator, jellybeans you eat with each subtraction, or a Casio calculator watch?

  14. Shannon Curtis said:

    I’m amazed/alarmed to hear that contract details can be so summarily ignored in this fashion. What does that make a contract worth if one or both sides can pick and choose which details are binding, and which are just fluff on paper?

  15. John said:

    Apparently these dinosaurs are blithely ignoring the indie asteroid that hit the publishing industry. Another 10 years and we may be looking back on these posts about Harlequin and Random House with nostalgia and/or a chuckle or two.

    “Back in my day, sonny, there were these titans of publishing that printed books on paper and reamed authors for all they were worth!”

    “Grandad, what’s paper?”