Biz Doc: It Has Come To This

Enough Chatter About % Splits – Show Me The Money

May 2012

Recently I was chatting with a well-established, successful literary agent at the London Book Fair.  A sharp guy who has seem much come and go in the industry, he was nonetheless somewhat perplexed by the confusing calculations that hide among the reeds in the swamp that is eBook royalties.  For the past couple years dedicated literary agents have been navigating mire as they negotiate with traditional publishers and take meetings with a new crop of eBook publishing enablers.  Some agents and authors have also connected with Premier Digital Publishing, a multi-format digital publisher (full disclosure: that would be me).

Whenever I meet an agent, the conversation quickly turns to the fog of numbers and percentages that are flying around the industry and the resultant challenge in figuring out the actual royalty an author receives.  I typically suggest a simple question, “Why don’t you just ask, ‘What is the net dollar figure the author receives on a $9.99 book and how often do we get a royalty report and remittance?”  Before you know it, we are huddled over a white piece of paper deconstructing percentages into cash royalties.

First, traditional publishers.  To understand how astonishingly bad these 75/25 eBook deals can be, one need only start at the beginning:

A traditional publisher employing a wholesale deal garners something in the neighborhood of 45% (+/-) of the agreed-upon suggested retail price.  On a $9.99 book, this is $4.50.  25% of this is $1.14.  Not too impressive.  If the publisher is employing agency pricing (which is a whole other story involving conversations with government law enforcement), the publisher receives $7.00 on the $9.99 book and pays 25% which is $1.75… better than $1.14 but certainly not case for celebration.

There’s another category that fits between wholesale pricing and agency pricing in which publishers receive approximately 35% of the suggested retail price along with promises of certain promotional or merchandising benefits.  In this case, the publisher receives $3.50 on the $9.99 book and pays 25% which is $.87.  The obvious assumption here is that the publisher took this deal anticipating that the number of books sold will be higher.

Now, all of the foregoing assumes a $9.99 price point.  At $.99 all the above numbers get cut in half.  A 50/50 deal is better (and some publishers are offering such to decidedly Tier 1 authors) but it still does not address the key point:

Content is king and without good content there is no business (ask the movie studios).  The creators of content must be properly rewarded for the content they produce.  Inefficient business models, horrifying levels of overhead and legacy systems are, essentially, a massive tax pad by the content creator who waits at the end of the line for what’s left over.  These creators are not assuaged with statements like “Oh, you need to understand this is just how it is.”  How is that fair?

When discussing percentages with potential eBook partners (or your existing publisher), the numbers can be confusing.  Authors, Agents and IP holders should ask this simple question; “What % of the retail price do I receive?”  If the answer isn’t over 50%, give us a call.  In our view, a “50/50” or “70/30” deal that yields the author or IP holder only 25% – 35% of the retail price isn’t such a good deal.  Then ask how often you get paid.  We pay monthly because we get paid monthly by eBook retailers. If you are not being paid monthly… who is being permitted to sit on your money?

“When the amount of time spent properly characterizing a problem approaches zero, the amount of chatter and Scotch employed solving the problem approaches infinity.”

Just ask “”What % of the retail price or net $ do I receive and how often do I get paid?   If the economics are satisfactory, then it’s time to dive into deal duration (why lock-up for 10 or even 5 years?), ancillary rights (why give up non-eBook rights?)  and recoupable or non-recoupable costs.  Those conversations are irrelevant if it’s a weak financial deal in the first place.

At Premier Digital Publishing, we deliver 50% of the retail price to authors, estates, IP holders, studios and small imprints.  That’s 75% of what we receive from our distribution partners.

I will now go answer my hate-mail.  😉


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