At PW’s panel on e-book rights Tuesday morning held at Random House's New York headquarters, questions swirled about digital royalty rates and the place of traditional publishers in a fast-digitizing book market. While panelist Neil DeYoung, director of digital media for Hachette, and the only panelist representing a big six publisher, asserted repeatedly that the creation of digital books is a costly one for houses, other panelists, including attorney Lloyd Jassin and Paul Aiken, executive director for the Authors Guild, contested that notion with questions and, at one point, a little math.
In his opening remarks about the state of digital publishing, DeYoung said the popular perception about e-books is that they’re solely a profit-driving force for publishers. Given their perceived low cost of production, many in the business—from agents to authors—have railed against publishers' claims that e-books, like print books, cost money to make, manufacture, and distribute. As DeYoung argued, the costs may be less visible, but they’re there, from the price of conversion (which he said ranges from “affordable to expensive”) through the cost of sustaining servers to the cost of tracking sales. In DeYoung’s phrasing, the addition of digital publishing “only makes the business more expensive.”
The notion that digital publishing is a complex cost center for publishers is, as Aiken put it, the “company line” that the big six have been touting for years. And in the name of those costs, Aiken said, publishers have essentially been cheating authors out of fair royalty rates on e-books. As Aiken explained, “With 25% of net, under the agency or publisher model, the publisher will always do better on e-book sales [than the authors].” And this, Aiken noted, gives publishers “an incentive to favor e-book sales.”
So how much better do publishers do on e-book sales? One attendee, who identified himself as working in contracts at Scholastic, asked Aiken to do the math. Aiken then did the math out loud, tallying what a publisher makes vs. what an author makes on three different formats of a frontlist title—the hardcover, the e-book edition sold through the wholesale model (which Amazon uses), and the e-book edition sold through the agency model (which Apple uses). With his math, which he walked the audience through, a publisher, on a title with a $26 list price, makes roughly $5.10 on the hardcover while the author makes $3.90. On the e-book sold through the wholesale model, the publisher brings in $9.25 while the author gets $3.25. On the e-book sold through the agency model, the publisher gets $6.38 and the author gets $2.28. (A graphic that ran in the Huffington Post displays this visually. Interestingly, though, more costs are subtracted from the publishers’ bottom line.) So with that math Aiken’s question remains the same: why should authors make less on one version of a book than another? In a fair world, authors would earn at least as much (in dollar terms) on e-book sales as on hardcover sales, Aiken said.
For Jassin, who said he thinks “the future of publishing is bright, but the future of the big six is cloudy,” the big thing he asserted that publishers should be concerned about is the copyright termination clause that many authors will be able to exercise as early as 2013. Jassin, touching on the issue of backlist books and digital rights, said that even though the dust may seem to be settling on this subject, “publishers may get these e-rights, but only for a few years.”
Agent Scott Waxman, who owns the Scott Waxman Agency, spoke briefly about his startup publishing venture, Diversion Books, which he described as an experiment, to see if there’s a way to publish titles his agency either cannot, or chooses not to, sell to publishers. Waxman said with Diversion, which is still in its infancy, he’s trying to figure out what the cost benefits of publishing certain authors is, and whether there’s a revenue stream there.
Other topics the panelists touched on ranged from the importance of publishers maintaining the print business—Aiken stressed that, despite the focus on digital, publishers need to find a way to keep brick-and-mortar bookstores and physical bookselling part of the equation—to the difficulties of breaking out new authors in a digital sales chain. Speaking to that point, Aiken said, “There’s clearly a growing demand for e-books, but it’s not clear that [with] e-books [we] can grow a diverse industry.”
Inevitably, though, the conversation looped back to that digital royalty issue. Moderator Jim Milliot’s question about what the costs for publishers actually are in creating digital books not only led to Aiken’s aforementioned math but, again, to a back-and-forth between the panelists. While DeYoung said profitability needs to be measured across all publishing formats and that a publisher’s costs can’t be measured “in a vacuum,” Aiken pressed the notion that the current digital royalty rates cannot stand. Reiterating that format should not affect royalty, Aiken said that the big houses are in effect paying off the most powerful authors—who have the ability to push the issue of the digital royalty rate—with big advances, but that a move to keep the status quo can work for only so long, with a 50% royalty rate on frontlist titles inevitable.