In a letter sent to publishers on October 26, Macmillan CEO John Sargent drew what might be one of the first significant lines in the sand in the looming battle over the payout structure for e-books. Sargent announced that Macmillan would be instituting a boilerplate contract across its divisions that would offer a 20% royalty on net proceeds on e-books, a drop from what has become the de facto industry standard of 25%.
While one agent scoffed at the notion the contract would change his business dealings with Macmillan editors—he said that, to remain competitive, the publisher would have to allow for contract concessions on a case-by-case basis—the move points to a potential tack that publishers may take as pressure mounts for them to find viable ways to keep their margins intact despite intense price-cutting on digital content by retailers.
As e-readers proliferate, the $9.99 price point Amazon set for its Kindle editions is becoming a bigger concern to all facets of the industry. Agents, authors and publishers are all worried about how a significantly lower retail price for content will be divvied up among all the parties. Although Amazon has been buying e-books on traditional discount terms (50% off of the hardcover list price for the most part), publishers are increasingly worried that the e-tailer will push for a lower wholesale price.
Most agents are already unhappy with the current digital royalty structure, so Macmillan's attempt to chip five percentage points away from an already contentious rate has been greeted harshly. “Authors should not be the ones to pay for the decision to lower e-book prices,” said agent Richard Curtis, who first reported the new Macmillan contract on his blog. His e-book publishing company, e-reads, gives authors a 50—50 split on net receipts, a formula he believes the big houses should look into.
Trident Media Group chairman Robert Gottlieb is also looking for ways to ensure authors get their fair share of e-book profits. “Trident is in the process of formulating a financial matrix for publishers when e-book royalties fall to very low levels due to pricing,” Gottlieb explained. “Authors should not be receiving pennies because books are selling at very low levels,” he said, adding that his agency's official position on the matter is forthcoming.
While Gottlieb lumps publishers and retailers together on the pricing issue, most publishers would like to see e-book prices rise, but there is little to no agreement within the industry on how to make that happen. Some agents and publishers advocate delaying the release of e-book editions in order to preserve publishers' hardcover business. Why, an agent asked rhetorically, in a business that is format driven, should an e-book be treated differently than a paperback? Format pricing has always been the reigning model in publishing, this agent pointed out, with declining prices for a title as it rolls through hardcover, paperback and then mass market, so why shouldn't the e-book format simply be added to that existing pricing structure and release schedule?
Another possible option that has been floated—that publishers threaten to withhold frontlist titles from accounts because of the lowball pricing—is seen as impractical. One problem with that is that accounts could simply buy from wholesalers. And with the book market becoming increasingly dominated by two retailers (Amazon and B&N), withholding frontlist from one would be, in the words of one industry member, “suicide.”