Random House Unveils New Royalty Agreement for E-Authors
Calvin Reid -- 11/13/00

It looks like we can expect audacious digital decisions in the new, post-Napster Bertelsmann. Random House, Bertelsmann's gigantic book publishing subsidiary, has apparently put an end to the long-running dispute over determining an equitable split of the revenue from e-book sales, announcing that it will share net revenues from e-books 50/50 with authors. Any decision by Random House on this issue is likely to set the industry standard for years to come.

For a number of years, agents and Random House have been butting heads over how to divvy up this purely theoretical (at least for now) revenue. Author representatives have claimed that e-publishing saves money by eliminating paper, warehouses and printing presses, and these savings should be shared with authors. E-book sales, the agents say, should be handled like a subrights sale and split 50/50. Publishers have said that e-book revenues should be paid out at a royalty rate. E-books, publishers say, aren't really cheaper: there's considerable investment needed to build a digital infrastructure to deliver e-books. Publishers say they need incentives, like the extra revenue from e-book sales, to take on the economic risk needed to make the e-book business work.

The new Random House policy, a 50% royalty on the publisher's net revenue from e-books, seems to offer something to both sides of the ongoing argument. Random House offered PW an example: a $20 retail list e-book is discounted to distributors or retailers to about $9.70. With a 15% royalty (the previous Random House e-book royalty) the author would receive $3 on each e-book copy sold. Now the author will receive $4.85 on each e-book.

Erik Engstrom, Random president and COO, told PW the company decided to "stop focusing on the short-term economics. We know e-books will work in the long run; we just don't know when or how fast. We figured the long-term outcome would likely be a 50/50 share with authors, so why not do it now." And, said Engstrom, "as we try and shape the e-book industry, it's important that authors and publishers share the economic interest." Engstrom was reluctant to give specifics about the legal structuring of the rate, but he told PW that he expected that it would be a standard feature "in most Random House contracts."

Writers' organizations responded cautiously to the new policy, but were quite happy with the general outline. Jonathan Tasini, president of the National Writers Union, called the new policy "a step in the right direction." He also noted that he wanted to see "the fine print. How will this be enforced?" He was also curious whether "other publishers will follow suit."

Paul Aiken, executive director of the Authors Guild, also told PW, "It's a big step in the right direction. We've argued for a long time that authors and publishers should share these revenues."

Random House isn't the first to offer an equal split. Steve Matteo, publicity manager at Barron's Educational Series, told PW that Barron's has been giving its authors an equal split of electronic products, including e-books, since the mid-1990s.

A number of publishers declined to comment to PW about whether they would follow the Random lead. However, Simon & Schuster's Adam Rothberg told PW, "We've always maintained that we would be willing to look at our own royalty structures as the marketplace evolves, and the business becomes a business."

A longtime advocate for the 50/50 split, agent Robert Gottlieb, chairman of Trident Me-dia Group, told PW the new policy is "the beginning of solving" the issues around the cheaper cost of e-publishing. "The next hurdle will be retailers," said Gottlieb. "Their costs are cheaper, too. Everyone has got to kick something in to create a more equitable split."