US publisher Simon and Schuster has announced that its ebook royalties will shift to a payment based on percentage of net receipts rather than a share of the list price. Like Random House, who made this move last October, S&S will pay authors 25% of net receipts.
While some might see this as a backward step for authors, it seems like an eminently sensible and fair way to address the royalties issue.
It’s sensible because, by basing it on net pricing, publishers gain the flexibility to price their ebooks to their market, independently of p-books which sell into a different environment. It means they can take advantage of pricing strategies that optimise the online opportunity.
In terms of fairness, the percentage settled on, 25% of net receipts, ie 25% of revenue, seems like a pretty significant share of the pie. If you add the publisher’s own editorial costs associated with producing the ebook, say another 5-10% of revenue, that brings total “editorial” costs to about one third of sales. From my days as a magazine publisher, this editorial ratio is pretty high, implying a reasonably generous split of the income with authors.
The example that e-Reads gives to show that an author will be worse off under this arrangement than they would have been under a 15% of list price royalty (also high by our standards) ignores the fact that, with a more effective pricing strategy, the overall income from the book might well be higher. It’s hard to see how a long term move to tie ebook prices to p-book prices makes any sense for the industry’s success.