With the rise of less expensive ebook readers and the growing interest in using mobile devices such as handhelds and cell phones to read digital content, the question of how an author should best handle their digital rights is becoming more complex.  Recent changes in how publishers are compensating us for this content has also made it more important for us to understand just what is being offered and by whom.

Back in October 2008, Random House sent out a letter to industry agents informing them of a change in policy regarding ebook royalty rates on all future contracts.  Previously, RH had paid 25% of the suggested retail price of the title.  The new policy was that they would be paying 25% of the amount received for all titles.

What, exactly, did this mean for writers?  Under the old policy, if a book retailed for $10.00, the author earned a royalty of $2.50 on every book sold, regardless of any discounting the publisher might do on the title.  Under the new policy, the writer would only receive 25% of what the publisher took in instead.  So if the book retailed for $10.00, but the publisher had to discount that 50% for the distributor, the author would only receive 25% of the 50% the publisher made, or somewhere in the neighborhood of $1.25.

That was a significant drop, any way you look at it.

Shortly thereafter, Simon & Schuster followed suit, adopting the same policy as Random House.  Thankfully, the vast majority of other publishers continued to offer what was at the time the standard 25% of list price royalty rate.

Now we have another bump in the road.  MacMillan, parent of such companies as St. Martin’s, Farrar Straus and Giroux, Henry Holt, Picador, and Tor among others, announced this week that they would be making changes in their ebook royalty rates as well.

Here’s a direct quote from CEO John Sargent’s cover letter:

“It won’t surprise you that we have looked at the growth of development of digital delivery of the content from our books.  A number of the new contract’s provisions, specifically in the grant of rights and royalty sections of the contract, reflect our response to those developments.  Our starting premise is that digital rights in the content we publish in print book formats must be included in the basic grant of rights that we receive from authors.  In addition, as the methods for dissemination of content rapidly change and the distinctions between sales and licenses blur, we have determined that a single royalty rate, based on the amount received by the Publisher, should apply to all exploitation of the content of the book in digital form.”

That standard royalty rate Sargent is talking about?  Turns out it’s 20% of monies received.

Back to our example.  If that $10.00 book is published by one of MacMillan’s companies, that $2.50 royalty is now reduced to $1.00.

As both a Tor author and one who is highly interested in digital rights, let me give you my honest opinion.

That sucks.

To show you what I mean, let’s compare that to my recent deal with Blackbetty Mobilemedia.  Under that contract, I get a royalty rate that is 20% of the catalog retail price of the book.  Each episode of The Cerberus Protocol (the first book in the HELLstalkers series) will sell for $2.99.  There will be six episodes – one will be free to bring people into the story and the other five will be at the above rate.  The cost to buy the complete book is therefore $14.95, or roughly the price of a trade paperback.  Of that $14.95, I walk away with $2.99.

$1.00 versus $2.99.  Which would you take?

But there is another issue here that needs to be examined and that is MacMillan’s insistence that digital rights be included in the initial sale.  That clause means I can’t sell the print rights to the HELLstalkers series to any MacMillan subsidiary, since I’ve already licensed the rights elsewhere.

Question is, should I be upset by that?

Let’s say Tor bought the rights and decided to bring the book out in paperback. Standard royalty rates on a paperback run 6% on the first 25K copies, 7% on the next 25K and 8% thereafter.  To make things easier, let’s just use that higher royalty rate.

Paperbacks typically sell for $7.99 now.  8% of $7.99 is 63 cents.

What becomes the determining factor now is not the royalty rate but the distribution model.  If I can get the book in front of as many people in digital form as I can in print form, I am far better off doing it the non-traditional way.

Something like 450% better off, in fact.

Part of my reasoning in accepting the recent offer from Blackbetty was to test if that distribution model is in place yet.  By partnering with a major telecommunications giant like Vodafone (who, incidentally, also own Verizon here in the States) I’m betting that we can put this book in front of as many pairs of eyes as I could if I sold it to a traditional publisher.  If I take into account the fact that it will be published in seven different territories simultaneously, I believe that I can even beat that pre-existing model.

Time will tell.

(Note – MacMillan did include a higher royalty rate on direct-to-consumer sales in the new contract – 10% of net receipts on the first 10K copies, rather than the old 5% industry standard, but I’m not giving them any credit for that because they don’t make any kind of commitment to changing how they market direct to consumers.  The higher royalty ate does little good as a result.)

Next month a press conference will be held at the Frankfurt Book Fair announcing the pending launch of HELLstalkers, which is that super secret project I’ve eluded to several times both here and on my personal webpage.  More information on the project itself – what it is, who’s publishing it, how people can get it – has been posted on the official series website, http://www.hellstalkers.com.

I’m not going to repeat all of that here, but instead take RockYourWritingCareer.com members behind the scenes and into the birth and production of the series itself.  How did it come about?  What hurdles did we have to go through to get it approved?  How are we incorporating mobile and web technology to expand and build upon the text of the novels themselves?  We’ll be examining these and other issues over the next few months as decisions are made and the project is launched.

So let’s begin with the most obvious question – how did all this come about?

In order to answer that, we have to go back a few years.  My second novel, HERETIC, was released in 2005 by Pocket Books.  Just a month before it hit the streets, my editor left S&S and moved to Random House to handle non-fiction, leaving me effectively “orphaned.”  (Orphaned means you have no in-house champion to fight for you or your work.)  My lack of internal support left me hanging high and dry and as a result, Pocket passed on picking up books two and three in the series.

My career might have ended then and there if it wasn’t for the fact that I’d already been cultivating overseas contacts.  An editor from Droemer-Knaur made an offer for all three book in the Templar Chronicles and I’ve been writing for them ever since.  (December will see the launch of my fourth novel for them, with at least two more still under contract.)

Why am I telling you all this?  Because it is the fact that I was writing for a German publisher, and enjoying some decent success while doing so, that made the HELLstalker series possible.

You see, a few months before the 2008 Frankfurt Book Fair, I was doing some research on publishers who planned on being in attendance so that I could suggest editors for my agent to meet with at the Fair.  I stumbled upon an article about a multimedia company in Vienna called Blackbetty MobileMedia GmbH that was going to be launching a new mobile books platform for the German market.  The same article also noted that the company intended to expand into the US six to twelve months later.

Given that I had a bestselling series currently on the shelves in Germany at the time, I tracked down the company’s website and, unable to find an email address, used their contact form to send the following message:

I’m an American author published in Germany through Droemer-Knaur.  I’m interested in speaking to someone about having my German works available through your company.  Could you let me know who I should have my agent contact?

To my surprise, the company CEO wrote back that very evening, stating that he was familiar with my series and asking that my agent get in touch so that they could talk about licensing it for the mobile phone platform.

Several months went by, with discussions taking place between Blackbetty and my publisher, Droemer-Knaur, but nothing solidified during the process.  While all that was going on, I began corresponding with Blackbetty’s VP of Development, talking about the mobile books industry in general and Blackbetty in particular.  I knew that I wanted to find a way to do business with them and while chatting one day I asked if they might be interested in having me write something original for them instead of licensing my already existing work.  To my delight, they jumped at the opportunity.

What, they asked, did I have in mind?

Stay tuned for Part Two, where I pull a story out of my, uh…hat right there on the spot.