Update 11:15 PST: Tim Holman, Publisher of Orbit, responds to questions similar to those I proposed on a post at John Scalzi’s blog, Whatever. I’ve copied his answers at the bottom of this post for those following along here.

Yesterday Orbit, the science fiction and fantasy imprint of Hachette Book Group, announced a digital short short fiction program for their authors that would begin later this year. To quote from the press release…

Orbit (US) has offered to publish digital editions of all original short fiction written by its authors. The digital editions will be distributed widely through major retail channels, for reading on a variety of devices. Authors will be paid a royalty for each story sold, rather than the flat fee more common in the short story market.

Tim Holman, Orbit VP & Publisher, said: “We know that writing short fiction is important for many of our authors. By offering to publish their short fiction – and to publish it quickly – we will be providing a new way for them to connect with readers. The initial response from our authors has been great, and we are looking forward to launching the first stories later this year.”

I’m a big fan of Orbit. They publish some of my favorite writers – Lilith Saintcrow, Mike Carey, Kate Griffin, Charlie Huston – and always produce first rate books. But I have to say that I can’t sing the program’s praises yet.

Don’t get me wrong – I think it is terrific that they’re trying to find new ways to put writers and readers together and that they’re using a digital medium to do it. But the announcement left a lot of unanswered questions rolling around in my head and I guess I’m a bit too jaded to believe that the answers to those questions will end up falling on the writer’s side of the equation.

For starters, the press release states that authors will be paid a royalty for each story sold, rather than the flat fee that is the current norm in the short fiction arena. In other words, the writers will be providing content without being paid for it – the promise of potential payment is not fair exchange for the work involved in writing the story. Yes, long term the writer might make more from a royalty based approach, but at the same time there should be some payment for the time and effort spent in producing the story. If Orbit were to offer some kind of advance on that royalty, I would feel much better about their proposed approach.

And speaking of royalties, how much will it be? 75%? 50%? 25%? How will it compare to the royalty percentages offered by other digital retailers, such as Amazon.com? Will it be paid on a monthly, quarterly or semi-annual basis?

For that matter, what kind of support will the authors participating in the program receive from Orbit? Will the stories go through some editorial process? Will Orbit accept all stories offered by its writers or will there be some kind of selection process in place to assure the quality of the content being offered to consumers?

As you can see, a lot of questions still need to be answered. Since I’m not an Orbit author (though I’d like to be!) it doesn’t impact me directly today, but it has the potential to do so in the future as more publishers follow suit and create such programs. Getting the details right from the beginning will help prevent precedents from being set, precedents that are not mutually beneficial to both the author and the publisher.

So, kudos to Orbit for stepping out and trying something new, but there is still a long way to go in ironing out some of the details it seems. I’ll reserve my judgment (and hopeful praise) until more information comes to light.

Tim Holman’s response:

The program is likely to be royalty-only. This might not be attractive to some, but I believe it may well be beneficial to authors. Again, perhaps not all authors, but that’s what can happen in a marketplace. I like the principle of creating a direct relationship between the popularity of a story and the revenues received by author and publisher. I also like the idea of giving readers the opportunity to pay for short fiction if they are prepared to do so, and think that doing so adds an interesting dimension to the short fiction market.

Orbit will be handling editorial and marketing for the stories. We like to work with our authors on some aspects of marketing, but there will be no onus on any author to provide any service related to this publishing program.

DRM-free is unlikely.

Matters relating to royalty rates and accounting, and the grant of rights, have been outlined to our authors and their agents, but before we make any final decisions we are giving ourselves the opportunity to process feedback from them. If this publishing venture doesn’t make good sense to enough of our authors, it won’t make good publishing sense for us.

It wasn’t asked, but I can also say that we’re expecting individual stories to be priced at $1.99.

Tim Holman

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.)