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.)