Are EBook Royalties Too Low?

The standard ebook royalty, at least from the big publishers, is 25% of net receipts.  Is this the fair royalty level?

Publishers aside, everyone seems to agree that 25% of net isn’t fair. If the general intent of the established royalty rates is to split profits between author and publisher (an ancient but unsourced rule of thumb), then 25% of net doesn’t manage that, not without stepping up the royalty rate at higher levels of sales.

It’s certainly not true that publishing an ebook “costs nothing” as I frequently hear. Even at BenBella we have a person largely dedicated to working with epub developers and doing QA on various platforms. And we pay the epub developers and we pay Constellation to manage the vendor relationships. So there are significant fixed and marginal costs for us. And as ebooks eat into print, it does seem fair to include the other fixed costs that publishers pay to produce a quality book/ebook – editorial, design, copy-editing, proofing, indexing, cover design, etc.

But these are all fixed costs. A successful ebook that covers these fixed costs will soon be making a lot more money for the publisher than for the author. Is this fair? Publishers will argue that as hardcover sales drop, ebooks will need to contribute the same per book royalty in order to cover advances. But advances have been declining…and it does seem like publisher margins have been growing.

More to the point, perhaps, the growth of bestselling self-published ebooks is putting increasing pressure on publishers to raise their ebook royalties. Will it happen? At some point, probably. But most, if not all, of the big publishers have all agreed to “most favored nation clauses” in some of their contracts, which means that if they raise their ebook royalty for one author, they have to do it for all of the “most favored nation” contracts. So agreeing to raise the ebook royalty for one author could become very expensive, as it’s the most important authors who have the clout to get this provision in their contract. This creates an enormous disincentive for the big publishers to raise their rates – for anyone.

 

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