Random House Changes e-Royalty Rates

Both Publishers Lunch and Richard Curtis’ blog, E-Reads, has put the word out that Random House is changing its e-book royalty policy.

At first glance, you might think this new policy is good news for authors. According to Richard Curtis, “Commencing December 1, 2008, the new royalty rate for sales of ebooks will be 25% of the amount received for all sales.” This is compared by Curtis to current (pre-change) royalty structure of “25 percent of the retail price until the advance was earned out, and 15 percent thereafter.”

Okay. Twenty-five percent on sales, even after the advance is earned -- that’s better, right?

Note the wording. Pre-change, it was 25 percent of the retail price. After December 1, it’s 25 percent of the amount received for all sales.

Curtis makes this comparison:

Under the current (pre-change) royalty structure, on a book retailing for, say, $10.00, the e-book royalty would be $2.50 per download at 25%, then $1.50 per download when the royalty rate shifts to 15%.

By contrast, the new royalty of 25% of the net receipts comes to something like $1.25 per sale on a $10.00 book (25% of 50%). So, Random House's change is definitely a reduction of e-book income for authors.

Random House said:

We have made substantial investments, and we will continue to invest, in related digital infrastructure, such as the creation and maintenance of a digital archive, and in the development of the market for electronic formats.

Publishers Lunch countered with:

These two points are not related; to convert a print file for an individual book for sale as an ebook is quite inexpensive; laying off the cost of a broader digital infrastructure here makes no more sense than adjusting royalties to account for a new physical warehouse or office space or, say, a postal-rate pass-through.

According to Publishers Lunch, Agent Simon Lipskar at Writers House responded to Random House’s change in policy by saying:

We are pushing back aggressively against these kinds of arguments. Also, while I can understand a desire to move to a net royalty, I fail to understand why the net royalty is arbitrarily almost 20% lower than retail royalty. Fifteen percent of list does not equal 25 percent of net. They've dropped the actual royalty rate by a meaningful percentage. If they did the same thing on print books there would be outrage.

Apparently Random House isn’t just changing their policy from now forward. Not only are they adjusting their offer going forward, but the publisher will also ask authors "to amend existing contracts to adjust the prevailing digital audio royalty" to the new standard.

Definitely a move we’ll want to keep track of here on Straight From Hel.

Any of you affected by this? What do you think of Random House’s new policy on e-books?