Random House Changes E-book Royalty Scheme for Worse

Any time a publisher talks about shifting from royalties based on cover price to royalties based on money they actually see, look out. You are about to lose income. That's what is happened over at Random House regarding e-books. Starting December 1, the royalty rate will be 25 percent of the amount Random receives.

A recent Random House contract states that on all copies of a work sold as an electronic book, the royalty will be 25% of the US suggested retail price until the book's advance has earned out, and 15% of the list price thereafter. 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.

Well, there's a surprise - a publisher trying to take even more of the money pool. Here's the other shoe that the article doesn't mention: that leaves the publisher open to striking better deals with the retailers because they have more room to give in some as a bargaining chip for, say, better placement on a web page (called marketing dollars) while still maintaining the previously realized margin. It's the writer who does the subsidizing.

Figure that if you deal with Random House this will affect you, according to the letter that has been floating about:

With the widespread use by consumers of electronic devices such as the iPod, the Amazon Kindle, and the Sony Reader, a significant market for ebooks and digitally delivered audio content is finally ready to emerge. In response, Random House is making major investments in our digital infrastructure and is creating digital files of active titles so that they are available for sales as ebooks, as downloadable audio, and for Internet search and discovery."

Might as well have all the authors chip in for Random's profit goals.