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.

Boondoggle in Google Rights Win? (Warning, Rant)

Google has finally settled a two-year-old law suit filed by the Authors Guild and five publishers. The topic? Infringed rights, of course, coming out of the company's scanning millions of library books and making them available for search. The plaintiff argument was that this was a new use of entire copyrighted works without permission.

Google is paying $125 million (making the settlement over unregistered magazine works seem like petty cash). Someone or other is supposed to establish a books rights registry, allowing people to view books in whole or in part and then enabling payment, whether from Google or the readers is unclear to me at the moment, to the rights holders. However, I'm a bit suspicious because $30 million of this settlement is going to setting up this registry.

I thought that there were at least two existing registries, one set up by the NWU and another by some combination of the Authors Guild, ASJA, and possibly others. And even if there weren't, $30 million to set this up? You could fairly comfortably fund a start-up high tech company for that period of time and get it running. This is very serious money. What the hell is it being spent on? This isn't someone else's money, folks. It's probably partly your money, if you write books. What transparency will there be in this new registry? Where is all the money going? Is Google doing all the tech work? (In which case, the $30 million becomes normal cost of doing business and hardly a win for anyone other than Google.)

By the way, this was also clearly a strategic win ... for Google. Going forward, people will buy books they want online and libraries will pay for access. Who gets 37 percent of the revenue? Google. Plus, there's advertising revenue and Google gets the same percentage of that. So for $125 million, it's probably nailed down many, many times more future revenue. This will turn out to be a pretty cheap business acquisition for them. That means the publishers and the AG have, through this negotiation, validated in a practical sense the business model of taking intellectual property of writers, making money off it, and then, if enough writers and publishers scream loudly enough, giving in just enough to keep what you established. Why should a company go this route? Because the publishers and writers are so determined to keep anyone from prying rights out of their hands that they aren't actively considering and pushing for new business models. In that view, this "victory" is completely Pyrrhic.

Record Label Infringes Own Copyright

This isn't exactly a writing issue, but it is copyright and strange enough that it should provide some dark humor. An Internet-based record label that uses Creative Commons licensing, to give people free use of the music, had its web site taken down by the company that hosted it. Why? Because it was infringing the copyright of the music. Who owned the music? The record label. Then the site demanded paper copies of the copyright registrations, even though the owners hadn't registered copyright because, after all, they were looking to give it all away. Thank heaven's for corporate America's keen understanding of intellectual property issues.

Getting "Real" Success Online

There's a profile of Michael Wolff on the LA Times entertainment blog I'd strongly recommend reading. You can get some good insights into making things work on the web. Wolff has been in the media business, has tried to be a media mover-and-shaker entrepreneur (is doing so again with Newser.com), and has learned some things along the way. One is that people want news more than ever, and yet journalists often are too self-involved to give that to people. That doesn't mean you can't add something beyond a vanilla recitation of facts.

For example, I've been writing my BNET blogging for a few months now. Site management asked people to consider doing news round-ups after some focus group or other. I started adding one on weekdays, only different from how many others do them. Instead of one or two sentences and then a link, I actually do a summary, having some fun in the writing. I might even use a couple of different sources to get some perspective in this short form. As a result, there have already been some days when one of these roundups has been one of the more popular items on the site for that period. The reason I do a full summary is that I've done enough work on the web, and monitored my own sites enough, to realize that very few people will actually click on a link. The links help with search engine optimization and generally raising awareness of the site, which is a marketing function, but only a small portion of people, on the order of ten percent, will look farther. I realize I'm working from a limited sample, but I suspect that the data is not entirely unusual.

Another thing to remember is that there's a difference between notoriety and a real business:

“‘Buzz’ doesn’t get you the kind of traffic that you want,” Wolff said. He’s comfortable, he said, with Newser’s incremental growth of traffic over the last year. “The businesses that make money are the ones you don’t hear all that much about. It costs too much money to get buzz.”

As he points out, a reader on the Web often doesn’t even notice the original source of what she’s reading.

Add that to the many challenges of a start-up Web operation: Establishing a name is fine, but without traffic to back it up, the money disappears.

His experience would tend to support my contention that people won't go farther than what is in front of them. In fact, the site's slogan is "Know More. Search Less."

It also suggests why round-ups can be so popular. I know I read them at various sites to quickly get a grasp on what is going on without necessarily having to wade in too deeply. People want some efficiency and yet they prefer it with some entertainment added. If you can start to generate that, then you stand a chance of building an audience that might indulge your interest in longer pieces, or in books and other media. But you have to first give them what they want, and that is going to mean hours a week in research and writing. That shouldn't be a surprise because whether a full-blown site like Newser.com or your own blog, we're talking about building a business. And if you don't have the funds to invest, you're back to sweat equity.

One More Point on an Ad Slowdown

BusinessWeek had an excellent point the other day: ad sales slow down in advance of magazine publication. Sometimes the ads sell well before issues close, particularly with larger (read as more important) advertisers that buy on frequency-based contracts. Getting assignments today only means that there are enough ads to cover the issue coming out in a month or two. Where the real issue is likely to arise is mid-November to December, when publications are now considering February or later. That's when a big slowdown in ad spending is more likely to begin, and that would trigger making magazines smaller and, therefore, reducing the number of editorial pages.

How the dollars flow—or rather don't flow—in any downturn can shape events in ways obscured until much later. As strange as it sounds today, the tech bust that started in 2000 meant that total dollars spent on online display advertising declined 21% between 2001 and 2002. And as strange as it sounds today, many established media organizations used that decline as a rationale for deemphasizing the Web in favor of their traditional businesses—and underinvestment allowed all manner of Web-only startups to outflank them in the one medium that's still growing. While online display ads will still be up in '09, says BMO Capital Markets analyst Leland Westerfield, that growth rate will likely slow. Look for search advertising to hold up, so Google should be hurt the least.

In other words, the reaction to a business slowdown sometimes takes some time to manifest. Don't expect the web to escape, though given the more favorable economics (no paying for paper or print) it could be that publishers will emphasize online even more than they are now. One analyst is predicting a 5.5 percent pullback in ad spending, which is worse than it sounds because markets expect business to increase, so the perceived drop from expectations could run closer to 10 percent, causing executives to worry (stock performance being seen as a reflection of their efforts) and cut expenses even more.

There's nothing you can do about ad slowdowns themselves. Just look for alternative work or sectors that aren't likely to be hit as hard. The main thing is to start pushing now to find alternatives. If you know that things might slow down more significantly in a couple of months, that gives you some time to react.

Five Strategies for the Credit Crisis

Roiling financial markets have sent many leaving the equity markets and seeking solace with their remaining piles of folding money. But for writers the crisis can provide a financial boost, even with advertising down, if you know anything about finance or can help someone who does.

• Consider a book. Book chains and publishers are looking to make money from consumer fears with financial titles. So now might be a good time to go to a publisher with a title that helps people either make sense of what is happening or find ways to lessen the impact.


• Talk to your editors now. They will also be reacting to everything happening and will likely be open to stories about cutting costs, reacting smartly with personal investments, and even getting into stronger position for the eventual recovery.


• Companies are likely to expand custom publishing even as they trim back advertising. They can't completely stop marketing, so they'll want what seems to provide a greater assurance of success.


• Those specializing in financial advice will probably need to repair customer relations and otherwise find a way to dig themselves out of a hole. So offer them some help in doing so.


• Take the load off clients. When everyone wants to cut costs, help them by providing additional services. For example, you might take on large aspects of a project, managing it for the company at an additional cost that is still lower than it would be to bring someone in-house or even hire a temp. That frees them up to shore up the business and increases your income. A warning on this strategy: do not give the services away, or you devalue them and now create the expectation that you should be doing it for free going forward.

The Problem with Social Media Campaigns

I'm about to talk about corporate marketing because there's a chance that some readers will seek financial solace in the arms of big business. One of the trends in marketing has been social media, putting together campaigns that are supposed to work on such sites as Facebook or MySpace. The concept actually isn't new and we've seen all sorts of "viral" campaigns bravely rolled out by corporations hoping to surf on the zeitgeist.

Unfortunately, if you've had the sense that many of these efforts will go nowhere, some research bears out your pessimism. A Gartner researcher said that three-quarters of the Fortune 1000 are trying to use social media, and that half of these efforts will fail:

"(Businesses) will rush to the community and try to connect, but essentially they won't have a mutual purpose, and they'll fail," Sarner said. By a "mutual purpose," he means a way to serve both the company putting out the campaign and the audience interacting with it: finding that balance is not easy. The quirkiest and most addictive campaigns often provide little value for the company and turn out to be fads, whereas marketing efforts on the Web often don't go over as well with the public.

In other words, people don't go to social media for the sake of companies. They go for their own interests. If the campaign you write doesn't take that into account, then it won't work. The campaign also must have an intelligent goal. Trying to "get people talking" isn't enough, because without action there will be no business benefit.

So you have to match the venue of the campaign, and its content, with the types of people you will find at that venue and their interests. It's really basic marketing, but easy to overlook in the rush to do trendy work. So act as a consultant, not just as a writer, and help your clients see the basic problems and be sure they are framing a campaign in a way that's likely to work. Because if it doesn't, guess who is likely to be seeing a good portion of the blame?

Beware Ideal Deals

I've been around a fair amount, so when I had a client talking about a retainer agreement early last month, I took it with a grain of salt. Now the client is late on a large payment for work I had already done. While I expect to get my money one way or another, it was a reminder not to buy into someone else's hype. There are many companies and people who will talk of their plans and what they want to accomplish. Far fewer actually make good on their words.

When people start setting the picture of how well you're going to do by them, it's almost a guaranteed red flag that you won't. Instead, that plan will get put off, then modified. When it goes to the farthest extreme, you're asked to do some free work for now to show your commitment, or to hang on while the funding comes in. At that point you should head out the door instead.

The best way to avoid such a lure is to remember the following points:

• Good clients want to check you out as much as you want to check them out. Anyone who is ready for a commitment at day one is someone who takes such an arrangement lightly and who is then likely to find it easy to break the commitment, whether now or later.


• A client or prospect can't push you any farther than you allow. Keep your business plan and strategy in mind. If you're adverse to letting a client become more than 20 percent of your income, then reject out of hand suggestions that you devote far more time to the client who walks in a dream.


• When you hear big plans, suggest phasing things in with a trial project and then maybe a second, larger one (should things get to that point). You'll get a chance to see what the client is like to work with and whether pay comes in a reasonable amount of time. Better burnt on something small than something large.

In a Credit Crunch, Double-Check Your Clients

You know things are tight when you start seeing companies in your industry halting their debt payments. Companies can go from reliable to hiding in a matter of days because they suddenly find that they cannot get the amounts of credit they need to keep their business operating as it should. That means now is the time that some regular clients may suddenly become completely irregular. Once they're in a bind, there is little you can do, so the best way to avoid cash constipation is to look for some warning sings now:

• If a client is publicly-held, check its financial news. I did this with a client the other day (never pays to forget your own advice) and found that it had recently issued a press release about securing financing. A good thing, because then I looked at its financials and noticed that cash on hand was down to a few hundred thousand dollars at the end of the quarter. Yuck. I've just finished an assignment, but will probably "not get around" to sending another query until I see things improve.


• This is a time when you should pay close attention to any change in payments. Do not rationalize them away by saying that it's an unusual circumstance. So is the credit crunch. Tha'ts not to say a company would have an inadvertant mix-up, but don't make the assumption.


• Don't wait for problems to happen; make your exit plans now. In other words, if there are some clients that look questionable, immediately market to find potential replacement clients. That doesn't mean that you need to dump an existing client, but you want to be able to balance your work load and shift into a different set of clients if necessary. You also get the benefit of broadening your client base, being in greater demand, and maybe even making more money.