November 20 – November 27, 2008 Edition

Publishers Prepare
To Adjust Royalties
To Google Market
(Part 3 in a Series)

NEW YORK,NY (Authorlink News, November 17, 2008)—Random House may take the lead in adapting traditional royalty structures to the new digital marketplace. No doubt, the move was spurred by last month’s $125 million settlement by Google with the Association of American Publishers and the Authors Guild.

According to some sources, the world’s largest English-language trade book publisher, may change its e-book or digital royalty rate from the current 25% of list price until earn out, and 15% of list thereafter. Random House lawyers have begun sending letters to agents proposing the new rate structure and suggesting that authors amend their existing contracts to reflect the new model.

In one of a series of articles last week about the settlement, Authorlink explained that the Google settlement, which still must be approved by the U.S. District Court for the Southern District of New York, sets up a new nonprofit bureau, the Book Rights Registry through which every author or publisher must either opt in or out, depending on whether the book is out-of-print (they’re automatically included in Google unless the rightsholder opts out), or in-print titles–these titles are opted out unless the author contacts the Registry to include them.

 The Google settlement calls for a 70/30 gross split between the Rightsholder and Google. But 70% is far from what the author will actually will put in his/her pocket.  

Google takes 10% off the top before the split occurs, making the effective share 63% for rightsholders and 37% for Google.  

The soon-to-be-established Book Rights Registry, though initially funded by the Google settlement to become a sort of super rights clearing agency for Google, is authorized to deduct an administrative fee of 10-20% from the Rightholders’ 63% share. This means the publisher or author could get closer to 50% of the net revenue.

To draw a clearer picture of what an author may earn, Authorlink calculated an example, based on an in-print book, under a traditional royalty structure. Let’s assume that the median price of viewing or printing an online book is about $4.99. Google would get $1.84 (37%).The Rightsholder would get $3.43 (63%), less a potential 20% Registry administrative fee (68 cents). The bottom line earning would be $2.74 for the book. Let’s assume that the Rightsholder is a publisher, who pays the author a typical 10% author royalty on the cover price of an e-book. In that case, the publisher keeps $2.46 and the author earns 27 cents.

Applying the existing Random House digital royalty rate to the above scenario, the author would have earned $1.24 for his/her e-book—that is, 25% of the $4.99 cover price. Under the proposed new royalty structure, the same author would earn 68 cents—considerably less than what he or she would have earned at the old rate.  And that’s before another 15% is deducted for agency commissions, bringing the true author earning to about 58 cents.   

While Google puts the world at our fingertips with the left hand (and much of it for so-called free), it is also cashing in with the other hand to the tune of $1.84 per digital book ($4.99 x 37%).

Because Google can obtain out-of-print titles from anywhere it likes, it can potentially acquire a used book from a third-party bookseller at no cost, split the profits between the bookseller and Google, and—because the book is out-of-print—without any obligation to compensate the publisher or the author, until and if the author discovers its use, contacts the Registry, and opts out of the program. Google can charge what it likes, say, $4.99, pay the third-party bookseller $2 to let them have the book to scan, and still make a killing.

Authorlink believes publishers and agents should carefully examine who is earning what from Google’s new business model.

Even if an author has his/her book information removed from Google’s database, Google can still index up to 20% of the work under “fair use” laws and offer it  free on Google.  

As one publisher pointed out, “handing these rights to one company gives them an unfair advantage. Rightsholders would have less competition for rights and thus lower compensation for the sale of rights. Rights holders also have the burden of becoming informed about the settlement in order to exercise their options.”

She added that for rights seekers, including publishers who bring out-of-print works back into the marketplace, “Google’s advantage makes it harder to compete for rights. Then there is the question of whether copyright is a fundamental right that no class action can assign without explicit consent of the rights holder.”

Authorlink welcomes comments on the subject, concerns, and objections on this topic.