Monday, November 10, 2008

Of Google, Random House and eBook Royalties in the Digital Age

OK, I have to admit it, last week was an amazing week (and not just because of Barak Obama).  I'm talking the book world here, not politics. 

google logo First Google announced that it had finally settled it's lawsuit with the Authors Guild, AAP (American Association of Publishers) et al.  The simple version is that Google won the right to put a lot of copyrighted material online without first seeking rights from each individual owner. In other words, ordinary people will have an unprecedented ability to search (for free) and access (for a fee) books that formerly lived only in university libraries

Under the agreement, unless authors specifically opt out, books that are out-of-print but still copyrighted will be available for "preview" (a few pages) for free.  And to obtain full access there is a a fee. For access to in-print books, "rightsholders"  must opt in, but the basic structure remain:  preview free and access for a fee.

Where it really gets interesting is when you look at the fee structure.  It is fairly long and involved, but basically, Google pays approximately 60% royalties on any money received.  Even better, authors can be paid directly.

Right on the heels of this news, Random House, not to be outdone, also introduced a new royalty structure.  They, too, are going to pay e-book royalties based on the actual net moneys received by the publisher.  Not on as a percentage of list prices as they have always done.  AND they are going to pay the author a whopping 25% royalty from these monies.

Here, quoted directly, is the Random House logic:

  1. The new rates are very much in line with the e-book and digital audio rates being offered today by our major competitors.
  2. The way the market is developing, the publisher's list price will soon no longer be a relevant basis for calculating royalties in the digital environment.
  3. The electronic formats are not as inexpensive to produce and publish as many believe [...] 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.
  4. The new ebook rate continues to compare favorably to the rates we pay for other formats in which books are made available.

Well, they are right about one thing -- the market is changing. 

The problem for Random House is that they (and their major competitors) don't really understand what the change is or how it is going to affect them. 

Somehow, the fact that Google has defacto set the standard for royalties in the digital age went right over their head! 

Even worse, is the fact that as Google is opening the market and actually compensating authors they are fighting to maintain the their perceived status and the status quo. 

Wanna take a bet on which approach will win?

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