A right royal mess

Andy Richardson • 03 July 2012

Much has been made of piracy, pricing, merchandising and the never-ending power struggle between publishers and the likes of Amazon and Apple. But at the heart of the great ebook debate is the subject of royalties. With print and production costs for ebooks so much lower than those associated with printed books, the publisher-author relationship has become increasingly strained as the former battles to maximise ebook margins and justify its role, while the latter vies for a better cut of the profits.

The likes of the Authors Guild have waded in to the dispute, claiming that the introduction of ebooks means that for the first time publishers now have "strong incentives to work against authors' interests" (www.authorsguild.org/advocacy/articles/the-e-book-royalty-mess-an-interim.html). Publishing consultant Mike Shatzkin furthered this notion, stating: "Sales are down, margins are up. And that will last as long as publishing companies can continue to pay authors the royalties they’re paying them (for ebooks) and sell the books at the terms they’re selling them on" (www.digitalbookworld.com/2012/how-long-will-publishers-be-able-to-ride-the-ebook-profit-wave/). He then continued to campaign for a move from the current average 25% ebook royalty payment to a 50% payment.

The debate rages on. However, quite surprisingly, one of the key lessons we learned at this year's London Book Fair was that many publishers do not even have the most basic infrastructure in place to calculate, manage, measure and accurately pay royalties for ebook sales. This is a major problem. In the shift from print to digital, one of the trickiest hurdles publishers have had to overcome is the move from one simple and traditional sales channel, via a warehouse or distributor, to hundreds, or potentially thousands, of sales channels, consisting of online retailers and book stores, ebook aggregators and even telecom providers.

The speed with which new sales channels have been thrown into the mix, coupled with the sheer volume of data coming in from these multiple sources, has caught many publishers off-guard, many of whom do not have the systems to cope. Publishers have done well to ensure that they are up-to-speed on ebook production, have all the right workflows in place, and have also established proficient sales and marketing processes across these lucrative new channels. But it seems that many publishers have so far failed to implement tools and systems that can help them deal with the inevitable flood of sales data, which would in turn help them to distribute revenues to their partners.

Many of the publishing royalty systems on the market can theoretically deal with ebook royalty payments. However, the rapid growth in ebook sales channels has seen publishers increasingly struggling to collate sales data to send on to the royalty system in a timely and reliable fashion. If most publishers are unable accurately to measure sales data from their products, particularly through ebooks, how can they be expected to apportion royalty payments accurately? Bizarrely, the truth is that they can't, and quite often royalty payment figures are plucked out of the sky.

Through our conversations at the Fair, it became apparent that many publishers were almost fearful of the next royalty run, and they were somewhat confused as to how to navigate this problem - both dealing with the now unmanageable quantity of data at their fingertips and working out subsequently how effectively to pay royalties. One publisher stated: "If you can solve the complexities around aggregating ebook sales for us, that would be great, but if you can solve the resulting royalty issues, we'd sign up today." Another commented that, "Ebook royalties is the big talking point right now."

Far beyond the ugly tug-of-war that is taking place on ebook royalty rates, this issue is one that has the potential to boil over. In addition to negotiating the percentage that is paid to authors through digital sales, publishers are increasingly looking to find solutions to help them correctly allocate the exact amount to authors. And with only six months left until the end of the next royalty accounting period, the need for an effective remedy has never been greater or more urgent. Taking into consideration the growing trend among authors to "go it alone", especially when it comes to digital publishing, publishers have never felt more pressure to impress new and existing talent.

In the not so distant future, ebook royalty payment efficiencies could become something of a game-changer for publishers, and could be the difference between winning and losing the most profitable contracts. With successful authors like Barry Eisler and Jessica Park opting to go down the self-publishing route in recent years, and Amazon able to provide slick sales data and precise royalty payments to authors, can publishers really afford to fracture author relationships by not getting royalty payments right?  

Andy Richardson is CEO at Influential Software

www.influentialsoftware.com/