Posts Tagged ‘deep discounting’

The Amazon – Hachette Dispute: What’s at Stake for Authors?

May 23, 2014

bezos_bookstore-620x412The book industry has been abuzz with the latest news of Amazon bullying book publishers. According to an article in The New York Times on May 8, Amazon has been involved in tough negotiations with Hachette Book Group, the fifth largest publisher in the United States. In order to pressure them for better deals, Amazon has engaged in a number of practices to make it harder  for Hachette to sell books through Amazon. This includes “slow walking” Hachette titles — delaying reorders of out of stock books in order to  slow down delivery. Normally Amazon ships books within 24 hours. On some Hachette titles, Amazon is saying that delivery will take as long as 5 weeks. Examples include new and backlist titles and even some best sellers.

Today we learn Amazon has removed the pre-order function for many not yet published Hachette titles. Also typically Amazon discounts books 20-40%. Since the dispute began, there are many Hachette titles being sold at list price.

In the past Amazon has taken the “buy” button off titles — making them effectively unavailable  in order to pressure publishers for better terms. They seem to be doing the same thing but using subtler methods in this instance.

No doubt Amazon is trying to induce authors to pressure publishers into capitulating to Amazon demands. If an author’s book is not available on Amazon for 5 weeks, it could be quite distressing, particularly if it is a new title with sales being driven by publicity. But in this instance the industry –  including the authors –  seems to be outraged by Amazon and inclined to support Hachette hanging tough.

There is another possible threat to author royalties in all this. Every publishing contract has a so-called  “deep discounting” provision. Typically the contract stipulates that if a publisher sells a book to a retailer at very high discount, then the royalty to the author will be cut, in some cases as much as 50%. These kinds of transactions have traditionally been limited to wholesalers and non-returnable bulk sales to big box stores like Target, Wal-Mart, and Costco. But if Amazon is successful in extracting ruinous terms from publishers, we can expect more sales to fall under these deep discounting provisions and author royalties to be reduced accordingly.

Today the Authors Guild, the largest organization representing the interests of book authors, came out with a statement unequivocally attacking Amazon’s strong arming Hachette. They characterize Amazon’s tactics as “blackmail”.

Indeed.

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Authors Guild vs. John Wiley: Royalties on List or Royalties on Net. What’s at Stake?

June 14, 2010

Authors Guild vs. Wiley: Royalties on “List” vs. “Net”.

An interesting dispute has broken out between The Authors Guild  and John Wiley Publishers   over what is the best way to calculate royalties. The dispute may seem a little arcane but it is interesting in that the issues bring to light fundamental questions of how best to structure royalty rates that are in the best interest of the author.

The dispute with Wiley  involves authors who signed contracts with Bloomberg Publishers. Bloomberg closed its doors and sold the existing contracts to Wiley. Last week Wiley sent out letters to Bloomberg authors asking them to sign off on a new royalty structure that is in accord with Wiley’s existing policies. Wiley claims that the new royalties are more favorable to authors. Authors Guild claims that they aren’t and the dispute has gone back and forth.

The biggest issue and one that illuminates an important subject for author royalties is that many of the Bloomberg  contracts had royalties based on “list price”. Wiley is asking these authors to modify their contract and base the new royalties on “net”.

Let’s look at this. The distinction is fundamental. Most royalties by the large New York publishers offer rates based on the “suggested list price” of the book. That is the printed price that you see on your book at most book stores. As you know, there is a lot of discounting going on particularly on internet sites, although lots of physical stores discount best sellers as well. But this is irrelevant for calculating royalties.

Let’s say that your book has a suggested list price of $25. And let’s say you are getting a 15% royalty. The dollar amount you would receive on each book would be $25 x 15% or $3.75. This would be the case regardless of whether the book in question is being discounted by the retail bookseller or not.

Royalties based on “net” are calculated by giving the author a percentage of the net amount of revenue flowing to the publisher. A lot of small presses base their royalties on net and apparently Wiley does as well.  In an ideal situation,  “net” would be the amount the publisher charges the retailer or other customer.  Most books are sold at about 50% (more or less), but there are some important issues that we will discuss later.

This shouldn’t necessarily be a problem if, for instance, the percentage royalty based on net is double the royalty based on list. In the above example, if the author received a 30% royalty on net, it would be very close to the same as the royalty based on list.

But it gets even more complicated when you consider that all publishing contracts have a so-called “deep discounting” clause. These provisions usually reduce the author’s royalty when discounts are given in excess of a specified amount. In theory this isn’t unfair if the reductions only apply to very high discounts and if the amount of the reduction is proportionate to the deep discount. These provisions can also be minimized if the author or agent can limit the application of the reduction in author royalties to books “outside normal trade channels.”

In a lot of contracts, the deep discount provision is triggered on any discount granted at 50% or more. If the contract says that for every percent of discount in excess of  50%, author’s royalty will be reduced by ½%, this is pretty fair. But more frequently the terms are that if the discount is 50% or over, the author’s royalty will be based on net instead of list. This effectively cuts the author’s royalty by half. In this situation, you could have the publisher offer a 51% discount (a price that reduces publisher’s income  by 25 cents), but would reduce the author royalty by  $1.75). Thus, the publisher makes windfall profits on the book even with a deeper  discount, and this windfall is entirely supported by reduced author royalties.

It gets even worse when the trigger discount is reduced to something like 48% (which is the case with one of the major publishers). In this situation, all sales to Barnes and Noble and Borders warehouses, all sales to Amazon.com and BN.com, all non-returnable sales, all sales to jobbers,  and all sales to mass merchants (Wal-Mart, Target, Costco) will have royalties reduced by half. This could include the vast majority of sales on the title.

It’s a bad deal for the author. And that is the reason that The Authors Guild is upset.