Do the Royalties of Traditional Publishing Make Cents?

Guest post from an industry professional:
A Percent Is Not Always What You Think It Is

by Thomas N. Ellsworth, president and cofounder of Premier Digital Publishing

“Inconceivable…. I do not think that word means what you think it means.”
– Inigo Montoya, The Princess Bride

Warning – this is sure to be a controversial posting.  I am not attempting to start a firestorm here, but a core tenant of what we believe in, and what Premier Digital Publishing is about (I am President) is transparency.  It is in that spirit that I offer the following thoughts to educate and illuminate interested readers (particularly authors and their agents) about an increasingly important issue.

I was chatting with a well-established, successful literary agent at the London Book Fair.  A sharp guy who has seen much come and go in the industry, he was nonetheless somewhat perplexed by the confusing calculations that hide among the reeds in the swamp that is eBook royalties.  We took some time and stepped through the marsh and he came away with an even better understanding of the many types of deals in the eBook space.  More importantly, he is better armed to serve his author clients.

This same scenario played out several times in London exactly as it has been playing out in offices and at conferences in NY, L.A., and many other places… Wider education and transparency is obviously needed here and that has led me to craft this post.

For the past couple of years most dedicated literary agents have been careful and thoughtful as they negotiate with traditional publishers and take meetings with a new crop of eBook publishing enablers.  Many such agents and authors have also connected with Premier Digital Publishing, “PDP” (again, in full disclosure, that would be me).   For those who may not have met PDP yet, we are on a mission to be the leading publisher and innovator in eBooks, digital puzzles & games and digital sports content.  We are not a narrow focus eBook converter or publisher – we do that and much more.

Anyway, whenever I meet an agent, the conversation quickly turns to the fog of numbers and percentages that are flying around the industry and the resultant challenge in figuring out the actual royalty an author receives.  I typically suggest a simple question, “Why don’t you just ask, ‘What is the net dollar figure the author receives on a $9.99 book, and how often do we get a royalty report and remittance?”  Before you know it, we are huddled over a paper with a calculator deconstructing percentages into cash royalties.

To understand how poorly a typical 75/25 eBook deal can pay out, one must start at the beginning.

A traditional publisher, if under a typical wholesale arrangement, garners something in the neighborhood of 45% (+/-) of the agreed-upon suggested retail price.  On a $9.99 eBook, this translates to around $4.50.  Then, a 25% deal for author yields $1.14 on a $9.99 retail price.  By most accounts, this is in the neighborhood of, or at least down the street from, typical print royalty terms.

Now, if the publisher is on a stronger 70% deal, the publisher likely garners approximately $7.00 on the $9.99 book.  The same 25% deal for the author yields $1.75 on the $9.99 retail price.  It’s better than $1.14 but certainly not cause for wild celebration.  There may be other types of deals crafted by traditional publishers (and the US Justice Dept. apparently unearthed a couple) but the point here is clear – a 75/25 deal doesn’t pay well.

Keep in mind that foregoing calculations assumes a $9.99 retail price point.  At $4.99 a retail price for an eBook, the above numbers are cut in half and the yield is from $0.57 – $0.88.  Meager!  As many have pointed out, $4.99 is where nominal prices sure seem to be headed for backlist and a % of frontlist titles –  yes, yes  the tier-1 front list titles have demonstrated market traction and staying power at $9.99.  I’ll leave the debate about pricing for another day – you get the point.

If the author has managed to wrangle a 65/35 deal from the traditional publisher, and apparently only a select few Tier 1 authors get those and even fewer get the rumored 50/50, the payments to authors certainly improve.  However, how many authors manage to secure those reputed deals?   Uh,… Stephen King, please put your hand down.

Like it or loathe it, that’s the math, folks.

Let me say that at Premier Digital Publishing, we have no axe to grind.  None.  Our perspective is simply different because we don’t come from traditional publishing.  My team and I come from several waves of new media and digital publishing.  We helped build and have been part of companies that have redefined publishing in their respective markets.  The largest mobile games publisher in the world…  the leading mobile media publishing company in the world… we know publishing and we love it.  If you used NFL Mobile or NASCAR Sprint Cup Mobile or watched Oprah or read some of the 1st ever books on your iPad or smartphone, that was us publishing them.  As a result, we see things quite differently.

We believe the time-tested adage that “content is king” and without good content there is no business (ask the movie studios and music labels).   The creators of content must be properly rewarded for the content they produce.  Inefficient business models, significant levels of overhead and an array of old-school costs in any legacy media category are, essentially, a massive tax ultimately paid by the content creator (in this case, the author).  The vital creators are not assuaged by, “Oh, you need to understand this is just how it is.”  Really?  Why is that?  Yes, yes, the people and systems that curate and distribute content are not trivial and THEY DO deserve their fair share of the pie for delivering the magic that brings content to life and puts in the hand of consumers.  But $1.14 or $1.75 or even $3.50 sure seems like a meager share for the creators – ahem, without whom the car doesn’t start and we all go nowhere.

So, here’s my advice:

When discussing percentages with potential eBook partners (or your existing publisher), the numbers can be confusing.  Authors, Agents and IP holders should ask this simple question; “What % of the retail price do I ultimately receive?  In our view, a “50/50″ or “75/25″ deal that yields the author or IP holder only $1.14 to $3.50 on a $9.99 retail price (on a good day) isn’t a good deal at all.  Then ask how often you get paid.   Publishers get paid monthly by eBook retailers.  If you are not being paid monthly… who is being permitted to sit on your money and why?  Take time to ask questions and frame the issue.

I have guest lectured for MBA students at UCLA, USC, BIOLA and Cal-State Northridge here in Los Angeles and I love to teach a simple truth: “When the amount of time spent properly characterizing a problem approaches zero, the amount of unproductive chatter and Scotch employed trying to solve the problem approaches infinity.”

So, my advice to authors, agents and IP holders is to properly characterize the problem.  Again, ask “What % of the retail price or net $ do I receive and how often do I get paid?”  If the economics are satisfactory, then and only then is it time to dive into deal duration (why lock-up for 10 or even 5 years?), ancillary rights (why give up non-eBook rights? And what future creative freedoms are you giving away and are those worth the price?) and marketing.  All those conversations are ultimately irrelevant if it’s a weak financial deal in the first place, right?

Premier Digital Publishing delivers approximately $5.25 on a $9.99 retail price retail price to authors, estates, IP holders, studios, publishers and small imprints.  The pie is shared roughly like this: $5.25 to the creator, $3.00 to the distributor and approximately $1.75 to the publisher.  Call us crazy but that sure seems fair to the author… without whom, there are no books in the first place.  This is about compensating the creators versus ‘locking them up’ and ignoring them or treating them with disdain.  That topic is also for another day.

Just sayin’.

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Thomas Ellsworth
President, Premier Digital Publishing, Inc.

This blog was posted 5-24-12 and is located at:

Any “advice” or information provided on this website is based on the author’s experience and knowledge, and is intended only as background and for purposes of general interest. It is NOT LEGAL ADVICE, and could be incorrect. If you have questions about this information, how it applies to your particular situation, or anything else of a legal nature, CONSULT AN ATTORNEY.