Dec 31 2006
In this month’s RWR (publication by RWA for RWA members), there was a feature about Harlequin ebook royalty rates. Apparently, RWA on behalf of the authors have been asking Harlequin to increase their royalty rates. Last fall, the Smart Bitches asked about e-book royalty rates quoting an anonymous source pointing to the ebook royalties being 6% which is the same as print royalties. This was confirmed more or less by Karen Templeton in her blog post in November. I did ask an anonymous source for confirmation and this is what is reported:
For the purpose of electronic editions, Cover Price is the suggested regular e-book price in each of the specific markets set out in subparagraphs xxx through xxx below:
(x) On copies of English language electronic editions of Publisher or its Related Licensees sold in North America:
. on the first 100,000 copies of each such edition, six percent (6%) of the Cover Price;
. on the next 100,000 copies of each such edition, seven percent (7%) of the Cover Price;
. on the next 100,000 copies of each such edition, eight percent (8%) of the Cover Price;
. on the next 100,000 copies of each such edition, nine percent (9%) of the Cover Price;
. on all such copies of each such edition thereafter, ten percent (10%) of the Cover Price;
(x) On copies of English language electronic editions of Publisher or its Related Licensees: four percent (4%) of the Cover Price in any country outside of North America.
(x) On copies sold of non-English language electronic editions of Publisher or its Related Licensees: two percent (2%) of Cover Price in any country.
Harlequin’s reasoning for its low ebook royalty rate is due to its current unprofitable state. A significant investment has been made to market the ebooks and the ebook program. This has to be the majority of the reason why Harlequin’s ebook division is not currently making money. After all, all the expense of editing, cover, and advances were paid out for the paper copy. There is little cost in transforming that electronic file into an ebook and maintaining it. Assuming the overhead costs of an ebook are $200, then Harlequin needs only sell 60 ebooks to break even. 60. Every book sold after that is found money.
The problem with this model is not just that it is inequitable but that it requires the author to be a capital investor in a venture from which she will not see any benefit. Essentially, Harlequin is asking authors to take a lower rate now so that it can recoup its technology investment. While it says that “Once eBooks becomes a profitable business Harlequin will re-evaluate the eBook royalty rates we are offering vis-a-vis that of competitive publishers” what motivation with Harlequin have to revise and pay a higher rate? It’s not in the contract. The contract has a flat rate and there is no provision for re-negotiation based upon the profitability of the ebook venture.
This financial plan shifts the risk from Harlequin by having the authors pay now but reaping no benefits in the future. If Harlequin decided to invest in inhouse printing and that investment cost millions of dollars, setting back the profitability of its company for two years, would it be able to reduce the paperback royalty rates of authors until such time as it became profitable again? I can see this being an acceptable situation if Harlequin would include a term in the contract which reflected increasing ebook royalty rates based upon net profits/gross earnings or some type of increase commensurate with earnings.
At the low royalty rate, Harlequin builds its eBook business. Once it does become profitable, who benefits? Only Harlequin. The author continues to earn 6% on each sale. What impetus will Harlequin have to change the existing contracts and offer a higher ebook royalty rate? How is it fair that authors who come in two or three years from now when Harlequin’s ebook venture is profitable will benefit from the program built upon the backs of authors that come before? Essentially the current authors are subsidizing the ebook venture, regardless of whether of their desires.
So what is an author to do? They have no bargaining power. If they want to write a category length novel there is only one publisher for that. Or is there? Let’s take a look at the numbers. According to Brenda Hiatt’s website, the average earn out of a Harlequin Temptation is $13,700.00. The earn out, as I understand it, represents the total royalties earned on a particular book, including the advance which is just a prepayment on royalties.
In order to make $13,700.00 on a book that retails for $5.99 (authors earn their royalty off the retail price, not any discounted price), the author must sell 38,119 copies at a 6% royalty rate:
- 5.99*.06 = .36 cents royalty earned per book. 13,700/.36 = 38,119 copies of books.
Take same author and give her book to Ellora’s Cave. At a 5.99 per book, the same author with the same book need only sell 6,099 copies to earn the same amount of money and this does not include any paper sales she may make if EC chooses to sell the book in print format.
- 5.99*.375 = 2.25 royalty earned per book. 13,700/2.25 = 6099 copies of books.
The time may not be ripe for such a shift. Karen Templeton’s ebook royalty statement indicated about 46 units sold. In the coming years, as ebook sales grow exponentially, will Harlequin become irrelevant? It is estimated that Sony sold at least 10,000 readers in August/September. Why not pay an independent editor to edit your book, invest $2000 in marketing for yourself and sell the book yourself or through the Sony Connect Store for $200. Or even to Samhain or Ellora’s Cave. Will Harlequin still be a player in a few years with its inequitable contracts or is its investment in ebook technology built on the sales of current authors be its saving grace? And if so, what will Harlequin do to repay them?
Anonymous commenters are welcome.