Established authors from mid-listers to the ranks of NY Times bestsellers are increasingly mulling over a tough question: do I re-up with a big-six legacy publisher for a multi-book deal (assuming one was offered) or sign a one-off with a big-six to publish an E-Original or do I take control and launch an E-Original on my own?  I’m so confused… and where’s my drink?

Why the ruminations?  Well,… even rising mid-list authors are seeing advances dropping and the number of titles per contract falling –while other terms remain flat or slide even further in the publisher’s favor.  Thus, basic market forces are causing some authors to consider E-Originals.  Those who have been paying attention have known this for a lonnnng time.

In a recent blog post my industry colleague and kindred spirit Richard Curtis pointed out the challenges facing the big six publishers in this area.  I agree with what he had to say.

Let me elaborate and do the math… suppose a mid-list author is offered a $10,000 advance for an e-Original by a big-six publisher.  After much wrangling, the author accepts the deal despite feeling like Ned Beatty squealing like a pig in the movie Deliverance.  Important note: you never ever want to be Ned Beatty.   Anyway, the author collected the advance, delivered the manuscript and waited a year for the first statement.  It arrived along with a check for $2.61 (rough estimate) which included the usual set of nefarious deductions.

Alternatively, suppose the author publishes an E-Original (full-length novel at 120,000 words) at let’s say, $7.99 retail, and earns approx. $4.00 net per eBook copy sold from a digital publisher.  At sales of only 2,500 books, the author will earn approx. $10,000 – which is the advance and the party has only just begun!  Assuming the author is at least midlist and regularly attends to their audience, these numbers are not difficult to attain.

We can talk all day about math, and it’s a good exercise, but to me there is a much greater question: control of the author’s content IP.  A digital publisher (full disclosure: I am CEO of PDP) can provide a better royalty (PDP gives 75% to the author and pays monthly), better term (PDP gives 3 to 5 years vs. a life of copyright) and allows the author to keep my ancillary rights such as Audio, TV and Film (be sure you keep those gems).  Content is where the value is – publishers are not purchased for their teams.  An author with a reasonable level of success that controls his or her IP for the long term will be in a much better position.

So, to me, the answer to the question “To E or Not To E” is not as much about E-Originals alone as it is about the authors deciding to take in control of their content library and demand better business terms along the way.

Don’t be Ned Beatty.

Happy Monday.  Recently I was thinking deeply about something.  My colleagues refer to such a preamble as a signal to start another pot of coffee and hide the white board markers.

I am now convinced that the eReader / tablet device war is heating up too fast and the orange that is about to be squeezed is content.  The market is headed toward “free” devices and it is not far off.  There you go.

Bear with me for a moment… Let’s look back at the history of mobile phones in the USA, something that I lived through and know in excruciating detail, free phones changed the game – and the consumer did not benefit in the long run.

Free Devices Drove Market Penetration.
This cannot be under-emphasized.  Suddenly there were 2^nd phones at home and college students could afford them. These happy entrants were not previously paying to be in communication with friends and family anytime & anywhere.  The inflection point can be seen in the stock prices and M&A activity from 1999 – 2004 which was the golden era of the wireless industry in the USA.

It’s Not Free – It’s a Lease.
The free phone came with a 2-year contract and minimum monthly cost (a hidden lease).  For those that used fewer minutes per month –OR– wanted a more economical monthly cost, they simply chose a basic phone vs. a high-end phone.  Great for the consumer… and great for wireless carriers who now enjoyed the fruits of recurring subscription revenue.  Subscription also leads to addiction – in some neighborhoods we call this “crack.”

Fallout – A Price War, Then Consolidation, Then Less Competition.
The free phone bonanza triggered a price war among carries and the victim in the mix was the price per minute.  Minute plans grew to well-over 1,000 minutes for $50 per month – and eventually unlimited plans arrived.  The carries eventually became less profitable and started consolidating (remember Cingular, VoiceStream and Airtouch?).  This week MetroPCS and T-Mobile announced a planned merger followed by Softbank buying a massive piece of troubled and debt-ridden Sprint.  The number of options available to the consumer is dropping.  And, if you have been paying attention, the unlimited monthly plans are going away.

There is no magic or devil here – this is how the market works and sorts out the intended and unintended consequences of competition.

Now, let’s look at the eBook space and play out a scenario.

There are a ton of new eReader and tablet devices in the market and getting them into the hands of consumers is key to driving sales of content (duh).  Causing this to happen faster will assumedly drive content sales faster (double duh).  Free tablets with an associated monthly fee for content, anyone?

What if I offered you a free Kindle Touch and it came with a $19.99 monthly content plan that was a slightly modified Kindle Prime deal with a cap of 5 books a month?  All the elements are in place today: devices, billing plans and content revenue sharing arrangements.

Now let’s say Barnes & Noble responds with a free Nook and $19.99 per month for 10 books?

There you go – as they say, “It’s On!” and the imputed average price per piece of content will quickly be squeezed.

When the financial war gets too bloody, as it certainly did in wireless, the giants will enter into a M&A phase to gain economies of scale and slow the erosion of profit margins.  There will be fewer players in the eBook space and me thinks the fallout will happen MUCH faster.

It all starts then the first free eReader hits the market along with a monthly plan to buy books.

There is a lot more to this story and that’s for another day.  Stay tuned.

The DBW eBook bestseller (this week’s list available here) list continues to underline a key point: content is king and people will pay the retail price for it.

Only a few books in the top 25 were available at  ‘bargain” prices of $1.99 or less.  Yeah, yeah, Scholastic’s Hunger Games and Random House’s 50 Shades of Mommy Porn take up more than a few spots.  But Penguin deserves credit for 3 individual books in the top 25 (2 at $12.99 and 1 at $7.99).  These legacy publishers are offering content that the consumer is willing to pay “full retail” ($9.99 or more) to read.

I’ll say it again, content is king and people will pay for quality books.  I need to qualify that statement about quality because 50 Shades of Grey is the singularly worst written bestseller series of all time (that little fact is something MANY people in the industry wish someone would say out loud).  Regardless whether the mob is following the fad or seeking a truly wonderful book, they are paying full retail for the top sellers.

PDP (my company) experienced this firsthand with the release of Greg Dinallo’s latest book – The German Suitcase.  It cracked the DBW list (here) during the two-week launch phase when heavy marketing and channel promotions were in play.  The bestseller list is a self fulfilling perpetual motion machine of sorts.  Once on the list, books continue to sell which tends to keep them on the list.  This, in turn, leads to PDP sending Greg a  five digit check along with the first royalty report (ahem, PDP pays monthly).

Beyond the bestseller list, however, there is the ever-present line in the sand; discovery.  Beyond this demarcation point, lies a treasure trove of great books at bargain prices (under $4.99).   The trick is to get the titles noticed and that’s exactly where a violent two-pronged debate is raging.  The first and sharpest prong is whether an author should perpetually encumber the rights to their next book unto a legacy publisher in the first place (the sub points in this debate include diminishing advances, accuracy of obtuse royalty reports, the rancid royalty rates themselves, returns, etc.).  This invariably leads to the second prong: marketing and promotion (the sub points being that authors are increasingly pissed that they give away perpetual rights and don’t get perpetual marketing – well, at least effective near-term initiatives AND at the same time are expected to carry the bulk of the marketing responsibility).

At PDP, we don’t think there is much of a debate.  Any fair minded person with a background in IP management will tell you that the legacy publishers continue to offer legacy deals that fall short of what many would call fair and reasonable compensation.  That’s a whole other topic that I have written about before (here).

The inevitable fracturing and roll-up of the legacy publishers will eventually reach full pitch (Thomas Nelson was only the beginning…).   Until then, the rules will change slowly but the authors DO have choices today.

I had a meeting and then a conference call recently with the head of a very successful production studio.  They have several series on the air and are enjoying high levels of success.  The topic was eBooks and how they can extend the on-screen brands to a line of eBooks that augments the experience.  They also held title to a fairly large backlist of previously published books that could be revived as eBooks.

The meetings went well but the executive did not see the value that partnering with a publisher could bring to his business.  The read we got was that production studios think about producing and being the producer.  They had the budget and space with which to embark on building an eBook business from the inside of the media organization.  Along the way, the executive had established some level of relationship with Amazon, presumably through the video side of the business.  He felt that they can go it alone and achieve results.

The point that was seemed to be missing was this: businesses should do what they are expert at doing and seek expert partners for everything else.  Establishing an eBook division using media teams is possible – but is is the highest best use of that talent and does it represent the fastest path to market and ensure the highest level of expertise?  That answer is an emphatic NO.  The studio will very likely achieve some level of results but they will have no way of knowing the relative status of their performance.  A publishing partner can provide that data.

Discussions continue on-n-off and I remain hopeful that we can work with this studio as they have some exciting content.

Not long ago I had a meeting with a different studio, a smaller one without nearly unlimited resources and the deal efficiencies seemed to enable them to see the benefits very clearly and we quickly reached verbal agreement on all key deal points.  In short order we had a very significant library in production with a great partner and are driving toward 2012 the holiday selling season.

There’s a lesson in there…

“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 1^st 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’