reduced royalties

Q. Should the typical provisions about reduced royalties on copies sold at high discounts apply to e-books?

Answer: No. Unlike print-on-paper books, where each copy sold at a deep discount represents significant expenses incurred by the publisher which pertain specifically to the copy sold (paper, printing and binding costs and, sometimes, shipping and warehouse charges), the cost of creating and transmitting additional copies of e-books sold at a deep discount is negligible or non-existent.

One way to handle this easily in your contract is to simply add the following at the end of the section dealing with reduced royalties if the point was not covered in the section:

“None of the reduced royalty provisions in this section will apply to any e-book or other electronic editions of the Work.”

(Originally published in the Winter 2007 issue of the Authors Guild Bulletin. © Mark L. Levine)

Answers to questions on this site are general in nature only. You should consult a lawyer for information about a particular situation. For more information about book publishing contracts and issues, see Levine’s new book.

Q. Is there a commonly accepted definition of what kinds of publisher’s book sales are “high discount” and result in a lower royalty rate than the basic royalty rate I negotiate in my contract for sales at the publisher’s standard discount?

A. No one definition is accepted by everyone in publishing. Indeed, rather than using “high discount,” “deep discount” or a similar term in the publishing contract, the situation is generally handled in one of two ways. The preferable way for authors, which many publishers accept, is to add a sentence saying that the reduced royalty rate “does not apply to sales outside ordinary wholesale and retail book trade channels.” This does leave some ambiguity of what “ordinary” channels (or “traditional” channels, a term sometimes used instead) are, an ambiguity that many people tend to overlook. If using this formulation, discuss with the publisher beforehand which of its customers or distribution channels fall outside the phrase’s ambit. This way, you will at least have a general understanding of whether sales to a K-Mart or Sam’s Club, for example, will result in regular or reduced royalties if that clause is included and you can negotiate your contract intelligently.

More typically, a contract will specify the exact discount from the book’s suggested retail price that triggers the lower royalty rate(s). These should generally be 51% or 52% for hardcovers and trade paperbacks and 55% or 60% for mass market paperbacks. Many publishers will accept these, although their preference for the hardcover discount will more likely be 50%. If agreeing to 50%, be particularly careful of the difference between a discount “of 50% or more” and a discount “more than 50%” when negotiating your contract. To the extent your publisher sells its hardcovers at exactly a 50% discount, you will receive less money if your contract says the reduced royalty applies to sales at a “discount of 50% or more” instead of at a “discount of more than 50%.”

Bookcontracts.com

Should My Royalties Be Reduced When E-Books are Sold at Large Discounts?

How Is “High Discount” Defined?