In October 2008 Random House circulated a letter among literary agents announcing a shift in e-book royalties from one based on list price to one based on actual net moneys received. Five months later, Simon & Schuster has followed Random’s example. “Beginning March 1, 2009,” writes Judith Curr, Executive Vice President and Publishers of S&S’s Atria Books division, in a Dear Agent letter, “all Simon & Schuster contracts worldwide will offer a royalty of 25% of net receipts for all sales of all electronic editions including eBooks and audio book downloads.”

Although publishers’ royalties are presumably negotiable, the boilerplate on one recent (pre-March 1 2009) Simon & Schuster contract called for a 15% list price royalty. That means that on an e-book retailing at $10.00, the author would be entitled to $1.50. Switching to a 25% royalty on net receipts, the author will now receive $1.25. How is that number calculated? Most e-book retailers take a discount of approximately 50% of an e-book’s list price. If S&S collects $5.00 from the retailer, the author will get 25% of that, or $1.25. a reduction of twenty-five cents per sale from the previous arrangement.

One significant aspect of S&S’s policy statement is a clarification of the way the company arrives at list prices for e-books. Curr’s letter states that “we have, with limited exceptions, adjusted the suggested retail price for our eBooks to mirror the price of the most recently published edition of the book (hardcover or paperback), rather than the discounted prices we had been using.”

Translated, that means that if S&S issues a book in hardcover, the e-book price will be commensurately high; when S&S then releases a cheaper paperback edition, the e-book price will proportionately drop. The rationale (if that is the right word for it) for this approach is spelled out in a recent posting, Penetrating the Mysteries of E-Book Pricing. Kind of.

It’s hard to say if 25% net e-book royalty will become “standard” throughout the publishing industry but with majors like Random and S&S leading the way, that would seem to be the direction things are headed. (By way of comparison, and as a matter of full disclosure, E-Reads pays a royalty of 50% of net receipts for e-book sales, and has done so since its founding in 2000. On a $10.00 book, that means a royalty of $2.50. At no point is the royalty rate ever reduced.)

– Richard Curtis