Jennifer Weltz

If, at any time after the effective date of this Agreement, US trade publishing industry electronic media royalties paid to authors are a higher percentage of the amount received by Publisher than those paid to Author under the terms of this Agreement, upon written request from Author this subparagraph will be deemed amended to such higher percentage.

The above text is an amalgam of boilerplate provisions found in the contracts of many publishers. It is a compromise reached in negotiations between publishers and agents as they hammered out a modus vivendi between the former’s wish to lock in a low e-book royalty and the latter’s insistence on a higher one. With such language installed into contracts, agents can monitor royalty rates in the book industry and, if it appears they are rising above the current threshold of 25% of net receipts, invoke the language entitling authors to the higher royalty promised in the contract.

Jennifer Weltz, a leading agent, thinks the time has come to invoke that provision and gives her reasons on AARdvark, an online forum of the Association of Authors’ Representatives.  She has kindly agreed to let us reprint it here.

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Alert – E-Book Industry Standards have Changed!

Dear Colleagues in the industry, remember all of those clauses we have in our contracts regarding e-books? The ones that say that when Industry standards change we will all be renegotiating new e-book rights? Well that time is now. E-book industry standards have changed.

Why have we not heard this news from our publishers?

Think of the number of contracts you have with that clause and then multiply it by x. This is the number of clauses that would have to be modified by publishers if they admitted to this obvious change. From a publisher’s perspective, the only possible change they would concede would be one where they would be raising the 25% royalty rate and overnight their profits would plummet. As you can imagine, this is not an attractive prospect.

Have industry standards changed? Yes

Will we first hear this from the publishers? No

What are these changes?

Well, there are, of course, the many emerging publishers doing business in the publishing world who offer much more lucrative e-book royalties. But they offer low advances or no advances. However we are starting to see that when publishers want a project enough, they find workable solutions with agents that are not the straight 25% we were given to believe was the 11th commandment. We are even seeing, the big publishers, developing creative e-book royalty solutions where rights were not clearly delineated in the original contract. And we are seeing authors make drastic choices, especially if they know that their books perform well in the e-book format – jumping ship, and working with the new publishers on the block who offer them a fairer piece of the pie.

What else has changed?

We are now often at 50% or more of total books sold for a particular title. When e-book royalties were first set at 25%, e-books were a fraction of the market (please refer to the many analyses that have been done over the years on the growth of the e-book industry). E-books are no longer a fringe subsidiary right but an essential format, just like print paperback and hardcover. I would even argue that e-book is the predominant format in the US, because, regardless of whether a book is published in hard cover, soft cover or in print at all, you can bet that practically every single US publisher acquiring rights to a new book today, will be releasing it as an e-book. The e-book format is the one guaranteed format for all of our future books. It has arguably swallowed up the custom of multiple print formats. In other words, whatever the print format for your first publication of a book may be, the future will see e-book as your second and possibly the only other format for your book. This is a major industry shift that has happened this year and publishers are now debating how best to handle it. Does this mean that we should only publish in Hard Cover and E-books or just Trade paperback and e-books? Forget about mass market! What we are seeing here is clearly an industry shift. This is a changed industry. Industry standards have changed.

Now what about the problems our publishers face if they admit to this change? Should we care?

I say yes, because, when we all agreed to these delightful industry standard clauses, we neglected to realize how we were painting ourselves into a corner. As Paul Aiken from The Author’s Guild pointed out in his article “Inertia, unfortunately, is embedded in the contractual landscape. If the publisher were to offer more equitable e-royalties in new contracts, it would ripple through much of the publisher’s catalog: most major trade publishers have thousands of contracts that require an automatic adjustment or renegotiation of e-book royalties if the publisher starts offering better terms… Given these substantial collateral costs, publishers will continue to strongly resist changes to their e-book royalties for new books.”

Should we then accept the status quo and abandon hope of ever effecting change with the big publishers?

This is not a solution because, by not demanding change, we not only create an unfair structure for our authors, we also allow authors to more easily abandon traditional publishers when we know this means losing out on the editorial, marketing and publishing help that these professionals do so well when they try.

Many have examined the e-book royalty math extensively and so I will only say that we must look at the origins of the Hard Cover 15% of list royalty. How did publishers, agents and authors come up with this percentage? Well, when you deduct the discount given to booksellers off the list price and the cost of producing a print book, half of the remaining proceeds roughly comes to 15% list. In other words, 50% net.

Consequently, the concept of offering 50% of the revenue is a long standing industry standard for Hard Cover royalties.

What is the solution?

Let’s take another look at Hard Cover royalties. While the lucky few are able to get a straight 15% hard cover royalty for their authors, this has not become the industry standard. Escalators are the standard and it is in escalators that we find the solution to the e-book royalty dilemma. With escalators, we can at last accommodate books whose sales do not justify a big piece of the pie and should stay at 25% as well as rewarding those authors whose major sales are happening in e-books. Escalators would allow everyone, including the authors and creators of the work, to share in success once the justified overhead costs are amortized.

This should be our new industry standard for e-books and it should not cause a massive shift in revenue for our publishers except for books that have earned it.

Now is the time to call our publishers and let them know. Remember that clause about e-book industry standards changing? Well now they have. That time is now.

Let me know what you think. Send me a Tweet at either @jvnla or @digitaar

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As Vice President of JVNLA [Jean V. Naggar Literary Agency], Jennifer Weltz has sold books domestically, internationally, and for film for nearly two decades. Coming from a mediation background, Jennifer sees herself as a liaison between her author and the editor and publishing house that acquire her author’s work. This role takes on a myriad of forms — business manager, confidant, task master, preliminary editor, and matchmaker — to name a few. Since Jennifer takes up an author’s career and not just a project, she is very careful and selective about signing on new authors.

Harlequin has issued a new letter to authors and agents updating its June memo. Though the royalty rate for single titles remains 25% of net, the series royalty has been sweetened with an escalation to 20%. Executives Donna Hayes and Loriana Sacilotto remind writers and agents that the series royalty reflects the brand-building that Harlequin brings to the table.

Here’s the memo. Attachments are not included.
Richard Curtis

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Dear Agent:

Re: Proposed Amendments to Digital Royalty Rates

As you know, on June 24th Harlequin sent an e-mail about our intention to amend digital royalty rates. A technical problem with our e-mail security software resulted in most authors not receiving the originally e-mailed letters. Agents however, did receive the letters for their clients and the letters have also been posted online. As a result many of you have by now seen the original letters. Since that time, however, we have had many discussions with authors and agents and have made changes to the terms and amendment process proposed in that initial letter. We would now like to share those with you.

Rates

Harlequin is offering to amend royalty rates for English language sales of digital editions in the US and Canada as follows:

Series: 15% of net digital receipts to $50,000; 17.5% of net digital receipts from $50,001 to $100,000; 20% of net digital receipts thereafter

Single Title Authors: 25% of net digital receipts

If you agree to these amended rates they will be applied to the sales of your front list and backlist titles. The effective date of the new rates will depend on the date by which Harlequin has received your executed amending agreement (see Process below).

The reason for the difference between series and single title rates is the strength and value of the Harlequin brand name in generating demand and sales of series books. Of course, without the talent of our series authors and their Harlequin editors, we would not have a series business. However, it is also true that without the Harlequin brand strength behind series books, the series authors wouldn’t enjoy the level of the sales they do today for both print and e-book formats.

Over many years, Harlequin has invested millions and millions of dollars and continues to invest to make the Harlequin brand name the reason why readers buy our series books, globally. In a combined print and digital world, the Harlequin brand will be even more important as physical displays at retail and search and discovery in digital become the key ways readers find their series books in increasingly diverse, noisy and cluttered environments. The Harlequin brand on print and digital series books immediately communicates great romance stories, the benefits of which the reader understands and can rely on.

Definition of Net Digital Receipts (NDR)

Net Digital Receipts are the actual revenues received by Harlequin North America when it makes the sale of an English language electronic edition, in the United States and Canada, net of trade discounts, commissions and any applicable taxes and duties. The royalty will be calculated on the basis of these receipts.

Territories

The new digital royalty rates will apply to English language books sold in the US and Canada only. At this time, we are not making any changes to the digital royalty rate terms in territories outside the US and Canada.

We will continue to consider the option of world English rates, however the reality is that our other English language companies, UK and Australia, operate independently, with different series names, different covers and varied investments in market-specific promotional plans. At this time, these fundamental differences don’t support a world English digital royalty rate.

Authors Receiving the Revised Digital Royalty Rates

All Harlequin authors are being offered the amended rates. There will be no distinction between “active” and “inactive” authors. Authors will be required to return an executed amending agreement to receive the new digital royalty rates.

Process

We require authors to execute amending agreements in order to receive our new digital royalty rates. As you can appreciate, the number of contracts this amendment is covering is enormous. The modifications to our royalty system in order to make these digital royalty rate amendments possible and to pay our authors accurately are significant and time-consuming. We expect to have the amending agreements issued to authors (and their agents) by mid-October 2011. If executed amending agreements are returned to us by December 31, 2011, the effective date of the new digital royalty rates will be July 1, 2012. The effective date will be later where executed amending agreements are received after December 31, 2011.

Attached is a Q&A where you will find Harlequin’s responses to many questions we have received so far on this issue.

Sincerely,

Donna Hayes, Publisher and CEO

Loriana Sacilotto, Executive Vice President, Global Editorial

Below is the full text of Dorchester Publishing’s information release to authors and agents July 22, 2011

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WHAT’S HAPPENING AT DORCHESTER?

Dear Author, Agent or Publishing Colleague:

It’s been a crazy but productive year for Dorchester Publishing, like it has been for the entire publishing industry. After the cessation of our mass market paperback program last August, there were a number of other major changes to occur, including the naming of new CEO Robert Anthony, the appointment of a new accounting staff (Loretta Folk, controller, and Brian Chinn, royalties accountant) and serious strides into both trade paperback and electronic publishing. In case you haven’t been watching with baited breath, we would like to take a moment to bring you up to date on factors or developments that may directly affect you, your titles, and earnings both past and future.

Our top priority remains bringing royalty payments up to date. The lifeblood of any publisher is its authors, so our focus is first on those writers still active in our publishing programs—though we are confident that slowly but surely we will make good on all debts caused by our former administrative difficulties. We are again sending out accurate statements as a matter of course. As stability returns, Dorchester can refocus on its original purpose: discovering and growing new talent in all forms of genre fiction.

Our dynamic Trade publishing program began in January through the distribution arm of Ingram Publisher Services. The program contains titles culled both from our back list and original content, and it will take advantage of advanced technology to provide much more accurately targeted distributions. Early 2011 boasted several successful new releases, including Leanna Renee Hieber’s Perilous Prophecy of Guard and Goddess, the third book in her critically acclaimed Strangely Beautiful series, and The Bonaparte Secret, the newest Lang Reilly thriller by Gregg Loomis. Readers were wowed by movie tie-in editions for The Woman, a spine-tingler by Jack Ketchum and Lucky McKee that took bookstores and Sundance by storm, and House of the Rising Sun by upstart Chuck Hustmyre is set to win him readers for life. Yet to come is The Unforgiven, the first of New York Times Bestselling Author Joy Nash’s Watchers series, and offerings from Gord Rollo, John Everson, and L. J. McDonald. Sorceress, Interrupted, the continuation of A. J. Menden’s super hero series (Elite Hands of Justice) was highly anticipated, and S. Craig Zahler’s brilliant new Western, A Congregation of Jackals, has already been tapped for several national awards. Working with Ingram, we have produced around 50 books in trade format, and another 60-70 should be available by year’s end. The program is only growing.

At the same time as we increase our trade presence, we continue to work on making our authors’ backlists available to their entire readership, including those readers caught up in this year’s fantastic electronic publishing boom. Renee Yewdaev, Dorchester’s head of production, is converting backlist to e-book format in a systematic fashion that assures both speed and quality, and which allows titles to retain recognizable branding established in their original print format. After redeploying several persons in-house to focus on this conversion push, we anticipate having several hundred additional titles in e-book format by the end of the year.

After the changeover from LibreDigital to a partnership with Ingram’s Lightning Source books, our electronic distribution channels have smoothed out. We continue to aggressively market through Amazon, Barnes & Noble, Baker & Taylor, Indigo (Canada), Borders, Sony, and a number of other well recognized e-book vendors, and we are pleased to announce that we have just signed direct agreements with Apple and Google to further expand the number of platforms and consumers our product can reach.

Our website, www.dorchesterpub.com, has been redesigned and now sells both trade and e-book titles.

Dorchester is confident in our new programs, and we recognize that the publishing landscape is changing. For that reason, a project was embarked upon to update royalties to new industry standards. An amendment was created for all interested authors with existing contracts. In addition to firming up some other, the amendment will:

a) Raise any lower rate on trade royalties to 7 1/2% of cover price

b) Raise the royalties on e-books to 25-35% of net sales

c) Increase the frequency of royalty reports and payments to every 6 months.

Any author who has not received an amendment should contact either their literary agent and/or Samantha Hazell at shazell@dorchesterpub.com. Specific questions can be directed to Dorchester’s editorial director, Christopher Keeslar, or to Tim DeYoung, VP, Sales & Marketing.

2011 has seen a number of ups and downs, but the future seems brighter every day. This will be a decade where authors are more powerful than ever before, especially those authors who have the resources and connections to take advantage of the industry’s new opportunities. We look forward to partnering with those authors. And while rebuilding is a slow process, we plan to shine in genre fiction for many years to come. We eagerly anticipate your thoughts and feedback.

Expressing its determination to turn over a new leaf after its 2010 annus horribilis, Dorchester Publishing has announced a wide range of improved royalties, practices and policies, and has issued an amendment to put its money where its mouth is.

In a newsletter sent to Dorchester authors and agents the company described the course set by CEO Robert Anthony and his financial and editorial team.  Among the highlights are: bringing royalties up to date, improved e-book and trade paperback royalties, shift from mass market to print on demand trade paperbacks, more responsive royalty accounting including a clear statement of reserves against returns, and provisions for recovering rights in the event of Dorchester’s failure to report and pay royalties on a timely basis.

For the summary statement click here, and for the actual terms of the amendment, click here.

Anthony and his staff have expressed their determination to create a streamlined new company responsive to conditions of the 21st century. We hope this is the beginning of a turnaround for an excellent genre publisher that, like every other publisher today, is reinventing itself in the Digital Era.

Richard Curtis

Harlequin has announced an increase in royalty rates, bringing the company’s royalties in line with with those paid by Big Six and other legacy publishing houses.

The company issued its announcement in two parts. One was for series titles, raising the rate to 15% of net, the other for single titles, raising it to 25% of net.

Even better news is that the changes are retroactive.

Here’s the key text from the single title announcement.

Effective January 1, 2012, single title authors who are actively writing for Harlequin will receive a digital royalty rate of 25% of net digital receipts for each digital unit sold in the English language, United States and Canada, frontlist and single title backlist.

Given that these are more favorable terms than those in your existing contract(s), this notification will be considered the amendment to those contract(s).

The full text of both announcements may be seen here.

Richard Curtis

#1 Letter to Series Authors Actively Writing For Harlequin

Digital Royalty Rates Changes

Dear Author,

The landscape of digital publishing continues to evolve at a fast pace and Harlequin is at the forefront of this evolution. In 2007 Harlequin was the first publisher to simultaneously publish print and digital editions of our entire frontlist. Since then we have also digitized and brought to market our backlist and now have a current catalogue of over 11,000 ebooks! The Harlequin brand has always offered an advantage other publishers don’t have and this is especially true for ebooks. Our digital marketing efforts focus on building the Harlequin brand to drive the sales of your books through newsletter programs, advertising, search engine marketing, social media properties, the Harlequin website and leading ebook retailers. All this means better search and discoverability by online shoppers and an endorsement of the quality of the read, which is critical in the midst of the online clutter.

Harlequin has been closely monitoring developments in digital publishing, including author compensation. As you know, until now Harlequin’s position has been that digital royalty rates as a percentage of cover price is a more transparent way to pay authors than as a percentage of net receipts: authors know exactly how many copies they sold at what price and their compensation is not affected by unspecified costs. Over the past several months we have worked to ensure a smooth transition from the current percentage of cover price calculation to a net receipts calculation while maintaining the same transparency. As such, Harlequin will be amending digital royalty rates.

Effective January 1, 2012, series authors who are actively writing for Harlequin will receive a digital royalty rate of 15% of net digital receipts for each digital unit sold in the English language, United States and Canada, frontlist and backlist. This will include books in Harlequin’s digital backlist program, Harlequin Treasury.

Given that these are more favorable terms than those in your existing contract(s), this notification will be considered the amendment to those contract(s). If you wish to maintain the existing terms of the contract(s), please let us know by Friday, July 15th, 2011.

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#2 Letter to Single Title Authors Actively Writing For Harlequin

Digital Royalty Rates Changes

Dear Author,

The landscape of digital publishing continues to evolve at a fast pace and Harlequin is at the forefront of this evolution. In 2007 Harlequin was the first publisher to simultaneously publish print and digital editions of our entire frontlist. Since then we have also digitized and brought to market our backlist and now have a current catalogue of over 11,000 ebooks! Harlequin invests heavily in digital marketing efforts to promote our authors and their books, with activities ranging from newsletter programs, advertising, search engine marketing, social media properties, website development and distribution through leading ebook retailers.

Harlequin has been closely monitoring developments in digital publishing, including author compensation. As you know, until now Harlequin’s position has been that digital royalty rates as a percentage of cover price is a more transparent way to pay authors than as a percentage of net receipts: authors know exactly how many copies they sold at what price and their compensation is not affected by unspecified costs. Over the past several months we have worked to ensure a smooth transition from the current percentage of cover price calculation to a net receipts calculation while maintaining the same transparency. As such, Harlequin will be amending digital royalty rates.

Effective January 1, 2012, single title authors who are actively writing for Harlequin will receive a digital royalty rate of 25% of net digital receipts for each digital unit sold in the English language, United States and Canada, frontlist and single title backlist.

Given that these are more favorable terms than those in your existing contract(s), this notification will be considered the amendment to those contract(s). If you wish to maintain the existing terms of the contract(s), please let us know by Friday, July 15th 2011.

Authors – time to lawyer up?

The United States Supreme Court has refused to hear an appeal of a lower court’s ruling that digital music royalties should be treated as a license.  Given the similarities between music and book contracts, the implications for authors are significant. Below is our original article on the subject published in October 2010.

Don’t just stand there. Look at the royalty language in your book contract.

RC

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Is there a reason why publishers are not wailing, gnashing their teeth and rending their garments over the Eminem decision?

Maybe they haven’t heard about it. Maybe they don’t understand it. Maybe they don’t think it applies to them. Maybe they just don’t want to think about it at all.

They really must think about it and so must you. The case heard by the Ninth Circuit Court of Appeals was ostensibly about music but you can bet it won’t be long before it’s about e-books, and it could throw the publishing industry’s royalty structure into chaos.

Ethan Smith of the Wall Street Journal explains the issues (the italics are ours): “Under most recording contracts, artists are entitled to 50% of revenue from licensed uses of their music. That usually means soundtracks for movies, TV shows and ads. Sales, on the other hand generate royalties for the artist at a much lower rate—generally in the low teens, and rarely more than 20%.”

For “recording contracts” read “publishing contracts”. Under current book industry standards publishers pay authors a 25% royalty for e-book sales. Their contracts also call for a 50% share of e-book licenses made with third parties. But publishers do not consider e-book revenue to be license revenue. If they did they’d have to pay authors 50% of what they receive rather than half of that amount.

In the case in question, Eminem’s producers F.B.T. Productions brought a lawsuit against Aftermath Records claiming that what Aftermath defined as sales were really license revenues and Aftermath therefore owed them the difference between the low royalty they were being paid and the much higher share of license money. The three judge panel of the San Francisco Federal court agreed:

Pursuant to its agreements with Apple and other third parties…, Aftermath did not “sell” anything to the download distributors. The download distributors did not obtain title to the digital files. The ownership of those files remained with Aftermath, Aftermath reserved the right to regain possession of the files at any time, and Aftermath obtained recurring benefits in the form of payments based on the volume of downloads . . . Under our case law interpreting and applying the Copyright Act, too, it is well settled that where a copyright owner transfers a copy of copyrighted material, retains title, limits the uses to which the material may be put, and is compensated periodically based on the transferee’s exploitation of the material, the transaction is a license.

For a cogent analysis of the case and its implications for the book industry, read Copyright Alert: 9th Circuit Holds Digital Downloads are Licenses Not Sales by copyright authority Lloyd J. Jassin, to whom we’re indebted for bringing the case to our attention.

It will not surprise us to find a flurry of amendment letters from publishers in the next few months saying “Wherever we refer to ‘royalty’ we mean ‘license’ but we’re still going to pay you 25% of what we receive.”

Richard Curtis

Is there a reason why publishers are not wailing, gnashing their teeth and rending their garments over the Eminem decision?

Maybe they haven’t heard about it. Maybe they don’t understand it. Maybe they don’t think it applies to them. Maybe they just don’t want to think about it at all.

They really must think about it and so must you. The case heard by the Ninth Circuit Court of Appeals was ostensibly about music but you can bet it won’t be long before it’s about e-books, and it could throw the publishing industry’s royalty structure into chaos.

Ethan Smith of the Wall Street Journal explains the issues (the italics are ours): “Under most recording contracts, artists are entitled to 50% of revenue from licensed uses of their music. That usually means soundtracks for movies, TV shows and ads. Sales, on the other hand generate royalties for the artist at a much lower rate—generally in the low teens, and rarely more than 20%.”

For “recording contracts” read “publishing contracts”.  Under current book industry standards publishers pay authors a 25% royalty for e-book sales.  Their contracts also call for a 50% share of e-book licenses made with third parties. But publishers do not consider e-book revenue to be license revenue. If they did they’d have to pay authors 50% of what they receive rather than half of that amount.

In the case in question, Eminem’s producers F.B.T. Productions brought a lawsuit against Aftermath Records claiming that what Aftermath defined as sales were really license revenues and Aftermath therefore owed them the difference between the low royalty they were being paid and the much higher share of license money. The three judge panel of the San Francisco Federal court agreed:

Pursuant to its agreements with Apple and other third parties…, Aftermath did not “sell” anything to the download distributors. The download distributors did not obtain title to the digital files. The ownership of those files remained with Aftermath, Aftermath reserved the right to regain possession of the files at any time, and Aftermath obtained recurring benefits in the form of payments based on the volume of downloads . . . Under our case law interpreting and applying the Copyright Act, too, it is well settled that where a copyright owner transfers a copy of copyrighted material, retains title, limits the uses to which the material may be put, and is compensated periodically based on the transferee’s exploitation of the material, the transaction is a license.

For a cogent analysis of the case and its implications for the book industry, read Copyright Alert: 9th Circuit Holds Digital Downloads are Licenses Not Sales by copyright authority Lloyd J. Jassin, to whom we’re indebted for bringing the case to our attention.

It will not surprise us to find a flurry of amendment letters from publishers in the next few months saying “Wherever we refer to ‘royalty’ we mean ‘license’ but we’re still going to pay you 25% of what we receive.”

Richard Curtis

Last January we made a pinky bet guaranteeing that e-book royalties would rise above the then ceiling of 25%. Did you take that bet? Pay up, sucker!

Faster than a double-click Random House has shifted its stance on e-book royalties and opened the door to an industry-wide raise in pay for authors as predicted here. A source close to the company says it’s prepared to abandon its fiercely defended 25% net e-royalty for a sliding scale topping out at 40%.

The source of this rapidly evolving story is Rachel Deahl of Publishers Weekly whose announced yesterday that the dispute between Random and agent Andrew Wylie was settled yesterday. Whereupon, without a missing a beat, the disclosure of Random’s liberalized royalty hit the news.

Many agents have “favored-nations” arrangements with publishers entitling authors to request a new royalty rate if the rest of the book industry adopts a higher one. It is now anticipated that agents will flood Random with requests for amendments replacing recently signed ones agreeing to a 25% royalty. It will be well nigh astounding if other publishers don’t fall into lockstep with Random’s royalty or something close to it.

The big question now is, will it stop at 40%? Many observers feel it won’t, so we urge Random’s contracts team to stay close to their keyboards in case they need to compose yet another amendment. (Full disclosure: E-Reads pays 50% net royalty and has done so from our founding ten years ago.)

Below is the relevant passage from Deahl’s article, which can be read in its entirety here.

Richard Curtis

The source said Random is offering a royalty built around a sliding schedule on e-book rights for backlist titles that can approach 40% “rather quickly.” The source explained that the royalty is based on a certain number of books selling over a specified period of time and, depending on what’s negotiated, the rate will rise based on the rate of sale.

The presumption is that Random House’s improved offer on backlist digital royalties–the source said this new approach is a “good rate” and notably better than the standard 25%–will spark the other major houses to follow suit with similar offers.

Revolutions produce unlikely heroes, and the Digital Revolution has produced a very unlikely one in the form of a man that many believe is so wanting in ethical principles that he is nicknamed The Jackal. Yet it is on literary agent Andrew Wylie’s fangs and claws that the populist dream of a fair e-book royalty rests as he dares the world’s highest profile trade book publisher to do something about the slap he has administered to its face.

The smart money is on The Jackal, and to understand why you have to think like a jackal.  While pundits debate contract law and publishing ethics, the real war is being conducted on a less visible battlefield. But it is one on which Wylie holds the high ground.

To understand Random House’s reluctance to protect its rights from Wylie and other marauders you need to understand a number of not so obvious factors.  The most salient of them is this: Publishers are loath to sue authors (or the widows and children of authors).

Let’s see how these factors play out in the power struggle unfolding before our eyes.

Random House not confident of its legal position

In 2001 Random House sued Rosetta, an e-book startup that acquired directly from authors the digital rights to books by such Random House lions as Kurt Vonnegut Jr., Robert B. Parker and William Styron, books that were still in print in paper format under Random House imprints. Random had published them before there was such a thing as e-books, but nevertheless considered a book is a book is a book whether in tangible or digital form. The courts however rejected Random’s position, denying their request for an injunction against Rosetta. Random filed an appeal and the court turned it down. A second appeal was rejected too, forcing Random to work out a settlement with Rosetta. The critical issue – what is a book? – remained unlitigated and left Random uncertain about its legal position.

Random Backs off from Open Road Threat

When publishing superstar Jane Friedman launched her Open Road e-book venture she declared her intention to start with several works by Styron including Sophie’s Choice and the Pulitzer Prize-winning Confessions of Nat Turner. The problem was, Random House claimed it owned those rights (presumably having recovered them from Rosetta as part of the settlement) and it issued a stern warning to all “third parties” without naming Friedman specifically. Authors, stated CEO Marcus Dohle, are “precluded from granting publishing rights to third parties that would compromise the rights for which Random House has bargained.” By drawing a line in the sand, Random expected Friedman and other potential interlopers to back off or face the full wrath of the publisher’s litigators. (see Random House Serves Notice on Would-Be E-Interlopers)

It is  a fundamental business principle that you don’t make threats you aren’t prepared to act on. And that is why we were flabbergasted four months later to learn that Random House had released e-rights to the Styron estate (See Random Returns Sabre to Scabbard in Styron E-Book Standoff). What was that about?

“The decision of the Styron estate is an exception,” Random executive Stuart Applebaum explained. “Our understanding is that this is a unique family situation.”

Why, after rattling its saber so truculently, did Random give in? In our estimation it’s because ultimately, to make good on their threat, they would have had to sue Styron’s widow and children. And that would be a public relations disaster.

Whether Styron was truly an exception or Random blinked, one thing was clear to publishing professionals: sooner or later there would be further tests of the publisher’s determination. How would Random react the next time?

We’re about to find out.

Don’t Bother Suing Agents

Claiming that he hates the low e-book royalties paid by traditional publishers (see Random House Changes E-Book Royalty Policy), agent Wylie, representing hundreds of distinguished authors such as Salman Rushdie, Martin Amis and the late John Updike, announced that he is starting his own e-book publishing venture and intends to launch it with books published by Random House and other trade book publishers.

Does he have the right to do that? Wylie says he does: “The fact remains that backlist digital rights were not conveyed to publishers, and so there’s an opportunity to do something with those rights,” he declares.

Despite what happened with Open Road, some industry observers expected Random House to threaten to sue Wylie’s ass into pebble-sized pieces. But Wylie knows they won’t, because, generally speaking, agents are not legally liable for breaches of contract committed by their clients. A lawsuit against Wylie would in all likelihood be thrown out of court, and the judge would tell Random that if they have a beef it’s with Wylie’s authors, they’ll have to sue Wylie’s authors. Which brings us back to our thesis: Publishers are loath to sue authors (or the widows and children of authors).

So? How does Random intend to punish Wylie? “Regrettably,” Applebaum declared, “Random House on a worldwide basis will not be entering into any new English-language business agreements with the Wylie Agency until this situation is resolved.”

This is known as the We’ll Cut Off Our Nose to Spite Your Face ploy, and it will avail Random nothing. Wylie’s clients are so coveted by Random’s rivals that if Random made good on its threat you’d see the greatest migration since the Aleuts crossed the Bering Land Bridge.  Jackals are standing by!

Buyer? Seller?

Though legal threats won’t faze Andrew Wylie, handling the challenge of being both an agent and an e-book publisher might. A number of knowledgeable people like Macmillan’s John Sargent have not only deplored Wylie’s decision to put all his authors’ eggs in Amazon’s basket but have questioned whether it’s in the best interests of his authors. There is arguably more money to be made selling not just to Amazon but to Sony, Barnes & Noble, Apple, Kobo, and other retailers.

Navigating the shoals of conflict of interest between buyer and seller is another daunting task. Even if he is able to build a “Chinese wall” insulating the two functions from short-circuiting each other, Wylie’s own clients will reasonably want to know how it’s going to work: “If my agent is now my publisher, who am I supposed hire to negotiate with him?”

Will Wylie’s stratagem succeed in forcing publishers to raise their royalty rate?  Not a chance.  E-book royalties will eventually go up, but it will be no thanks to Crusader Wylie. But we thank him for articulating the dissatisfaction of authors and agents with low royalty rates and for so fearlessly acting on his convictions.

Richard Curtis