Pricing Page

1. Royalty Options. Subject to the limitations set forth in this Pricing Page, for each Digital Book, you may choose, in accordance with our then-current procedures, either the 35% Royalty Option or the 70% Royalty Option, each described below.

a. 35% Royalty Option.

i. The Royalty for the Digital Book will be equal to 35% of the applicable List Price for the Digital Book.

ii. For any Digital Book for which you select the 35% Royalty Option, at all times that the Digital Book is available for sale through the Program, you must adjust the List Price as required to ensure that the List Price, plus any applicable VAT, does not exceed the lowest of: (a) the lowest suggested retail price or equivalent price for any digital or physical edition of the Digital Book; (b) the lowest price at which you list or offer any digital or physical edition of the Digital Book on any website or other sales channel; and (c) any maximum List Price we provide from time to time in the Program Policies.

b. 70% Royalty Option.

i. The 70% Royalty Option is only applicable to sales to United States customers, so if you choose this option, the Royalty on sales to non-United States customers will be as provided under the 35% Royalty Option.

ii. The Royalty will be equal to 70% of the amount equal to the applicable List Price for the Digital Book less the Delivery Costs (as defined below) for the Digital Book. But if we sell the Digital Book at a price below the List Price to match the price at which a third party sells any digital or physical edition of the Digital Book or to match the price at which we sell any physical edition of the Digital Book, the Royalty will be equal to 70% of the amount equal to the price at which we sell the Digital Book less the Delivery Costs for the Digital Book. Our determinations regarding price-matching are final and non-reviewable. If you object to our price-matching determination with regard to one of your books, your sole and exclusive remedy is to switch your Royalty option for future sales of the Digital Book to the 35% Royalty Option as described below.

iii. The Delivery Costs for a Digital Book will be equal to $0.15 multiplied by our determination of the number of megabytes your Digital Book file contains, once uploaded by you and converted by us into our then-current Digital Book format. One megabyte equals 1024 kilobytes. One kilobyte equals 1024 bytes. We will round file sizes up to the nearest kilobyte. The minimum Delivery Cost for a Digital Book will be $0.01 regardless of file size.

iv. Example: If your book has a file size of 0.400 megabytes and a List Price of $8.99, the Delivery Cost will be $0.06 (0.400 MB x $0.15 = $0.06), and your Royalty will be $6.25 (($8.99 – $0.06) x 70% = $6.25).

v. For any Digital Book for which you select the 70% Royalty Option, at all times that the Digital Book is available for sale through the Program, you must adjust the List Price as required to ensure that the List Price does not exceed the lowest of: (a) the lowest suggested retail price or equivalent price for any digital edition of the Digital Book; (b) the lowest price at which you list or offer any digital edition of the Digital Book on any website or other sales channel; (c) 20% below the lowest suggested retail price or equivalent price for any physical edition of the Digital Book; (d) 20% below the lowest price at which you list or offer any physical edition of the Digital Book on any website or other sales channel; and (e) any maximum List Price we provide from time to time in the Program Policies.

vi. The 70% Royalty Option is not available for Digital Books that consist primarily of public domain content, and by selecting the 70% Royalty Option for a Digital Book, you confirm that it does not consist primarily of public domain content. If you select the 70% Royalty Option for a Digital Book that we determine consists primarily of public domain content, we will be entitled to change the Digital Book to the 35% Royalty Option retroactively and to pay you Royalties and adjust your previously reported or paid Royalties based on the 35% Royalty Option.

vii. If you select the 70% Royalty Option for a Digital Book, you must make it available to us for distribution in each territory for which you have appropriate distribution rights, and you must comply with any other restrictions or requirements we may provide from time to time for the 70% Royalty Option in the Program Policies.

viii. If at any time your Digital Book does not meet the requirements for the 70% Royalty Option, the Royalty for the Digital Book will be as provided in the 35% Royalty Option.

ix. Any new feature incorporated into the Program will apply to all Digital Books distributed under the 70% Option even if we make the feature optional for other Digital Books.

2. Changing your Royalty Option. You may change your choice of Royalty option for future sales of a Digital Book at any time through our then-current procedures. It may take up to 48 hours for your change to be effective.

3. List Price Requirements. To be accepted in the Program, your Digital Book’s List Price must meet the List Price requirements.

Early in March John Sargent, CEO of Macmillan, issued a policy statement setting the course of his company and its component imprints such as St. Martins Press, Picador, Farrar Straus & Giroux, and Tor Books. He promised more such statements from time to time, and last week posted on the Macmillan website the second of them in which he boiled down to four the questions raised by people commenting on his initial blog.

As we approach Passover we wondered if these were the same four questions traditionally asked by children concerning the meaning of the holiday, which celebrates God’s rescue of the Israelites from Egypt. We thus posted this picture of Charlton Heston as Moses before we realized that the four questions raised by Macmillan’s correspondents were different from those posed at the Seder table. We decided to leave the picture up, however, as we are hopeful that “with a mighty arm and outstretched hand” Sargent will lead his company to the promised land and perhaps drag some Big Six publishing colleagues with him.

The questions are:

1) What is the difference between a “hardcover” and “paperback” e book?

2) Will retailers have flexibility to price books at a discount?

3) How can we trust Macmillan to carry out its pricing pledge?

4) Will we be re-pricing e books that have a $14.00 digital list price while there is a mass market paperback edition available?

For the answers, click here. All together now: “On all other nights…”

Sargent promises more commentary soon, “including author royalties…”

We welcome his outreach, look forward keenly to more of his enlightening clarifications, and thank him for his initiative and leadership.

Richard Curtis

Answers to some questions from the comments

Hi out there. I have been reading through the traffic from my last post on e-book pricing and the agency model. Rather than answer you all individually, I’ll take a shot at answering four questions that encompass the general nature of the responses.

1) What is the difference between a “hardcover” and “paperback” e book? In truth…nothing. It is simply a matter of timing.

In traditional publishing we had three formats, each at a different price. They were targeted at specific channels of distribution and were released at different times. There was some discounting by retailers, but historically not much. Then discounting became more aggressive and the channels of distribution for the formats began to blur. Currently some books never appear in paperback, some books only appear in paperback, and some books are in the market simultaneously in hardcover and both paperback formats (at three different price points). The digital edition (in almost all cases at present) doesn’t change in format over time – there is no difference in what is actually being sold. So, how should the digital edition be priced?

Some argue it should be almost free as there is little physical cost of delivery. But the physical cost of the book has never been the greatest component of cost. The authors who create the work need their rightful compensation, and they need editors. The marketing and publicity are no cheaper. And given that the ink on paper aspects of the business are still here, publishers still need warehouses, infrastructure, and all the other legacy costs of the business. Digital sales as a whole are not incremental (though some of them may be).

Some argue it should be the same price as the hardcover. After all the real value is in the ideas and the words, not in the artifact that sits on the shelf. But certainly that artifact is of some value, and the digital edition is more ephemeral than a printed book.

Some argue the digital edition should be tethered to the physical book and should be priced under whatever the cheapest available format that is currently available for sale.This has a solid feeling logic behind it, but I’m not sure it makes sense in the long run given there is no differential in format (if there are three formats availble, why wouldn’t the right price be a bit cheaper than the wieghted average of the available formats)?

In the end, an e book will be priced to reflect the value consumers put on it. We believe at first release an e book is worth more and people will pay more for it. Over time it will become worth less as demand tapers. However, some digital books will retain their value over time just like print books. Some will increase their value over time (many physical books are now only available as trade paperbacks, after they have been out in the cheaper mass market formats). So our digital pricing will vary to reflect the value of the book at the time. But in general, our plan is to price books below ten dollars after there initial sales demand slows (usually within a year).

A very long way of saying, there is no hardcover or paperback e book, but the digital edition will change in price over time to reflect its value to the reader as best we can determine it.

2) Will retailers have flexibility to price books at a discount? No, the sale price will be fixed by Macmillan. Retailers will promote and market books, but we will control the price for the book.

3) How can we trust Macmillan to carry out its pricing pledge? An interesting question in that we have never made a pricing pledge. Historically, e book pricing has been driven by a number of factors, and it may well have appeared to be inconsistent. We never promised to price books in a certain way and have actually never controlled retail prices before now. And many of our decisions on list prices were driven more by our Amazon relationship than by our relationship with consumers. Looking forward, it will be a very fast moving world. I have told you our intent on e book pricing. I cannot guarantee or pledge what price we will be charging in the future. Personally I doubt that typical prices for general interest digital books will break out over $15.00. I also believe the majority of digital books will be priced below $10.00, as most Macmillan books are now and will be on day one of the agency model.

4) Will we be re-pricing e books that have a $14.00 digital list price while there is a mass market paperback edition available? Yes! To a customer price of $9.99 or below.

John Sargent

More next week, including author royalties…

Thanks for listening and writing in your concerns.

Macmillan need not feel quite so alone in its quarrel with Amazon. A day or two ago Rupert Murdoch cast HarperCollins’s lot with Apple’s “agency” e-book retail model (see Apple Promoting a New (and Radical) Business Model for Selling E-Books?), a structure that threatens Amazon’s hegemony in the e-reader space. Now Hachette has joined the bloc, meaning that half of the so-called Big Six want to recapture control over the timing and pricing of their e-books. Precincts yet to be heard from are Simon & Schuster, Random House and Penguin, but even without them, the forces arrayed under the agency model flag should signal the imminent capitulation of Amazon.

Wait a minute. Amazon did capitulate. They did it so long ago we forgot. (See If This Is Capitulation, What Does Triumph Look Like?)

In any event here is the statement issued to the literary agent community by David Young, Hachette Book Group’s Chairman and CEO.

RC
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Dear Agent -

At Hachette Book Group, we have been considering a new pricing model for some time, and have decided to transition to selling our e-books through an agency model.

There are many advantages to the agency model, for our authors, retailers, consumers, and publishers. It allows Hachette to make pricing decisions that are rational and reflect the value of our authors’ works. In the long run this will enable Hachette to continue to invest in and nurture authors’ careers – from major blockbusters to new voices. Without this investment in our authors, the diversity of books available to consumers will contract, as will the diversity of retailers, and our literary culture will suffer.

The agency relationship will allow us to make more titles available to more consumers on more platforms. This expands the author’s reach and readership, which is at the heart of what we do as a publisher. Ultimately, these new terms open doors to all online e-book service providers and create more avenues for delivering e-books to readers.

Another great benefit to our consumers is that we intend to release HBG e-books simultaneously with the hardcover (or first format print edition).

It’s important to note that we are not looking to the agency model as a way to make more money on e-books. In fact, we make less on each e-book sale under the new model; the author will continue to be fairly compensated and our e-book agents will make money on every digital sale. We’re willing to accept lower return for e-book sales as we control the value of our product – books, and content in general. We’re taking the long view on e-book pricing, and this new model helps protect the long term viability of the book marketplace.

We believe that this new model is preferable to withholding books, and is in our authors’ and HBG’s best interest. I’m happy to answer individual questions about the agency model, so please don’t hesitate to contact me.

Best,

David Young
Chairman and Chief Executive Officer | Hachette Book Group

This just released from the Authors Guild.

In a letter just released by John Sargent, CEO of Macmillan, Sargent makes reference to discussions with the Authors Guild over Macmillan’s e-book royalty structure. As you know, we criticized Macmillan in October over its proposed new e-book royalty rate of 20% of receipts.

In our discussions, Sargent agreed to “be flexible” on e-royalty rates, since current industry standards provide a royalty of 25% of receipts. The signal was quite clear that 25% was there for the asking. In further discussions on Monday, Sargent confirmed that Macmillan’s standard e-book royalty would be 25% of receipts under their new boilerplate contract.

As we’ve said before, we believe that 25% of receipts is transitional royalty rate for e-books. From our December 15 e-mail alert on Random House’s retroactive rights grab:

Authors and publishers have traditionally split the proceeds from book sales. Most sublicenses, for example, provide for a 50/50 split of proceeds, and the standard trade book royalty of 15% of the hardcover retail price, back in the days that industry standard was established, represented about 50% of the net proceeds of the sale of the book. We’re confident that the current practice of paying 25% of net on e-books will not, in the long run, prevail. Savvy agents are well aware of this. The only reason e-book royalty rates are so low right now is that so little attention has been paid to them: sales were simply too low to scrap over. That’s beginning to change… [W]e strongly suspect that e-royalty rates are at a low-water mark.

That said, Macmillan’s e-book royalty rate is now similar to that of other major publishers. We look forward to continuing to discuss with Macmillan other provisions of its proposed new contract.
***************************
That said…

As much as we appreciate the Authors Guild’s role in pressing publishers for higher e-book royalties, we’re not sure why Authors Guild has taken it upon itself to negotiate royalties with a publisher. Even though publishers, of late, have publicly announced their terms for e-books, neither authors nor agents are committed to accepting them. In fact, because of anti-trade statutes agents must exercise caution in doing anything that even appears to be negotiating contract terms as a single body.

And we do want to reiterate that neither authors nor agents should get comfortable with 25% of net as the “standard” royalty. Macmillan’s increase to 25% has brought it into line with its Big Six playmates but that is no grounds for complacency among authors and agents. Indeed it could even be viewed with alarm. Beware of publishers marching in lockstep.

Richard Curtis

Were you one of the skeptics who faded me on my pinkie bet that e-book royalties would go up? Well, chum, you owe me a pinkie. Royalties are going up, at least at Macmillan. But even I’m stunned that it took only four days. I should have remembered that in the digital world, things that used to take two years now take two hours.

The revelation about a royalty boost was embedded in an update by CEO John Sargent on Macmillan’s negotiations with Amazon in which he assured us that Amazon is “working very, very hard and in good faith” to resolve the issues that have stalemated publisher and retailer ever since Apple introduced a retail model that restores control, and ultimately more money, to publishers. Here’s Sargent’s full statement.

But if there has been no big breakthrough in Macmillan’s relationship with its retailers, there’s been a huge one in its relationship with authors and agents. Sargent says:

“And now on to royalties. Three or four weeks ago, we began discussions with the Author’s Guild on their concerns about our new royalty terms. We indicated then that we would be flexible and that we were prepared to move to a higher rate for digital books. In ongoing discussions with our major agents at the beginning of this week, we began informing them of our new terms. The change to an agency model will bring about yet another round of discussion on royalties, and we look forward to solving this next step in the puzzle with you.”

We’ll review the sweetened royalty and report to you.

Richard Curtis

Are we capitulated yet? We know, we know, Jeff Bezos said “eventually”, but we keep clicking on Publishers Lunch waiting for a bulletin that doesn’t come. The Amazonian natives are getting restless, Kindle owners are exploring the trade-in market for the Apple iPad, Macmillan authors have climbed out on window ledges, and our industry is starting to get a collective public relations black eye. See Too good to be true? Amazon still hasn’t capitulated and that was two days ago.

Author Scott Westerfield issued a report that fairly assesses all the issues but ultimately supports Macmillan.

This is not a case of two corporations pissing down on us mere mortals with equal disdain; it’s a case of complex negotiations in an ancient industry with many arcane traditions that’s in a state of technological flux. And suddenly, out of the blue, one of the sides in this negotiation spat their pacifier across the room in a very public and embarrassing display of petulance. And that corporation was Amazon.

Yes, Amazon gets to set whatever prices it wants (free market!), but guess what, Macmillan also gets to release its electronic editions later if it feels simultaneous release is not in its best interests and those of its allies (free market again, sir!). Amazon gets to de-list an entire publisher if it wants to, even on a whim. But that’s a massive free market fail, because we start to hate them and they have to back down two days later. And that’s really the end of it: their strategy failed, because the rest of us can call shenanigans and take our business elsewhere. They aren’t a monopoly yet.

Read Westerfeld’s Amazon v Macmillan: free market fail.

RC

Business World reports that HarperCollins owner Rupert Murdoch took a swipe at Amazon’s $9.99 e-book price, boosting Macmillan’s lonely public stand against the retailer’s rigid pricing tactics. “We don’t like the Amazon model of selling everything at USD 9.99,” he said, calling for a renegotiation of Harper’s deal with Amazon, and Amazon said it’s ready to hear what he has to say.

Murdoch acknowledged that he stands to lose money by opposing $9.99. “They pay us the wholesale price of USD 14 or whatever we charge,” he said, referring to the wholesale price that Amazon might pay to Harper for a $28.00 e-book. “But I think it really devalues books and it hurts all the retailers of the hard cover books.” Amazon takes a loss on such transactions but has used the loss-leader strategy to gain a dominant position for its Kindle e-book reader. It’s worked so far but publishers have worried that a day of reckoning will come in the form of a demand by Amazon that publishers lower their wholesale prices to accommodate that $9.99 retail price.

Though he didn’t refer to Macmillan, Murdoch’s position mirrors Macmillan’s and clearly indicates that the new e-book retail model introduced by Apple as part of its iPad tablet rollout has united the publishing community. “Apple, in its agreement with us, which has not been disclosed in detail, does allow for a variety of slightly higher prices,” Murdoch coyly said.

For background, read Publishing’s Weekend War: 48 Hours that Changed an Industry.

Richard Curtis

(c) Reuters

The facedown lasted from Friday evening to Sunday afternoon but when it was over the landscape of the book business was permanently altered. On Friday, in reaction to Macmillan’s refusal to play the Kindle pricing game by Amazon’s rules, the retailer punished Macmillan by extinguishing the publisher’s Buy buttons on the Amazon website.

Obviously, Amazon hoped this tactic would bring Macmillan to its knees. Instead it triggered another wave of customer outrage as Kindle owners reacted just as they had in 2009 when Amazon reached into their Kindles and recaptured files without notice or explanation. Though the response of the author community was mixed, many authors were angered at becoming victims of a war they scarcely understood but they too blamed Amazon.

Amazon also underestimated the possibility that other major publishers might support Macmillan. This turned out to be a well founded concern. In the past few weeks all of the big houses except Random House conducted discussions, and in all likelihood negotiations, with Apple to forge a new retailing model that would return control of e-book pricing to the publishers, who had become alarmed that Amazon’s insistence on a $9.99 price cap would force them to accept lower wholesale terms. Conditions were ripe for mutiny, and on Friday the test of wills began. By Sunday, as Amazon realized that this was a fight it could not win, it capitulated.

I stated that this might well be a turning point for the book industry – both e-book and print – and I stand by that statement.

I also made a prediction that publishers will no longer be able to hold the line on the current 20-25% royalty rate offered to authors. In fact I guaranteed that they won’t be able to, and I stand by that guarantee as well. Authors, and more importantly their powerful literary agents, have viewed the new landscape and found it rich with the potential for profit. They perceive the current royalty level as arbitrary and without basis in the economies of e-book production and distribution. The current rates cannot and will not hold. Just as Amazon blinked in its stare-down with Macmillan, Macmillan and its Big Six companions will also blink in the inevitable confrontation with authors.

You heard it here first.

Richard Curtis

Boy, that didn’t take long!

Remember the pinkie bet I made ten minutes ago? I wagered that once publishers’ hands were untied from the $9.99 price ceiling on e-books we would see an increase in the royalty percentage paid by publishers to authors on e-book revenue. Well, I’m halfway there to winning it. Amazon’s Kindle team has just released a statement accepting Macmillan’s position even though disagreeing with it. The statement in part says:

“We will have to capitulate and accept Macmillan’s terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books.”

The Kindle spokesblog added that “We don’t believe that all of the major publishers will take the same route as Macmillan.” Perhaps not, but they will now be encouraged to do so by Macmillan’s stand. I don’t think it’s an exaggeration to say this may be a defining moment in the history of the e-book industry.

Read the Kindle Team’s full statement here.

Richard Curtis