Royalties: Past, present, and future
What does the word “royalty” mean to you as an author? In their presentation, “Royalties: Past, Present, and Future” at the 31stAnnual Textbook & Academic Authoring Conference, royalty auditor Juli Saitz of Ankura Consulting Group, and veteran publishing insider Sean Wakely of FlatWorld, discussed the history and anticipated future of textbook author royalties.
In a traditional author-publisher relationship, the publisher is providing financial capital and the author is providing human capital for the development and publication of a book. The negotiation of royalty payments from the sales of the book determines how the profit from such sales is divided. Consequently, the royalty model represents a shared risk between author and publisher and also a shared reward – especially when a title is successful.
The royalty model in today’s marketplace has evolved from a relatively simple model to one that includes various distribution channels, bundles, and digital supplements. In particular, the reuse of authored material in various products and formats developed and distributed by the publisher sheds new light on traditional assumptions regarding return on investment and shared risk and reward.
In the pre-web environment, where publishers managed the sales process nearly exclusively through established channels, complicated only by simple and easily tracked purchase options, such as bundles, bulk sales, and print supplements or exports through their channel partners, royalty rates were commonly established at a flat rate for domestic sales, and perhaps one or more secondary rates for other channels as shown below.
Present day distribution is not as simple as in days past, and many titles are redistributed in secondary markets that are unable to be controlled by the publisher or easily tracked for royalty calculations. In addition to traditional print sales opportunities, most publishers are now handling e-book sales and rental options in the marketplace. Contracts may reflect different royalty rates for these variations making the calculation of royalty payments more complex.
As we look at the future of publishing agreements, particularly as applied to the royalty clause, authors must consider a complex array of distribution options for their work. In addition to the current distribution methods, export options, electronic licenses, and rentals, authors now have to consider the impact of print and electronic derivatives of their work and evolving subscription models on their resulting royalties.
For some new authors, we’re already witnessing flat fee/work-made-for-hire agreements as replacements for traditional royalty-based publishing agreements. In these cases, the risk assumed by the publisher is equal to that of the author’s reward in a one-time payment instead of the traditional shared approach to both risk and reward.
Seemingly, publishers and consumers are moving to a market dominated by electronic distribution with new business models, new product types, and subscription options that were not even considerations when legacy publishing agreements were drafted. These industry shifts make the discussion of royalties even more challenging for authors as they consider the application of legacy royalty clauses on modern sales models or the negotiation of new agreements in a changing environment.
So, as a textbook author, the question really is, what does the word “royalty” mean to you?