FAIR CONTRACT INITIATIVE

The Authors Guild released its first “detailed analysis” in its Fair Contract Initiative, an outreach effort aimed at improving the standard contract for authors. The piece, released to the Guild's membership Thursday morning, examines what the organization calls “inadequate e-book royalties” and argues that the digital royalty favors publishers far too heavily.

As part of its analysis, the Guild said that it hopes “established authors and, particularly, bestselling authors" will begin to "push back" on the reigning e-book royalty rate of 25%. The Guild is hoping this small, but powerful, group can take a stand "on behalf of all authors, as well as themselves.”

The heart of the association’s argument is that the traditional author-publisher partnership has been upended by the success of e-books. While authors had been able to earn around 50% of a book’s profits in the past, now, with e-book, publishers have been able to tip the scales to achieve a 75%-25% balance in their favor.

The Guild analysis traces the history of the e-book royalty rate, and points to the watershed moment in 2004 when Random House, which had been paying 50% of e-book revenue to authors, changed its rate “significantly.” This led to e-book royalties coalescing around the 25% level.

Acknowledging that authors and agents “ought to have pushed back” against the lower royalty, the Guild said that e-book sales were so low prior to 2009 that “it didn’t make much sense to risk the chance of any individual book deal falling apart over e-royalties.” The Guild added that when e-book sales rose, the organization wrongly assumed that authors would only sign with publishers offering an e-book royalty above 25%.

The publishers, the Guild went on, unexpectedly “dug in their heels” on the digital royalty, though, using most favored nation clauses, which state that if an e-book royalty rate is changed for one author a publisher needs to renegotiate that rate for all authors. Consolidation among publishers has also put authors a the unenviable position of having to settle for, in the Guild's wording, “take it or leave it deals.”

The Guild does acknowledge that Amazon has put pressure on publishers’ profits by pushing for deeper discounts on e-books. It is also noted that publishers’ margins on e-books shrank between it's first analysis of the digital royalty rate in 2011, and one done earlier this year. Even though publishers are not doing as well financially as they were four years ago, the Guild pointed out that authors, as a group, are faring far worse.

Publishers have given some authors a 50% royalty rate on e-books, but the Guild said these select few have been required to sign nondisclosure agreements about the terms of their deals. Now, as authors struggle with ever-diminishing profits on their work, the Guild said the time has come for publishers to change their e-book royalty rate.