Contemplating New Models

Yesterday on the glorious timesuck that is twitter, Devon Monk asked,

So here's a question: Has anyone tried the Netflix model for ebooks? Buy or rent one month after books are in stores for monthly fee?

I don't know whether anyone has tried it, but I can tell you that as soon as I read that comment, I broke out in math-induced hives. I tried to explain why in my tweets yesterday, but the short format isn't good for this kind of complex issue. So, for Devon, here's a better answer. (Also, everyone should buy her books. Go ahead. We'll wait for you.)

Ready? We're going to subtitle this post,

A Woefully Oversimplified Look at Money in Publishing

Let's start with the basic supply chain. Authors sell to publishers. Publisher sell to distributors. Distributors sell to retailers. Retailers sell to consumers.

That covers it for quite a lot of the books that go home with consumers. There are exceptions -- sometimes authors sell direct to the public (vanity books) or to retailers (as with the kindle author program). And sometimes publishers sell direct to retailers or consumers. But as a general rule, it's a 5-step process to get the book from author to reader.

Here's another general rule. Most of the time, the sales made at each step of the process are handled on a per-copy basis. In other words, the consumer pays a certain amount per copy of the book. Then the retailer pays a lesser amount to the distributor, the distributor an even lesser amount to the publisher, and the publisher an even lesser amount to the author. (Some of you are shaking your heads right now at all the ways this paragraph might be inaccurate. Stick with me. It's accurate enough for our purposes, and we don't need to consider returns and other distribution conundrums for now.)

The consumer, and everyone else along the chain, knows that the price is per copy. You don't pay $7.99 for a mass market paperback and expect to take home an infinite number of copies for that one-time $7.99 payment. The whole accounting system through all five steps is more or less built on this basic assumption: we pay for every copy we buy (or collect for every copy we sell).

There are exceptions. Before we get to those, let's think for a moment about how an author's contract is written. There's a rights clause detailing which rights are being transferred from author to publisher. Example:

Author hereby grants and assigns to Publisher for the term of the Agreement the following rights, whether now existing or hereinafter arising, in and to the Work:
1. The sole and exclusive right to print, use, manufacture, publish, distribute, and sell the Work in book form, whether paperback, hardcover, paper-over-boards, trade paperback, mass market, or otherwise, and in audio recording throughout the World in any language
whatsoever, and to license others to do so.
2. The sole and exclusive right throughout the World to sell or use and license others to sell or use any and all subsidiary and performance rights in and to the Work, and any part thereof, including but not limited to all of the following rights: (i) first serial, (ii) second serial, (iii) abridgment or digests, (iv) book club, (v) reprint by another publisher, (vi) translations, (vii)
tape, record or other recordings, (viii) dramatizations, (ix) use in, as or for motion pictures, (x)
transmission or other use by radio or television, (xi) in any digital form by any mechanical, electronic or other means now or hereafter known.

You see how the rights are broken down and detailed? That's because, in general, rights not transferred specifically are reserved to the author. Not all contracts break them out in such a sweet outline form, but they all list which rights are being transferred, and they generally distinguish between primary and secondary rights (also called subrights). In our example, paragraph 1 deals with the primary rights and paragraph 2 deals with the subrights.

Later in the contract, in the payments clause, each of those specific grants will be handled separately. The percentages for each tier will be spelled out carefully, for example:

(c) Discounted sales. On all net copies sold at a price lower than the lower regular wholesale price through special arrangements with charitable or professional associations or similar organizations, a royalty equal to seven percent (7%).

I won't C&P an entire payment clause here because they generally run long and they're super boring. (Much like this post, alas.) The important phrase to note here: On all net copies sold.... It's what I was talking about earlier, that we expect payment to generally be made on a per-copy basis.

Subrights, though, are handled something like this:

Except as otherwise provided below, Publisher shall credit the Author's account with 50% of net proceeds received for the disposition of Secondary Rights.

And there may also be a listing of specific secondary rights and how the splits will be measured. In any case, for those kinds of rights, money is aggregated rather than measured on a per-copy basis. The publisher collects a lump sum for disposition of the secondary right -- $X for book club rights, to be split equally between author and publisher regardless of how many copies the book club sells. See the difference in the language? On all net proceeds, not On all net copies sold.

Which brings us to the netflix model. As you may know, netflix charged a monthly fee in the $10-20 range, depending on your subscription plan, and for that amount you may rent a certain number of movies each month. Can this be applied to books? Possibly, but it could be a wicked headache come royalty time. Let's start by asking into which general category such rentals would fall.

Option 1: We would have to treat it as a primary right and apportion some amount of each month's fee to each month's rentals.

This is what gave me math hives. Let's say Randy Reader pays $12 a month and rented 6 books by 5 authors published by 4 different houses. Theoretically, some portion of that $12 would then be split among the 6 books by 5 authors at 4 houses (with everyone in the supply chain taking a cut, too). And what do we do if he keeps the book through more than one rental period? And what do we do in the months where he rents 30 books for the same $12 -- how does that affect the bottom line numbers when we're calculating royalites? How can we ever hope to have an accurate accounting with such a system? You see? Hives and headaches all around. It's do-able, certainly not impossible, but ::shudder:: (I will let you do your own math to try to calculate how much an author might receive per rental come royalty day. Don't forget to withhold portions for everyone in the supply chain.)

Option 2: Treat it as a subright and do a lump payment.

The more sensible option, perhaps, would be to treat this like a book club. Charge the rental-retailer a lump fee for the right to rent the title over a set period, and then split the money received in half. Calculating the lump sums would be its own ring of hell, but it would be far better than the alternative. Of course, this presumes that the contract will allow for this kind of rights transfer. Maybe it will and maybe it won't. (If you think that's not an issue, consider all the wrangling over e-rights on backlist now in progress.)

So there you have it, everything I wanted to tweet yesterday but couldn't cram into 140-character bites. Thank you, Devon, for the great question.

Theresa