Sunday, February 27, 2011

Illinois legislation impacting Amazon Associates Program? | The Whole Bird Politics

Who knew that Amazon is an authority on what is unconstitutional ?

Illinois legislation impacting Amazon Associates Program? | The Whole Bird Politics

Greetings from the Amazon Associates Program:

We regret to inform you that the Illinois state legislature has passed
an unconstitutional tax collection scheme that,
if signed by Governor Quinn, would leave little choice
but to end its relationships with Illinois-based Associates.

I am very surprised that a corporation is allowed to stir the pot in this way. My
understanding was that it is constitutional for the individual States to levy taxes
to meet their needs.

I'm also surprised that Amazon affiliates aren't routinely taxed on their income from
sales referrals. Shouldn't there be some kind of tax forms... 1099s??

As I see it, any income paid to affiliates is either taken out of Amazon's cut on sales,
or it is taken out of the publishers' and authors' cut. Since the author does not receive
that amount, the author isn't paying taxes on it.

Someone ought to be paying taxes. I'm with Illinois on this. I think Michigan and Kentucky
and Florida ought to be taxing Amazon affiliates' income, too.

Tuesday, February 15, 2011

Snarking back at a pirate


After two or more years, YAHOO finally, apparently, did the right thing and parted ways with
one of the worst alleged pirates on the internet.

These people make $0.03 (three cents) from every download that they can trick
booklovers, movie-lovers, music-lovers, magazine-lovers etc into illegally downloading. Also,
they tell their audience that they, too, can make money by sharing movies, e-books, music that
they do not own, and that they have downloaded illegally.

They do not tell those innocent persons that the pirates will receive approximately 20% of
the new members' commissions.

Nor do they tell their victims that by illegally downloading copyrighted material, the victims
in theory risk the possibility of prosecution, fines of up to $250,000 per file downloaded, and
up to 5 years in prison.

Okay. There's a slim chance that that would happen. Nevertheless, if you are going to "steal"
("stealing" isn't the legally correct term for infringing copyright) copyrighted material, you
ought to be given the opportunity to make an informed decision whether it is worth it.

The "Free Book Club" was a club that infringed copyright, and encouraged others to do so.
It infringed AMAZON's copyright, by snagging reviews, or substantial portions of AMAZON-owned
reviews from the pages of books that were being legally sold on AMAZON.

It infringed the publishers' copyright by posting copyrighted cover art.

It provided links to a file hosting site, so that members of their club could follow the links
and illegally download copyrighted works that had been illegally uploaded to that site in violation
of the hosting site's terms of use, and the copyright of the true copyright owners.

Make no mistake, just because one person has infringed copyright by uploading an in-copyright
e-book, movie, tune, magazine, etc to a file-hosting site, that does not make a "stolen" work
free and legal for everyone else to "steal".

The work is still under copyright. The right to copy it, and distribute it still belongs to
the author.

Subject: Book Club Newsletter (important, please read)
From: Club Admin

Dear Book Club Members
We have closed the FreeBookClub at Yahoo Groups.
This was due to an argument with Yahoo over our 'absolute' right to inform members of complimentary books etc., and even though we are not the hosts of these giveaways, we do not accept that we should told what we can or cannot say to our membership in an email newsletter. Yahoo has lost the plot!
We are currently looking for a more reliable mailing service, but in the meantime, if you would like to continue to recieve notifications about new giveaways, please join our Google Group, using the form below. Hopefully they better understand our legal rights of free speech!

Regards, Club Admin
The problem, I think, comes with these pirates' misunderstanding of what "free" and "complimentary"
and "giveaway" mean.

A book can be "complimentary" if it is given away by someone with the legal right to give it
away. In the case of most of the works these pirates shared, the copyright owner probably did
not voluntarily give it away. Is it logical that at the same time that "The Sorcerer's Apprentice"
and "The Social Network" are on pay-per-view on TV, or even still running in cinemas, is it
reasonable to believe that the film-makers want you to be able to get it free from FILESONIC?

Personally, I wonder about the "free speech" issue. It might be a matter covered by the truth
in advertising laws.

Is there a legal difference between something "stolen" and something "free"?

Where does solicitation to commit a crime begin?

Friday, February 11, 2011

The E-Book Royalty Mess, courtesy of Authors' Guild

The E-Book Royalty Mess: An Interim Fix
February 11, 2011. To mark the one-year anniversary of the Great Blackout, Amazon's weeklong shut down of e-commerce for nearly all of Macmillan's titles, we're sending out a series of alerts on the state of e-books, authorship, and publishing. The first installment ("How Apple Saved Barnes & Noble. Probably.") discussed the outcome, of that battle, which introduced a modicum of competition into the distribution of e-books. The second, ("E-Book Royalty Math: The House Always Wins") took up the long-simmering e-royalty debate, and showed that publishers generally do significantly better on e-book sales than on hardcover sales, while authors always do worse.
Today, we look at the implications of that disparity, and suggest an interim solution to minimize the harm to authors.
Negotiating a publishing contract is frequently contentious, but authors have long been able to take comfort in this: once the contract is signed, the interests of the author and the publisher are largely aligned. If the publisher works to maximize its revenues, it will necessarily work to maximize the author's royalties. This is the heart of the traditional bargain, whereby the author licenses the publisher long-term, exclusive book rights in the world's largest book market in exchange for an advance and the promise of diligently working to the joint benefit of author and publisher.
Now, for the first time, publishers have strong incentives to work against the author's interests.
As we discussed in our last alert, authors and publishers have traditionally acted as equal partners, splitting the net proceeds from book sales. Most sublicenses, for example, provide for a fifty-fifty split of proceeds, and the standard hardcover trade book royalty -- 15% of the retail price -- represented half of the net proceeds from selling the book when the standard was established.* But trade book publishers currently offer e-book royalties at precisely half what the terms of a traditional proceeds-sharing arrangement would dictate -- paying just 25% of net income on e-book sales. That's why the shift from hardcover to e-book sales is a win for publishers, a loss for authors.
The Pushback
The publisher's standard reply to this -- which we heard yet again after last week's alert -- is a muddle, conflating fixed costs with variable costs. Let's address that before we move on.
For any book, a publisher has two types of fixed costs: those attributable to the publisher's operations as a whole (office overhead, investments in infrastructure, etc.) and those attributable to the particular work (author's advance, editing, design). The variable costs for the book are the unit costs of production. These costs (print, paper, binding, returns, royalty) tell a publisher how much more it costs to get, say, 10,000 additional hardcover books to stores and sell them. The publisher's gross profit per unit (unit income minus unit costs) is the amount against which the author's royalties are traditionally and properly measured. With this sort of analysis, a publisher can compare the gross profitability per unit of, for example, a hardcover to a trade paperback edition.
Investments in technology change nothing. Publishers never argued, for example, that hardcover royalties needed to be cut when they began equipping their editorial and design staffs with expensive (at the time) personal computers, buying pricey computers and software for their designers, tying those computers together with ever-more-powerful Ethernet cables and routers, and hiring support staff to maintain it all. Publishers simply took their share of the gross profits from book sales and applied it to all of their costs, as they always have. What remains after deducting those costs is deemed the publisher's net profit. Similarly, authors take their share of the proceeds of their book sales and apply it to their overhead (food, clothing, shelter, and computer technology) and costs (their labor and out-of-pocket costs to write the manuscript). What remains is the author's net profit.
The proper question is this: how much better off is a publisher if it sells a book, print or digital, than it is if it doesn't? That is what we measured. We then compared that to the author's print and digital royalties per book.
Publisher's E-Gains + Author's E-Losses = E-Bias
Applying standard trade hardcover and e-book terms to Kathryn Stockett's "The Help," David Baldacci's "Hell's Corner," and Laura Hillenbrand's "Unbroken," we found that publishers do far better by selling e-books than hardcovers (realizing "e-gains" of 27% to 77%), while the authors do much worse (suffering "e-losses" of 17% to 39%). Publishers can't help being influenced by the gains; e-bias will inevitably drive their decisions.
Some simplified examples show how e-bias plays out in publishing decisions:
1. Promotional Bias. Assume a publisher is contemplating whether to invest a portion of a book's limited marketing budget in stimulating the sale of digital books (paying for featured placement in the Kindle or Nook stores, perhaps) or in encouraging print sales through a promotion at physical bookstores. Either way, the publisher expects the investment to boost sales by 1,000 copies. A sensible publisher would spend the money to promote digital books, pocketing an additional $1,570 to $4,170 on those sales compared to hardcover sales. Such a decision, however, would cost Ms. Stockett, Mr. Baldacci, and Ms. Hillenbrand $1,470, $1,570, and $670, respectively, in royalties.
2. Print-Run Bias. E-gains of 27% to 77% become irresistible when a publisher looks at risk-adjusted returns on investment, as any businessperson would. Once a book is typeset for print, the publisher must invest an additional $30,000 to have 10,000 hardcover books ready for sale, using the figures from our prior alert. Once the digital template is created and distributed to the major vendors, on the other hand, there is no additional cost to having the book ready for purchase by an unlimited number of customers. Even the encryption fee (50 cents per book, at most) isn't incurred until the reader purchases the book. In this environment a publisher is nearly certain to keep print runs as short as possible, risking unavailability at bookstores, in order to decrease overall risk and maximize the publisher's return on investment.
Publishers, in short, will work to increase e-book sales at the inevitable expense of hardcover sales, tilting more and more purchases toward e-books, and their lower royalties. Publishers, as sensible, profit-maximizing entities, will work against their authors' best interests.
An Interim Solution: Negotiate an E-Royalty Floor
This won't go on forever. Bargain basement e-royalty rates are largely a result of negotiating indifference. The current industry standards for e-royalties began to gel a decade or so ago, when there was no e-book market to speak of. Authors and agents weren't willing to walk away from publishing contracts over a royalty clause that had little effect on the author's earnings.
Once the digital market gets large enough, authors with strong sales records won't put up with this: they'll go where they'll once again be paid as full partners in the exploitation of their creative work. That day is fast approaching, and would probably be here already, were it not for a tripwire in the contracts of thousands of in-print books. That tripwire? If the publisher increases its e-royalty rates for a new book, the e-royalty rates of countless in-print books from that publisher will automatically match the new rate or be subject to renegotiation.
So, what's to be done in the meantime? Here's a solution that won't cascade through countless backlist books: soften the e-bias by eliminating the author's e-loss. That is, negotiate for an e-royalty floor tied to the prevailing print book royalty amount.
Turning again to our last alert for examples, here are the calculations of e-losses and e-gains without an e-royalty floor:
"The Help," by Kathryn Stockett
Author's Standard Royalty: $3.75 hardcover; $2.28 e-book.
Author's E-Loss = -39%
Publisher's Margin: $4.75 hardcover; $6.32 e-book.
Publisher's E-Gain = +33%
"Hell's Corner," by David Baldacci
Author's Standard Royalty: $4.20 hardcover; $2.63 e-book.
Author's E-Loss = -37%
Publisher's Margin: $5.80 hardcover; $7.37 e-book.
Publisher's E-Gain = +27%
"Unbroken," by Laura Hillenbrand
Author's Standard Royalty: $4.05 hardcover; $3.38 e-book.
Author's E-Loss = -17%
Publisher's Margin: $5.45 hardcover; $9.62 e-book.
Publisher's E-Gain = +77%
Here are the calculations with an e-royalty floor:
"The Help," by Kathryn Stockett
Author's Adjusted Royalty: $3.75 hardcover; $3.75 e-book.
Author's E-Loss = Zero
Publisher's Margin: $4.75 hardcover; $4.85 e-book.
Publisher's E-Gain = +2%
"Hell's Corner," by David Baldacci
Author's Adjusted Royalty: $4.20 hardcover; $4.20 e-book.
Author's E-Loss = Zero
Publisher's Margin: $5.80 hardcover; $5.80 e-book.
Publisher's E-Gain = Zero
"Unbroken," by Laura Hillenbrand
Author's Adjusted Royalty: $4.05 hardcover; $4.05 e-book.
Author's E-Loss = Zero
Publisher's Margin: $5.45 hardcover; $8.85 e-book.
Publisher's E-Gain = +62%
While this wouldn't restore authors to full partnership status in the sale of their work, it would prevent them from being harmed as publishers try to maximize their revenues. This is only an interim solution, however. In the long run, authors will demand to be restored to full partnership, and someone will give them that status.
Part 4 of this series will look at online piracy and book publishing.
*A traditional industry rule of thumb was that the price of a hardcover should be five or six times the cost of production. (John P. Dessauer, Book Publishing: What It Is, What It Does. R.R. Bowker 1974, p. 92). To keep the math simple, let's assume that it's priced at five times the cost of production, that there are no returns, and that the bookseller pays the publisher 50% of the list price for the book. Of the 50% the publisher receives, subtract 20% for the cost of production (one-fifth the retail price) and the net proceeds are 30% of the retail list price. Split that in two, and one arrives at the author's standard hardcover royalty, 15% of the retail list price. (A current rule of thumb is that the cost of producing a hardcover is about 15% of the retail price, but the actual costs vary widely.)
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Friday, February 04, 2011

From The Authors' Guild

E-Book Royalty Math: The Big Tilt
To mark the one-year anniversary of the Great Blackout, Amazon's weeklong shut down of e-commerce for nearly all of Macmillan's titles, we’re sending out a series of alerts this week and next on the state of e-books, authorship, and publishing. The first installment (How Apple Saved Barnes & Noble. Probably.) discussed the outcome, one year later, of that battle. Today, we look at the e-royalty debate, which has been simmering for a while, but is likely to soon heat up as the e-book market grows. 
E-book royalty rates for major trade publishers have coalesced, for the moment, at 25% of the publisher’s receipts. As we’ve pointed out previously, this is contrary to longstanding tradition in trade book publishing, in which authors and publishers effectively split the net proceeds of book sales (that's how the industry arrived at the standard hardcover royalty rate of 15% of  list price). Among the ills of this radical pay cut is the distorting effect it has on publishers’ incentives: publishers generally do significantly better on e-book sales than they do on hardcover sales. Authors, on the other hand, always do worse.
How much better for the publisher and how much worse for the author? Here are examples of author’s royalties compared to publisher’s gross profit (income per copy minus expenses per copy), calculated using industry-standard contract terms:  
“The Help,” by Kathryn Stockett  
Authors Standard Royalty: $3.75 hardcover; $2.28 e-book. Author’s E-Loss = -39% 
Publishers Margin: $4.75 hardcover; $6.32 e-book. Publisher’s E-Gain = +33%
“Hell’s Corner,” by David Baldacci 
Author's Standard Royalty: $4.20 hardcover; $2.63 e-book. Author’s E-Loss = -37% 
Publishers Margin: $5.80 hardcover; $7.37 e-book. Publisher’s E-Gain = +27%
“Unbroken,” by Laura Hillenbrand 
Authors Standard Royalty: $4.05 hardcover; $3.38 e-book. Author’s E-Loss = -17% 
Publishers Margin: $5.45 hardcover; $9.62 e-book. Publisher’s E-Gain = +77%
So, everything else being equal, publishers will naturally have a strong bias toward e-book sales. It certainly does wonders for cash flow: not only does the publisher net more, but the reduced royalty means that every time an e-book purchase displaces a hardcover purchase, the odds that the author’s advance will earn out -- and the publisher will have to cut a check for royalties -- diminishes. In more ways than one, the author’s e-loss is the publisher’s e-gain.
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. (Some publishers finesse this issue when they amend older contracts, many of which allow e-royalty rates to quickly escalate to 40% of the publisher’s receipts. Amending old contracts to grant the publisher digital rights doesn’t trigger the automatic adjustment, in the publisher's view.) Given these substantial collateral costs, publishers will continue to strongly resist changes to their e-book royalties for new books.
Resistance, in the long run, will be futile. As the e-book market continues to grow, competitive pressures will almost certainly force publishers to share e-book proceeds fairly. Authors with clout simply won’t put up with junior partner status in an increasingly important market. New publishers are already willing to share fairly. Once one of those publishers has the capital to pay even a handful of authors meaningful advances, or a major trade publisher decides to take the plunge, the tipping point will likely be at hand.
In the meantime, what’s to be done? We’ll address that in our next installment in this series, on Monday.
Our assumptions and calculations for the figures above follow.
Doing the Numbers: Hardcover
To keep things as simple as possible, we assumed that for hardcovers: (1) the publisher sells at an average 50% discount to the wholesaler or retailer (2) the royalty rate is 15% of list price (as it is for most hardcover books, after 10,000 units are sold), (3) the average marginal cost to manufacture the book and get it to the store is $3, and (4) the return rate is 25% (a handy number -- if one of four books produced is returned, then the $3 marginal cost of producing the book is spread over three other books, giving us a return cost of $1 per book). We also rounded up retail list price a few pennies to give us easy figures to work with.
“The Help,” by Kathryn Stockett has a hardcover retail list price of $25. The standard royalty (15% of list) would be $3.75. The publisher grosses $12.50 per book at a 50% discount. Subtract from that the author's royalty ($3.75), cost of production ($3), and cost of returns ($1), and the publisher nets $4.75 on the sale of a hardcover book.
“Hell’s Corner” by David Baldacci, has a retail list price is $28. The standard royalty is $4.20; the publisher's gross is $14. Subtract royalties ($4.20), production and return costs ($4), and the publisher nets $5.80.
“Unbroken,” by Laura Hillenbrand has a hardcover list price of $27. Standard royalties are $4.05. The publisher's gross is $13.50. Subtract royalties of $4.05 and production and return costs of $4, and the publisher nets $5.45.
Doing the Numbers: E-Book
E-book royalty rates are uniform among the major trade publishers, but pricing and discounting formulas fall into two camps: the reseller model favored by Amazon (Random House is the only large trade publisher using this model) and the agency model introduced by Apple a year ago. (See yesterday’s alert for more information on these models.)
Under the reseller model, the online bookseller pays 50% of the retail list price of the book to the publisher and sells the book at whatever price the bookseller chooses (for bestsellers, Amazon typically sells Random House e-books at a significant loss). Random House frequently prices the e-book at the same price as the hardcover until a paperback edition is available.
Under the agency model, the online bookseller pays 70% of the retail list price of the e-book to the publisher. The bookseller, acting as the publisher’s agent, sells the e-book at the price established by the publisher, but the publisher is constrained by agreement with Apple and others to set a price significantly below that for the hardcover version.
The unit costs to the publisher, under either model, are simply the author’s royalty and the encryption fee, for which we’ll use a generous 50 cents per unit.
Here’s the math:
“The Help” has an e-book list price of $13 and is sold under the agency model. Publisher grosses 70% of retail price, or $9.10. Author's royalty is 25% of publisher receipts, or $2.28. Publisher nets $6.32. ($9.10 minus $2.28 royalties and $0.50 encryption fee.)
“Hell’s Corner” is also sold under the agency model at a retail list price of $15 list price. Publisher grosses 70% of retail price, $10.50. Author's royalty is 25% of publisher receipts, or $2.63. Publisher nets $7.37. ($10.50 minus $2.63 royalties and $0.50 encryption fee.) 
“Unbroken” is sold by Random House under the reseller model at a retail list price of $27. Publisher grosses $13.50 on the sale. Author’s royalty, at 25%, is $3.38. Random House nets $9.62. ($13.50 minus $3.38 royalties and $0.50 encryption fee.)
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