Understanding eBook Royalties (Part 2)

As we discussed last time, the eBooks royalties game is in constant evolution. In the last article, I talked about the wholesale model of eBook royalties, used by Amazon, where authors get paid based on “net receipts,” also called “net revenues.”

The second royalty model is called the agency model—the model used by iTunes. Instead of using the traditional publishing construct as the basis for publisher payments, iTunes pays based on the actual retail price of the eBook, usually around $9.99.

So, an author with 25% eBook royalties can expect to receive around $2.50 per eBook sold on iTunes.

Let’s compare that with the traditional model assuming net receipts are 50% and the print book list price is $25. At a 25% royalty rate, that’s $25 x 50% x 25% = $3.13 to the author. Pretty close.

But what are the retailers making on the eBooks? Apple’s gross revenue on eBooks (sold through iTunes) is straightforward: $7.50. For Amazon, it’s less clear: the revenue is nominally $0, but because the subsidized prices are designed to boost sales of the Kindle, the verdict is still out.

But keep a close eye on the competition between the Kindle and iPad. Will the emergence of the iPad force the Kindle toward more dramatic action? Exclusive distribution deals or adoption of the agency model, perhaps? Will the subsidy spark an eBook price war where everybody loses (except for the consumer)?

In the next and final article on this topic, we’ll cover some other variables that can impact eBook royalties, discuss what you as an author should look for when negotiating a contract, and posit where we may be heading as the industry forges ahead into the brave new world of digital publishing.

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