Wednesday, December 16, 2009

The E-Book Wars Have Really Begun

It seems quite likely that we will look back on this week as the moment when the e-book wars officially began. We may have forgotten it, but electronic books of one kind or another have been with us for a couple of decades (beginning with ill-fated ventures into books on CD).  For most of that time, the actual market was negligibly small. In the last few years the e-book market became significant, but although it generated vast amounts of chatter—ranging from dark mutterings by publishers to utopian visions from technophiles—a sort of uneasy calm prevailed at the frontier where authors and agents, publishers, and Amazon and its competitors eyed each other warily.  There were occasional skirmishes and plenty of saber-rattling (over matters such as Kindle prices or Digital Rights Management) but no party seemed ready to make a move aggressive enough to start a real fight.

But that has now changed—inevitably, because the e-book market has exploded and digital books are the hottest (perhaps the only) growth area in the industry. The calm is over, and real punches are being thrown. You might say the first jab came from three houses (Simon & Schuster, Hachette, and HarperCollins) who announced they were going to delay releasing e-books of their titles until several months after hardcover publication. I agree with the analysis of Mike Shatzkin that these houses are not so much concerned over pub dates as trying to find some leverage to use with Amazon over the pricing issue. 

But the timing kerfuffle was minor compared to the dustup that broke out on Friday when Random House CEO Markus Dohle declared, with chutzpah one can only admire, that the house controls e-book rights for thousands of backlist titles whose contracts made no mention of such rights. This was drawing a line far out in the sand.  Dohle’s bold assertion is, essentially, that e-books are just another kind of “book,” so the contractual language that gives Random exclusivity over all editions of a work includes e-books—even though they had not been invented at the time most of these contracts were signed. 

It’s hard to believe Random can make this claim with a straight face. They went to court with this argument years ago and didn’t get very far. But you can see why they’re trying it on. At stake is potentially millions of dollars in backlist revenue that the house could lose out on if authors take e-rights of their old titles elsewhere.  Even though Random’s argument may be legally weak, by making a show of defending this territory they are presumably hoping to discourage authors from battling them for it. Agent Richard Curtis, who is himself a an e-publisher, observes at his blog, "Someone would have to have a lot at stake to be willing to spend hundreds of thousands of dollars to go up against Random House in court.”

Random may be betting that for individual authors, it won’t be worth the fight. But now that we are seeing explosive growth in e-book revenues, I believe there’s too much money at stake for authors not to contest this ground. The Authors Guild has already blasted back at Dohle, calling Random’s position on the backlist a “retroactive rights grab.”

The Guild also points out that Random House rewrote its contract boilerplate in 1994 and specifically added language to cover e-book rights, which wouldn’t seem to be necessary if they were already bundled in with the rights acquired. I worked at Random House at the time, and well remember sitting in meetings where we discussed the new contract language. I certainly don’t remember anyone saying, “well, we already have these rights, but let’s throw in some extra language about them just to make sure.” The conversations I recall were much more like, “Hm, our old contract language didn’t say anything about electronic books so we’d better make sure we get them from now on.”

In the end, just as the fight with Amazon over pub dates is largely about pricing, the fight over who owns backlist e-rights is largely about royalties. After all, Random House is a hugely potent marketer of books and content; to an author, it’s not clear there’s any company out there that’s going to do better selling your backlist title, and there’s clearly an advantage to marketing print and e-editions together. But Random is paying an e-book royalty of 25% of net receipts, while others offer a 50-50 split or better. That’s a lot to leave on the table.

And that brings us to the second roundhouse blow landed this week. I’ll talk about that in tomorrow’s post. 

(illustration: The Taking of Lone Pine  by Fred Leist) 


Anonymous said...

Random's legal argument, as revealed in Markus Dohle's letter, is two-pronged. First, there is the pre-1994 grant-of-rights interpretation. As you point out, this makes for a weak case in light of the Rosetta decision. Second, there is the standard non-compete language, and here the argument gets complicated. In the Rosetta case, the judge opined that the non-compete could not be construed to convey an affirmative right to publish an exclusive e-book edition. But does it prevent Random from blocking someone else from doing so? Here we may have a Mexican stand-off that compels backlist authors and agents to deal with Random or forego e-book publication entirely.

Peter Ginna said...

The above is a good point. I was afraid this post was getting too long already so I didn't address the non-competition argument, which is, as you say, more ambiguous. It's hard to see all parties accepting the "Mexican standoff"--and as my next post will discuss, Stephen Covey may be forcing the question.

Unknown said...

Yet another argument for authors taking control of their own publishing processes. It takes a good manager to publish a book. The fight over digital rights may be enough to propel a writer into management.

Peter Ginna said...

I admire any writer enterpreneurial enough to take on publishing tasks himself or herself. There may be more reason (and better tools) to do it in a digital marketplace. On the other hand, the skills that go into writing a good book are not necessarily the same ones that go into publishing or "managing" it--which is one important reason publishing houses are still in business. Ideally, whether you're discussing e-books or print volumes, house and author are partners in the publishing process.

Anonymous said...

I know most old contracts included "electronic reproduction" in the subrights section. What exactly are "electronic reproduction" rights and could publishers claim that it incorporates e-books?

Unknown said...

The no writer can spend the money to go up against RH. Sounds familiar! When the conglomeraters took over Hollywood they adopted exactly that position. Try suing Universal sometime. They are known as non-settlers so you go all the way to the jury. The legal fees are enormous and it's very rare that a plagiarized writer of books or scripts has the means to go after them.

It's not only the same tactic, it's the same nameless, faceless, interchangable, corporate robots. Either the Guild takes them on or goodbye royalties.

Unknown said...

Hi Peter,

In book production seminars I have jokingly pointed out that when readers talk about a great book, they are never, ever talking about the paper, printing and binding.
So if a book is a collection of words in precise order and meant to be read, why is the Random House claim to control the rights to those words per their contract with the author , so outrageous ?

Tim McG.

Anonymous said...

Any author who wants to "take control" of the publishing process is welcome to it, especially all of those authors who don't need any sort of advance to fund their research, pay their rent while writing, etc. It may well be the case that some authors would be outstanding publishers of their work--but where on Earth would they find the money to fund their work before and during publication?

ellen9 said...

I agree; of course it's about royalties.
Two notes:
1. I've been reading that Simon & Schuster, Hachette, and HarperCollins may be delaying the ebook releases in anticipation of Apple's release of their tablet device in spring 2010. It promises better functionality for the reader than the Kindle and Apple gives a better royalty split. The publishers don't really have the muscle, after all, to go up against Amazon; manufacturers don't do too well keeping their prices up vs WalMart, do they? But maybe they think they could save some ammo and give it to Apple for their "Kindle-killer" tablet. (Kindlekiller does sound like some kind of fractured German horrorword.)
2. For book producers and developers like my company, Stonesong, the Random House move means that we, along with every other author/copyright owner, will never gets rights reversions. We do reference, and we've had a steady, albeit small, stream of income for years from reselling and reformatting our reference material after a publisher decides its no longer worth keeping it available. In fact, we've sold several of our rights-reverted titles to e-reads, Richard Curtis's company. No more.

Peter Ginna said...

EP: I'll have to go look at some old contracts. Some might refer to "electronic reproduction" as in things like computer databases, the same way they might refer to "microfiche reproduction."

Tim McG, some of us do think part of what makes a great book IS the paper, printing, and binding! I even wrote about this here:

I don't want to argue the brief for the Authors Guild here. Perhaps Random will prevail on its claim to backlist e-book rights; as I said above I think the question is just as much about what's agreed as a fair royalty for them.

Even if old boilerplate language can be construed to include e-books, there's no corresponding language saying what royalties authors get on e-book sales--since we're talking about contracts from before e-books existed! This will all have to be thrashed out either by litigation or negotiation.

Peter Ginna said...

Jack, as the son of a sometime filmmaker and -writer I think I can say fairly that authors have a lot more clout with publishers than screenwriters have ever had with studios. I can't help but think of the old joke about the bimbo starlet: she was so dumb she slept with the writer.

More seriously, especially with future projects, authors do have more options than they have had in the past. See Part 2 of this post, and Richard Curtis's article today here:

Peter Ginna said...

It will be interesting to see how the Apple tablet (or "unicorn" as Kassia Krozser calls it--worth reading her post at Booksquare on this) shakes up the market, but I for one tend to doubt that the houses you mention are delaying e-books just for this reason. However, I think it will be a good thing for publishers to have more competition for the Kindle. Mike Shatzkin had a smart post several months ago predicting that Amazon would find it hard to maintain its market leadership with Kindle, and I think he's right.

As for the lost reversions, I'm sure you will miss that income stream. But it could be good news if Random is really going to convert the titles themselves and market them robustly. They will certainly generate dollars just as e-reads did at least some of which should flow to rights holders like you.

Anonymous said...

No one is addressing the amount of time, effort and money making what goes between the two covers of a traditional book. Whether it's a hardcover, paperback or e-book, the editing of the book remains intact. It is a book regardless of the format. So if authors maintain the rights to e-books would those e-books be derived from the unedited manuscripts? Not likely. So if authors and agents want to control those rights should they not participate in the cost of the editing from the work of the in-house editor to copyediting, proofreading and such? If authors/agents don't help foot the bill then they should edit the rough draft? This would result in two editions. This is all insane. The rights to books are the collection of the words--they should remain with the publisher.

Anonymous said...

What does a good editor in New York earn? And what's to stop writers from forming consortiums that hire editors? Writers are already editting each other in small internet critique groups. Though they obviously don't get the same level of expert editting a publishing house editor provides, these small crit groups do allow writers to know who among them is competent. They might use that knowledge to select other writers with whom to form consortiums and put an editor on retainer. There are more than a few good ones looking for work right now.

Sound farfetched? Maybe. But wouldn't it be easier for writers and safer for publishers if writers got a fair split of e-book profits? Why encourage them to come up with innovative ways to cut the publisher from the loop?

Writers would prefer to spend their time writing and let publishers publish. But if the big houses go too far they could make it worth writers' while to learn some new skills.

Peter Ginna said...

Wow, the comments are coming in faster than I can respond to them. Thanks to everybody for this lively discussion.

To the first of 2 anonymous commenters above this one: you're quite right that publishers contribute a lot more than just the printing of the book, and this is one reason why we want to participate in all editions of a title. On the other hand, publishers have often been willing in the past to let the author retain certain rights--such as audio, first serial, or translation--which are also enhanced in value by the editorial work done in house. So the editorial contribution in itself wouldn't seem to justify a retroactive claim to e-book rights.

To the second commenter: writers are already hiring editors. A large number of editors who used to work in-house at major publishers are working freelance, either as outside contractors for the publishers, or for authors and agent directly. The fact is, you can buy "off the shelf" manuscript editing that's just as good as what you'd get from a large (or small) publisher. What's still harder to buy is all the other things a publisher provides.

This brings us back to the question of what is "a fair split" of e-book profits. I think we'll continue to thrash around on this for a while and, after some period of time, settle on an industry standard just as we have with print book royalties.

Anonymous said...

"What's still harder to buy is all the other things a publisher provides."

Yes, writers and agents do hire editors. But do you see where it could lead if writers start forming partnerships as if they're law firms rather than individual artists? Right now the business model is that writers are the suppliers of publishers. But it is conceivable that it could become the other way around.

Is there really that much "stuff" a publisher does for a writer that a consortium of writers couldn't hire done?

Lots of talent never enters this business (or doesn't stay) because they can do better financially in other endeavors. What if being a writer could be as profitable as some other professions? Publishers would begin to have to deal with a whole different sort of personality.

Peter Ginna said...

Good questions, and ones that I'll try to address, directly or indirectly, in future posts.