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Royalty Management
Software Resources

The Ebook Price Fixing Controversy: Three Lessons for Royalty Management

In April, all eyes were on the price-fixing suit brought against Apple and five of the big-six book publishers. Generally known as the agency model or ebook price fixing issue, the case centers around whether publishers’ ebook pricing agreements with Apple violated antitrust laws.

As of this writing, three of the publishers (HarperCollins, Hachette, and Simon & Schuster) signed settlements with the U.S. Department of Justice in response to the the federal complaint. Those three have also settled with 29 states, the District of Columbia, and Puerto Rico in a similar anti-trust case brought in the US District Court for the Western District of Texas. Apple, Macmillan, and Penguin are preparing to go to court.

The case offers some takeaways for royalty managers and financial executives.

1. Contract management is even more complex in today’s world.

The settlement required HarperCollins, Hachette, and Simon & Schuster to dissolve all of their existing contracts with ebook retailers that included price restrictions or most-favored-nation clauses. That’s right: all contracts. Governing all ebook titles. With all ebook retailers. In the best case scenario, this means that each of the three publishers will quickly revise their existing contracts with Amazon and Apple. In the worst case, it will involve complex contract re-negotiation with multiple parties. On the accounting side, it means that existing financial agreements may change in the middle of the fiscal year, creating a potential audit trail issue. It is the kind of situation that MetaComet’s Royalty Tracker is built for. With Royalty Tracker’s contract management capabilities, having all of the contract data in one place means that everyone in the organization is working from the same set of up-to-date information.

2. New technologies bring many additional sources of revenue.

Apple, the world’s most successful technology company, would not be mobilizing for a battle with the DOJ if big money weren’t at stake. The Association of American Publishers found that total net revenue for adult ebooks was $99.5 million in January 2012, up 49.4% from $66.6 million in January 2011. Ebook sales in February 2012 were comparable at $92.5 million. For children’s and YA ebooks, the numbers are even more impressive: $22.6 million in net revenue reported for January 2012, making for a 475.1% increase from $3.9M in January 2011. Every new e-reader means a new distribution point, which means additional sources of revenue for existing books and licensed properties.

3. When contracts are renegotiated, be aware of new technologies that may disrupt the current royalty management model.

Not so long ago, publishers only had to manage and track a small group of rights associated with ebooks. Now, Kindle singles and single book chapters sold electronically are only two of the many new ways of packaging content digitally. When your publishing team is updating or renegotiating contracts, make sure you are aware of new technologies that are available now and on the horizon– and structure your contracts accordingly. Once a new contract is signed, it is just as important to track the details of those contracts. The terms of each contract can be uploaded to Royalty Tracker to ensure that payment for digital subrights is collected accurately, in compliance with existing contracts, and on time.

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MetaComet Systems, Inc., Computer Software Publishers & Developers, South Hadley, MA

Have any questions?
+1 (413) 536-5989