Anyway, I do want to say that my epublisher has never, ever paid my royalties based on net as you describe. My royalties have always been based on the actual sales price. Now, if the book is paid through a secondary retailer, the percentage paid is lower to account for the cut the distributor is taking out of my publisher’s pocket. But no, my royalties are never a percentage of net–they are always a percentage of actual sales price.

Long story short–if your publisher is paying on net, it’s even MORE of a reason to insist on a higher royalty rate for your digital books. One reason the relatively low royalty rate for print (6.5%-10% of cover is typical, I think) is fair is because we know the publisher rarely ever gets paid the actual cover price for any individual sale of the book. The publisher is more of a wholesaler than anything else, and the actual amount received for any copy book sold is obviously much less than the cover price, regardless of the price the retailer gets for it.

But in digital, the cost of creating the one copy is the same as the cost of creating 10,000 or even 1,000,000. That means, if we’re getting paid on net for those, it’s even a stronger reason to demand a higher royalty rate. 15% of net on $3.50 is far too low, IMO. 15% of gross on $7.00 (if, indeed, the publisher is actually ceding 50% of that to the distributor) isn’t so horrendous.

The devil is in the details and few people are talking about these details. And that means the found money is going to wind up almost exclusively in the pockets of the publishers. Which, right now, may not seem like such a bad thing, but when digital becomes the dominant mode of distribution (and it will…maybe not in 10 years or even 20, but in 50, I’d guess it will be), that’s going to haunt us.

So, on an ebook priced at $7 sold via eReader, the publisher receives $3.50 and the author receives royalty on that amount not the original $7. If the vendor discounts the sale price, some digi-pubs will still pay the $1.75 but some may choose to split the lower net.

Second, I think it will be a long hard battle, even if the major bestselling authors jump in, before traditional publisher will up the ebook royalty rate. It’s found money.

I know, I know–they insist it costs them the same to make the ebook as the print one. What they really mean is that they factor all the print production costs as equally ebook production costs. However, given that any ebook sale is likely a sale that would otherwise not have been made because those who prefer ebooks are rarely going to buy a hardcover or even a paperback, the revenue from that sale is, in fact, money the publisher would not otherwise have received.

Ergo: found money.