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Random House Tangles with Writers Group Over Digital-Only Business Model

Victoria Strauss - peoplewhowrite

Victoria Strauss

Last year Random House launched three digital-only imprints including science-fiction/fantasy banner Hydra, but author Victoria Strauss‘ recent post on the blog Writer Beware suggests authors should run in the other direction. She wrote:

I recently saw the deal terms for Random House’s Hydra imprint. A summary:
– It’s a life-of-copyright contract that includes both primary and subsidiary rights.

– There’s no advance. Net proceeds (defined as net income plus subrights income less the deductions detailed below) are split 50/50 between author and publisher.
– Deductions for ebook edition: “one-time out of pocket title set up costs” (editing, cover art, design, etc.), plus a “sales, marketing, and publicity fee” of 10% of net sales revenue.
– Deductions for print edition, if there is one: “actual direct out-of-pocket paper, printing and binding costs,” plus 6% of gross sales revenue to cover freight and warehousing costs.
Note that authors are not being asked to pay any costs upfront (despite that scary “out of pocket” term). Hydra “advances” those.

However, the costs are deducted from sales and licensing income, and reduce the amount of the author-publisher split. This is reminiscent of what’s known as Hollywood accounting, where net proceeds are made to disappear by charging expenses against profit. Authors going into a deal like this can’t be certain of what they will earn on a per-book basis–while the publisher is assured that its expenses will be recouped at the point of sale.

Strauss’ post led the Science Fiction & Fantasy Writers of America to determine “that works published by Random House’s electronic imprint Hydra cannot be used as credentials for SFWA membership, and that Hydra is not an approved market” because “Hydra fails to pay authors an advance against royalties, as SFWA requires, and has contract terms that are onerous and unconscionable.”

Random House’s Digital Publishing Director Allison Dobson answered SFWA’s decision, saying:

Allison Dobson - peoplewhowrite

Allison Dobson

Hydra offers a different — but potentially lucrative — publishing model for authors: a profit share. In the more traditional advance-plus-royalty model, the publisher takes all the financial risk up front, and recoups the advance before the author earns any cash royalties. With a profit-share model, there is no advance. Instead, the author and publisher share equally in the profits from each and every sale. In effect, we partner with the author for each book. [Read the full response here.]

SFWA’s response dismissed Dobson, maintaining Hydra’s contract terms are “predatory”, adding, “You extol your business model as ‘different’; the more accurate description, we believe, is ‘exploitative.’ We are particularly disappointed to see it arising out of Random House, a well-regarded, long-standing publishing firm. Bluntly put, Random House should know better.”

I think both sides have a point. There are costs associated with marketing a book — Dobson lists “dedicated editorial, cover design, copy editing and production, to publicity, digital marketing and social media tools, trade sales, academic and library sales, piracy protection, negotiating and selling of subsidiary rights, as well as access to Random House coop and merchandising programs” — but Hydra hasn’t clearly explained why they’re offering their writers a different deal from traditionally published authors.

As described, the benefits Hydra is offering aren’t different from other publishers. I don’t know the economics, but it would seem that a digital-only project would be significantly cheaper than a print title. That said, the real issue at hand is the lack of transparency when it comes to project spend. If Hydra wants authors to believe they are true partners with them, they need to divulge exactly how much all of the services connected to producing the book cost; and empower the writer with the ability to verify and veto spends where necessary. Or, they could just give them an advance.

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