Hydra image
The Hydra is a beautiful small undersea polyp-like predator.

Let’s do this like Ezine.  “Take-away” points:

The Random House Hydra imprint for science fiction ebooks has a few unusual things in its standard contract:

  • No Advance (highly unusual for one of the “Big 6″ but fairly common amongst indie publishers
  • “Profit sharing” instead of royalties:  50/50 split of profit instead of 10 – 12% of selling price or 25% of net price (*I’ll explain a bit further down – the idea of this post is to give you a bit of background into the figures and leave you to come to your own conclusions)
  • Copy right terms are as for a traditional contract
  • including Subsidiary rights
First:  The debate
Random House has started an ebook publishing company, with the Science Fiction imprint called “Hydra”.  (Not to be confused with “Hydra House”, a smaller publishing company.)

Their basic contract has a few points against which the SFWA (Science Fiction Writers Association, America I suspect) warns authors.  Links below:

http://whatever.scalzi.com/2013/03/06/note-to-sff-writers-random-houses-hydra-imprint-has-appallingly-bad-contract-terms/
http://accrispin.blogspot.com/2013/03/sfwa-de-lists-hydra-random-house.html  (btw I find it rather funny how the blog name, “Writers Beware”, is actually trademarked.  Does this mean I can’t use these two words as a heading or inside a published text?  Not quite clear on this one.  Titles of books, e,g, cannot be copyrighted – though I’m sure they’ve made an exception to that rule for Harry Potter.)

The latter posted the reply Random House sent to their posts.  I copy:

Dear John, Victoria, Jaym and SFWA Members,
We read with interest your posts today about the new Random House digital imprints and our business model. While we respect your position, you’ll not be surprised to learn that we strongly disagree with it, and wish you had contacted us before you published your posts. We would appreciate you giving us an opportunity to share why we believe Hydra is an excellent publishing opportunity for the science fiction community by posting ours below to them.
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.
As with every business partnership, there are specific costs associated with bringing a book successfully to market, and we state them very straightforwardly and transparently in our author agreements. These costs could be much higher–and certainly be more stressful and labor-intensive to undertake–for an author with a self-publishing model. Profits are generated once those costs are subtracted from the sales revenue. Hydra and the author split those profits equally from the very first sale.
When we acquire a title in the Hydra program, it is an all-encompassing collaboration. Our authors provide the storytelling, and we at Hydra support their creativity with best-in-class services throughout the publishing process: from 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. Together, we deliver the best science fiction, fantasy and horror books to the widest possible readership, thus giving authors maximum earning potential.
As a last point to the SFWA leadership, my colleagues and I would welcome the opportunity to meet with you at your earliest convenience to discuss the advantages of the Hydra business model, describe the program overall, and respond to any of your expressed concerns. Please let me know a good time for us to set up this meeting.
Many thanks and all the best,
Allison Dobson
Allison R. Dobson
V.P., Digital Publishing Director
Random House Publishing Group


Ah.  That throws a bit of light.

Background & my own comment:
According to some of the comments on those two blogs, the SFWA lists “good publishers” to make it easier for authors to decide where to submit.  They took Hydra off their lists, and one of the criteria to be on those lists is the advance payment.

Let’s disambiguate some terms first:
  • An advance payment is an advance on royalties.  This means if I publish you, Mr X, and I decide that I’ll give you the first 100 sales’ worth of royalties upfront, I don’t have to pay you royalties until I’ve sold the 101th copy, from which point I owe you royalties again, for every sale I make.  It is quite simply that:  An advance on royalties.
  • Royalties are a certain percentage of the book cost (usually based on the publisher’s recommended selling price); standard (as per our literary agent in UK) is 10% for paper books; 25% for ebooks.
  • Copyright stretches from the day the work is produced, to 70 years after the author’s death and is likely to be prolonged to 100 years in 18 years from now.  Why?  Because Walt Disney died 52 years back…  so when his copyright on Mickey Mouse and all those other characters threatened to run out 2 years back, the Disney company (bought out by now, by people who understand money better than comic characters) managed to push through a court case that achieved that copyright now lasts until 70 years after the death of author.
    • What does that mean to you, Mr X?  You wrote the book (say the book is called “Sitting Duck” and is about this fictitious alien Chief), and you, by creating the work, own the copyright.
    • Now you go and sell it to a publisher.  The whole right, or parts of it, or possibly a non-exclusive version, all depending on the contract, these days.  But the Traditional Contract usually calls for you selling all of it to the publisher.
    • This means that if someone wants to base a film on it, or make a toy franchise, they have to talk to your publisher, not to you.  (Depending on what is in the contract, you might see nothing of that income.)
    • It also means that your children, and grandchildren, and great-grandchildren, see nothing of those rights which stay in the hands of the publisher until 70 years after you are Dead, Mr X, and after that, does it revert to your family?  No… by law it becomes creative common property which belongs to (and can be mined, adapted, rewritten, quoted or used by) everyone.
    • (Still in the mood to sign your rights away?)
    • At which point does copyright revert to you?  Well, that depends.
      • If you didn’t sign it away in the first place.  Self-publishers keep their copyright forever.
      • Or if you signed a non-exclusive contract; in which you granted a (typically small, indie) publisher license to publish you but are still free to submit (none of the traditional houses would offer you this deal).
      • Or if your contract has a reversal clause, that if the book stops selling and goes out of print, after a certain time (I believe 2 years is standard) you can claim or buy back your copyright from the publisher.
Note:  All these terms come out of the paper publishing world.  This is important to remember in various ways.

How is paper publishing different from e-publishing?

First, let’s investigate in which ways they are the same.

Start-up cost:  Every book has a certain start-up cost.  Typically, this entails professional editing (which can be very expensive), professional cover art (again, it depends, but at best it is never cheap) and layout of the manuscript.  The latter can be expensive (in the case of picture books, instruction manuals etc) or it can cost only a bit of savvy and standardization of one’s print (in the case of words-only novels etc).

These start-up costs are the same for paper and ebooks.  Ebooks additionally have to be formatted for the various e-readers, which costs time and therefore man-power.  A small indie will usually do that themselves; a large house will more likely employ staff to do it.  Staff cost salary.  Doing it yourself costs business time.  Either way there is a cost.

This start-up cost is usually a once-off (unless future editions of the book are printed with a new cover, different layout etc.).  It is not cheap; in fact it can be hugely expensive, depending.  But it is only once.

Running overheads:

For the rest of the cost, there are significant differences.
  • Firstly, printing cost.  The publisher buys paper books from the printers (who produce them at a certain price).
  • Ebooks have none such.  Once they are created, the file is simply copied; over, and over, and over, single-click no-overheads.
  • Marketing.  I can’t say too much about this as I haven’t had enough publishing dollars to put behind pushing books in a big way; but paper books get marketed differently from ebooks.  Paper book marketing is heavy in cost; ebook marketing costs time and savvy, or, if you have money, the services of an online marketing company.
  • I would suspect that for the “Big 6″, most of their running cost goes into marketing and promotion.
Right.

The proportions are about like this for a paper book for digital printing (in South Africa): 

Sales Price 100%
Share of bookshop 45% (- 65%, but digitally printed books hardly ever manage that deal)
Author royalty 10%
Printing cost 30 – 50% depending
Startup (editing, graphic) up to 80%

Are you blinking?  It adds up to, in the best case, 165% cost to 100% return!  This is why it is critical to spread the editing and graphic cost, which is a one-off expense, over as many copies as one can sell.  If you can get a large amount of orders, it might be worth printing litho, which brings down the printing cost by a multiple of about 3.  But be aware you may end up sitting on a large heap of “Sitting Ducks”. And an alien chief.

Compare this to the cost of an ebook:

Editing & graphics (yes, your book needs it!) – 80%
Author Royalty – whatever was agreed
Sales price – a LOT lower (usually 20% to 50% of the paper book)

So you have to spread your startup cost over even more sales, but there is no running cost.

The big problem with both these models is that in neither is marketing accounted for.

Now you know this background, what is so offensive about the Hydra Ebook contract?
  • Is it the “no advance” clause (like a struggling small-scale Indie minimizing startup cost)?
  • Is it the 50/50 profit share which means that the author literally shares the profit – and if there is nil, half of nil is again nil?  Once again, some Indies do offer authors profit-sharing.
  • Is it the services of editing and design?  The author has no choice in those:  If he wants “Sitting Duck” to be published under the imprint of “Hydra”, editing and design it is!  (Your book needs these, believe me!  “It’s already been edited by my mom / child / best friend” doesn’t count; they live in the same frame of reference as you do and might even use the same “dialectical” terms that nobody outside the family really understands – and you as a whole family have forgotten.  You do need a real editor.  Furthermore, the stance that a 3-year-old with a crayon can produce fitting cover art is maybe the most amateurish statement I’ve ever read anywhere – luckily I forgot where I read it.  Your cover sells your book.  Want to leave that in the hands of a kid – or a professional?)
  • Oh, but is it that there is no profit (hence no “royalties”, but get that archaic concept out of your head) until all costs are covered?  I think, that does offend.  Sorely.  An author needs a royalty, not “profit sharing”.  Why?  An author needs to know that his book, “Sitting Duck” by Mr X, is making sales and the reward – small but cherished – is coming his way.  If the book sells 50 000 copies and the startup cost is recovered in the first 500 to a 1000 (remember ebooks are cheaper), fine and well for that large profit after the 1000th copy; but is it worth forfeiting the royalties on the first 1000 sales?
From a business point of view, let’s put some figures here.  If it took the publisher, for argument’ sake, R9000 (or $1000) in editing & design and formatting to start the book up, and the ebook sells for R36 ($4, or “$3.99″)  a copy, face it, the first 250 copies will go purely into covering cost.  But after that, the author makes (R18) $2 for each copy of a book that’s already sold over 250 copies (and therefore has momentum, is moving); or, R9 ($1) if the publisher sticks $2 per copy of marketing into the books.  For 10 000 copies sold, $10 000 in profit  (let’s work in dollars only, I’m getting confused here).  This compares to the $0.40 of standard royalty, which would give only $4000 on the same 10 000 copies.  Shucks, $10 000 is a lot of marketing dollars, I’m sure not that much is needed; so the author cut on that Hydra deal would be closer to $20 000, as opposed to $4000 royalties.  (The publisher would have to be prepared to open his books though and declare where his marketing dollar was spent.  Honest is honest.)

So does this 50/50 deal offend?  Once the book is off the floor, for a runaway seller, no; it’s a fantastic deal!  But how many books make it to 10 000 sales?  (I know, I know; of course yours will, it’s the best book ever written.  *Rolling eyes*  There isn’t an author who doesn’t believe this of his/her own work; including myself, which proves that your book can’t be the best because mine already is!  ;)
  • Is Hydra really “shifting the cost to the author”?   Well – no.  What they are doing, is minimizing their risk. Face it:  You don’t lose any money on this deal.  Never.  Not ever.  You don’t put down a cent.  Hydra carries the startup cost alone; that they make you “cost-share” until there is actual profit does not negate the fact that they lay out the editing, design and formatting.  If your book never sells more than 2 copies, the loss is 100% theirs.  (Compare this to a self-publishing POD/Vanity publisher: You pay upfront for everything - graphics, editing, layout, and marketing, before they sell even one copy - and you still only get 10% royalties.) On the Hydra deal, you never lose money.  So… does this really offend?
And that brings me to the parts that do offend:
  • “Standard” copyright clause.  The company buys the rights for your ebook off you for life plus 70 years.  That is, you’ll never see your copyright again.  That is alright if there is a guarantee that the rights can be reverted for too few sales; if “Sitting Duck” becomes “Dead Duck”.   Make sure you negotiate a reversal clause with them.
  • Subsidiary rights.  Whoa!  We’re talking ebooks here.  At this point, most sales of books are still dead-tree product.  Would a paperback of the same story be considered a subsidiary of the ebook like the ebook can be considered a subsidiary of the paperback?  Mind, not that I’d mind having my books published in every subsidiary shape there is by Random House!
As an Indie publisher, I have to of course give my opinion.

I have decided, based on these calculations, that I don’t want to offer anyone further a 50/50 profit sharing contract.  What?  They sit and write the story; I do all the handstands and cartwheels and in the end, we profit-share?  No.  10% royalties of recommended selling price it is, from copy 1 sold, take it or leave it.  (25% for ebooks. Industry Standard.) When I become wealthy enough I might include an advance in the deal and take more of the risk (than I’m already taking with initial layout and ongoing print cost), but if I’m savvy enough to work out how to shift 10 000 copies of a clever book, I deserve whatever profit I can carve out after royalties, printing cost and the 65% that goes to the bookshops and their agents.  My clever.  ;)

Would I as an author sign up with Hydra?  Tough question.  I’m hard-core self-publishing:  I’d rather do all that work myself than sign away my copyright. But to have the Random House label on one’s book is not something to sneeze at.  And there’s always the concept of them publishing the “subsidiary” paperback under their imprint…  then again, I so love the P’kaboo cover art…


First of the Solar Wind series.

EDIT 23 Feb 2016:  Currently, experimentally available for FREE on Smashwords.  This is temporary only.  Get yours while it lasts!

Why?  Because it's the first in the series and Mark Coker thinks it's a great idea.

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