Pitfalls of Ebook Licensing Agreements

Signing a contract and finding the right deal could be difficult if you are a newcomer in the publishing industry. Retailers and aggregators aim to be as profitable as they can, this often resulting in publishers receiving disadvantageous financial or legal terms. And once you signed the agreement on a bad deal, there is no way back correct it.

Many say that there is no way to negotiate an ebook licensing agreement, but this is not true. If you have quality content, you can always negotiate, or even choose a better partner. You are the copyright holder, the creative mind in the process; without you, there is no content to be read and sold. Do not underestimate the power of content creation.

So far, we negotiated more than 200 B2B contracts in various countries worldwide: with retailers, ebook conversion services, marketing agencies and publishers. Several times, we were faced with unrealistic or dominating terms, but we decided to always represent the publishers’ interest; even if we had to refuse to sign the deal!

In this article, we are sharing with you some of the ebook licensing agreement pitfalls you can easily avoid by reading between the lines, so you can fight for better deals for you or your company in the future. To make the “business talk” easier to digest, we incorporated some simple dos and don’ts you can follow. There are five main parts of a contract that you have to read very carefully and several times:

1. Royalties structure
2. Payment terms
3. Grant of rights
4. Sales reporting and invoicing
5. Termination

In the following, we are going to guide you through these five parts, show you the common mistakes some people may make and offer some advice.

1. ROYALTIES STRUCTURE

Do not only look at nominal value.

It is not uncommon to only scan for numbers when reading a contract: you check nominal values, they look nice, so it is good to go. However, the wording can change everything: if you do not read the agreement thoroughly, you might not receive what you expected.

Typical wording differences:

• Net sales vs. Net RRP/SRP:Net sales is calculated based on the real price on which your book is sold. This is fair and simple: your readers pay a certain amount for your book and the retailers calculate your share. Usually, you are better off going for this.Net RRP/SRP (recommended/suggested retail price) is based on the price you gave to the retailer. If they have to raise the price to match it to the price tier, you still get your share based on the RRP, and might miss out on extra money. However, if the price drops for whatever reason (e.g. for sale), you still get paid based on the RRP and have no losses. Depending on your business strategy, this can work as well. (You can read a lot more about this in our post about pricing strategies here.)

• Retail price vs. Net retail price:Some retailers like to play with sales tax or VAT, but always go for the net sales price, since VAT/sales tax may differ by country or state. It is non-transparent to calculate your royalties based on that.
• Excluding vs. Including all the fees and commissions paid to retailers:Including all the fees and commissions paid to retailers means that with a 60% publishers’ royalty you will receive 6 USD after a book sold on 10 USD net price. Clean and simple.Excluding commissions paid to retailers can result in a worse deal if you sell through an aggregator or a mobile app dealer, since they do not include the fees and commissions in the royalty share. Using the previous example, they will only calculate your 60%, once the other retailers, such as Apple or Google took their share for micro purchases within the app. So if your book is sold for 10 USD, take 30% off for Apple iOS fee, and calculate the 60% royalty from that: you will receive 10×(1−0,3)×0,6 = 4,2 USD. This is significantly less than the 6 USD you could earn with an “including retailer fees” contract. Note, that this calculation is also non-transparent, since you cannot see the exact contracts between the aggregator and the retailers.

1. PAYMENT TERMS

Look out for “when we receive the fund”.

There is a fine line between “it sounds too good to be true” and being untrue. Always check in the contract how payment is going to be made.

• Based on earnings reports vs. Based on receiving the funds from retailers:Earnings reports list all your sales within the month and set a payment date. You have to receive your money by this date independently from whether the retailers have been paid or not.On receiving the funds: you will receive your money only after (and if) the aggregator was paid. It does not sound too bad, but remember that you cannot track when a partner receives funds from the retailers. Since you do not know when your partner receives the fund, you cannot know when you will be paid either. This can be very frustrating if you are waiting for your first check. Try to go for services who pay you based on earnings reports, not based on whether they received the fund.Typical wording may include the followings: “we will pay you after the retailers paid us” or “we have no obligation to pay your royalties in the event of a failure of any online bookstore to pay royalties to us”.

• Higher threshold vs. Transaction fees:Lower payment thresholds can be tempting, as you get paid more often. But don’t forget that more often means paying more transaction fees – and some services, like PayPal get the receiver to cover the expenses of the transfer (their fee structure is explained here). If you have a lower threshold with more transactions, you end up paying more. It is a bit like the famous marshmallow-paradigm: you are better off, if you wait.
• Exact numbers for payment terms:Many companies do not include exact reporting or payment terms, just use undefined expressions such as “usually between 30-60 days”. Do not let anyone use blurry terms when it is about money; fight for exact numbers.

1. GRANT OF RIGHTS

Keep the rights of your intellectual property (IP).

Non-exclusive contracts what you have to search for when choosing a partner to sell your ebooks. Non-exclusivity means that you can sell your books in other stores/platforms legally. On the contrary, exclusivity means you cannot sell your books anywhere else. Don’t tie yourself to any of the partners early on – most of the partners you can trust on the long term will give you the non-exclusive term anyway, so if you want you are able to sell the same book on other stores too.

Give only the necessary rights for the partnership and do everything you can to protect your IP.

You have to make sure that no one but you can change your IP.

You can grant rights to

• resell or
• make small technical changes if necessary for conversion.

But never give rights to anyone to

• change the title,
• change the author’s name,
• add own branding,
• change the content
• or add watermarks with the retailer’s links (because it may end up with confrontation to competitor websites).

Just think about Amazon Kindle links in a book uploaded to iBooks! Take control of your own content and metadata and be conscious about them on the long term.

1. SALES REPORTING and INVOICING

Define the periodical sales reporting period.

In case of any business transaction, money cannot be transferred without some invoice or written document, so look at who is sending the invoice and when. Is your invoicing monthly or quarterly? Choose a partner with a self-billing service if possible to avoid any administrative burdens but still receive your money in time.

Also look for discrepancies between reporting and invoicing. If you get quarterly reports, look at when you will receive those reports and how invoicing is connected to it. You might see the following: quarterly payments are reported until the end of the next calendar month, and the invoice is sent four weeks after the end of the invoicing period. This means that Q1 earnings will be reported until the end of April and will be invoiced until end of May. And we have not even talked about the payment term!

1. TERMINATION

Make sure you get your content back.

Termination is a divorce in the business world: a painful process. Before you take any action, look at what happens with your IP afterwards and how long will it take to say goodbye.

Your content should be deleted from the servers of your partner and their third parties’ platforms. Your content should be withdrawn immediately (within a reasonable timeframe for making the technical changes) and it should not be longer than the termination deadline.

Unfortunately, we saw so many bad stories from publishers not being paid or simply tied to another service with bad terms and no long term thinking. Everyone starts a business relationship trusting the other player and believing that mutual cooperation will result in a mutually beneficial way – however, that might not be the case all the time. You have to find the right partner who treats you and your business as equals to have the chance to make intelligent long term decisions. You can probably save yourself from a lot of headache if you let us search for the right terms with the right players and let go of anything else not needed.