The Case for Royalty Software at the Small to Mid-Size Publisher

We’re in Hard Times for even the biggest players in the book business – just recall headlines from this past August, when Barnes and Noble was considering selling itself, and it closed it’s flagship store in Lincoln Center.  The squeeze goes all the way down though, and small and mid-size publishers know this firsthand.

The economic backdrop aside, some of the challenges facing smaller publishing houses are the result of technology – technology has made it harder to turn a potential customer into a paying customer, and it has allowed big publishing houses to leverage their size to great advantage.  Given this, it can seem incongruous that adding more technology can help a smaller publisher compete – but the evidence is there.

No one gets into the publishing business with the intention of spending the bulk of their time dealing with rights and royalties management, yet that is often just where small publishers find themselves.  Instead of discovering new authors and books, then sharing those discoveries with a wider audience, small publishers can find that the bulk of their time is spent calculating complex royalties contracts, across multiple platforms, each with it’s own set of variables.  Some turn to Excel to track royalties, and while Excel can be very useful, there are a few key feature areas which Excel doesn’t support, but a good royalty software system does.  The following are important features of any good royalty software system:

Royalty Contract Management:

Good royalty management software should support multiple or unlimited royalty recipients per contract, and author splits, so that managing dozens or hundreds of royalty recipients per contract is automated.  No one has less time to hammer out royalty amounts for multiple authors on a single contract than the small publisher.  Flexibility in parceling out royalties can be a huge time-saver in the long run, and the ability to slice up royalty calculations in many ways within a single contract should be a requirement when shopping for royalty software.

In addition, given that so many books end up with a discounted retail price, royalty software should have flexible rules for taking this into account.  A good royalty management system will be able to easily incorporate any changes in actual sale price of a book.

Royalty Accounting:

If you don’t have the resources to have a full-time royalty accounting department, a royalty software system can be an ideal substitute – providing that it has accounting functionality.  Good royalty software should support cross collateralization, so that resources can be allocated where they are needed, when they are needed.  And to ensure you aren’t caught short if books are returned by a retailer, software should be able to withhold reserves against returns.

Another key accounting feature in royalty software for the smaller publisher is the ability to handle advances, and to make advance payments directly through the software.  Also key is the capability to factor in any advance payments into the life of a royalty contract – something no small publisher should be spending hours doing manually, then worrying about keeping track of.

And in terms of payables, a major reason to adopt royalty software is that it can automate royalty and advance payments.  A few items to look for in this area are the ability to automate payments, on whatever timetable stipulated by contract (weekly, monthly, annually, etc).  And to maximize the efficiency gained by automating payments, look for software that can cut checks directly – it’s far faster if your royalty accounting software can determine what payment needs to be made – then make the payment itself, rather than having to route through your general accounting software.

And finally, of course, is integration with your existing general ledger.  Good royalty software will populate your accounting ledgers with all future liabilities.  Make sure first that the royalty software you choose is able to accurately calculate what your royalties liabilities are (as outlined in Contract Management above), and second that it will automatically feed this data into your existing accounting framework.

Depending on your needs, you may want to look for specific capabilities with regard to managing sub-rights, including managing contracts and payments in multiple countries/currencies.  And if sales tracking or marketing are areas you want to improve efficiency in, there are options to explore in royalty software for these areas too.  Finally, you may want to look into software features that will allow authors to investigate their own sales and royalties – an optional feature with several of the better royalty software systems.

Based on the above, you can see how royalty software can help smaller publishers save time and money, and avoid any end-of-fiscal-year surprises of unexpected royalty liability.  It may sound callous, but a royalty software system can replace the work of an accountant, and in many instances manage royalties (and all of their inherent idiosyncrasies) more effectively.  In a business with small margins and fierce competition, the small publisher needs to leverage any available advantage – and a royalty software system is a great place to start.

A free webcast tomorrow on e-readers; Borders bears more bad news; and DRM vs. Copyright

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Borders Q2 Loss Widens

Does This iBook Have DRM (and, Is It Copyrighted?)

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The chain is also closing several underperforming stores, and in an attempt to compete with discount retailers like Walmart, it is introducing a paid loyalty program to leverage customer loyalty. The $20 program will offer consumers discounts and free shipping.

Borders Inc. CEO Mike Edwards said more changes are in the works. Since the beginning of the fiscal year the company has ended seven leases at underperforming stores early, and will continue to do so throughout the year.

“We are increasing our assortment in the high-end stationary and gift items, and expanding other productive non-book categories such as adult games and puzzles, which were a runaway success last holiday,” Edwards said in a call with analysts.

Borders also introduced a paid loyalty program, in which members pay $20 a year for access to discounts and free shipping.

Loss for the quarter ended July 31 totaled $46.7 million, or 67 cents per share. That compares with a loss of $45.6 million, or 76 cents per share, last year.

Revenue fell 12 percent to $526.1 million from $594.2 million.

Revenue in stores open at least one year fell 6.8 percent. This is a key indicator of a retailer’s performance, because it excludes growth at stores that open or close during the year. Weakness in trade book sales was offset by strength in the company’s bargain and cafe departments. Revenue from Borders.com rose 56 percent to $15.5 million.

Borders is focusing on its selection of electronic-book readers to drive higher revenue.

The company lowered its Kobo electronic book reader price by $20 to $129.99 and will also offer the Aluratek Libre eBook Reader Pro for $99. Borders offers six electronic book readers in its stores and plans to expand that before the holidays arrive.

Border’s chief rival Barnes & Noble Inc. last week reported a first-quarter loss, partly because of costs related to a lawsuit and proxy contest with billionaire investor Ron Burkle, who has criticized the way the company is being run. Barnes & Noble has said it is exploring strategic options including putting itself up for sale.

Borders shares fell 2 cents to $1.06 during midday trading.

Katie Gatto wrote yesterday on how to tell if an iBook is protected by DRM, using a few simple steps in iTunes. The article drew some quick responses, pointing out that she was conflating the concepts of DRM and copyright.

Chris Meadows’ response, on Teleread, breaks down the often-overlooked differences between what DRM means, and copyright means.  He writes:

“(Gatto) begins the article with “If you want to know which of your ebooks are DRM free and which have been protected by copyright,” then mentions that this process “will let you know if a book has DRM protections or if you’re free to share it with others,” and says that if a book is listed as protected, “it has a copyright attached.” She then concludes, “Use accordingly to avoid lawsuits.”

Of course, if you use according to her advice, you probably won’t be avoiding lawsuits. It should be needless to say that plenty of non-DRM-protected e-books (such as those sold by Baen, or posted online by Cory Doctorow) are fully copyright-protected—meaning that while you might be able to share them with friends, you are not necessarily legally free to unless the holder of the copyright allows it.

Might a decreased understanding of copyright be one of the casualties of the media industry’s reliance on DRM? I didn’t think the fact that everything is copyrighted under current copyright law (including books, e-books, Internet posts, and even scribblings on the backs of napkins) was that hard to understand, let alone that foregoing DRM does not mean you are foregoing your right to protection under the law.”

“When MP3-players became popular in the late 90s the music industry started to panic about a supposed drop in revenues. Likewise, the film industry panicked when computers and dedicated equipment were able to play video files easily on computer screens and television sets.

Both claimed that such technologies, and the file-sharing networks that sprung up to support them, have decimated their industries. And yet both groups have never been healthier financially.”

So begins a piece weighing the perils of piracy and DRM flaunting against the potential for industry growth.  This is a familiar debate going back to the RIAA vs Napster era, but here the issue is discussed in the context of digital books, in a recent piece by Ben Jones (Note: the piece appears on the website Torrent Freak, so make sure your grain of salt is handy.)

The piece highlights several recent cases in e-book rights, and is a worthwhile read for that summary alone.  Jones concludes:

“E-books have the potential to increase sales of physical books as well as provide their own source of income. That is, if authors and publishers are willing to accept them and deal with their users fairly, instead of hiding behind curiously high prices or DRM…. The lessons should have been learned from the 10+ year music fight. Throwing money at enforcement and litigation doesn’t work. Instead embracing the medium can be beneficial.”

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