Wylie-Amazon: Publishers Have Largely Brought This on Themselves. Amazon Exclusivity Is Major Concern.

July 26, 2010. Thursday’s announcement that the Wylie Agency, through its new publishing arm, Odyssey Editions, has a deal with Amazon to exclusively distribute at least 20 books in electronic form has shaken the industry. The 20 books include many important 20th century American works, including Invisible Man, Lolita, Portnoy’s Complaint, Updike’s Rabbit novels, The Adventures of Augie March, The Stories of John Cheever, Fear and Loathing in Las Vegas, and The Man Who Mistook His Wife for a Hat. These works are all in print and all, apparently, governed by old publishing contracts in which the authors didn’t expressly grant electronic rights to the print publishers.

Random House, which holds the print rights to many of these titles, reacted Thursday afternoon by disputing that authors retained electronic rights to these books and saying that it would not do business with Wylie for English-language works “until this situation is resolved.”

This is the most important development in electronic publishing since Apple entered the market offering publishers an “agency model” for selling e-books. Several aspects of the Wylie/Amazon/Random House entanglement merit comment:

1. Authors retain e-rights in standard publishing contracts unless they expressly grant those rights to the publisher, as we’ve consistently said and as a federal court held in Random House v. Rosetta Books. It’s fine and proper for these authors and their heirs to exercise those rights, and we applaud the Wylie Agency for finding a way to make it happen.

2. That said, when an agency acts as publisher, serious potential conflicts of interest immediately come to mind. The most obvious of these is the possibility of self-dealing to the detriment of the agency’s client, the author. If, by acting as publisher, the agency receives a higher percentage of the author’s income than it would normally be entitled to, or if it receives other benefits that the author doesn’t share in appropriately, then a conflict seems unavoidable.

Our understanding is that Wylie, as agent and publisher, is taking no more than it would as an agent. That is, Wylie/Odyssey is limiting its total compensation to its rate for commissions. If our understanding is correct, then our concerns about conflicts of interest are considerably eased. Other literary agencies contemplating similar deals should be aware that even non-monetary provisions in e-book distribution contracts could create conflicts of interest. A clause binding the agency to not sign exclusive deals for any of the books the agency represents with other e-book distributors, for example, would present a clear conflict of interest. (We have no reason to think Odyssey’s contract with Amazon contains such a clause. From what we know, it appears that Wylie has avoided any conflict of interest.)

3. That the Wylie/Odyssey agreement is reportedly exclusive raises many questions and concerns. Authors should have access to all responsible vendors of e-books. Moreover, Amazon’s power in the book publishing industry grows daily. Few publishers have the clout to stand up to the online giant, which dominates every significant growth sector of the book industry:  e-books, online new books, online used books, downloadable audio, and on-demand books. (That Random House, by far the largest trade book publisher, has retaliated against the powerful Wylie Agency but not against Amazon, which must be equally culpable in Random House’s view, tells you all you need to know about where power truly lies in today’s publishing industry.) Adding to Amazon’s strength may yield short-run benefits, but it’s not in the interests of a healthy, competitive book publishing market.

There must be consideration for this exclusivity, of course, and we can only speculate as to what it is. Though we’ll keep our guess to ourselves, we think the consideration wasn’t monetary:  we doubt that there was an advance paid for the rights or that Amazon has agreed to pay Odyssey more than 70% of the retail price of the e-books, since that might trigger most favored nation provisions in Amazon’s contracts with other publishers.

Regardless of the exclusivity issues, any direct agreement between a literary agency and Amazon is troubling. Amazon has, time and again, wielded its clout in the industry ruthlessly, with little apparent regard for its relationships with authors or publishers or, for that matter, antitrust rules. Any agency working directly with Amazon may find its behavior constrained in unpleasant and unpredictable ways. Agencies should proceed with extreme care.

4. To a large extent, publishers have brought this on themselves. This storm has long been gathering. Literary agencies have refused to sign e-rights deals for countless backlist books with traditional publishers, even though they and their clients, no doubt, see real benefits in having a single publisher handle the print and electronic rights to a book. Knowledgeable authors and agents, however, are well aware that e-book royalty rates of 25% of net proceeds are exceedingly low and contrary to the long-standing practice of authors and publishers to, effectively, split evenly the net proceeds of book sales.

Bargain-basement e-book royalty rates will not last. Low e-book royalty rates will, as e-book sales become increasingly important, emerge as a dealbreaker for authors with negotiating leverage. Publishers will, inevitably, agree to reasonable royalties rather than lose their bestselling authors to more generous rivals and startups. We suspect publishers are well aware of this and are postponing the unavoidable because it seems to make sense in the short run. We believe this is short-sighted.

A major agency starting a publishing company is weird, no matter how you look at it. This sort of weirdness will only multiply, however, as long as authors don’t share fairly in the rewards of electronic publishing. Publishers seeking to manage this transition well should cut authors in appropriately. The sooner they do so, the better. For everyone.

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