Pricing models in the stores

In self-publishing, publishers whether stores or libraries have different business models that affect the way authors are paid out in royalties and beyond. Below are the most common business models and terms used.

A’la carte sales:

A’la carte sales mean cash sales of Digital Book Products. In the retail channel, a customer purchases a license to the title in a traditional a-la-carte purchase environment. The customer gets unlimited reading access to the content. 

A.1. Agency

Agency means the price is set by the publisher. Stores use the same prices for retail prices as well. The remuneration is accounted based on the net sale price.

Most of the time, stores do not have the right to discount the book.

Example:

Barnes & Noble sells an ebook for $10 in an agency model with a 65% discount for publishers through PublishDrive. Publishers receive $6.5 (less VAT or other taxes if applicable). 

A.2. Wholesale

Wholesale means the digital list price (DLP) is set by the publisher, but stores are allowed to use different prices for consumers (usually discounts). The remuneration is accounted for based on the Digital List Price (DLP).

Stores have the right to discount the content, but because the remuneration is accounted for on the original DLP it does not have an effect on the author or publisher.

Example:

An audiobook is listed to Google Play for $25.99 DLP. Google Play sells it for $19.95 to the customer and pays 50% royalties after the DLP, $13.51 for the royalty owner. 

Subscription

2.1. Pool subscription

Customers pay a flat monthly price to a subscription service which contributes to a shared revenue pool. 

Royalties are paid based on the publisher's pro-rata share of total audiobook listening/ebook reading for each monthly period. The base unit is usually counted by the fraction of content like minute/page/word etc.

Royalty receipts under these models are paid based on the retailer’s revenues, not the DLP.

Distributors have a fixed discount rate that represents the cut made by the store on the amounts earned before payout. It depends if the store communicates it widely or not. 

Stores can have multiple pools separated by the location of customers, mainly by their country. 

Example:

Storytel had $1,000,000 revenue in January from Germany paid by German customers in the form of flat monthly fees. 

Customers read 2,000,000 hours from all available books in the month.

This means that a 1-hour read in the German pool accounts for $0.5 revenue in this period.

If the publisher’s book is 5 hours long, it has been read by three German readers in January. 

Revenue generated by this book: 0.5 USD/hour  * 5 hour length * 3 reads = $7.5

Storytel has a 50% discount rate.

Actual earnings from PublishDrive:

$7.5 * 0.5= $3.75

2.2. Unlimited Subscription

Customers pay a flat monthly price to a subscription service that gets them unlimited access to audiobooks if more than 10% of the work is read or listened to. The publisher receives royalties according to A La Carte Sales, based on the DLP.

Example:

Scribd sells an ebook with the Unlimited Subscription Download model for $10 with a 55% royalty rate for the publisher. If readers read over 10% of the book, the publisher receives $5.5 royalties per book. 

2.3. Episodic Model Subscription

Customers pay an amount regularly or occasionally to a subscription service to access content. After any payments, the customer receives an amount of virtual currency reflecting the amount they paid. Customers can spend their virtual currency to buy reading access to whole or fractions (mainly chapters) of content. The price within the store mostly depends on the length of the content (words/minutes).

Compensation is done based on the spendings of particular books by the customers.

Example with Dreame:            

• Customer pays Dreame $10 so they receive 10,000 coins (exchange ratio is 1 virtual currency (Coins) = US$0.01)
• The author has a book on Dreame with 20 chapters, around 2,000 words. 
• Content can be purchased by chapters. Each chapter is priced depending on the number of words. 1 coin covers 100 words.
• Each chapter will cost the customer 20 coins, so reading all the books will cost 400 coins.
• According to the exchange rate between coins and dollars, 400 coins will mean a $4 dollar income for Dreame for reading this book.
• Dreame works with a 75% discount rate (that covers the 30% fee of Apple as this is a mobile app) the royalty is: $ 4 X 0.25 = $1

2.4. Member Credit-based Subscription

Customers pay a flat monthly price to the subscription service for credits allocating them a fixed number of books per month. A sale occurs each time a customer uses a credit to access a book (usually an audiobook.) In this case, the royalties are calculated based on the “Credit Value Allocation Factor” multiplied by the Digital List Price. “Credit Value Allocation Factor” means, for each accounting period and each service, the number is calculated by dividing Net Receipts derived from Member Credit Sales by the aggregate a la carte prices of all digital audio products purchased as Member Credit Sales on that service.  

Library Models

Library channel means books/audiobooks are purchased and/or circulated in a school or public library. For library providers, the price is higher and generated by PublishDrive based on the library’s policies. 

3.1. A’la carte sales

A’la carte sales under a library channel mean a school or library purchases a license to the title that may be circulated to one or more patrons at a time. The publisher/author receives royalties at the time of purchase by the library. The library then earns lending rights for the title without any further royalty obligation.

Wholesale and agency-type of royalty calculations may be used, based on the Digital List Price. As these titles are used for library lending, prices are higher than regular (DLP) ones. The actual library prices are determined by PublishDrive based on the DLP provided, 150%-400% of the original DLP    

Library Perpetual Sale Single user access

An institutional library may purchase Digital Content for lending perpetually. The same purchased copy may be lent out for one user at the same time. 

In this case, the sale price is higher than the DLP and generated by PublishDrive based on the library provider’s policies.

Example: Title with DLP of $10 sold on Odilo

• As PublishDrive uses 200% DLP to sell on Odilo then $20 is paid by the library to Odilo for this copy. The library earned the right to lend this title to one reader at the same time.

• Odilo has a 35% discount rate, so $13 royalties earned with this transaction.

Library Perpetual Sale - Multi user access

An institutional library may purchase Digital Content for lending perpetually. The same purchased copy may be lent out to multiple users at the same time. 

In this case, the sale price is much higher than the DLP and higher than the sale price for single user access of the same provider, generated by PublishDrive based on the library provider’s policies.

Example: Title with DLP of $10 sold to CNPeReading, the China library e-provider 

• As PublishDrive uses 400% DLP to sell on Odilo then $40 is paid by the library to CNPeReading for this copy. The library earned the right to lend this title to multiple readers at the same time.

• CNPeReading has a 30% discount rate, so $28 royalties earned with this transaction.

3.3. Pay per Circulation

Pay-per circulation is for book sales that permit library patrons to borrow access to a digital book for a specific period of time. Then it is automatically terminated upon expiration of the lending period or return of the digital book. This allows for unlimited circulation of licensed copies with access being limited to one patron per borrowed copy. Libraries may add the titles to their catalog without any obligation.

The price of one circulation may be determined by:

• DLP, the price for one circulation that is paid by the lender customer. It will always be lower than the DLP. It depends on the store how they calculate it. Possible ways:
• Fix fraction of list price: fix percentage of DLP (e.g. 5% or 10% of the DLP priced as one circulation)
• Tiered pricing: tiers created to measure possible values of DLP. All tiers have one circulation price. All titles included in the same tier will have the same circulation price.
• Length of book (character/page/minute)

Example:

Title with $10 DLP is checked out in one of the libraries within Odilo:

• Odilo uses a 10% price modifier for circulation. This circulation earns $1 revenue for Odilo.
• Odilo uses a 35% discount rate, which means $0.65 royalties are paid for this one circulation.

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