Ebookseller distribution agreements
Each ebookseller has its own distribution agreement. Contract terms will be similar, whether you are dealing directly with ebooksellers, or granting rights to a distributor to act on your behalf.
As we saw in the earlier section on digital rights, much of the contract is about ensuring that you have all the necessary rights to the content and that you are assigning the necessary rights to the ebookseller. The distribution agreement will typically cover:
- Right to sell or distribute. This is usually given non-exclusively and you should generally avoid exclusive distribution deals.
- Withdrawal of ebooks from the distributor. It’s usual to have a short notice period. Be wary of long terms.
- Ownership and suitability of the content. This may include evidence of clearances of rights for use of third-party content, and most big ebooksellers screen content for suitability.
- Rights to use portions of the content for promotional purposes.
- Usage rights for end users. As we’ve seen, ebooksellers will license ebooks to end users for their personal use only. They will generally allow the customer to install an ebook on several devices. This will often be specified in the contract and in some cases there might be an option to vary it. A typical figure is six or seven devices.
- Special rights such as lending. When a distributor serves both the ebook-selling and ebook-lending markets, its contract should, as a minimum, give you the opportunity to opt in or opt out of the library channel.
Reporting of sales and royalties. For an industry where so much happens electronically in real time, it’s surprising that sales and royalty reporting frequently happen at a more leisurely pace. Most agreements won’t go into a lot of detail about which reports you’ll receive and how often, so you might need to research this separately. As security against dishonest or inaccurate reporting, the contract will usually allow you to appoint an auditor at your own expense to verify the numbers. This is seldom used but is nice to have.- Payment terms. The payment frequency should be specified and there is usually a minimum amount below which the payment will be accumulated.
- Term of agreement and what happens on termination. There may be a minimum term such as 12 months, usually with an automatic renewal, unless written notice of cancellation is received. If you terminate, it’s usual that your ebook files must remain on the ebookseller’s servers in order for it to meet its service obligations to customers who’ve bought a copy, but no new sales can be made.
How secure and reliable are ebooksellers and distributors?
If you’re selling physical books, there are limits on how much a distributor can sell because they must reorder from you when their stocks deplete. When you hand over an ebook file, you lose this check and rely entirely on the trustworthiness of the distributor or ebookseller, the accuracy of record keeping, and the security of their systems from hacking or theft of ebook files, and a suitable agreement for end users to bind them to the usage terms for your files.
For this reason, you should carefully scrutinize potential distributors and ebooksellers, especially smaller operators. Many of them might not even be aware of these requirements, especially technical and system management issues.
Challenge them to explain the technical and operational systems they have in place to protect your files and include this undertaking in any agreement.
Withholding tax
You’ll face some legal issues when you start to sell through overseas ebooksellers or distributors, especially relating to tax and residency. We’ll look at the American situation, which is the one that confronts most publishers.
When a US company sells to a foreign resident, they are obliged to deduct withholding tax of 30% from the income earned. If you do nothing about this, your $100 payment will, in fact, be $70.
Applying for an ITIN (Individual Taxpayer Identification Number)
An ITIN is a tax number for non-US taxpayers. It’s obtained from the US Internal Revenue Service (IRS). With an ITIN (or in some cases an EIN), you can apply for an exemption from the 30% withholding tax deduction, depending on the specific tax treaty arrangements your country has with the US.
A Note About Recent Changes
Until recently, about the only thing you could do to reduce the impact of this tax was to apply to the US Internal Revenue Service for an ITIN (Individual Taxpayer Identification Number). Now, individuals can apply for exemption using their tax number from their country of residence.
Amazon in particular (and its print-on-demand service CreateSpace) has streamlined the process since this change. Amazon has a mandatory online tax questionnaire that, for most individuals outside the US, largely avoids the complexity of applying for US tax numbers. You won’t be able to publish without completing it so have your tax details handy when you sign up.
For corporations and other business entities, however, it’s still a complex process for which you’ll generally need a US tax number (EIN) so allow time for this (several weeks) in advance of publication. If you can set up the account as an individual, it will be simpler and much quicker.
If you are applying for your ITIN, good places to find details of the process are on the Smashwords and Amazon Direct Publishing websites or in various help forums.
- Information from Amazon on obtaining an International Tax Identification Number.
- Information from Smashwords on obtaining an International Tax Identification Number.
- The official information pages on the IRS website (US Internal Revenue Service). Note that ITIN procedures changed in 2013. Note also that there are slight differences in the process that might affect people applying for exemptions under double-taxation treaties.
- A detailed guide from author Catherine Ryan Howard.
Getting paid
Payments are subject to minimum account balances, whether you’re dealing with a distributor or directly with the ebookseller. A typical minimum balance for the large ebooksellers is US$10, or as much as US$100 if you elect to be paid by check. Payment frequency varies from weekly to quarterly, depending on the service. You can usually nominate a range of major currencies to be paid in.
Most ebooksellers will keep about 30-50% of the sale price. This margin will usually (though not always) cover costs such as credit-card processing fees, DRM charges, promotion levies, or download fees. Income is sometimes referred to as ‘gross‘ and ‘net‘. Gross income is the total amount due without any deductions. Net income is the gross income minus certain expense deductions which should be itemized in the agreement.
If you’re working through a distributor, their fee will be deducted from the amount the ebookseller pays and will typically be charged in one or more of the following ways:
- A fixed fee (or fee per ebook)
- A percentage of actual receipts from ebooksellers
- A percentage of the digital list price
In addition, you might be charged for optional items such as marketing services.
Payment methods
In general, for small publishers, the simplest (and in many cases, the only) option for getting paid is via PayPal. Fortunately, it’s both free and easy to set up a PayPal account to receive payments.
Many services offer to direct credit your local bank account (not all currencies are supported) and/or will mail a check with, as noted, a minimum payment of amount of US$100.
Some US sites close access to international publishers by requiring that publishers be US residents. One way this is enforced is by only making payments to US bank accounts, which are difficult for foreigners to obtain. You should check the fine print of their terms carefully.
Sometimes, a site’s terms don’t explicitly ban non-US publishers and it’s only this payment requirement that, from a practical point of view, keeps small international publishers out. One way around this is by using a US distributor who will deal with the collection and payment to you.
Resources
Find out more about this topic on our Digital Publishing 101 useful resources site.
