Arthur Klebanoff: eBook Veteran, First Mover

Arthur KlebanoffBy Emily Williams, co-chair, BISG Rights Subcommittee

Arthur Klebanoff set himself up as an agent in 1983, bought the Scott Meredith Literary Agency in 1993, and then, seeing early potential for ebooks, started the digital indie RosettaBooks in 2001 – at which point he was promptly sued by Random House.

This lawsuit, an asymmetric tussle over backlist ebook rights that Random House claimed were ceded by the authors as part of a clause that allowed the publisher to “print, publish and sell in book form” for the life of copyright, has been making the news all over again lately as the only legal precedent indicating where the US courts might come down on the question of whether ebook rights from before the existence of electronic publishing rightfully reside with the publisher or the author. Random House’s request for an injunction to prevent Rosetta from selling the ebooks was denied, first by a federal judge, and again on appeal to the Second Circuit. The case was settled out of court.

For Klebanoff, the recent tug-of-wars over backlist ebook rights have the smell of history repeating itself.

Perennial Value

Klebanoff never intended to start a fight. Rosetta, he explains, “started from a very straightforward idea that turned out to be 7 or 8 years early. The idea was that ebooks were going to become a lively form of reading, and that when they did, there would be a lively market for what I would loosely call perennial books. Perennial books are backlist books, fiction and nonfiction, in copyright, that have been read for years. I knew enough about the rights side of all of this to believe that the authors were in a position to license those rights, and that an independent ebook company could offer a lot of things to the author that the publishers were unlikely to offer.”

Kurt Vonnegut on Rosetta BooksWhat kinds of things? “We offer double the royalty, at least. We offer a short term license, no longer than 5 years, so the author has the flexibility to deal with an emerging marketplace. We offer a narrow rights grant which is specific to ebooks. And we are completely pro-author in our orientation toward how to publish the book. So for example, every author has jacket approval, we’re creating new jackets for the electronic space. Any author who needs it is getting file approval, we’re being quite careful in the way these files are being put together to make them more functional as ebooks. We’re in all ebook channels.”

While the focus on backlist might bring to mind the latest kerfuffle over Odyssey Editions, Klebanoff is quick to point out the differences. “In Andrew Wylie’s case, he’s focused on his own clients for the purposes of the source of the books that have been issued in Odyssey, and that might be issued in the future,” so the questions raised about conflict of interest might not be out of place. “What Rosetta Books is publishing is almost always an independent rights acquisition from a third party, not a client. Back when Random House sued me, they sued me over William Styron, Robert Parker and Kurt Vonnegut, all three of which I acquired from third parties — their agents. It’s not analagous. They have a headache with me, but it’s a different headache.”

The other criticism most often leveled against Wylie is of the 2-year exclusive he granted to Amazon for the his Odyssey Edition titles. Klebanoff was a first mover there as well, cutting a deal for a 1-year Amazon exclusive last December for Rosetta ebook editions of business author Stephen Covey’s bestselling backlist titles.

Kindle 3Asked why he would go exclusive, Klebanoff says: “The principal advantage, what you’re looking at as an author, and what Rosetta is looking at as an independent publisher, is Kindle has north of 75% market share, and merchandising on Kindle is very valuable, and Amazon for the backlist represents as high as 40% of print sales. When you look at those factors, and you look at the fact that the ongoing physical publisher is spending nothing to support the backlist book, a high profile promotion which both drives the arrival of the ebook and drives all the cross merchandising for the physical book…not only is it highly valuable for the author, it’s actually highly valuable for the print publisher, who is the one most loudly screaming.”

And did the exclusive live up to expectations? Yes, as it turns out. “The Kindle team has made presentations in the last week or two in front of a whole community of agents, and one of their case studies was the Covey title, and the fact that while these ebooks were doing extremely well, the unit sale of the old physical book was going up.”

Something’s Going to Give

Klebanoff comes by his fondness for backlist as a business model honestly. “One of my biggest clients is Easton Press, the leather-bound publisher, for whom I buy. I’ve acquired 3,000 licenses for Easton Press over a 25 year period, rights for them to make leather-bound books. It was partly the experience of dealing with agents all over the world looking for attractive backlist properties that led me into [eBook publishing]. It’s fundamentally a rights business.”

Klebanoff’s long years in publishing have taught him that almost nothing about the business is immutable: not formats, not sales channels, not even contracts.

“I got involved in the business in the mid-seventies,” he remembers. “The paperback book was in ascendancy. The most anyone could sell of a hardcover book at the time was a James Michener for half a million copies. The number one hardcover book in a non-Michener year, like a Ludlum, would be a quarter of a million copies, and the typical ratio of net paperback sales to hardcover sales was 10 to 1. The biggest thing resembling a retail bookstore chain was Doubleday, with 15 stores. And then by progression you had Dalton, the superstores, the arrival of the warehouse selling clubs and the big box stores.” He watched over the years as paperbacks stayed flat or fell, while hardcovers turned into a mass market commodity. “The easiest way to think about it is the breakdown of the 10 million HARRY POTTER, and how many companies were in a position to order a million units. Only a couple of them – Borders and Barnes & Noble – are traditional booksellers.”

As the market shifted, agents won a standard paperback royalty for their authors and learned to carve out profitable areas of book rights like film and foreign, but Klebanoff sees bigger changes ahead. “I do think the fundamental contract between author and publisher is going to come under tremendous pressure. Because you have a marketplace where basically none of the books change hands at suggested retail price, and it’s a suggested retail price royalty-based business – as opposed to a receipts business. There is no such intellectual property business in the world. You have a business where the beginners and the very successful have highly comparable rates of royalty. Up to now the theory’s always been that if any one publisher tried to break ranks and do a different kind of a deal, basically they’d lose their opportunity to acquire. And there’s a certain amount of truth in that. But if enough people are in enough trouble a lot of stuff gives.”

“One of the realities for the publishers is that they’re under phenomenal profit margin pressure and that pressure is going to do nothing but go up. They can’t be squeezed in the middle by the retailer and author, and squeezed by their parent who says you have to make money for us, without something giving. Something’s going to give. The retailer could chip in more, but that’s not going to happen, they’re going to chip in less. The parent could chip in more, and say we don’t care if you don’t make any money, but that’s not going to happen. They can squeeze certain sorts of expenses, but they’ve already done that. Or, the largest single variable expense is the cost of acquiring the contract, and royalties. That’s going to get squeezed, in my opinion.”

Love or Money

That doesn’t mean Klebanoff is joining the pundits heralding the death of publishing. Far from it: “On the optimistic side, it’s an enormous business. In dollar volume – it’s a difficult business to measure, but no matter how you measure its total volume, it’s a bigger business than the movie business, it’s a bigger business than the music business. And the tremendous expansion in the distribution. How high is up? It’s not a hundred years ago that the highest up for a hardcover book was 500,000 copies. The highest up now is 20 million copies. It’s a bit of a spread!”

That’s good news not just for the companies that can cash in on the megahit bestsellers, but for a certain kind of author as well. “There is an element of the transformative that’s happened to the high end of the business, that is never going backwards. And there’s an element of opportunity – you know, a divorced woman sits in a trailer in London and starts imagining a fantasy series and you get HARRY POTTER. You couldn’t make it up. None of this stuff in theory is possible.”

As for the overwhelming majority of authors who aren’t named J.K. Rowling?

“First of all, it’s always been a terrible business. It’s always been a business driven by love, below the top. I don’t think that’s going to change for the author – or for many people who work the business on the editorial side, there’s probably going to be more punishment and less love.”

Oh dear. Is there any good news? “eBooks are good news. There are many more paths to market. Ten years ago a general literary agent would take on a client if they thought they could maybe make a $10,000 deal for a book, and if they struck out they struck out, and you were dead. One the one hand, [today] there are many fewer places to pitch the book. On the other hand, if you’re an author with some energy there are all these different paths to market that simply didn’t exist. You may need lightning to strike, but the truth is you need lightning to strike anyway. To look at it negatively, what you’re getting is a lottery ticket. Positively, every week somebody wins the lottery.”

Arthur Klebanoff is founder and CEO of RosettaBooks LLC, an independent e-book company which focuses on the best of the backlist. He also owns the Scott Meredith Literary Agency, an agency founded in 1946 with more than 1,500 titles in print.

Emily Williams is co-chair of the BISG Rights Subcommittee and a former literary scout who currently works as an independent publishing consultant.

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