Now that e books have finally captured a share of the market, publishers are looking at so-called enhanced e books as the next big development.  However, for a variety of reasons, the future for enhanced e books is murky, at best.

What is an enhanced e book?

At this point, the best answer is “no one knows for sure.”  Clearly an enhanced e book is an e book that includes more than just the text and illustrations from the basic print or e book, but what those added elements might be is uncertain.  Some publishers have discussed adding reader’s guides, author interviews and other materials that might assist the reader in reading or analyzing the book.  While these additional elements might be of some value to book purchasers, they are hardly revolutionary, in that similar materials have been added to paperbacks for decades (although not in audiovisual or interactive formats).  Other materials that have been proposed for enhanced e books include puzzles, quizzes and games, for children’s books, and audio and video materials such as radio and newsreel or television recordings, for biographies, books about historic events or time periods, and public affairs books.  Depending on the type of book, it is certainly possible to imagine additional elements that could enhance an e book, but moving from imagination to execution may prove to be a difficult process.  

Who will control enhanced e books?

Given the current uncertainty surrounding enhanced e books, authors (at least those represented by agents) are understandably reluctant to give up enhanced e book rights.  An author might be concerned that the publisher will never produce an enhanced e book, and thus if the author has granted enhanced e book rights to the publisher, he or she will lose out on an opportunity to earn royalties from such a project.  An author might also be concerned that the publisher will produce an enhanced e book, but that the elements added to create the enhanced e book will not be in keeping with the message, style or tone that the author intended for the book, or that each reader will have the ability to modify the book in ways the author never envisioned or intended to create his or her own enhanced e book.  Finally, the financial arrangements for enhanced e books are unclear, and an author will not want to commit to a fixed royalty or other terms without having some idea as to what will ultimately evolve in the way of prices, costs and royalty rates for enhanced e books. 

From the publisher’s perspective, the publisher will not want the author to retain the right to produce or license an enhanced e book separate from the publisher’s print or electronic editions of the same book, as a separate enhanced e book may compete with or supersede the publisher’s print and e book editions.  While a publisher may be willing to give an author a right of approval over an enhanced e book, the publisher most likely will not want an author to have absolute veto power over such a project, particularly if the publisher has to incur substantial development costs before getting the enhanced e book to the point where the author can approve or disapprove. 

Will consumers buy enhanced e books?

The willingness of the consumer to purchase enhanced e books remains a big unknown.  Consumer demand for enhanced e books will likely depend on both the quality and relevance of the materials added to create the enhanced e book and on the price charged for the enhanced e book.  It is certainly possible that a multiple-element pricing model could evolve.  A consumer could be presented with a variety of possible add-ons, each at its own price, and the consumer could select from the menu of available add-ons to create his or her own customized enhanced e book.

What are the financial terms for enhanced e books?

The traditional financial model in publishing is based on cost and on what each party has come to see as a reasonable return from its efforts.  Thus print books are sold at a price that allows the publisher to cover paper costs and the costs of editing, layout and design, printing, binding, warehousing, marketing, distribution and shipping, and that leaves enough for the author’s royalty and for the publisher to realize a profit, assuming the book sells at or near its estimated sales projections.  E books have upended this formula somewhat, in that while e books involve conversion costs, they do not involve any printing, binding, warehousing or shipping costs.  Thus authors have argued with some success that e books should carry a higher royalty rate than the rates typically offered for print books.

Enhanced e books are likely to add further complications to the royalty formula, especially given that each enhanced e book will have a different cost, depending on what is added to create that enhanced e book.  For example, it may cost less for a publisher to use an in-house editor to create quizzes, games or other elements to add to an e book than to license existing third party content, such as television footage, to add to the e book.  If the author creates additional content for an enhanced e book, there will be no upfront cost to the publisher, but the author will likely want a higher royalty from the enhanced e book than would be the case if the author were merely a passive participant in the project.

Since the cost of creating an enhanced e book is likely to vary with each book and cannot be known until that enhanced e book is developed, and since the price that consumers might be willing to pay for an enhanced e book remains unknown and in any case will likely vary depending on what is included in the enhanced e book, it is impossible for a publisher or an author to know what a reasonable royalty rate for an enhanced e book might be.  It may be possible to set one rate if the author prepares new content for the enhanced e book and another lower rate if the author does not participate in the creation of the enhanced e book, but even this seems risky given the uncertainties in the market. 

Are there solutions?   

One compromise approach to enhanced e book rights would be to place control over those rights with the publisher, but to allow the author to have a substantial role, including perhaps a right of final approval, in the creation of any enhanced e book.  Of course the parties would have to collaborate with one another from the beginning of the project in order to avoid having the publisher make a substantial investment in the enhanced e book, only to have the author refuse to grant final approval.  As an additional condition, the agreement could include a “use it or lose it” clause, such that if the publisher does not produce an enhanced e book within a certain period of time, all enhanced e book rights would revert to the author. 

An alternative approach would be for the author to retain enhanced e book rights, but to give the publisher a right of first refusal to exercise those rights before the author could exercise or license those rights himself or herself.  If the publisher failed to exercise its right of first refusal within the option period, then the author could move forward with the project, either directly or through a licensee.

Under either of the above approaches, the parties would still need to determine the royalty or share of net proceeds to be paid to the author.  Given the uncertainties surrounding any enhanced e book project, the only solution in the near term is likely to be a clause providing that the author’s compensation will be negotiated.  Granted this will put the author in a somewhat elevated bargaining position, in that the author can always refuse whatever offer the publisher makes, but it will ultimately be to the advantage of both parties to agree on a rate and bring the enhanced e book to market; otherwise, neither party will realize any revenue from an enhanced e book, and the rights will remain dormant.