John Scalzi has been doing a splendid job of chronicling the problems with Random House's new e-book only imprints and the evolution of same: index post here, with updates here and here.
He's already covered most of what I might want to say on those matters, but I do want to pull out one particular thread and swipe it a few times with highlighter:
Random House is referring to this model as "profit-sharing."
Which isn't false: it does involve sharing profits. But so does the standard model. That's what royalties are; they're a share in the profits earned from sales of the book. I've been sharing in my publisher's profits since the first royalty accounting period for Doppelganger, because that book earned out its advance in a couple of months. And the advance, let us note, is an advance on royalties -- meaning that the publisher shared with me some of their profits before they even earned any. The math for how an advance gets calculated is complicated, and not every book earns out, but the point is that we've always been splitting the proceeds, in one fashion or another.
Calling this "profit-sharing" is a bit of marketing speak, designed to make the author feel like the publisher is offering something that you don't get under the advance-first model. Which may be true in degree (the royalty percentage), but not kind (the existence of royalties in the first place). As for the degree, it depends on the extent to which Random House hammers out the egregious flaws in the initial contract, such as charging production costs against the author's share of net (not even gross). As many people have pointed out, that's called "Hollywood accounting," and it's why no reputable Hollywood agent will ever recommend accepting net points as your compensation. The studios' accountants will make sure that translates to nothing whatsoever. Not to mention that charging the author for production is what vanity presses do . . . but I digress.
One more time with the highlighter: don't get suckered in by the terminology. All (non-scam) publishers share profits with their authors, one way or another. Random House's way started out as insanely bad, is somewhat better now, and needs watching in the future. But whatever language they dress it up in, it is not some brave and generous new world.
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