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Random House Royalty Switcheroo

29 June 2011

Agent Kristin Nelson discovered something that will make Random House authors want to double-check their ebook royalties.

Excerpts:

Since we’ve been speaking of 25% of net receipts and it would have been easy to miss, if you publish with Random House, you might want to take a look at your April statements again.

Random House decided they were arbitrarily just going to use the 25% of net receipts to calculate their authors’ eBook royalties in this last accounting round—regardless of what is stated in the contracts. There was no mention of it to agents or letter circulated to authors–that I know of anyway. I’m assuming some folks just weren’t going to notice?

Link to the rest at Pub Rants

Passive Guy has to admit he likes Kristin’s style. She runs the numbers and determines that some RH authors will win and some will lose under the new regime.

The bigger point for PG is how this was done and what it may reflect about the publisher’s attitude toward its authors. (Remember, PG has been hip-deep in Harlequin for a few days.)

If we consider a publishing contract at a high level, it’s a license of the author’s copyright that carries an obligation to pay royalties for the license. The amount of those royalties and how they are calculated is included in the contract. Everybody signs at the bottom and the contract is binding on both parties.

There are lots of other provisions in the contract, but this is the heart, the fundamental purpose – author gives publisher the right to do something and publisher pays author for that right.

So, how does the amount of payment change without the author agreeing to the change? Assuming the author has an agent, that agreement, probably called an amendment to the contract, would go through the agent.

Let’s look at contracts in the reality-based world.

What would happen if PG decided to change his mortgage contract and thought 50% of the old payment was just right?

What would happen if the producers of Jersey Shore decided Snooki was receiving too much money under her contract and cut her per-show payments in half in the middle of the season?

Kristin is rightfully perturbed on behalf of her clients and herself, but PG looks at the bigger picture and asks a simple question. What kind of company would try to pull something like this by changing the money calculation and issuing royalty statements that, on their face, breached its publishing contracts?

Kristin writes that nothing was mentioned to agents and authors received no letter from Random House. There’s something more fundamental, however. Unless the signed publishing contracts says Random House can exercise dial-a-royalty rights by sending out a letter (don’t sign a contract like that if you see one), the only way Random House can adjust royalties is if the author agrees to the change – in writing.

It’s also interesting that the royalty rope-a-dope happened with ebooks. Once again, a publisher appears to be miscalculating royalties on ebook sales. No wonder traditionally-published authors believe there’s no money to be made in ebooks.

PG is a natural-born troublemaker and is probably not worthy of emulation, but if he received a weird royalty statement, he would be inclined to read his audit paragraph and go do an audit. Authors pull back from these because it’s possible to spend a lot of money hiring people to do audits.

At some time in the future, PG will write about audit clauses he has seen. Some are awfully loose and provide an author and an author’s cousin Vinnie who took an accounting class one time a plethora of opportunities to dig all over the place and cause a lot of grief for the publisher.

As just one hypothetical grief example that a sensitive and reticent author would never consider, no audit clause PG has ever read prevents the author from sharing what she finds in the audit far and wide.

PG can see it clearly in his mind’s eye. Vinnie pulls out a piece of paper and says, “This looks fishy to me.” Sitting beside Vinnie, Annie Author tweets, “My accountant just found evidence of royalty fraud at Random House.”

Guerrilla warfare is how oppressed people sometimes fight their battles.

Just a couple of thoughts in passing.

 

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Agents, Big Publishing, Contracts, Royalties

18 Comments to “Random House Royalty Switcheroo”

  1. Clearly, Random House is in the wrong, but it shouldn’t be surprising. The asymmetrical relationship between author and publisher is going to lead to _some_ publishers seeing what they can get slip by without notice. (please assume disclaimers about the existence of honest, above board, plain dealers being plentiful.)

    It seems similar to added credit card fees, “unless otherwise declined” opt-ins on an insurance policy and the like. A pencil pusher found a way to make buck from people who weren’t paying enough attention.

    I’d expect that, for Random House, that some authors do better and some do worse is less important than that they tried to get away with calculating everything exactly the same way.

    Royalties management is difficult and expensive. Ebook sales are difficult to audit. Publisher profits are getting squeezed. Sounds like the perfect recipe for this sort of trickery.

    • Rich – You’re absolutely right about the asymmetry.

      What I don’t see as being in the publishers’ enlightened self-interest is mistreating the people who provide the products they sell. I think we’re seeing the aftermath of decades of having a very limited market for selling manuscripts and an institutional attitude among publishers that the supply of good authors is never-ending.

      The indie pubbing alternative is, for some authors, the literary equivalent of a shelter for battered women.

  2. Here’s how my digital rights contract amendments from Random House read:

    We will pay royalties on all ebook sales of your book in accordance with the following provision:

    “On all copies of the work sold as an “Electronic Book” as defined herein: 25% of the amount received.

    As used in this Agreement, Electronic Book means the text of the Work in complete, condensed*, adapted* or abridged* form by any means of distribution or transmission, whether now or hereafter known or developed, intended to make the text and any illustrations or photographs contained in the Work available in visual form for reading.
    *Publication of condensed, adapted or abridged editions shall be subject to the Author’s reasonable approval.”
    _____

    Under the agency model, isn’t the amount received the retail price?

    • Patricia – If you’ve signed the amendment and are receiving the royalties specified, it sounds like you have no beef with RH about ebooks. What startled me was the change in royalties without an amendment that Ms. Nelson described.

    • Isn’t “on paper” just another method “intended to make the text and any illustrations or photographs contained in the Work available in visual form for reading?” Does the contract really not specify that “electronic book” doesn’t have a physical presence?

      • Patricia Sierra

        There are separate contracts for paper versions that pre-date the digital amendment.

  3. I have no idea if I’ll receive the royalties. Remember: my contract was through Vicinanza.

    My point in what I posted was that I thought the 25% royalty was what RH was offering across the board. And above where I said I thought the amount received would be the retail price, I should have said after the vendor gets a cut. I just thought this is how its always been for RH’s digital books, or at least has been since 2009 when RH did their amendments.

    Maybe newer contracts had different terms?

    • Patricia – I don’t know about the various generations of RH royalty arrangements. Kristin’s blog post certainly implied that was the case.

      • Prior to 2009, Random House used to offer 50% of money paid to the authors. (Back in the days before there was an ebook market.)

        I’ll be looking very closely at my statements when next they arrive.

  4. As always, a fascinating post – I especially like your comments. Very illuminating. It is surprising how legacy publishers don’t appear to realize the damage they are doing to their reputation. Is Random House really reduced to playing such despicable games to defend its bottom line? Or is it the result of somebody stupid inside of the organization?
    Because these are big corporations with lots of employees who might try something out just to show their boss how clever they are at ripping off their authors…That’s always the trouble with a big institution: very hard to manage and keep wayward employees under control…

    • Claude – It isn’t clear if this is stupidity or something calculated.

      However, if the established corporate culture at RH was, “Everybody treats our authors very well. We don’t want to alienate these people,” even stupidity of this kind would be reduced.

      I think the RH move resonates with a lot of authors because it’s typical of the way their publishers treat them.

  5. Interesting…Having worked as an auditor myself, I am not surprised to see something like this. One thing I have learned from auditing accounts of large corporations, is that most often the mistakes are due to carelessness, stupidity, or the “hey, it’s not my department” syndrome.
    Outright fraud is usually the domain of small business. Either way it’s not right.

    If you are unfortunate enough to be a victim of this, I suggest you dig out your contract, read it, and decide what you think your royalty statement should look like. Then talk to a lawyer and see if he agrees before you hire any accountants to look at your publisher’s books.

  6. Excuse me please. How do I politely point out that this entire thread, based on a nonsensical Pub Rants, is utter nonsense?

    A show of hands if you have a RH deal that pays 25% of list or better for mass market. Any one? You in the back? So comparing a 25% of net ebook rate to a nonexistent rate for mass market doesn’t make any sense, does it? Does any more really need to be said?

    Without knowing details here is what common sense tells us:
    1) the 25% of net is an increase for authors who typically earn what, 6 to 10% of list.

    2) RH would not open them selves to the abuse of reducing royalties below contract, too many lawyers out there.

    Does bring up the interesting question, “Can a party unilaterally change terms to benefit the other party?”

    It would be helpful if people did disclose their royalty rates on epubs and print and based on what (list, net, other) so people can do a real comparison.

    Looks to me as if RH is handing you more money than your contract entitles you and you don’t even know it.

    • Jim – I’m not clear on your premise.

      Are you saying Kristin is lying when she says RH changed royalty terms without contract amendments?

    • Uh, I have three friends with contracts at Random who got 25% of cover, not of net, with deals signed in the 2006-2008 range. That used to be the standard royalty rate at Random. They dialed down on new contracts when everyone else in the industry settled on 25% of net.

      Also, PG, my contract with Harlequin says this about the audit clause:

      As a condition precedent to the exercise by Author of her right to examine the books and records of Publisher, Author’s duly authorized certified and independent public accountant shall execute an agreement to the effect that any information obtained as a result of such examination shall be held strictly confidential and shall not be revealed to any third party other than Author or her representative, without written permission by Publisher. Author also hereby agrees to hold all information and statements provided to Author or her accountant in strictest confidence.

      I don’t know if anyone else has a similar clause, but that’s crazy stuff.

      • Courtney – That’s a new provision for me and I agree it’s crazy. I guess nice authors don’t complain.

        I don’t see the agent included in the confidentiality clause, however. The CPA can reveal info to the Author’s “representative,” who may be her agent, but could just as well be Passive Guy if the author was foolish enough to designate him as a representative after the audit was finished. In fact, the author could designate someone at Publishers Weekly as her representative, then someone at the Authors Guild, etc., etc.

        PG could see a big fight over the language of the “agreement” as well. One interpretation is that the only thing the CPA has to sign is something that says “to the effect that any information obtained as a result of such examination shall be held strictly confidential and shall not be revealed to any third party other than Author or her representative, without written permission by Publisher” with no additional language thrown in.

        But PG is always a troublemaker.

        Thanks for sharing.

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