Home » Contracts, Legal Stuff » The Nightshade Books/Skyhorse Publishing Deal: Why I’ll Take a Pass

The Nightshade Books/Skyhorse Publishing Deal: Why I’ll Take a Pass

5 April 2013

Author Michael A. Stackpole dismantles a proposed modification of his publishing agreement with financially-troubled Nightshade Books. See this post for additional information.

Speaking generally, Michael’s essay describes a horror show of terrible contract provisions in publishing contracts.

What is worse, Skyhorse, the would-be new publisher, didn’t make up a lot of new contract clauses, it just used provisions that are common in the publishing contracts of many publishers, including most large ones.

From Stormwolf:

Night Shade Books recently sent a letter to all of their authors announcing that they were in negotiations with Skyhorse Publishing to complete an “acquisition of assets.” In essence, Skyhorse would pick up all their assets, assume none of their liabilities, but would pay NSB a sum of money which, according to the letter, would pay off outstanding debts to authors. If such a sale cannot be completed, NSB states clearly that they’re broke, and that who knows what a Bankruptcy Court will do with author property in any settlement.

Now, to be paid, authors just have to agree to some slight modifications of their contracts.

. . . .

I’ve always found it useful to measure any agreement not by what someone tells me they will be doing, but what I imagine their heirs or evil twins could do with the contract terms.

. . . .

2) Physical Book Royalties: The agreement requires authors to accept a royalty rate of 10% of Net income. Net is defined as the amount of money the booksellers and distributors pay Skyhorse—usually 50% of cover price. For me this net amount is a 50% reduction in my royalty rate.

More importantly, net income is illusory. Let’s say that Skyhorse, in order to get more of my books into a store, offers a distributor or chain an extra 30% off, on the condition that they buy an extra dozen books. So, 36 copies of a $15 book pays Skyhorse $189, of which I make $18.90 as opposed to the $27 I’d make if all 36 had been sold at a normal price, or the $54 I’d make under the NSB contract.

. . . .

3) Ebook Royalties: The agreement requires me to lower my cut of ebook income from 50% to 25%. Skyhorse might have a shred of an argument if they actually had to put money into the production of the ebooks, but they don’t. That’s pure turnkey, so why do I take half of what I was getting before? That makes no sense. There’s no expense to them, so digital income is pure profit.

4) Audio and second serial rights: The agreements stipulates that I’ll grant Skyhorse audio and second serial rights to my books—rights which NSB never purchased. They want these rights for no money up front. Moreover, the clause says that the author will be consulted on the sale of same, but that “approval shall not be unreasonably denied, delayed or withheld.” Income from the sale of these rights will be split 50/50 between Skyhorse and the author.

This can lead us to an interesting situation for which there is ample precedent in the publishing world. The publisher forms a sister corporation to handle audio book production and sales. They sell a property to the sister corporation for a tiny advance and pitiful royalty. The sister company makes the money actually selling the product, and yet the publisher can say that they’re following the letter of the contract because they’re splitting all income half and half. (Harlequin just had a lawsuit dismissed against them for doing a similar thing with ebooks.)

. . . .

5) Term of Copyright: The agreement is a “term of copyright” agreement which, unless I badly misunderstand SFWA’s complaints about the Random House HYDRA contract, was a sticking point there.

6) Reversion Clauses: Reversion clauses allow an author to request a return of all rights granted if, after two years from the date of publication, the book goes out of print. Out of print is defined as fewer than 100 copies sold per annum for a physical book, and less than 100 copies sold for a digital book in a twelve month period. The publisher has six months to reprint the book, and has 90 days to kick the rights back if they choose not to go to press.

Here’s the problem with this wording in the case of digital books: How do you “reprint” an ebook? You can’t, so applying the print standard to an ebook is complete nonsense.

. . . .

So, how does a publisher beat the ebook out-of-print criterion? Let’s say a book has sold only 60 copies as we are coming down to the end of the year. It’s an $8 ebook. Publisher nets $4, pays the author $2. The publisher, for doing nothing more than letting Amazon and Apple shoot you some electrons, nets $120 a year. Coming down to the end of the year, the publisher puts the book on sale as a .99 special, hits Twitter, moves 40 copies and kills the sale. They’ve guaranteed not only their share of the secondary rights for another year, they’ve guaranteed $120 in income for the next year, and they’re out zero expense since those digital copies cost them nothing to sell cheap.

Link to the rest at Stormwolf

To be clear, Passive Guy is not familiar with the history of Nightshade or its existing contracts nor has he reviewed the proposed Skyhorse contract.

However, Michael’s prior blog posts on a variety of topics seem to have been reliable and, as PG said at the outset, the contract provisions Michael describes in this post are not unique or exotic in the traditional publishing business.

As PG mentioned in his prior post on Nightshade’s problems, bankruptcy is not much fun. However, while the bankruptcy court has a lot of powers, it’s difficult for PG to believe authors will be treated as badly by the court as they potentially will under this revised contract.

Contracts, Legal Stuff

17 Comments to “The Nightshade Books/Skyhorse Publishing Deal: Why I’ll Take a Pass”

  1. So if you don’t sign, does that mean you get your rights back? Seems like a good time to go indie, with all the publicity over your publisher going under and being asked to sign something so silly.

    Kind of a phoenix rising from the ashes thing…

    Oh, never mind. Just checked the earlier post on this subject and learned that you end up losing your work in the bankruptcy. It looks like you need to audit a publisher’s financials before you even get into bed with them or you end up as one of the assets being sold off by the trustee….

    Big Publishing – Living the dream – waking up to the nightmare…

    • Zingo, Andrew!

      • It’s been quite a week for traditional publishing. The Nightshade debacle has been paired nicely with a 2013 Harlequin phyrric-victory. A little rough on the palate, but very educational.

        Kudos to PG, our sommelier of publishing foibles!

  2. @ Andrew. This:

    “Big Publishing – Living the dream – waking up to the nightmare.”

    I want that on a T-shirt.

    More seriously, it’s outrageous how much publishers try to take advantage. Just mind-boggling. How can they sleep at night knowing they are prospering by stomping on the backs of their artists?

    It’s just awful.

    • Y’know, Mira, that might be just what I need for author branding. My SF story accidentally spun off a zombie series of novellas (I got into the details of longevity and realized it could be dangerous in the wrong hands (EG: humans).

      I can put that tag line over a zombie face and crank out some t-shirts.

      Anybody know where I can get my hands on a t-shirt cannon? I suppose I could make one from some bean cans and lighter fluid…

      I can see the evening news now – “man arrested after knocking five commuters off the platform at the Brentwood LRT station”

  3. Michael Stackpole has just posted some more thoughts: http://www.michaelastackpole.com/?p=3306

    He doesn’t like the (lack of) numbers at all.

    • Some of those scenarios he envisions are truly nightmarish.
      And in the wake of the Harlequin decision, all are fair game…
      There really is no reason why a newcomer or even midlister should be doing any form of trad-publishing. (Barring a miraculous lightning strike and even there you’re better off “investing” in a lotto ticket…)

  4. PG, what might happen to these contracts in bankruptcy court? It sounds like the original contracts can be changed, at least as far as any time constraints, but what other kinds of things are likely to happen? And what rights to the authors have?

    • Speaking very generally, filing a bankruptcy stops all efforts to collect debts (like an author going after a publisher for unpaid royalties) from the person/entity who files and freezes major assets of the debtor in place so creditors don’t grab them on a first-come/first served basis.

      In a typical business bankruptcy, the debtor puts together a plan for payment/partial payment of creditors. The plan can affirm or disaffirm contracts of the debtor – affirming existing sales contracts so they stay in place and disaffirming the lease for the business offices so that debt goes away, for example. Different classes of creditors (taxing authorities, secured, unsecured) can be treated differently in the plan. Acting individually or, more commonly, in groups, the creditors can propose a different plan or object to one or more aspects of the bankrupt’s plan.

      The judge works through the various plans, objections, etc., in the manner prescribed by the bankruptcy law, deciding disputed matters in the process.

      While an unsecured creditor like an author who has unpaid royalties may not be paid all that is due to him/her, only in extremely unusual circumstances would the bankruptcy court change terms like royalties, the rights granted by the author, etc., in the publishing agreement. The author could well take a haircut on back royalties, but he/she would normally be entitled to be paid all royalties that become due and payable after the filing of the bankruptcy. If the debtor wanted to keep a publishing agreement in place after filing for bankruptcy protection, the debtor would be required to abide by the terms of that agreement moving forward.

      These are the general principles involved in a business bankruptcy under which the owners/purchasers of the business want to continue the business after the conclusion of the bankruptcy. PG has never been involved in a bankruptcy proceeding in which a publisher is going broke, so he is not familiar with any special treatment of bankrupt publishers under statutory or case law.

      • So it sounds like all authors would be wise to include an “in case of bankruptcy filing by Publisher, all rights revert to Author” phrase. But of course, they’d never get it.

        • Might be able to get something like, “In case of bankruptcy filing by Publisher, Author may purchase back all rights for $XXX”?

      • One thing I’d be concerned about is selling the contract and any chances of getting the book rights back.

        I’ve heard of a case of a movie distributor going bankrupt and all the rights to distribute those movies being tied up for years, so no income to the movie makers (the one in question was a small indie film), and when the distribution rights were sold, those films not considered profitable by the purchaser were essentially lost, never distributed, but never returned to the filmmakers (or so it was stated).

      • Your previous post on the subject mention “Chapter 7”. There’s actually two types of bankruptcy, “Chapter 7” and “Chapter 11”. Under “Chapter 11”, the intent is to reorganize and refloat the business, potentially with a new owner.

        Chapter 7 is more serious, and basically says the business is beyond hope. Assets get sold off. A contract with an author is one form of asset, but a tricky one to sell. The trustees may agree to sell those contracts back to the authors individually. Or it may hold on to them in the hope of getting a better price for a “set” or that there might be a ‘sleeper’ in there which will turn into a film franchise and magical money pots. What it won’t do is make any attempt to market/sell books.

        I suspect the reversion clause is actually the best hope for an author under Chapter 7. Because the trustees can’t really operate to preserve those rights, they’ll revert to the author. And as such, they may be willing to release the author from the contract for a small sum early. But they may not.

        • Good point, Gary. I assumed it would be a Chapter 11 based upon the work they’re doing to get a white knight to continue the business.

          As I looked at the published excerpt, the Nightshade letter mentioned Chapter 7, but it was in the context of “If we filed for Chapter 7 bankruptcy,” which does not say they’re going to file for Chapter 7 instead of Chapter 11 and may even reflect ignorance on the part of the letter’s author. As I read the excerpt, it sounds like a threat designed to scare authors, not necessarily a statement of what Nightshade would do. The letter talks about books being “entangled in the courts for years,” which is more typical of Chapter 11 than Chapter 7.

          If the company has an income stream from book sales, I would think Chapter 11 would make more sense because there might be a business if Nightshade could get rid of outstanding unsecured trade debts.

  5. And some different finger pointing from a Nightshade author: http://www.kameronhurley.com/dealno-deal-writers-arent-totally-stupid/ Don’t blame Skyhorse/Smart for the mess.

  6. Hmm, I wonder…
    How much would it cost for a white knight to step in…?
    Say, ohh… Just to be mean, Amazon? 😉

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