Know Your Rights

23 April 2016

From Kristine Kathryn Rusch:

I recently got an email that sent a chill through me. It was a newsletter from a traditional publishing organization. This organization is geared toward publishers and editors, not toward writers.

The newsletter was essentially an ad for an upcoming seminar that will teach publishers to understand intellectual property and expand their rights business.

Why did this send a chill through me? Because the one thing that has protected writers who signed bad contracts is the fact that their traditional publishers have no idea how to exploit the rights they licensed.

. . . .

[I]n short, most publishers ask for more than they have ever used in the past. Publishers have been very short sighted in how they published books.

. . . .

Ten years ago, it was relatively easy to get the rights reverted on a book like that. Essentially both parties agreed that the terms of the contract had been met, that the parties no longer had need of the relationship, and so they severed their business relationship.

It wasn’t easy-peasy, but it wasn’t hard either. It usually took a letter or two.

By 2005, however, most agents refused to write that letter which severed the contract. The reason was simple from the agent’s perspective. Many, many, many agents used a combination of their agency agreement and a clause in the writer’s book contract to define their relationship with the writer, and determine who controlled the marketing and finances of that book.

It wasn’t in the agent’s best interest to cancel the contract. In fact, the longer the contract existed, the better it was for the agent.

Writers with agents would have to write those letters themselves—and then, publishers would often contact the agent to find out why the agent was “letting” the writer do this.

. . . .

In the last year or so, I’ve been hearing from writers who say it’s almost impossible to get their rights reverted. The publishers want to hold onto those rights as long as possible.

The main reason for this has nothing to do with reprinting the book or keeping the book in the marketplace. It has to do with the changes in accounting that have occurred in the big traditional publishing companies.

The Big 5 (4? 3? Whatever. Jeez.) are now part of international conglomerates. Those conglomerates understand that intellectual property has as much value or more value than the buildings and land that the conglomerates use to house their businesses.

Those conglomerates put all of the intellectual property on their account books as an asset. So your novel—even if it’s more or less out of print (or has a $19.99 ebook like my novel Fantasy Life)—has a value assigned to it that reflects not only its earnings right now, but its potential earnings in the future.

The command came down from on high that publishers should retain the assets as best as possible. (I’m pretty sure some of these publishing companies were purchased for their intellectual property assets, not because of their bottom lines. I have no interest in proving that, though.)

So, publishers have kept the assets, doing the minimum to retain the rights to them. But they really haven’t maximized their profits.

. . . .

In practice, publishers have started to claim rights they never had. They’re interpreting the contract terms for something negotiated in 1997 by 2016 standards, and finding ways not to pay for those uses.

Big corporations are all about profit for the corporation. The best way to maximize profit is to lower expenses.

That’s why, after these big companies merge, you see layoffs a year or so later. That gives the new company time to define itself, find employees with overlapping duties, and streamline production.

Once the layoffs are over, once the agreements with the subcontractors (like printers and distributors) end or get renegotiated, the corporations look around for other ways to cut expenses.

The easiest way is to cut the payments to the suppliers—the writers.

. . . .

Just be aware that publishers often cut payments, and they use the contract as their guide. Not necessarily the contract negotiated in good faith with a corporate entity long merged into five other corporate entities, but the corporate entity that exists now.

Link to the rest at Kristine Kathryn Rusch and thanks to Bruce for the tip.

Here’s a link to Kris Rusch’s books. If you like an author’s post, you can show your appreciation by checking out their books.

As usual, Kris does an excellent job of talking about the business/legal aspects of being a successful professional writer.

PG would like to talk a bit about authors making a decision to sign a publishing contract with a particular publisher or editor.

Isn’t that a huge reason why most authors sign a publishing contract? RomancesRUs is the hottest publisher around and some of their authors are New York Times Bestsellers. And Leticia is the best romance editor who ever walked the earth plus she is so nice on the phone. (ditto for SciFiRUs, etc.)

The idea that no one will remember RomancesRUs in ten years and Leticia will be fired in six months doesn’t enter most authors’ calculations.

It is the nature of declining businesses to attempt to consolidate their way to survival. That’s what’s been happening in big and small publishing for awhile and what will continue to happen.

Many authors sign with a publisher because of that publisher’s reputation for quality books and successful authors. Some authors will sign because they’ll be working with an editor with a great reputation for excellence and success, the kind of editor that bestselling writers mention in interviews.

Similar thinking goes into an author’s decision to sign with a star agent, one with many happy authors who say nice things about the agent’s work.

These would be good business reasons to sign a contract that lasted for five years.

However, current reputations and past successes are a terrible reason to sign a contract that will tie up rights to an author’s books for the full term of the copyright. As a reminder, in the US, copyrights last for as long as the author lives plus 70 years.

In a successful business, management can last for a long time and often the original management hires new managers with similar business acumen and passes down the business principles that lead to that success through the hierarchy. Such businesses can work their way into long-term success.

When a business is declining, especially when it is part of a declining industry, management turnover and ownership changes become near-constants. Yesterday’s management practices are no longer today’s management practices. Some investors make a lot of money by acquiring problem businesses, cutting costs to the bone, then harvesting profits (pulling cash out the business) or finding someone else to buy the business because its financial statements now look better.

Traditional publishing is in decline. How long the decline might last is speculative. However, the words of Ernest Hemingway are instructive. “How did you go bankrupt? Two ways. Gradually, then suddenly.”

The Securities and Exchange Commission requires mutual funds to warn their investors that “Past performance is not a predictor of future results.”

Of course, an investor who bought into a mutual fund can sell his/her shares and have nothing further to do with that fund and its managers. A hedge fund that purchased a publisher can sell the publisher and be done with it. Since no US state permits life-time employment contracts, a publishing executive or editor can either quit immediately or wait a couple of years, then bail out on a failing publisher.

Only the authors who signed contracts that last for the full term of the copyright are tied to whatever corporate entity once called itself a publisher, but now is a hedge fund asset, for the rest of their lives plus 70 years.

(PG will note that a provision in US Copyright Law permits the creator of a copyrighted work or his/her heirs to terminate a contract 35 years after publication or 40 years after the contract was signed, but it doesn’t happen automatically and 35/40 years is also way too long. PG won’t get into the technicalities of this part of the law.)

“But it’s a contract for only one book,” an author might say. PG won’t take more space to discuss unfair non-compete clauses, option clauses, etc., can undercut the excuse that it’s only one book. Such clauses can affect a whole bunch of books.

Under current contract practices, the author is the only person who has to think in the long term while everyone else in the publishing business is focused on the short term.

Publishing contracts need to include provisions that end the contracts after a few years so the author can have the same flexibility as everyone else involved with the author’s books.

Contracts, Kristine Kathryn Rusch, PG's Thoughts (such as they are)

40 Comments to “Know Your Rights”

  1. Those conglomerates put all of the intellectual property on their account books as an asset.

    How did they account for the IP rights before? When they acquired rights, where did they go on the balance sheet?

    • By inventory primarily.
      That is why so many in the business are so obsessed with the packaging. Back in “the good old days” the packaging was the asset. And when the packaging ran out they merrily reverted the rights upon request. But the mindset was so ingrained, few requested.

      • Thanks Kris very much and thanks David PG for emphasizing the long term Has to be. And also, the entire picture of how taxes/ assets/ copyrights and contracts go together. It IS the exact picture one needs in order to see where one wants to go next. Far far too many ‘surprises’ if not knowing how they all go together, and how they ‘might’ go together re inheritance as well as as you so importantly pointed out, that 35 year request to terminate contract, for instance. We are but a few years away from that on one of our
        major books, and thank you for telling us; we had no idea.

      • Thanks for that perspective Felix. Appreciate the insight.

        Felix, can you tell me … not sure, but five thousand years ago, we had to list inventory on fed tax returns, its value. Would publishers have to list all assets as inventory [book contracts that hold $$ value] and pay taxes on the aggregate of those each year, as asset inventory?

        Also, long ago, and havent followed for a while, as it was SO discouraging
        [but length of copyright for maker seemed it might/could partially compensate for the gross unfairness of artist’s assets’ law… which ran this way. If I am a collector of sculptures, and I donate one to an art museum, I can deduct the entire value of the sculture as assessed on the current open market. BUT, if I am the sculptor of the same piece and I donate it to the art museum, I can only deduct the cost of the metal, and possibly the foundry cost. If it is terra cotta, only the cost of the materials, and possibly kiln time. Etc. Huge difference in deduction.

        I wonder if there is a similar unjust way of treating publishers in tax law, giving them a tax pass as holders of assets for ‘life’ that are made by
        others– and then ?

        • I think this explains it pretty well, even if it’s a bit old:

          http://www.sfwa.org/2005/01/how-thor-power-hammered-publishing/

          It boils down to items being valued at the lower of manufacturing cost or market value for tax purposes.

          In publishing it goes back to their roots as printing houses: to them a book was worth what it cost in materials and labor– the content was treated as worthless.

          Everything flows from that: their treatment of authors, the cult of pulp, and (after the Thor Power tool ruling) the produce model and the focus on pre-orders and launch window sales. For all their handwaving over culture, tradpub was built off the economics of widget manufacturing, not IP management. It took ebooks to get them to value IP for itself instead of its ability to move dead tree pulp.

          • “In publishing it goes back to their roots as printing houses: to them a book was worth what it cost in materials and labor–
            the content was treated as worthless.”

            Wow. Felix! Geez. How horrible,and how important to understand. I NEVER would have guessed. Materials and labor/ content treated as worthless.

            That last keeps going through my mind
            content treated as worthless.
            content treated as worthless.
            content treated as worthless.
            content treated as worthless.

            Unbelievable. I think most authors thought the content was valued. Surely there are a lot of shills at big pubs pretending so.

            All built on that ‘manufacturinging of units’ cost plus prob old supply/demand principles. I mean, we knew supply/demand, but the actual widget biz model, not so much. NOr do the readers know, is my bet– that the content that can be sold, is not really seen as good, great, wondrous or other…. despite endorsements, etc blah and blah.

            Begin to think big publishing is a huge psychotic thrall.

            I hope you will expand on this and that David PG will run it, It is too important to be buried in comments. All authors should be utterly alarmed with their current big 4 pub contracts if suddenly the biz model is shiffted from widgets to IP, and get out while the getting out might still be possible.

            • The shift started around 2009, apparently, with the ebooks rights grabs and the move to net ebook royalties. Until then ebook rights were treated as derivative rights producing minimal revenue. Probably accounted as “other”. Once ebooks started producing significant revenue, especially from the backlist, they needed to account for the “inventory” producing it and that changed the game.

              I’m sure insiders can provide actual proof but between the impact of Thor Power and the ongoing rights squatting it’s clear the mindset changed and now they covet copyright control where before they treated content like paper cups: use and dispose.

              It’s only going to get worse.
              For now it’s only packagers and small shady operators trying to grab slices of copyright but it’s only a matter of time when the big boys add that to their “industry standard” contracts, witness the attempt to do just that by bureaucratic fiat in Europe. It’s coming.

            • The shift started around 2009, apparently, with the ebooks rights grabs and the move to net ebook royalties. Until then ebook rights were treated as derivative rights producing minimal revenue. Probably accounted as “other”. Once ebooks started producing significant revenue, especially from the backlist, they needed to account for the “inventory” producing it and that changed the game.

              I’m sure insiders can provide actual proof but between the impact of Thor Power and the ongoing rights squatting it’s clear the mindset changed and now they covet copyright control where before they treated content like paper cups: use and dispose.

              It’s only going to get worse.
              For now it’s only packagers and small shady operators trying to grab slices of copyright but it’s only a matter of time when the big boys add that to their “industry standard” contracts, witness the attempt to do just that by bureaucratic fiat in Europe. It’s coming.

              • When I started looking into the book business, Many things surprised me about how it worked. One of them was the notion that a company would ever give back what it had previously paid for if it ddn;t have to.

                From a financial management perspective, those rights have value. Selling them to an author (or the highest bidder) makes sense. But giving them away? That seems a violation of the firms fiduciary duty.

                With multiplying venues for the same content, I don’t see how a company justifies giving the rights away. I expect the opposite. I’d expect holding companies to acquire rights like a stock portfolio, and put them all out on Amazon or whomever is available.

                These things have value. They can be traded.

                • Yet for decades that is exactly what they did.
                  One of the reasons romance is so strong with Indies is because Harlequin would routinely revert on request pretty much everything that went out of print.

                  Without alternate channels to market the rights were effectively worthless and if the books in the warehouse sold too slowly to justify their warehousing cost, pulping them made perfect sense.

                  There have been *two* book retail revolutions since then, both raising the value of IP so it is easy for us to shake our heads at their inventory-focused mindset but things really were different becore 1995.

                  Except for SF&F, which has always had a reverence for the backlist, most other genres lived and died by the frontlist. Maintaining the backlist of big names paid but hardly anybody else made much money off the backlist and it was usually off leftovers. In many cases publishers even lost the original files, even after having moved to computerized typesetting.

                  You still see that frontlist focus today in the attitudes of many readers who’s sole interest in going to a bookstore (online or B&M) is on “what’s new”.

        • Many years (ago 25+ ?) I recall reading a story in the WSJ about how publisher were shredding huge volumes of books in order to avoid paying an inventory tax.
          I have no recollection as to whether the tax was federal or local, only the complaint (by some) that books ought to be exempt from such a tax.
          The story made a deep enough impression on me that I still remember it so many years later.

          • That was one of the outcomes of the Thor Power Tool ruling. Federal Tax.

            The IRS didn’t accept the practice of writing down inventory value based on projected sales volume so their choice was to account for full value or reduce the inventory volume.

  2. I was able to get rights back for three books, no problem at all, from a major publisher. They emailed me right away and sent the same info in a snail mail letter. They weren’t doing anything with the books after so many years.

    • how long ago was that Patricia? So glad you could do that.

      We’re in the midst of wrangling with HC for the last 1.5 years. They are recalcitrant and unpleasant to deal with, even after pointing out most of their passive sales [not carried in bookstores any longer] come from our voice selling at our events–then people either order from their local bookstore, or from amz or b and n online.

      We were successful late last year in breaking a controlling contract with Randy Penguin that had old Alberto Vitale’s self-congratulatory clause in it from early 1990s, saying they owned all rights ‘including those not invented in the universe.’ lol. I still have to laugh at the wording. So sci fi by certain people who already have no sense of boundaries and cant think ahead [you’ll remember Alberto from his fiasco at trying to block Joan Collins and other authors from doing as they wished with their own content, and Alberto lost not only big time, but publicly, as one of the cable channels carried the trial and gave a real look at what a greed-monger looks like–in a very unflattering light]. [I dont have enough cuss words to describe the former CEO of Random.] Other than that the first thing Bertelsmann did when
      they bought Random House lock stock and barrel from the Newhouse Brothers, was to fire Vitale without ceremony –prob for being a kingmaker of himself alone.

      I sometimes think if most our young talented authors really knew the good people in big publishing, they would weep to see that they are gone/fired/marginalized now. If people knew the rotted greed–and scorn for authors- of some, they would NEVER sign again with a big pub co unless they could draw what I call a “firewall contract” that was absolutely in the writer’s favor, did not have whack a mole royalties scales, and being negotiated with an eye ahead to the wellbeing of their heirs and potential assignees also. So those who are recipients of the author’s copyrights are not left to deal with incredibly hungry ghosts of ‘big’ publishing in Perpetuity as a millstone around their innocent necks.

  3. Great work, as usual, Ms. Rusch. Corporations see books differently from how we authors see them. Like rent rolls to real estate agents, the more books with “potential” earnings listed as assets – never mind that the potential may never be realised – the more profitable the business appears. As for star editors, I signed with one such many moons ago, but he retired before I turned my book in. His successor was an “authogynist” as I define it. Had I not virtually rewritten the contract to allow for worst-case scenarios, I would have been stuck with some unpleasant and expensive requirements well beyond the writing of the book. Caveat writer.

  4. “Under current contract practices, the author is the only person who has to think in the long term while everyone else in the publishing business is focused on the short term.”

    This was brilliant, PG.

  5. Dean Wesley Smith

    Fantastic, PG. Could I have permission to put your comment on my blog? That was so spot on the money and on the topic so many writers don’t think about I feel your comment needs to be pushed out even wider. Again, great thoughts. I so try to teach writers to think long term. One of my great frustrations that so few listen.

  6. Even if y’all don’t read Kris’s blog post, PLEASE read PG’s analysis of trad publishing.

    This morning, I received an e-mail from a broker looking to buy my company’s current inventory of licensed books. I immediately deleted the e-mail, but if my publishing company has enough assets to attract the attention of a broker, you can be sure there’re small/medium publishers out there considering such sales. Maybe even ones some of you have signed with.

    • Suzan! there you are. I was just asking after you the other day. Glad to see you again, and appreciate what you are saying… and I can imagine emails like that being startling, as though copyrights are lottery wins [that there is a whole business around offering cash now on onlya portion of the whole… and many people apparently take it… and have nothing to show for it within a couple years as all the money is gone] or domain name gaming.

      you know what might be interesting– take the email out of the trash and reply from a new email addy and see what they are really about.

      The other thing that occurs to me, is that for every scammer/greedmonger who finds a loophole stream, there are also honest persons with business sense who could do the same, such as you and DWS Publishing with Dean and Kris, and others, who could do the same; solicit the assets of other pub companies, but with honorable intents. Not just a fast-off. And run.

      • Thank, USAF! I’ve been out of commission for two and a half weeks thanks to the flu and complication thereof.

        LOL No, I’m not taking the e-mail out of the trash. The offer was less than pennies on the dollar. They couldn’t even bother to research who the principal of Angry Sheep Publishing was and address their offer personally.

        If folks like Dean and Kris want to build WMG with additional writers, more power to them. Me? I don’t play well with others, and I definitely don’t feel like kissing other writers’ asses. 😆

        • You definitely are kin Suzan, you straight talkin’ woman, y ou.

          Best to you and I am glad you are better. No more flu. Be well.

  7. I routinely repost KKR’s blog posts in a Facebook group for writers I’m a member of. I occasionally get comments about how the posts are too long or too difficult to understand. If they can’t read or understand a KKR post, how can they ever hope to read and understand an actual publishing contract?

    • *smh* Too long? That’s a scary thought! Keep reposting, Iola. I’m sure you’re saving someone’s bacon!

    • I re-post too, but I never really know how many people are actually reading them, because there’s rarely any discussion. But I’ll keep doing it and hope that people are reading. Her blogs are some of the best info I’ve had on contracts and publishing. (Her, Dean, and PG, of course :))

    • Who thinks three thousand
      words are too long? Poets and
      flash fiction writers?

    • Iola, First time, I read your name as IOLTA: Interest On Lawyer’s Trust Account. 😆

    • “Too long”
      That’s scary. I’m having flashbacks to someone who said something like, “I want someone else to manage my money so I can focus on writing.” Ask Willie Nelson (and a hundred others) how well that works out.

      Ignore your money, it’ll go away.

  8. Barbara Morgenroth

    “The idea that no one will remember RomancesRUs in ten years and Leticia will be fired in six months doesn’t enter most authors’ calculations.”

    My last traditionally published book. The editor was lovely.
    From what I could tell because in my welcoming note, she said goodbye. In the 18 months it took to get the book to publication, it had 5 editors.

  9. My agent goes out of her way to make sure that there is specific language in each of my contracts that specifies when the rights revert to me. This includes things like when the book goes out of print, and exactly how many/few books sold in a sales period constitute it not actively being sold by the publisher anymore.

    She’s a gem.

  10. Elaine Spencer, of The Knight Agency. (The entire agency is great. I really do believe that they want what is best for their clients, not just for the agents/agency. In fact, they don’t discourage their clients from doing self-pub on the side, even though they don’t see a penny from that, because they are invested in a client’s career, not just a single book.)

  11. (or has a $19.99 ebook like my novel Fantasy Life)

    I thought she was joking. Nope.

    • She has horror stories galore. Over-priced ebook editions being among the least of horrors inflicted by tradpub.

      Her columns are very…cautionary… as well as educational.
      Worth reading and supporting.

  12. People diss small presses for many reasons, not all of which resonate with me. But I will say: for my current trade-published work, I’m with a small press. Each and every one of my contracts with them has a term of five years, renewable by mutual agreement. I like it like that. I’ve never seen “life of copyright” in one of their contracts, and if ever I see one from them, I’ll know the time has come to jump ship.

  13. There is an Enron style scandal coming in legacy publishing. I don’t know when, where, or who, but it seems inevitable. The driving force behind Enron’s descent into corruption was mark-to-market accounting. The same dynamics are there in publishing with the advent of ebooks. When some genius buys a Big 5 publisher from its owner-conglomerate based on the value of its IP, get as far away as you can because the crash is coming.

    • I hope you will say more William O. What would that crash then look like, do you think?

      When some genius buys a Big 5 publisher from its owner-conglomerate based on the value of its IP, get as far away as you can because the crash is coming.

      “When some genius buys a Big 5 publisher from its owner-conglomerate based on the value of its IP, get as far away as you can because the crash is coming.”

    • Honestly shocked we haven’t seen it already. Probably because of all the tradition of keeping mouths shut and backs patted.

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