Contracts

Delete the Non-Compete

29 August 2015

From The Authors Guild:

Authors must be free to publish the works they want to write. But publishers often insist on terms that can make that impossible. In attempting to restrict authors from competing against their own works, publishers craft broad, harsh non-compete clauses that can unfairly impede authors from making a living. These clauses have to go.

Don’t get us wrong: We get the basic concept. An author shouldn’t be able to take a book under contract with Publisher X, rework it a little, walk it across the street, and sell essentially the same book to Publisher Y. That’s what non-compete clauses were designed to prevent, and when that’s all they actually do, we’re fine with them—although other provisions in publishing agreements accomplish the same thing.

Unfortunately, many standard publishing agreements contain sweeping non-compete terms that can be used to restrict what else an author publishes and when. That’s an unacceptable restriction on authors’ livelihoods in an era when many writers are struggling just to make ends meet.

No publisher would agree, at an author’s request, to forgo publishing another author’s book on a particular subject. So why should an author assume a similar obligation? But it happens all the time. Authors are routinely asked to agree not to publish other works that might “directly compete with” the book under contract or “be likely to injure its sale or the merchandising of other rights.” Even more broadly, they may be asked not to “publish or authorize the publication of any material based on the Work or any material in the Work or any other work of such a nature such that it is likely to compete with the Work.”

. . . .

Academics and textbook writers who spend their careers studying and writing about a particular area of expertise are especially vulnerable. They should not be limited to one book on that subject during their entire careers. But that’s what can happen if the author agrees to a broad non-compete. Take the economist who published a dissertation on oil in the Middle East and soon became a professor and an expert on the topic. Decades later, he came to us when he received an offer from another publisher for a book on—you guessed it—oil in the Middle East. But the publishing contract for his dissertation stipulated that he needed to obtain permission to publish a totally new book on the subject—even though, in the intervening years, the field had completely changed. For an author to have to ask for permission to write about what he or she knows best is outrageous.

Link to the rest at The Authors Guild and thanks to Dave for the tip.

Texas judge orders $10 million set aside for ‘Fifty Shades’ settlement

27 August 2015

From Reuters:

An Australian woman who helped publish “Fifty Shades of Grey” was ordered by a Fort Worth judge on Wednesday to set aside $10 million for a Texas woman a jury said was defrauded out of her share of the royalty rights for the steamy best-selling novel.

Jennifer Pedroza of Arlington could be awarded about $10.7 million once attorneys for her and former business partner Amanda Hayward of Australia settle on the amount she is owed, including attorney fees, court officials said.

. . . .

Pedroza was part of The Writers Coffee Shop, a small independent publisher of ebooks that originally published the “Fifty Shades” trilogy as an e-book and print-on-demand book, according to court papers.

. . . .

The rights to the books written by British author E.L. James were sold to Random House and the deal led to the sale of more than 100 million copies worldwide. A film based on the first book, “Fifty Shades of Grey,” took in more $570 million in the United States and abroad, according to tracking site Box Office Mojo.

A Fort Worth jury decided in February that Pedroza was defrauded out of her share of royalties by Hayward, who tricked Pedroza into signing an agreement that cut her out of her share of the royalties after Hayward signed the deal with Random House.

The jury determined that Pedroza was one of the four original owners of The Writers Coffee Shop and Hayward fraudulently presented the restructuring arrangement so she could keep the Random House money for herself.

Link to the rest at Reuters and thanks to Adam for the tip.

PG says 99% of business contracts are put in a drawer and forgotten after they’re signed.

The other 1% are very minutely examined at some later time.

Is ‘out of print’ running out of time?

15 August 2015

From Futurebook:

To a layman’s ear, it sounds great: Digital means never having to say you’re “out of print,” right? Ebooks are forever. Great.

No, not so great. Not if the rights to produce your book and sell it are held by a company that’s not doing anything commercially worthwhile with it — and not letting you do the job, yourself, as a self-publisher, either.

. . . .

[The [Authors] Guild writes:

Publishers have cleverly managed to craft “out of print” clauses that make it almost impossible for authors to recapture their rights.

. . . .

‘Book contracts are assets’

Robert Gottlieb’s comment is telling:

The Guild raises many valuable points…

Why do publishers resist term contracts in the U.S.? Outside of the U.K. publishers do licenses rights from authors on a term basis. The funny thing is most American publishers are now owned by foreign entities.

The answer is that book contacts are assets for U.S. publishers. Author’s books are on the ledgers of U.S. publishers as assets and their financial statements. Therefore their assets which are under contact can’t leave them easily. That is why out of print clauses often include the work in print under licenses. So even if there is a $200 deal in a Baltic state the publisher will tell the author the book is still in print. Even though no physical and/or eBooks sell at a level that justifies the publisher holding on to the book rights. Any license gives the publisher the grounds to hold onto all rights if they wish.

This adds value to the corporation’s worth.

. . . .

In the #UK, parallel evocations of the problem by the Society of Authors (SoA) are just as damning:

The ACLS study showed that 70 percent of authors who relied on a reversion clause went on to earn more money from the work in question.

Link to the rest at Futurebook and thanks to Jacqueline for the tip.

What Traditional Publishing Says It Does Best

14 August 2015

From Kristine Kathryn Rusch:

Last week, Steve Hamilton utterly destroyed his career—or would have, if it were 2005. Steve, a New York Times bestseller and two-time Edgar winner, pulled his novel, The Second Life of Nick Mason, from St. Martins Press less than two months before the book’s release.

Steve didn’t just pull the book; he canceled the entire four-book contract. His agent repaid the monies that St Martins had already paid on that contract.

Why would a writer do such a thing? According to the articles I saw, Hamilton claims that the book, which had received excellent pre-publication reviews, was getting no support from the publisher.

To be clear, I should add two things here as a former St. Martins author that might color my perspective:

  1. Like Steve, I got excellent prepublication reviews before all of my Smokey Dalton books were published, as well as promises of huge promotions on those books. The promotion never happened; the books were dumped. St. Martins is the company that sent me on a book tour and refused to supply books. So…
  2. In all things here, my sympathies and my experience lead me to believe Steve. You might see me as biased. Go ahead. Because I am. :-)

What St Martins promised on the back of the galleys sent to reviewers and places like Publishers Weekly was this:

A 75,000 copy first printing, and a lot of national marketing, including a national author tour and a national ad campaign for the book.

But not even Publishers Weekly, an industry trade journal, was buying that. In an article about Hamilton’s parting with St Martins, Rachel Deahl of PW wrote, “It is an open secret in the publishing industry that claims made on galleys and other material for the trade–about everything from first printings to marketing budgets and efforts–can be gross exaggerations.”

In that article, Steve says he’s canceled the contract because of a lack of publisher support. Since he’s been with St Martins for 17 years, he knows what he’s talking about.

. . . .

In the past eight years, I’ve canceled two book contracts because publishers didn’t fulfill their promises. I felt relief both times.

But I had options, even before the changes in publishing. Steve had options as well. It looks like his agent had talked with other publishers before pulling the book from St. Martins. After the book’s rights were freed up, over 10 publishers bid on the book.

G.P. Putnam’s Sons (part of Penguin Group USA) won the bid for “substantially more than the near-seven figures Hamilton was to have received from St. Martin’s,” according to the AP report on the new sale.

The world has changed. Back in the day, no publisher would have bid on a book already in production, no matter what was going on. And no agent would have tried this, no matter how bad things got.

But Steve’s agent, Shane Salerno, is not a New York based agent. He’s an author himself, as well as a filmmaker, and screenwriter. He runs a company in Los Angeles called the Story Factory. He’s not playing by the old rules at all, which is good, because large corporate publishers aren’t either.

But let’s assume that Steve had done all of this without having other publishers in his back pocket. These days, he still had options. If no one had offered on the book, he could have published it himself.

If he handled it right, it would have sold better than it would have through St Martins, which has a lot of trouble selling most of its hardcovers to places other than libraries.

Books get canceled all the time. Often they get canceled because the writer fails to deliver. But sometimes there are other problems, as there were with me and my two publishers above. One of those publishers had assigned me the editor from hell. (Wait, that’s being unfair to editors from hell. She was and is a demon spawn, a hell native who makes hell hellish for anyone who is there. [yeah, you guessed it. I think she’s a terrible editor and an even worse person.]) I refused to work with her, and that ultimately led to the cancellation of the contract.

. . . .

In addition to the monies paid to Steve, St Martins had probably invested $100,000 in actual costs and overhead on the book, if not more.

Pulling the book two months before publication guarantees that St Martins lost money on the deal. Other publishers know that. In this instance, they didn’t care.

. . . .

[I]n the old days, the days before the indie publishing revolution, Steve Hamilton’s byline would have vanished.

Oh, he would have kept writing, and he probably would have had a frustrating few years. He might’ve tried to write under his own name, and except for the short fiction magazines, probably not sold anything. Then he would have moved to a pen name, and maybe used the cover of his agent to keep his real name out of the loop until the book was accepted (and maybe not even then).

That kind of secrecy revolving around a pen name happened all of time back then. I know of several writers whose real names are still hidden from their publishers because the writer did something to get blacklisted under that name.

. . . .

Force the publisher to keep promises? Force the publisher to honor a contract? Horrors! Better to get some naïve young writer to write books than an old pro who knows what he’s doing.

. . . .

Dean’s asked me more than once what it would take for me to sell another novel into traditional publishing. (I sell other projects to traditional publishers—nonfiction, editing, short stories.)

If the novel contracts change, maybe, I would sell a novel to traditional publishing again. If I’m offered 7-figures and the contract change, and…

Probably not even then. As Elizabeth Spann Craig says, I’ve done all of this myself with better financial results.

Plus, as she says, I like the control.

. . . .

Writers are the brand. We always have been. And because of that, traditional publishers are slowly beginning to realize that indie published writers are cutting into the bottom line.

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

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

Authors, Keep Your Copyrights. You Earned Them.

14 August 2015

From The Authors Guild:

Authors should not assign their copyrights to publishers. As our Model Contract emphasizes:

“CAUTION: Do not allow the publisher to take your copyright or to publish the copyright notice in any name other than yours. Except in very unusual circumstances, this practice is not standard in the industry and harms your economic interests. No reputable publisher should demand that you allow it to do so.”

Most trade publishers do not ask for an outright assignment of all exclusive rights under copyright; their contracts usually call for copyright to be in the author’s name. But it’s another story in the world of university presses. Most scholarly publishers routinely present their authors with the single most draconian, unfair clause we routinely encounter, taking all the exclusive rights to an author’s work as if the press itself authored the work: “The Author assigns to Publisher all right, title and interests, including all rights under copyright, in and to the work…”

. . . .

The problem is that most academic authors—particularly first-time authors feeling the flames of “publish or perish”—don’t even ask. They do not have agents, do not seek legal advice, and often don’t understand that publishing contracts can be modified. So they don’t ask to keep their copyrights—or for any changes at all. Many academic authors tell us they were afraid to request changes to the standard agreements for fear that the publisher would pull the plug on their books. One said that when his first book was published in 1976, he never even read the contract and would (and did) sign anything to get published.

So we asked several university press representatives “Why is a clause granting copyright to the publisher the default language in university press agreements?” Here’s what they said (sometimes after consulting with their lawyers):

  • “We are a non-profit press and we can’t do things that commercial trade presses do.”
  • “The press is better positioned than the author to defend the copyright by use of premium outside counsel, as well as by use of an anti-piracy service to curb piracy.”
  • “Having the copyright in the press’s name allows us to work freely to maintain the integrity of the work and maximize its publishing life.”
  • “We’re close enough to the work to do the best job and we have incentive to protect the publishing mission.”
  • “It makes it easier for the press because it doesn’t have to ask for an author’s approval when permission uses are granted.”
  • “It eliminates any confusion as to which party should be contacted regarding re-use and sub-rights, etc. and it simplifies things in regards to piracy as well. Trade authors are more likely to have agents who may retain certain sub-rights and exploit them independent of any publisher relationship.”

Not one of these rationalizations passes the giggle test.

Link to the rest at The Authors Guild and thanks to Melinda for the tip.

Making Sense of Collaboration Agreements

12 August 2015

From CopyLaw:

Nearly everyone has heard the oft-repeated statistic that 50% of all marriages end in divorce. But what about creative partnerships?  The odds are no better.   Pity the poor expert, celebrity, author, playwright or screenwriter who enters into a creative partnership without thinking about the financial, emotional and practical challenges ahead of them.  If the relationship falters, a well-drafted collaboration agreement (written during the romance stage of the relationship) can be consulted.   If the relationship fails, that agreement will help for a clean break-up.

Like marriage, the key reasons most authors cite for failed collaborations are lack of commitment, lack of communication, lack of equality, unrealistic expectations, and, surprisingly, lack of mutual respect.  While trust is an important element of any relationship, without a written agreement you are ill equipped to deal with these and other conflicts.  Contracts define rights and remedies, and thus help avoid misunderstandings.

. . . .

The formation (and dissolution) of a creative partnership is governed by federal copyright law and state contract law. When authors blend their talents to create a unitary work, each collaborator is presumed to co-own the copyright, and share equally in the  money the copyright generates – whether profits or royalties. Further, under the default rules of the Copyright Act – which can be altered by a written agreement — each collaborator can license the nonexclusive rights to the work to a third party, provided they fairly account for the profits to the other.

Problems between collaborators commonly arise when there are multiple offers for the work or requests for exclusive rights and no agreement exists between the collaborators. If your collaboration is not working, and your agreement doesn’t delegate the right to make business decisions to one of the partners, a recalcitrant collaborator can prevent the other collaborator from licensing or selling film or other rights in the work.  For this reason, you might consider changing the default rules of equal control and ownership, if the book is memoir, or an extension of one author’s business or brand.  Relinquishing control, however, does not necessarily mean a smaller financial interest or lack of transparency.

. . . .

If you can’t hold it together long enough to see the work published, the impact of a literary breakup can be devastating.  One such disaster scenario is the unilateral termination of “as told to” collaborations, such as the failed collaboration between Fay Vincent, the former commissioner of baseball, and writer David Kaplan.  After 90% of Vincent’s memoir was completed, Vincent withdrew the project from his publisher, and thwarted Kaplan’s efforts to publish the book under Kaplan’s own name. See, Kaplan v. Vincent, 937 F. Supp. 307 (SDNY 1996).  If the parties had a well-written agreement – as opposed to an oral understanding — likely, costly , time consuming and psychologically draining litigation would have been avoided.
If you are a writer who has been approached to help write a memoir, your agreement needs to address: (i) access to pertinent documents; (ii) reasonable access to the subject; and (iii) the subject’s good faith effort to secure the writer’s access to interviews with other individuals as may be needed to prepare the proposal or complete the book. From the subject’s perspective, confidentiality is a key issue.

If you are assisting with a memoir, are you delivering a “warts and all” portrait? Alternatively, is your role to put the best face on your subject’s life story, without resorting to blatant deception? A property drafted collaboration agreement will address these issues.  The greater you detail what is to be delivered, the less arbitrary the acceptance standards will be.  Since progress payments are the norm, if the subject is unhappy, you may not see anything beyond your initial payment or advance.

Link to the rest at CopyLaw

Improving Traditional Publishing

4 August 2015

From author Elizabeth Spann Craig:

Recently, I was asked if I’d ever consider writing for Penguin or another publisher again.  I never like to say never because never is a long time in publishing.

But things would have to radically change for me to go back.  The amount of income that I bring in by self-publishing is far greater than the amount I bring in with trad-pub (although I have fewer self-published titles).  There would have to be some real incentive.

After some thought, this is what I came up with:

Better royalties.  Much better royalties.

No non-competes (don’t get me started on the last contract I saw).

No rights grabbing.  Allow me to retain rights to audio and foreign sales.  Allow me to get my rights back if things don’t work out between us (incidentally, this hasn’t been a problem for me, but I’ve heard nightmare stories from other authors).

Monthly payments.  Royalty statements that I can understand and access online (the online part is rolling out now).

More input into cover design, if I want it.

I’d like my books to be competitively priced in the market.  The market as a whole, not just the traditionally published market.

Marketing.  And I don’t mean catalog listings…a modern approach to marketing/getting the word out.

Real support with my own marketing: in particular, website help/design help, help with social media.

But even then…I’m still not sure I’d go for it.  I’m not sure exactly what I’d be using them for.  I’ve done all this stuff myself with better financial results.  Maybe what I really need is a virtual assistant and less stubborn determination (pigheadedness?) to do it all myself.  I’ve already started outsourcing some of the things I really dislike (accounting), so maybe it’s smarter for a self-starter author to just outsource more than to go through a publisher.

Link to the rest at Elizabeth Spann Craig and thanks to Kristen and others for the tip.

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

A Publishing Contract Should Not Be Forever

28 July 2015

From The Authors Guild:

From The Authors Guild:

Diamonds may be forever, but book contracts should not be. There’s no good reason why a book should be held hostage by a publisher for the lifetime of the copyright, the life of the author plus seventy years—essentially forever. Yet that’s precisely what happens today. A publisher may go bankrupt or be bought by a conglomerate, the editors who championed the author may go on to other companies, the sales force may fail to establish the title in the marketplace and ignore it thereafter, but no matter how badly the publisher mishandles the book, the author’s agreement with the original publisher is likely to remain in effect for many decades.

That’s the way most book contracts have been drafted for more than a century, and publishers take it for granted; only a few brave souls have asked why or argued with it because that’s the way it has always been. In the ideal traditional publishing partnership—where the publisher nourished the author’s career; where the same editor worked closely with the author over decades, editing and reworking books and new book ideas; where the publisher actively marketed and promoted the author and gave the author a sufficient advance to live on between books—then it might have made sense for the publisher to own the rights for the entire copyright term. But that is the rare author-publisher relationship today.

. . . .

Authors victimized by this status quo know that it’s long past time for publishers to offer a fair deal. We believe three basic changes are urgently needed: (1) time-limited contracts, (2) a clause that provides for reversion of unexploited rights, and (3) a specific new unchallengeable definition to replace historic “out of print” clauses that are not remotely relevant in the electronic age.

When it comes to time limits in agreements, publishers historically have positioned themselves on the lucrative side of the line. With authors, the deal they offer basically lasts forever. But when they’re on the other side of the deal, licensing things like paperback reprints or foreign rights to other companies, publishers typically don’t make agreements that continue for the life of a book’s copyright. Instead, the contracts are good only for fixed periods—seven years, for example. If publishers can routinely demand licenses that expire, why shouldn’t authors?

We think the “standard” contract should last for a limited period of time from the date of publication; it should end well before the 35-year termination window opens. When the contract expires, if a book is still doing well, the author and publisher might negotiate another time-limited deal—or the author might choose to move the book to a house that has put more effort into marketing the author’s later works. If the book is no longer gaining support from the original publisher, the author might choose to self-publish it or take it to another publisher. In any case, a time-limited contract gives authors the leverage and flexibility that they need in today’s publishing environment.

. . . .

That brings us to the third step: the “out of print” clause, which has failed woefully to keep up with modern publishing practices and must be replaced. The original concept was straightforward: When a publisher fails to keep a book on the market in a profitable way, the author should get all the rights back. This is more important today than ever, since e-books and print-on-demand make it easy for authors to republish their backlists: a recent study conducted by the British Authors’ Licensing and Collecting Society (ALCS) showed that 70% of authors who were able to reclaim their rights were able to earn more money from the work in question.

. . . .

The remedy is simple: Kill the entire outmoded concept of “out of print.” Instead, the contract should define when book rights are being “inadequately exploited” and therefore available for reversion to the author when the book fails to generate a certain amount of income—say, $250–$500—in a one-year period. Using income as the yardstick, not a specific number of sales, is essential: Publishers might otherwise be able to game the clause by offering one-cent e-books the way they’ve gamed existing clauses by using e-books and print-on-demand.

Link to the rest at The Authors Guild and thanks to Melinda for the tip.

PG will note that The Authors Guild proposal for revised out of print provisions is identical to A Minimum Wage for Authors which PG first publicly suggested in 2011.

He believes that the $250-500 per year threshold for reversion is too low, however. This is especially true if the threshold amount is not indexed for inflation (another PG suggestion from 2011). In the US at least, we’ve become accustomed to very low rates of inflation during the past several years. However, PG believes this is not the new normal.

$250 might not buy you a hamburger at McDonalds in a few decades. In 1964, a McDonalds hamburger cost 15 cents.

Publisher removes celebrity blurbs from Bill Cosby biography’s web pages

23 July 2015

From Entertainment Weekly:

Simon & Schuster has pulled a number of celebrity endorsements for Mark Whitaker’s Bill Cosby biography, which was published in September, from web pages for online retailers. The biography,Cosby, didn’t mention the sexual abuse allegations that recently became publicized, and was widely criticized for not doing so.

The Associated Press first broke the news, and Cary Goldstein, the Simon & Schuster vice president’s and executive director of publicity, confirmed to EW that it would pull the blurbs because of “recent events.”

“Simon & Schuster and the author have decided to remove all of the celebrity endorsements we received prior to publication last fall,” Goldstein said in a statement. “In addition, there is no plan for releasing a paperback edition, or for issuing a revised version of the book.”

Link to the rest at Entertainment Weekly

PG hasn’t seen a morals clause in a publishing contract yet, but someone at a big publisher is thinking about it after the Cosby disaster.

A morals clause (sometimes known as a morality clause) contractually limits the behavior of individuals, usually public figures, to avoid harming others who are parties to the contracts.

Here’s a 1921 Universal Studios morals clause:

The actor (actress) agrees to conduct himself (herself) with due regard to public conventions and morals and agrees that he (she) will not do or commit anything tending to degrade him (her) in society or bring him (her) into public hatred, contempt, scorn or ridicule, or tending to shock, insult or offend the community or outrage public morals or decency, or tending to the prejudice of the Universal Film Manufacturing Company or the motion picture industry. In the event that the actor (actress) violates any term or provision of this paragraph, then the Universal Film Manufacturing Company has the right to cancel and annul this contract by giving five (5) days’ notice to the actor (actress) of its intention to do so.

Here’s a morals clause from a 1922 contract between the New York Yankees and Babe Ruth:

It is understood and agreed . . . that the player shall at all times during the term of this contract and throughout the years 1922, 1923 and 1924, and the years 1925 and 1926 if this contract is renewed for such years, refrain and abstain entirely from the use of intoxicating liquors and that he shall not during the training and playing season in each year stay up later than 1 o’clock A.M. on any day without the permission and consent of the Club’s manager, and it is understood and agreed that if at any time during the period of this contract, whether in the playing season or not, the player shall indulge in intoxicating liquors or be guilty of any action or misbehavior which may render him unfit to perform the services to be performed by him hereunder, the Club may cancel and terminate this contract and retain as the property of the Club, any sums of money withheld from the player’s salary as above provided.

Here’s a more modern morals clause from an endorsement contract for an athlete:

If at any time, in the opinion of Sponsor, Athlete becomes the subject of public disrepute, contempt, or scandal that affects Athlete’s image or goodwill, then Company may, upon written notice to Athlete, immediately suspend or terminate this Endorsement Agreement and Athlete’s services hereunder, in addition to any other rights and remedies that Sponsor may have hereunder or at law or in equity.

Half of Net Proceeds New Standard for Trad Pub EBook Royalties

9 July 2015

Author John Ellsworth received an email from The Authors Guild which he posted on his blog, forwarding a link to PG:

From Authors’ Guild 7/9/15:

We announced our Fair Contract Initiative earlier this summer. Now our first detailed analysis tackles today’s inadequate e-book royalties. At the heart of our concern with the unfair industry-standard e-book royalty rate is its failure to treat authors as full partners in the publishing enterprise. This will be a resounding theme in our initiative; it’s what’s wrong with many of the one-sided “standard” clauses we’ll be examining in future installments.

Traditionally, the author-publisher partnership was an equal one. Authors earned around 50% of their books’ profits. That equal split is reflected in the traditional hardcover royalty of 15% of list (cover price, that is, not the much lower wholesale price), and in the 50-50 split of publishers’ earnings from selling paperback, book club, or reprint rights. Authors generally received an even larger share than the publisher for non-print rights (such as stage and screen rights) and foreign rights.

But today’s standard contracts give authors just 25% of the publisher’s “net receipts” (more or less what the publisher collects from a book sale) for e-book royalties. That doesn’t look like a partnership to us.

We maintain that a 50-50 split in e-book profits is fair because the traditional author-publisher relationship is essentially a joint venture. The author writes the book, and by any fair measure the author’s efforts represent most of the labor invested and most of the resulting value. The publisher, like a venture capitalist, invests in the author’s work by paying an advance so the author can make ends meet while the book gets finished. Generally, the publisher also provides editing, marketing, packaging, and distribution services. In return for fronting the financial risk and providing these services, the publisher gets to share in the book’s profits. Not a bad deal. This worked well enough throughout much of the twentieth century: publishers prospered and authors had a decent shot at earning a living.

How the e-book rate evolved

From the mid-1990s, when e-book provisions regularly began appearing in contracts, until around 2004, e-royalties varied wildly. Many of the e-rates at major publishing houses were shockingly low—less than 10% of net receipts—and some were at 50%. Some standard contracts left them open to negotiation. As the years passed, and especially between 2000 and 2004, many publishers paid authors 50% of their net receipts from e-book sales, in keeping with the idea that authors and publishers were equal partners in the book business.

In 2004, we saw a hint of things to come. Random House, which had previously paid 50% of its revenues for e-book sales, anticipated the coming boom in e-book sales and cut its e-rates significantly. Other publishers followed, and gradually e-royalties began to coalesce around 25%. By 2010 it was clear that publishers had successfully tipped the scales on the longstanding partnership between author and publisher to achieve a 75-25 balance in their favor.

The lowball e-royalty was inequitable, but initially it didn’t have much effect on authors’ bottom lines. As late as 2009, e-books accounted for a paltry 3–5% of book sales. Authors and agents ought to have pushed back, but with e-book sales so low it didn’t make much sense to risk the chance of any individual book deal falling apart over e-royalties. We called the 25% rate a “low-water mark.” We said, “Once the digital market gets large enough, authors with strong sales records won’t put up with this: they’ll go where they’ll once again be paid as full partners in the exploitation of their creative work.”

E-books now represent 25–30% of all adult trade book sales, but for the vast majority of authors the rate remains unchanged. If anything, publishers have dug in their heels. Why? There’s a contractual roadblock, for one: major book publishers have agreed to include “most favored nation” clauses in thousands of existing contracts. These clauses require automatic adjustment or renegotiation of e-book royalties if the publisher changes its standard royalty rate, giving publishers a strong incentive to maintain the status quo. And the increasing consolidation of the book industry has drastically reduced competition among publishers, allowing them more than ever to hand authors “take it or leave it” deals in the expectation that the author won’t find a better offer.

The elephant in the room

And then there’s the elephant in the room: Amazon, which has used its e-book dominance to demand steep discounts from publishers and drive down the price of frontlist e-books, even selling them at a loss. As a result, there’s simply not as much e-book revenue to split as there was in 2011when we reported on the e-book royalty math. At that time, publishers made a killing on frontlist e-book sales as compared to frontlist hardcover sales—at the author’s expense—because, as compared to today, the price of e-books was relatively high.

When we analyzed e-royalties for three books in the 2011 post, “E-Book Royalty Math: The House Always Wins,” we found that every time an e-book was sold in place of a hardcover, the author’s take decreased substantially, while the publisher’s take increased.

Since 2011, we have found that publishers’ e-gains have diminished. But the author’s share has fallen even farther. Amazon has squeezed the publishers, to be sure. The publishers have helped recoup their losses by passing them on to their authors.

These were our calculations for several books in 2011. The trend was obvious. Compared with hardcovers, each e-book sold brought big gains to the publisher and sizable losses to the author when the author’s royalties are compared to the publisher’s gross profit (income per copy minus expenses per copy), calculated using industry-standard contract terms:

Author’s Royalty vs. Publisher’s Profit, 2011

The Help, by Kathryn Stockett

Author’s Standard Royalty: $3.75 hardcover; $2.28 e-book.

Author’s E-Loss = -39%

Publisher’s Margin: $4.75 hardcover; $6.32 e-book.

Publisher’s E-Gain = +33%

Hell’s Corner, by David Baldacci

Author’s Standard Royalty: $4.20 hardcover; $2.63 e-book.

Author’s E-Loss = -37%

Publisher’s Margin: $5.80 hardcover; $7.37 e-book.

Publisher’s E-Gain = +27%

Unbroken, by Laura Hillenbrand

Author’s Standard Royalty: $4.05 hardcover; $3.38 e-book.

Author’s E-Loss = -17%

Publisher’s Margin: $5.45 hardcover; $9.62 e-book.

Publisher’s E-Gain = +77%

What’s happening now? We ran the numbers again using the following recent bestsellers. Because of lower e-book prices, the publishers don’t do as well as they used to, though they still come out ahead when consumers choose e-books over hardcovers. But authors fare worse than ever:

Author’s Royalty vs. Publisher’s Profit, 2015

All the Light We Cannot See, by Anthony Doer

Author’s Standard Royalty: $4.04 hardcover; $2.09 e-book.

Author’s E-Loss= -48%

Publisher’s Margin: $5.44 hardcover; $5.80 e-book.

Publisher’s E-Gain: +7%

Being Mortal, by Atul Gawande

Author’s Standard Royalty: $3.90 hardcover; $1.92 e-book.

Author’s E-Loss= -51%

Publisher’s Margin: $5.10 hardcover; $5.27 e-book.

Publisher’s E-Gain: +3.5%

A Spool of Blue Thread, by Anne Tyler

Author’s Standard Royalty: $3.89; $1.92 e-book.

Author’s E-Loss: -51%

Publisher’s Margin: $5.09 hardcover; $5.27 e-book.

Publisher’s E-Gain: +3.5%[1]

Exceptions to the rule

It’s time for a change. If the publishers won’t correct this imbalance on their own, it will take a critical mass of authors and agents willing to fight for a fair 50% e-book royalty. We hope that established authors and, particularly, bestselling authors will start to push back and stand up to publishers on the royalty rate—on behalf of all authors, as well as themselves.

There have been cracks in some publishers’ façades. Some bestselling authors have managed to obtain a 50% e-book split, though they’re asked to sign non-disclosure agreements to keep these terms secret. We’ve also heard of authors with strong sales histories negotiating 50-50 royalty splits in exchange for foregoing an advance or getting a lower advance; or where the 50% rate kicks in only after a certain threshold level of sales. For instance, a major romance publishing house has offered 50% royalties, but only after the first 10,000 electronic copies—a high bar to clear in the current digital climate. But overall, publishers’ apparent inflexibility on their standard e-book royalty demonstrates their unwillingness to change it.

We know and respect the fact that publishers—especially in this era of media consolidation—need to meet their bottom lines. But if professional authors are going to continue to produce the sort of work publishing houses are willing to stake their reputations on, those authors need a fair share of the profits from their art and labor. In a time when electronic books provide an increasing share of revenues at significantly lower production and distribution costs, publishers’ e-book royalty practices need to change.

[1] In calculating these numbers and percentages for hardcover editions, we made the following assumptions: (1) the publisher sells at an average 50% discount to the wholesaler or retailer, (2) the royalty rate is 15% of list price (as it is for most hardcover books, after 10,000 units are sold), (3) the average marginal cost to manufacture the book and get it to the store is $3, and (4) the return rate is 25% (a handy number—if one of four books produced is returned, then the $3 marginal cost of producing the book is spread over three other books, giving us a return cost of $1 per book). We also rounded up retail list price a few pennies to give us easy figures to work with.

Likewise, in calculating these numbers and percentages for the 2015 set of e-books, we are assuming that under the agency model—which is reportedly the new standard in the Big Five’s agreements with Amazon—the online bookseller pays 70% of the retail list price of the e-book to the publisher. The bookseller, acting as the publisher’s agent, sells the e-book at the price established by the publisher. The unit costs to the publisher are simply the author’s royalty and the encryption and transmission fees, for which we deduct a generous 50 cents per unit.

Link to the rest at John Ellsworth and here’s a link to the Authors Guild website

Here’s a link to John Ellsworth’s books

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