PG is trying to extricate a client from a nasty publishing contract with a large romance publisher. Both the client and the publisher shall remain nameless.
PG is frustrated. The client is frustrated.
PG has conducted extrications from enough publishers to have come to a conclusion.
Across the broad range of different types of books and different varieties of publishers with which PG has dealt, as a group romance publishers are the worst. Worst contracts, worst behavior, worst attitude towards writers.
A public event PG can talk about began in 2012 when a class action was filed against the company on behalf of Harlequin authors who signed book contracts with Harlequin between 1990 and 2004. The suit was filed in 2012 and settled in 2016. You can find information about the settlement of the class action at Harlequin Class Action Settlement.
The lawsuit was based on Harlequin’s practice of sublicensing e-book rights through a Swiss subsidiary, which resulted in authors receiving 3% to 4% of net profits from their works rather than the 50% Harlequin agreed to pay in its publishing contracts.
PG has previously blogged about this case. You can see prior posts, including some court documents, by Clicking Here
Basically, the story was that HQ didn’t mention ebook royalties in its publishing contracts. Those contracts included a catch-all clause which essentially said HQ could license other rights and split the proceeds on a 50/50 basis with the author. The contracts also included a provision which said if HQ licensed the other rights to an affiliated entity, the royalties paid to the author had to be equivalent to market rates for licensing those other rights to a company not affiliated with HQ.
When ebooks appeared on the scene, rather than asking its authors to sign new contracts or ebook addenda to their existing contracts, HQ decided to license ebooks to a related Swiss company for a royalty of 6% of the cover price. The Swiss company then sublicensed each book to HQ print and ebook companies to distribute, so HQ-Switzerland kept 94% of the ebook proceeds and paid 6% to HQ-SorrySucker.
Under the “other rights” clause in the publishing contract, the author would be paid 50% of the amount of the license fees received by HQ-SorrySucker. HQ-SorrySucker paid the authors 50% of 6%. Even English majors know that results in a royalty paid to the author of 3% of the cover price each ebook.
This was at a time when Amazon would license ebooks from authors under KDP for royalties of 70% of the cover price. If HQ-SorrySucker had taken the normal route taken by other publishers, HQ authors would have received royalties at the rate of 35% of the cover price.
The following is from an Amici (the plural of Amicus or Friend of Court) Brief filed in the case by Romance Writers of America and the Authors Guild:
In the spring of 2011, Amicus The Authors Guild began receiving reports from its members that their e-book royalties from Harlequin were extremely low. These members believed Harlequin was self-dealing by licensing e-book rights to one of its corporate affiliates for 6% of the cover price (i.e. suggested retail price). Because the royalty payable to the author under the “all other rights” clause is 50% of the amount received by the publisher, a 6% royalty to the publisher results in a royalty to the author of only 3% of the cover price – far below the customary range for sales in secondary media. The Authors Guild contacted Harlequin to voice these concerns and to request a copy of Harlequin’s inter-affiliate license agreement. Harlequin declined to provide the document on the ground that it was proprietary.
During the same timeframe, Amicus RWA was also in communication with Harlequin regarding e-book royalty issues. Harlequin provided to its authors, RWA, and other industry participants the following explanation of Harlequin’s inter-affiliate licensing practice:
Our authors contract with Harlequin Books SA (“HBSA”), our related Swiss company. HBSA licenses the right to publish an author’s work in print and digital to our operating companies and to third-party publishers, which then bring books to market in their country (incurring costs of translation, production, distribution, marketing, branding, etc.). In return, HBSA receives a license fee.
The NAR [net amount received by the Publisher] is the license fee. For editions where the author is to be paid 50% of NAR, the author’s royalty is therefore 50% of the license fee received by HBSA. The license fees are expressed as a percentage of cover price. Historically they ranged from 6% to 8%. The author’s 50% share of that fee would then equal 3% to 4% of the cover price.
As noted, the publishing contracts at issue require that in any affiliate licensing arrangement the “Publisher” must receive license proceeds that are “equivalent to the amount reasonably obtainable by Publisher from an Unrelated Licensee for the license or sale of the said rights.” Based on their considerable reservoirs of knowledge and industry data sources regarding royalty rates in the publishing industry, the Amici confidently represent to this Court that the 6% to 8% royalty that Harlequin Enterprises elects to pay to its Swiss “Publisher” subsidiary is a small fraction of the proceeds that the “Publisher” could obtain from an unaffiliated licensee in the open market for e-books.
. . . .
Generally speaking, a book publisher makes money by exercising the rights that it has licensed from the author of a given work, through the sales of books or sub-licenses of publication rights in various sales and distribution channels.
Historically, the primary sales channel for print book publishers was through retail book stores. In the modern era of e-books, publishers sub-license their digital copyright rights to online “e-tailers.” The most well-known e-tailers of e-books are Amazon, Barnes & Noble, and Apple, but there are many others in the field.
There is no hard and fast rule or convention in the publishing industry on the royalty rates or license fees paid by e-tailers to publishers for e-books. There are, however, numerous sources ofdata on the market’s behavior. In the experience and collective knowledge of the Amici, publishers are almost universally able to extract from an e-tailer at least 50% of the cover price of an e-book. A 70% split for the publisher is quite common and can be obtained even from industry power houses such as Amazon and Apple.
It is clear to the Amici that if the Harlequin’s Swiss “Publisher” subsidiary operated as a normal market participant, it could readily license the new e-book versions of its backlist for license fees of 50% to 70% of the cover price of each work sold. In this scenario, the 50% royalty payable to authors under the 1990 to 2004 publishing agreements would be 25% to 35% of the cover price of each work sold. Instead, however, the Swiss “Publisher” licenses the e-books to its parent, Harlequin Enterprises, for 6% to 8% of the cover price, and the authors’ 50% royalty is thus only 3% to 4% of the cover price. From the perspective of the Amici, it appears that Harlequin Enterprises has simply siphoned off 42% to 64% of the cover price before the money reaches the Swiss “Publisher” subsidiary, so this amount will not have to be split with the authors.
PG has calmed down now, but he still wonders whether romance authors are treated worse than other authors by the publishing establishment.
PG does know Amazon loves romance authors and it shows its love by paying them money.
PG has never had a client ask him whether he thinks the author can make more money from HQ than from Amazon.
PG was not a math major, but he could probably figure out his answer to that question without a spreadsheet.