When the disruption hit the publishing industry ten years ago, I watched with a wary eye. After I finished The Freelancer’s Survival Guide in the summer of 2010, I repurposed this weekly blog to help me understand the changes the publishing industry was undergoing. It seemed, in those heady days, that everything changed daily. And there was a large contingent of brand-new writers who knew so much better than the rest of us how revolutionary this indie publishing thing would be.
Most of those writers—the hoards that used to come screaming (literally) to this site every Saturday to denounce me and tell me what an idiot I am and how wrong I was—are gone now. They quit the business not because they weren’t earning money—most of them earned a boatload—but because they couldn’t handle what they had set up.
Many of them published rapidly and followed an insane publishing schedule that couldn’t be maintained in the face of real life. Some based everything they had and everything they knew on Amazon algorithms, only to be shocked when Amazon persisted in changing up those algorithms.
Others couldn’t handle the financial ups and downs of freelancing and some, frankly, didn’t give themselves a chance to succeed. They saw others making thousands every month while they were making coffee money, and decided that they’d never succeed and quit without ever completely learning their craft or building up an audience.
. . . .
New, hot, and trendy has a shorter shelf life these days than it did, and I wasn’t sure why. There’s a lot about this new world of publishing, as I called it, that I couldn’t figure out.
. . . .
We’ve been doing this wrong.
By this, I mean the writing business post-Kindle. We’re all approaching our business like we’re still in the publishing business. But we’re not. We’re part of the entertainment industry, and that entails a lot more than we think it does.
Let me see if I can retrace some of this thinking, so that I don’t just spring my ideas on you and have you balk at them.
I signed up for the Licensing University classes connected to the [Las Vegas Licensing] Expo. I saw those last year, and felt that I would miss a huge opportunity if I failed to attend.
This year, I looked at the roster of classes, and promised myself I could leave any class that was too basic for me. The “Is Your Brand Ready For Licensing” was a case in point (although I didn’t realize it until later). That was a copyright/trademark basics course that falls into the well-duh category for me, but is probably necessary for most first-time attendees at the Expo (and for most writers as well).
But the Basics of Licensing class? Holy Crap-Poodles. I figured I’d sit there for ten minutes before going out to the floor to look around. Instead, I took 30 pages of notes. (In future posts, I will deal with much of what I learned on a detail level.)
That class laid out the basics of a licensing deal, while acknowledging that each deal is different.
Let’s back up. We writers are creators of intellectual property. We have the property to license. We are the licensors. We’re looking for licensees. Okay? Got that?
The terms of a basic licensing deal includes these elements:
- A Royalty
- An Advance Payment Against That Royalty
- Net Sales Definition
- Some Kind of Reporting Process
- Termination
- Insurance/Warrantees/Indemnification
- Jurisdiction
A basic licensing deal includes a lot more than that, things like minimum royalty guarantees, an audit schedule, minimum performance threshold, quality and approvals, advertising and marketing requirements, and so on.
The licensor is a participant in all of that. An active participant, who can terminate if, for example, the quality of the product (based on the sample) doesn’t come up to snuff after several tries.
I remember thinking in the middle of that class that the publishing agreements that I signed back in the 1990s had a lot more in common with a standard licensing agreement than standard publishing contracts do now. In fact, there was a lot in the old publishing contracts that were just like a licensing agreement. In fact, the old publishing contracts were licensing agreements with the pro-licensor stuff (the stuff that benefits the licensor/writer/creator) taken out.
. . . .
Fast-forward through the afternoon to the class on How To Negotiate A Licensing Deal, which was listed as a negotiation class, without the “licensing deal” part added in. I wrote a book on negotiation, for godssake. I’m damn good at negotiating. I figured I’d be leaving this one early as well.
Nope. Another 30+ pages of notes. With two surprises added in.
First, from a passing comment on royalty rates.
In licensing, the royalty rates can vary from 2% to 20% of the net sales price (usually wholesale, but that’s changing depending on distribution). One of the instructors (an agent) mentioned that really big brands with a lot of clout like Disney can get the 20% royalty without a lot of pushback because their brand is so valuable.
. . . .
Once upon a time, I was a work-for-hire writer, and one of the properties I wrote work-for-hire was Star Wars. I got a 2% royalty on the books published (see above).
In most work-for-hire publishing projects, the royalty rate gets split between the licensor who created the intellectual property and the writer who does the actual work on writing the novel. I do not know what Bantam paid LucasFilm for those early books. It might have been 10%, it might have been 15%. I do know it was less than 20%. At the time, you see, Star Wars was considered moribund. The books, Tim Zahn’s first trilogy in particular, led the entertainment industry to realize that there was a hungry audience for more Star Wars. The revival of the brand dates from that very first publication.
So I know that, in those days, LucasFilm didn’t have the Disney-level clout that it would later achieve. Which had an impact. Because, when it came time to renegotiate the license with Bantam, LucasFilm asked for a 20% royalty.
Bantam balked. They claimed they couldn’t make a profit. They claimed they couldn’t pay their writers. They claimed they wouldn’t get writers.
So, LucasFilm threatened to pull out, and the dance began. LucasFilm came down to 19% which still didn’t give Bantam enough room to pay the writers from the royalty rate (the standard way that writers did/do business in traditional publishing).
Bantam came with a compromise. Rather than a 2% royalty, they’d pay the authors $60-90,000 for the book, which was what those books earned out at in those days. Those payments would be guaranteed, but they’d be a flat fee. So if the books sold better than that, the writers would get no more money. If the books sold less, the writers would get more than they usually would.
Business-minded writers realized this: that if they took their upfront payment (which Bantam was offering in four payments) and banked it, they’d make more than they would off the 2% royalty rate. (Money in hand is worth more than money promised. Money in hand allows things like paying down credit cards rather than charging them, and having an emergency fund, rather than borrowing, and so on.)
A bunch of us agreed, our contracts were in the works, and then the idiots at the Science Fiction Writers of America got their undies in a bundle and denounced the entire deal and faxed a protest letter to LucasFilm, naming every single Star Wars writeras agreeing, even those who didn’t agree (and had threatened them if they used our name, like me) and even those who weren’t members (like me). That piece of idiocy cost me at least $90,000 if not more, because I was slated to write a bunch of books, and LucasFilm canceled all communication with me and cut me out of everything, just like they did with all the other authors named.
The books went on without us. And I just thought it a weird deal—that LucasFilm wanted 20%–believing what Bantam put out there (that LucasFilm was greedy) and what SFWA put out there (that LucasFilm was greedy) rather than understanding that LucasFilm was treating the books as a standard licensed product.
My brain was spinning as the negotiation class went on, because I finally understood the other side—the other side not being Bantam Books, but LucasFilm. I was just a sorry little contractor caught in the middle of a negotiation for a licensing deal, with a stupid idiotic third-party organization sticking its ignorant foot into the mess.
. . . .
The royalty rates class looked at all kinds of things that can have an impact on royalty rates, including net sales.
In that discussion, one of the agents on the panel clicked the next slide in the deck, which showed Publishing. She made a face, and said, with great disbelief, In publishing, the product is 100% returnable, so you have to figure out how to cap the losses.
She went on to talk about how difficult traditional publishing was to work with because of all the quirks in its contracts.
But I sat there and found my brain spinning again. When I was a baby writer, my book agents could get a minor cap on returns, limiting them to only two or three years. After that, the publisher had to eat the returns.
A standard licensing deal has a three-year term, which meant that publishers were already set up to cap returns earlier than that.
The licensing agent also went on to talk about how she had to explain basic licensing to her publishing partners, and how she had to hold them to the fire to get them to agree to a full royalty for all the participants (meaning that if the brand was say, a star quarterback for the NFL, the NFL would get its share of the royalty and the star quarterback would get his—so maybe a 50-50 split of a 20% royalty—meaning the author would write for a flat fee).
I immediately got retroactive anger.
Licensors from outside the publishing industry—that is, nonwriters. Celebrities. Grumpy Cat—got not just an advance against a substantial royalty, but a term-limited contract, and minimum royalty payment guarantees, and guaranteed marketing/advertising budgets, and the ability to easily and routinely audit the publisher, and, and, and…
. . . .
The licensing professionals who worked for a nonwriter licensor, like LucasFilm, got a licensing deal that would make writers and their book agents fall over in stunned surprise. Simply by using industry standard.
Okay, got all of that?
In the past, writers have gone begging to book agents, to publishers, to comic companies, to gaming companies, hoping to get someone to “take a chance” on their writing.
Writers weren’t acting as brand owners, licensors, people in control of their IP, asking for a standard licensing arrangement. Writers were beggars, which put them in a terrible long-standing position with the publishers.
. . . .
The book, the published book, is not the holy grail.
The story, the thing that the writer has created, is the holy grail. Before publication of any kind.
Because publication is a license. Whether you do it yourself and upload to Amazon (Direct to Retail, is what that’s called) or whether you go through a traditional publisher (Business to Business, is what that’s called {and notice that the businesses are on equal footing in that definition}), you are licensing a tiny portion of your copyright to make distribution of some product (in this case a book) possible.
We’ve been teaching for years that publication is a license. Not a “sale” because you don’t lose the copyright. You license it.
But Dean and I and damn near every other writer out there (with only a handful of exceptions throughout the last 100 years) have not gone any farther than that. We haven’t thought about the published book as being a single licensed product.
We’ve been conditioned by our upbringing in the business culture of the previous century to think of the published book as the be-all-and-end-all of everything we did.
. . . .
We are not in the publishing industry. We are in the entertainment industry.
For PG, Kris is one of the most interesting commentators on the publishing business, traditional and modern, and he always appreciates her Business Musings posts.
In these posts, Kris often looks above and beyond agents and publishers, KDP, etc., etc. in a way most authors do not.
In a former legal life, PG represented some software and technology companies whose products were sometimes licensed to very large business organizations, including Goldman Sachs, Morgan Stanley, Merrill Lynch, Fidelity Investments, Apple, IBM, Oracle, Disney, Hallmark, Intel, Hewlett-Packard, and American Express.
(For context, at an earlier stage in his legal career, PG also represented abused spouses, dairy farmers, the tenants of small-time slumlords, people who wanted a divorce and/or needed to file for bankruptcy, a couple of arsonists, drunk drivers and people who couldn’t afford to pay an attorney and got help from Legal Aid.)
PG provides the big business list not to show what a big deal he is or was, but simply to demonstrate the variety of different licensing agreements he has seen outside of the traditional publishing business.
From a legal standpoint, as Kris says, a publishing contract is not a special snowflake, it’s a license of intellectual property, specifically, the copyright to a book which is owned by the author. Copyrights to software are what Microsoft owns and licenses to everybody who buys and uses MS Word, Excel, Windows, etc.
Although PG has not seen very many publishing contracts that acknowledge the fact, a traditional publishing contract also includes a sort-of implied license to the author’s right of publicity, sometimes called personality rights (which may include individual’s image, personal data and other generally private information).
However, most publisher-provided publishing contracts don’t look much like licensing agreements used elsewhere in the business world. Publishing agreements have little quirks that would seem strange to any attorney accustomed to seeing licensing agreements for technology or almost anything else.
PG understands the principle of customs of the trade, assumptions that govern niche businesses and the agreements they make. For example, in another case from PG’s olden days, he learned all about the New York City garment business and the strange ways it operates.
However, trade publishing and, to an even greater extent, academic and professional publishing still operate as if ebooks and other epublications have never existed. Even more important for authors, many publishers operate as if the cost of publishing was still based upon the expense and compensation structure that existed when printed books and journals were the only way to disseminate knowledge and long-form writing.
PG suggests that even for traditionally-published authors, Amazon has provided a great service by offering both self-publishing and Amazon Press as alternative methods of reaching readers. Absent Amazon’s influence, publishers would still be operating as if it were 1955 and today’s authors would be earning much less and accepting it as the author’s burden in life.
Yet, from a legal and commercial viewpoint, traditional publishing is still a screwy business and authors bear most of the burden of its bizarre practices.
