Contract Red Flag: Net Profit Royalty Clauses

Posted by Victoria Strauss for Writer Beware

In the comments thread of a previous post, a reader asked whether there is a difference between royalties paid on net income and royalties paid on net profit. There most definitely is a difference--and, depending on the circumstances, royalties paid on net profit is a major red flag.

LIST PRICE

The ideal royalty is paid on list or cover price--the actual retail price of the book. So if your list price is $20, and your royalty is 10%, you'll get $2 for every book sold. For big trade publishers, including larger independents, royalties paid on list price is standard for domestic sales.

NET INCOME

Smaller publishers, on the other hand, are more likely to pay royalties on net income or net sales proceeds--the money they actually receive for the book (list price less any discounts or commissions charged by retailers, wholesalers, and/or distributors). This means your royalties will vary, depending on where your book is sold--but they will vary in predictable ways. Again using a $20 book and a 10% royalty as an example, sales at full list price from the publisher's website would generate a royalty of $2; sales to physical retailers at a discount of 40% would generate a royalty of $1.20; and sales to wholesalers at a discount of 50% would generate a royalty of $1.

Royalties paid on net income aren't as desirable as royalties paid on list price--obviously--but they are common in the small press world, and don't necessarily ring warning bells. However, you do need to carefully parse the contract language, and understand what you're signing. For instance, here's a net income royalty clause that could look like a list price clause if you don't read carefully:

"The Publisher shall pay the Author or his duly authorized representatives...a royalty of seventeen percent (17%) of the retail price thereof on the Work, less returns, less discounts, and less distribution fees."

Always look for a precise definition of the amount of money on which the publisher will be calculating your royalties--for example:

"The Author's royalty will be 20% of the Publisher's actual cash receipts (the list price of the book less any discounts due to vendors.)"

Beware of contracts that use terms like "net income" or "publisher's proceeds" or "sales price" or "gross income" without clearly stating what they mean. Another thing to watch for: some publishers deduct not just discounts, but taxes, transaction fees, and/or shipping and handling fees--all of which further reduce the amount of money on which your royalties are calculated.

NET PROFIT

Royalties paid on net profit are an entirely different animal. In this case, the publisher pays on whatever is left after a menu of additional expenses--manufacturing, publicity, warehousing, even editing--have been subtracted. This can substantially deplete the amount on which your royalties are calculated. For instance, for that $20 book with a 10% royalty, the publisher's net income (let's say $10, based on a 50% discount) might be further reduced by deducting shipping and handling (say $2) and manufacturing costs (say $4). That would leave just $4 available for royalty calculations, for a royalty of $0.40.

Publishers that pay on net profit often pay higher royalty percentages than average, and if the percentage is large enough--50% or more--it may offset the deductions. But be sure you know exactly what those deductions are. Deductions should be precisely defined, so that the publisher can't add expenses at will (no vague "associated costs", and if "book production costs" will be deducted, do those include editing and other fixed expenses as well as printing?), and the publisher should be willing to give you at least an estimate of the actual amounts involved--average manufacturing costs, for instance.

Be aware also that publishers that pay on net profit rarely use that actual term, so you need to be on your guard for telltale language. Below are examples of net profit royalty clauses, taken from contracts in Writer Beware's files, with the relevant terminology bolded.

"For each Edition of the Work when sold at discounts of FORTY PERCENT (40%) to SIXTY PERCENT (60%) of list price, the Publisher shall credit the Author's account with a royalty equal to TWENTY-FIVE PERCENT (25%) of the amount determined by deducting all manufacturing costs of the copies so sold from the amount received by the Publisher, net of returns."

"The Publisher shall pay the Author twenty percent (20%) of the wholesale price received for every copy of the Work sold in Hardcover, Trade Paperback, or Mass Market Paperback edition, less costs of printing, returns, and other associated warehousing costs."

"Royalties...shall be calculated on the basis of monies paid to and received by Publisher, less any transaction fees (e.g. Paypal), shipping & handling fees, sales or other taxes, import or export duties, commissions or other charges payable to third parties, and less editing fees of fourteen (14%) of the Publisher's retail price of the work."

"[Publisher} will pay the author 25 percent of net revenues from the sale of The Work. Net revenue is defined as the total receipts less book production costs."

"The Publishers shall pay to the Author the following royalties...On all copies of the Work sold through bookshops...ten percent (10%) of the Publishers' Net Receipts less bookseller's discounts and manufacturing costs. On all copies sold through the Publishers' website: ten percent (10%) of the Publishers' Net Receipts less maufacturing and distribution costs." [Net Receipts has previously been defined as "all amounts received by the Publishers less production costs & digital storage with the printers."]

"Royalties are calculated as a percentage of the Net Retail Price (discount rate minus printing costs.)"

This last one is my favorite, not just for all the stuff that gets deducted, but because it's so unnecessarily complicated:

"[Publisher] shall pay Author a royalty of 25% (twenty-five percent) of Net Work Revenues on sales of the Work during the Term of this Agreement.
a) Net Work Revenues means Gross Work Revenues after the deduction of Work Expenses; Gross Work Revenues means all amounts actually received by [Publisher] for its own account from the exploitation of the Work that are identifiably attributable to the Work as a standalone work;
b) Work Expenses means all reasonable amounts actually incurred by [Publisher] in connection with the exercise of the Granted Rights that are identifiably attributable to the Work as a standalone work, to a maximum amount equal to 25% of Gross Work Revenues. By way of example only, Work Expenses include the costs of creating versions and copies of the Work (including, without limitation, manufacturing costs related to the Work and the costs of manufacturing ancillary products), shipping costs, advertising expenses related solely to the Work, and charitable contributions derived from sales of the Work, but do not include expenses related to the general overhead costs of Publisher."

PublishAmerica Will Be Your Literary Agent...For $199

Posted by Victoria Strauss for Writer Beware

Literary agencies becoming publishers? Screw that trend. PublishAmerica, always a trail blazer, is swinging the other way.

The email from which I've quoted below was sent out today by the PA "Author Support Team." (All bolding is PA's.) Just imagine the hearts that are leaping and the pulses that are pounding at the sight of the title:

From: noreply@publishamerica.com
To: [email address redacted]
Sent: 5/27/2011
Subj: A literary agent wants to talk to you

Dear author:

PublishAmerica now has a Literary Agency department.

Sign up, and we will market your book to big ticket publishers such as Random House, Simon and Schuster, HarperCollins, Penguin, the new Amazon publishing company, but also university presses and independent publishers, and to a host of foreign publishers all over the world. We also work with Hollywood studios and producers...

Over the past year, while attending trade shows all over the nation and in foreign countries, we have built a very extensive Rolodex with industry contacts. We have talked to so many publishers at home and abroad, and to so many agencies and movie producers that today we feel confident that our Literary Agency can make a serious difference for our authors...Most authors are not very good sales people, least of all when it comes to selling themselves. Therefore most books need an agent if and when an author seeks to find greener pastures for their book.

Sign up today, and have an agent for your book tomorrow!

Authors are encouraged to visit www.publishamerica.net/MyAgent.html, where they discover that, to take advantage of this matchless opportunity, they must fork over $199.

The fact that PA has an exclusive claim on authors' print and digital rights does pose a bit of a hurdle in terms of licensing--for those big-ticket US publishers, anyway--but never mind, we aren't supposed to be thinking logically here.

PublishAmerica, fee-charging literary agent. I only wonder why it took this long!

Tidbits

Posted by Victoria Strauss for Writer Beware

The Gloves Are Off!

Earlier this week, I blogged about the accelerating trend of literary agencies turning publishers in order to re-issue their clients' backlists. There's gold in the backlist (see this interesting article about writers who've taken things into their own hands and are re-issuing their backlists themselves), and it's not surprising that literary agencies want a slice of that pie.

Publishers want it too, though--which is why, in late 2009, Random House US sent a letter to literary agencies claiming that its older contracts gave it the exclusive right to publish in ebook form, even where the contracts pre-dated the existence of digital formats and/or their language did not mention electronic rights. This precipitated some controversy, since literary agents, for the most part, did not agree.

How threatened do publishers feel by agencies' aggressive moves into publishing? Well, according to a report today in The Bookseller, Random House UK has done an end run around prestigious literary agency Sheil Land, directly approaching author Tom Sharpe to secure digital rights to his backlist.

It is not clear whether the development is a retaliation for Land's decision to publish Catherine Cookson's extensive backlist under her own imprint Peach Publishing, having offered the Cookson estate a greater share of the royalty rates. Transworld, Cookson's print publisher, is also owned by Random House. At the time Land named Sharpe as one of a number of authors who she might also consider taking direct.

Sheil Land is not amused, and they're the only ones.

One agent, who preferred not to be named, described the direct approach as a "clear breach of ethics". [Anthony] Goff, an agent at David Higham and president of the AAA, said he could not comment on the particulars of this arrangement, but stressed the principle was very clear.

"Once an author has a deal with an agent, then for a publisher to go behind that agent's back for financial or contractual discussions is totally unacceptable. It is not just that agents don't want it, neither do authors. There is a reason agents are employed as advisers."

Publishers, unsurprisingly, did not feel the same way.

A rival publisher said the development was an inevitable consequence of the decision of some agents to begin publishing. "What did she expect? Sheil Land went into competition with Random House, not the other way round." A second publisher added: "Can they not see the irony in wanting to respect convention in some areas, but not in all?"

For me, this was the most interesting publishing story of the week. Backlist is becoming a battleground--and as always, authors are in the middle.

Bowker Issues 2010 Publishing Stats, and POD is King

Bowker has released its annual report on US book publishing. Over 3 million new titles were issued last year. Traditional production accounted for around 316,000 titles, an increase of 5% over last year. POD, a.k.a. "the non-traditional sector," continues to boom--to put it mildly, with an astonishing jump of 169%, from 1,033,065 titles issued in 2009 to 2,776,260 in 2010. Wow.

As in 2009, the bulk of the POD titles--well over 2 million of them--were put out by companies that specialize in re-issuing public domain works, such as BiblioBazaar, which issued a staggering 1,461,918 titles last year. Self-published books make up only a small fraction of the POD total, with CreateSpace leading the way with 34,243 titles, and then Lulu with 11,127 titles, and then various Author Solutions brands (AuthorHouse, Xlibris, etc.).

Bowker's numbers reflect only books with ISBNs. Not all self-pubbed books have ISBNs--Blurb, for instance, doesn't issue ISBNs at all, and ISBNs are optional for Lulu authors. Ebooks are also not included--but if they were, they'd surely add a million or more to the total. It's altogether mindboggling.

What Amazon Didn't Mention

Yesterday, Amazon revealed that for every 100 print books, it is selling 105 Kindle books. As always with Amazon announcements of this sort, actual numbers were absent.

There's no doubt this is a significant development. But like everything else, it needs to be placed in context. Sales numbers and sales revenues are two different things. Amazon may be selling more ebooks than p-books, but ebooks tend to cost less than p-books--in some cases, hugely less--so print book revenue undoubtedly still tops ebook revenue by a substantial margin, and will likely continue to do so for some time. Amazon isn't ditching print anytime soon.

With Ebook Pricing, is Cheap Always Better?

An intriguing blog post from author Diane Duane, who has been publishing some of her backlist to Amazon. When Ms. Duane raised the price on one of her ebooks from $1.99 to $4.99, sales jumped.

Could it be that, when you’re an author who’s been established in print for a while, that it’s not smart to price your book too low? Is it possible that people look at it and say, “Oh, this thing must be cheap because it’s no good”, and pass by on the other side? Or is this just some seasonal effect, or some other kind of coincidence?

It'll be interesting to see.

Bottom line: no one really knows what works. Strategies that are successful for some will not be for others, and vice versa (one of the very basic mistakes new authors make is to assume that the cheery marketing advice that's everywhere these days is going to work for them in a predictable way). This is a long-standing truth of the book business--proving that, even in the midst of a paradigm shift, some things just don't change.

Literary Agencies as Publishers: An Accelerating Trend

Posted by Victoria Strauss for Writer Beware

Once upon a time (with one notable exception, mentioned below), the only literary agencies that engaged in publishing ventures were marginal agencies whose micro-publishing divisions existed in large part to make money on clients whose work they failed to place, or scams where agency clients were shunted into pay-to-publish arrangements (often without revealing the connection between the agency and the publisher). If an agency owned a publisher, you could pretty much automatically cross them both off your query list.

That's no longer so.

Last week, prestigious UK agency Ed Victor Ltd. announced that it was going into publishing, with an ebook/print-on-demand division called Bedford Square Books. Bedford Square will launch in September with six titles, and will focus on backlist (out of print, rights-reverted) books by agency clients.

According to Mr. Victor (quoted in The Bookseller),

My colleagues and I have for some time been of the opinion that a number of great backlist titles by our clients, currently out of print or reverted, should be available to the book-buying public, either because they are as relevant as ever, or because they are classics in their field. We believe this is a valuable service not only for our authors, but also for readers. Although it is our intention to concentrate on our of print and reverted titles, we may publish original books if there is a compelling case to do so.

Only days later, two other major UK agencies--Curtis Brown and Blake Friedman--confirmed that they were considering similar ventures. And these three agencies are not alone. A few weeks earlier, citing frustration over trade publishers' ebook royalty rates, agent Sonia Land released e-versions of 91 Catherine Cookson books via her own company, Peach Publishing. Similar frustrations spurred agent Andrew Wylie to establish Odyssey Editions in 2010, to epublish backlist titles from the agency's many famous clients (a subsequent confrontation with Random House, which claims digital rights to pre-digital titles, was quickly resolved). In 2009, Scott Waxman of the Waxman Literary Agency founded epublisher Diversion Books, which focuses on new titles rather than backlist. And then there's the granddaddy of them all, Richard Curtis's pioneering Ereads, created in 1999 to publish electronic and POD editions of backlist books by Curtis's clients and other established writers.

It's no coincidence that members of the UK's Association of Authors' Agents are reported to be privately discussing whether to remove a clause in the AAA's Code of Practice that prevents agents from acting as publishers. According to Piers Blofeld of Sheil Land (quoted in The Bookseller), "There are obvious issues and potential conflicts of interest, but at heart the role of an agent is to offer advice and support to a writer on their writing career. We're here to maximise their earnings. We're not simply there to act as an interface between authors and publishers—that landscape has gone."

This potential new role for agencies reflects the rapidly-changing realities within the publishing industry. In a very tough publishing climate, agencies are looking for new revenue streams (publishers too, hence the pay-to-play divisions that are popping up at major houses--though with the advent of free electronic self-publishing, I think the POD bubble may be ready to burst). Just as important, the relative ease and economy of digital publishing makes backlist publishing a natural lateral move for agencies with deep catalogs of rights-reverted books and in-print books to which the publisher does not hold electronic rights. It's an important trend, and I think we'll be seeing many more of these ventures in the coming months and years.

So, good for agencies. Good for authors? That depends on the terms. Ed Victor will give authors 50% of net, but doesn't say what net will consist of--and authors will be paid after only after production costs have been recouped from the initial receipts. Andrew Wylie has an exclusive deal with Amazon, limiting his books' availability to the Kindle. Still, despite such uncertainties and/or limitations, publishing through their agents may be very appealing to authors who want to bring their out of print work back into circulation but don't want to DIY (and despite the current frenzy over electronic self-publishing, there are plenty of them).

What about authors who do want to DIY, though? Having a publishing division might certainly be an incentive for an agency to discourage such efforts--and if the agency's author-agent agreement includes interminable agency language, the agency might even be tempted to argue that its claim extended to publishing. What about authors who'd rather their agents tried to re-sell their out-of-print work to a trade publisher? If the agency has its own publishing division, how motivated will it be to do this for books it could easily and perhaps profitably publish itself? How much pressure might it bring to bear to encourage clients to allow it to exploit their rights directly? What about the allocation of resources--how much of an impact might running a publishing division have on an agency's focus on selling new titles, even if the agency outsources much of the work?

And what about new clients with yet-to-be-published manuscripts, or existing clients whose manuscripts don't sell immediately? So far, most agency publishing ventures concentrate on backlist--but that may not continue to be the case. For an agency with a publishing arm that publishes new work, to what degree might the prospect of publishing a client itself compromise its motivation to aggressively market the client's manuscript to other publishers--or, for a prospective client, to offer a publishing deal rather than representation?

Even for unimpeachably reputable agencies, adding a publishing division poses a multitude of conflict-of-interest issues (as Piers Blofeld acknowledges in the quote above). For practical as well as ethical reasons, agencies that are considering an expansion into publishing MUST consider these issues, and come up with policies to address them. One possibility, for agency-owned publishers that will be issuing new work as well as backlist: raising an impenetrable wall between the different branches of the business--i.e., new work by agency clients would never be contracted by the publisher, and new authors signed by the publisher would never be offered representation by the agency.

A big part of the dizzying pace of change in publishing is the rapidity with which the lines are blurring--between publishers and self-publishing, between booksellers and publishers, between agents, editors, and publicists,  and between agencies and publishers. More and more, there are no hard and fast rules, and nearly everything needs to be evaluated in context. To top it off, the scams are still out there. It's more vital than ever to be an educated writer--to continuously inform yourself about the publishing world, and to keep abreast, as much as possible, with what's going on within it.

In a universe of change, knowledge is your greatest ally--and your best defense.

I Broke a News Story, and All I Got Was This Freaking T-Shirt

Posted by Victoria Strauss for Writer Beware

As readers of this blog know, I'm fascinated by the oddities that pop up at the fringes of the writing and publishing worlds. This qualifies as one of the odder things I've come across lately:

T-Post

The brainchild of a group of friends in Sweden, T-Post describes itself as "the world’s first wearable magazine." The concept: A news story. A graphic interpretation of the same. A T-shirt. The art is printed on the front, and the story is printed on the inside (yes, really, on the inside, where no one can see it)--and voila! News you can carry with you, if not very obviously.

Subscribers to T-Post get one T-shirt every five weeks, with a story chosen by T-Post's editors from news pieces submitted by participating writers. It costs 20 euros (per T-shirt or "issue") to subscribe, with a further 7 euros due for shipping and handling. Unlike book of the month clubs, you can't choose not to receive a T-shirt.

How do I know about this? I got an email invitation, presumably as a result of this blog.

T-post is tapping the writer community to create their editorial content. Writers will be able to publish as many stories as they like on T-post's website and create their own profile.

Creating the democratic editorial process tpostmag.com readers will have an opportunity to vote for the articles they'd like to see as future T-post issues with the simple click of a VOTE button. Based on the number of votes, article comments and the story topic, the T-post staff will then choose what will become their next issue. Winning entries will have their news story interpreted into a graphic T-shirt by an artist chosen by the T-post staff and receive $1,200 USD.

While I certainly wouldn't mind having $1,200, I can't say I'm keen on having my news story printed on the inside of a T-shirt. The idea, apparently, is that the art will inspire questions, which the T-shirt wearer can answer by describing the invisible news story that goes with it. I wear graphic T-shirts fairly often in the summer, and I can't remember the last time anyone asked me about the artwork.

Designating T-shirt wearers as news bearers is a pleasingly idealistic gimmick upon which to build a clothing company, though it strains the idea of a magazine. T-Post has gotten a fair amount of press coverage--not surprisingly, mainly about the artwork. Similarly, T-Post's blog features its artists, but little is said about the writers (after all, it's just "editorial content"), and I could find no writers' guidelines on the T-Post website.

Pay to Play Anthologies

Posted by Victoria Strauss for Writer Beware

Vanity anthologies are a popular way for unscrupulous companies to make money on writers' hunger for publication. By far the most common vanity anthology scheme is the free contest scheme, in which writers are enticed to enter poems or stories in a competition, and then pressured--though usually not required--to buy the anthologies in which their work appears. I blogged about one of these a while back: Eber & Wein, a company that is allegedly run by a former employee of the granddaddy of all vanity anthology schemes, Poetry.com.

A less common, but often much more expensive, vanity anthology scheme is the pay-to-play anthology. In this version of the scheme, writers must pay upfront for inclusion in the anthology, usually by buying large numbers of finished books or other merchandise.

Pay to play anthologies typically are nonfiction, usually on subjects of general or inspirational interest, and actively capitalize on their superficial similarity to successful series like the Chicken Soup books (which, by the way, not only don’t require payments or purchases, but offer a small honorarium to contributors). Writers are often targeted by spamming, but also by legitimate-looking calls for submission on the anthology companies’ websites, on the Internet, and in writers’ forums and communities. None of these solicitations mention that a cash outlay is involved--you usually have to dig pretty deep into the submission guidelines to find that out.

For instance, the Wake Up...Live the Life You Love series requires contributors to buy up to 500 books at a cost of several thousand dollars, and boasts that its anthologies include articles by such well-known figures as Dr. Wayne Dyer and Tony Robbins (likely, these are articles that the series owner has bought a license to re-use). The anthologies published by Inspired Living Publishing require contributors to pay thousands of dollars for marketing packages that include not just large numbers of books, but various promotional aids of dubious effectiveness.

The companies make a big point of emphasizing how much profit writers can realize if they sell the books, since they’re purchasing them for less than list price. But for someone who doesn’t already have a captive audience, it’s not so easy to flog several hundred books (and where to put all those boxes?). It’s likely that many, if not most, contributors will never get their money back.

Pay to play anthologies tout themselves as an opportunity for entrepreneurs and business owners to enhance their professional images by presenting themselves as published authors and using the anthology as a kind of business card. For someone with plenty of money to spare, might this be a reasonable form of publicity?

Possibly, given that the general public has no idea that these schemes exist and won’t know you bought your publishing credit--and assuming that the anthologies are professionally produced and edited (not a guarantee--this is definitely a case of try before you buy), and that the anthology company will actually send you the books you purchase. But if you’re seriously considering paying for something like this, ask yourself whether it’s worth laying out several thousand dollars just to be able to say you got published in an anthology series no one ever heard of--and whether you really want several hundred books that you’ll either have to hustle to sell, or stuff in a dark corner of your basement.