Posts Tagged ‘Royalties’

by Chaz Bufe, publisher See Sharp Press

Yesterday, a friend told me she was about to sign a contract with a small publisher, who had approached her about writing a book for a professional market. I said, “Let me take a look at the contract.” She showed it to me, and my jaw almost hit the floor when I saw the clauses on royalties: they assigned her 10% of “net” for both physical book and e-book sales. That set me on the road to this post.

There are a lot of potential problems in book publishing contracts of which authors are blissfully unaware. In the flush of excitement over having their books published, authors routinely give away the store.

Here are several potential problem areas and outright traps often found in publishing contracts:

1) Legitimate publishers will never ask authors for money. In legitimate publishing, publishers pay authors, first in the form of an advance on royalties, after which, once the advance is worked off, in the form of royalty payments.

In a grey area, a few small publishers will ask authors to engage in “co-publishing,” where they split the costs of publication, but this is usually the case only with esoteric books that simply won’t be commercially viable (books on obscure 19th-century political movements, for instance). In most such cases,  authors should consider self-publishing unless the purpose of the book is to “spread the word” (whatever it might be) or to get a book publishing credit, in which case a co-publishing deal does make sense.

2) Authors should never assign their copyrights to publishers. Some unscrupulous publishers will specify in their contracts that authors give them their copyrights as a condition of publication. This is totally unacceptable. In such cases, authors should demand that the clause in question be struck from the contract and that they retain copyright. (Such a clause is also a tipoff that authors should look over the rest of the contract very carefully.) If a publisher insists on your assigning them the copyright, walk away from the deal.

As an example of what can go wrong when authors fall into this trap, one need look no further than the sad tale of William Powell, compiler of the original Anarchist Cookbook. Powell compiled this abomination (a collection of bomb- and drug-making “recipes” combined with near-incoherent, very misleading comments about anarchism and other political matters) as a 19-year-old kid, and he naively signed a contract giving the publisher, Lyle Stuart, the copyright. Years later, Powell had wised up to some extent and requested that Stuart withdraw the book. Stuart, who was making money from the book, refused. After Stuart was sued by developer Steve Winn for libel and forced into bankruptcy, his publishing house’s assets were auctioned off, including the “cookbook” copyright. As a result, Powell’s discreditable book is still in print and still an embarrassment to him, despite both his private and public repudiation of it.

(One note here is that contracts give the publisher exclusive rights to publish and sell a book in [a] specified region[s]. This is not the same as the publisher owning the copyright.)

3) Royalties for physical books should always be based on cover (retail) price, not “net.” As a wise soul once said, only slightly overstating the matter, “There is no such thing as ‘net.'” Unless “net” is very strictly defined in the contract, publishers can deduct such things as publicity/promotion expenses for a book and even a portion of their rent and office expenses in addition to printing and shipping costs before arriving at “net.”

Publishers who offer “net” royalty payments routinely start them at 10% of “net.” That sounds great unless you understand the economics of book publishing. Here’s what 10% of “net” translates to, even in cases where “net” is carefully specified and limited to the cost of printing and shipping books.

Small publishers, as a necessity, use distributors, who do such things as dealing with Amazon, Barnes and Noble, the independent stores, the wholesalers and jobbers, etc., and who also send out thousands of catalogs annually to libraries and bookstores. They also can be of significant help with publicity resources and “special sales” to nonbooktrade accounts. For these services, distributors take between 25% and 30% of sales income from the publishers. On average, distributors get about 50% of cover price for books sold. So, once their cut is taken out, the publisher gets roughly 35% to 37% of cover price for every book sold, before returns. Taking returns into account (some of which are shopworn or otherwise damaged), publishers end up (if fortunate) with roughly 30% to 33% of cover price for every book sold.

That sounds good until you realize that printing costs normally run to 12% to 15% of cover price for the limited runs small publishers routinely do. Deduct that cost alone, and “net” drops to about 20% of cover price. So, royalties of 10% of “net,” with no further deductions from “net,”  translate to 2% of cover price. This percentage can be a little higher in cases where publishers do a lot of direct-to-customer sales, but it’ll still be very low.

In contrast, most publishers base royalties on cover price. For trade paperbacks, royalties normally start at 6% or 7% of cover price and rise, based on number of copies sold, to 10%. For hardbacks, royalties normally start at 10% of cover price and rise, again based on copies sold, to 15%.

Contrast this with the effective 2% royalties provided by “net” contracts.

Unless you have no other options, do not sign a contract with royalties based on “net.” If you have no other choice, insist that “net” be defined very closely, and push for 20% of net; you won’t get it, but you might get 15%, which is still bad, but better than 10%.

4) Royalties should be 50% of monies received (“gross”) by the publisher for e-book sales. The reason e-book royalties should be much higher than royalties for physical books is that e-books are very cheap and easy to produce, and that the publisher runs virtually no additional risks and has virtually no additional costs with such “publishing.” Almost all of their considerable risks and costs are incurred in the publishing of physical copies. There are the up-front costs of editing, cover and interior design, catalog listings, and printing and shipping, plus some costs for pre-publication publicity and promotional work; and there are post-publication costs incurred through doing more publicity and promotion. (Then, consider that most books don’t make money for publishers. The ones that do make money pay for the ones that don’t.)

In contrast, the additional costs of producing e-books are insignificant: the cost of an ISBN (international standard book number) and the cost of e-book conversion from the physical book’s interior PDF (about 50 cents to a dollar a page).

If a contract specifies e-book royalties much under 50% of gross, something is seriously wrong. And if a contract specifies royalties of 10% or 15% of “net” for e-book sales, the publisher is either ignorant of normal royalty structures or is trying to screw you.

5) Rights should revert to authors if a book is out of print for more than two years. There should be a “reversion of rights” clause in any contract specifying that publishing rights will revert to the author if a book is out of print for a certain length of time. The longest this should be is two years, and one year or 18 months is better. If there is no reversion of rights clause, insist on one, and if there is one and the period exceeds two years, ask that it be specified as one year, then compromise. As well, the reversion of rights clause should specify that it applies to physical books, not e-books, which the publisher can keep “in print” forever at no cost.

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These are only the problems that immediately come to mind. There are others, though these are the most common and the most serious.