Thursday, February 14, 2013

Royal(ty) Pains, Part 2: Show Us the Money

Happy Valentine's Day, everyone! I hope your day is filled with love.

And since nothing says "love" like Legalese (I hope you know I'm kidding) ... let's dive back into the royalty language in John Q. Penman's deal....

You may remember John's (fictitious, and highly simplified) royalty paragraph from last week:

Royalties. Throughout the Term of this Agreement, and as long thereafter as necessary for Publisher to report all sales of the Work made prior to termination hereof, Publisher will pay Author the following royalties ("Royalties") on Publisher's sales of the Work:
        a. Hardcover. On Publisher's sales of hardcover editions of the Work, if any, except as specified elsewhere in this Agreement, ten percent (10%) of the list price on all copies sold.
        b. Paperback. On Publisher's sales of paperback editions of the Work, if any, except as specified elsewhere in this Agreement, eight percent (8%) of the
Publisher's list price on all copies sold.
        d. ebooks. On Publisher's sales of ebook editions of the Work (including without limitation all electronic, digital, and downloadable versions of the Work), if any, except as specified elsewhere in this Agreement, ten percent (10%) of the Publisher's list price of all copies sold.

        e. Audio Editions. On Publisher's Audio Editions of the Work sold in physical media form (e.g., on CD), if any, except as specified elsewhere in this Agreement,ten percent (10%) of the amount received by the Publisher on sales of the Work. With respect to exploitation of Publisher's Audio Editions by means of transmission, uploading, downloading, broadcast or similar means or methods other than sales in physical media form, if any (and except as otherwise specified in this Agreement) twenty percent (20%) of the amount received by the Publisher. 

In last week's post, we talked about the difference between gross royalties and net royalties, and how glad John is that his contract contains a gross royalty provision.

With that settled, let's look at the second point of concern: percentages.

Royalty percentages vary based on the publisher, form and format, territory, type of rights, and sometimes even the number of copies sold. 

Generally speaking: hardback and "trade paperback" pay higher than mass market paperback, and ebooks pay highest of all. Subsidiary and foreign rights pay at varying percentages, and IF you let your publisher keep subsidiary rights like film and television (Note: don't do this if you can avoid it) the author's share should be far higher than the percentages applicable to sales of books (and ebooks).

Current industry tolerances for traditional publishing deals run somewhere in the 10-15% range on hardback, slightly lower on trade paperback, 6-9% on mass-market paperback ... and 25% (or, rarely, more) on ebooks. (The numbers are higher in independent publishing - more on this in a minute.)

Do you see the problem in John's royalty language? Look again.

His publisher offered only ten percent on ebooks.

John should counter the publisher's offer by asking for at least 25% of ebook revenues.  He should also ask for language stating that if the publisher's average (or "standard") ebook royalty percentage rises above 25%, John's royalties will also increase to an amount equivalent to that higher standard percentage. (The automatic increase isn't a deal-breaker, but a publisher who won't come up to at least 25% on ebooks probably isn't one John wants to sign a deal with.)

John might also want to request escalation clauses, which increase John's royalty percentage at various sales thresholds. For example:

Hardcover. On Publisher's sales of hardcover editions of the Work, if any, except as specified elsewhere in this Agreement, ten percent (10%) of the list price on the first five thousand (5,000) copies sold, twelve percent (12%) of the list price on the next ten thousand (10,000) copies sold, and fourteen percent (14%) on all copies sold after the first fifteen thousand copies.

Not all publishers will agree to escalation (and not all escalations will be this high), but it's not a bad thing to ask for if the publisher is open to discussion.

The Indie Publishing Question: A better deal?

Some authors point to traditional royalty percentages and ask, "Can't I make more money self-publishing?"

The answer is ... Yes, and no, and maybe.

Yes, if you look only at gross royalty percentages. Self-publishing generally grants the author a higher percentage of revenues than publishing via the traditional path.

No, because self-published authors incur additional costs along the way - costs like editing, cover art, trademark registration, and the share of the marketing (even if small) which would otherwise be covered by a traditional publisher.

Also: independent authors without a platform often have a more difficult time selling books (at least initially), and a higher royalty percentage may not even out if the author's book sells fewer copies than it would with a traditional publisher's name and distribution behind it.

However, an independently published book which sells an equal number of copies at an equivalent price point will usually earn the author more money than a traditionally-published author receives.

Ultimately, the choice between traditional and independent publication has more to do with author preferences than with money. Both are viable options, and both can result in success - or failure - depending upon the author, the book, and the buzz surrounding the title. 

Note also that independent authors sign contracts too - with publishing houses, printers, and with Amazon or other publishing venues. Those contracts (sometimes disguised as "Terms of Service" - but make no mistake, it's a contract) have similar clauses to those in traditional publishing deals, so authors of all stripes have very good reason to read and understand the legalese.

What are your thoughts on royalty percentages? Do you have questions about royalties, percentage-based or otherwise? I'd love to hear your thoughts in the comments.

Posted by Susan Spann 

Susan Spann is a California publishing attorney and the author of Claws of the Cat (St. Martin's / Minotaur, July 2013), the first novel in the Shinobi Mystery series featuring ninja detective Hiro Hattori.


Patricia Stoltey said...

Very helpful information, Susan, but you've convinced me more than ever not to rely on my own judgement and expertise (or lack thereof) when reviewing a contract.

Susan said...

Thanks Pat!

Ultimately, it's definitely smarter to make sure you get professional review. That said, it's just as important to know as much as possible, so you can read and understand the terms you're accepting. A combination approach is the best!

Anonymous said...

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