Thursday, April 25, 2013

Show me the Money: Royalty Statements in Publishing Contracts

We're pausing in our stroll through John Q. Penman's publishing contract to talk for a minute about royalty statements.

Most authors look carefully at a contract’s royalty terms but pay almost no attention to the provisions governing statements of sales and revenue.

When I mention this topic at live presentations, I hear a variety of responses, ranging from

“I couldn't understand it, but it must be OK.” to “As long as I get paid, I don’t really care.”

Not good. Not at all.

Royalty statements are a vital tool for ensuring the publisher pays the proper amounts at the proper times. Good contracts place at least four obligations on the publisher with regard to royalty statements:

1. Stated Period and Frequency. The statement period means the amount of time each statement will cover. Statement frequency means how often the statements are sent to the author (or the author’s agent). The contract should state what period of time each statement will cover and how often statements will be sent. The contract should also state whether royalties will be paid on the same frequency as statements or on some other basis.

Most publishers send statements (and pay royalties) either twice a year or on a quarterly basis, with each statement covering a single calendar quarter. This means the author can expect two to four statements (and the same number of royalty distributions, assuming sufficient sales) per year.

Statements are sent and royalties paid “in arrears,” which means the publisher collects information and money during the quarter (or other stated period) and sends the statement (and payment, if any) to the author after the period ends.

2. Specific Statement Contents.  The contract should obligate the publisher to send more than just "a statement." The contract should require statements which break down - at a minimum - the number of copies sold (separated by format and also by country, if appropriate), the sales prices, the number of returns, and royalties earned (along with reserves being held by the publisher against returns) for the period covered by the relevant statement. The more information an author obtains, the better he or she can track sales and spot inaccuracies.

3. Statement Due Date. The due date is the date by which the publisher must provide the author (or the author’s agent) with statements and payments of royalties due.  The publisher’s accounting department needs time to prepare statements and calculate royalty payments. Contracts often permit “retention” of some percentage of royalties to cover potential returns, and sometimes royalties must be adjusted for other reasons, too. (For example, to reflect actual returns on previous quarters’ sales.) The publishing contract should also state how long the publisher has to prepare and deliver statements (and royalty checks). Due dates vary. That said, authors run a risk in allowing publishers to deliver statements and royalties more than six months in arrears. There isn’t usually much an author can do to change statement timing, but it’s worth making sure that your contract contains the publisher’s standard terms. It’s also worth paying attention to make sure statements and royalties are delivered as required.

4. Dispute and Audit Rights.The contract should give the author the right to dispute statements (and royalty calculations), and should ensure that the publisher must cooperate with investigation of disputes. Also, the authors should have the right to audit the publisher's books and records relating to sales of the work - usually through an accountant.

There are other beneficial statement provisions that authors should try to obtain through negotiation (or, sometimes, find in the publisher’s standard terms). These include minimal retention against returns (and no retention on ebooks and similar non-returnable formats), the amount of time retained royalties can be held, and the minimum amount of royalties due to trigger payment (this varies by publisher, but $25-$100 is fairly standard).

In the meantime, and as always, if you have questions about this or any other publishing law issues, please feel free to ask in the comments or find me on Twitter, @SusanSpann.

 Posted by Susan Spann

Susan Spann is a California publishing attorney and the author of Claws of the Cat (Minotaur Books, July 16, 2013), the first novel in the Shinobi Mystery series featuring ninja detective Hiro Hattori.

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