Tag Archives: grants of rights

Don’t Get Caught in the Royalty Net

By Susan Spann

My last guest post here at the RMFW blog took an overview look at publishing rights, with a focus on the “Big Four” – Exclusivity, Geography, Translation, and Formats.

Today, we’re taking a look at royalties - specifically, at royalty calculation and the contract language which bases an author’s royalties on “gross” or “net” sales proceeds.

Royalties are the money an author receives from a publisher on sales of the author’s work.

The amount of the royalty usually varies by format, with typical percentages averaging 9-10% on hardcover sales, 8-9% on trade paperbacks, 5-6% on mass market (sometimes also called “rack sized”) paperbacks, and 25% on ebooks.*

Many contracts also contain “escalation clauses,” which increase the percentages once sales pass a stated numerical threshold.

When the author receives an advance, the publisher pays the author a lump-sum payment (sometimes in several installments) which is credited against the royalties due on future sales. When authors receive an advance, the author receives no royalty checks until the author’s royalties on actual sales (less returns) exceeds the advance amount. 

At first glance, royalty calculation seems pretty simple: sales price multiplied by the royalty percentage equals royalty due … right?

Not exactly. You need to read (and understand) the fine print in your contract.

Publishing contracts calculate royalties in one of two ways:

Gross royalty calculation (sometimes phrased as calculation on “list price” or “price received”) means the author’s share of sales is based on amounts the publisher receives, with no deductions (except for returns, severe discount sales, and review copies, as well as a couple of other standard situations where royalties are never–or almost never–due). A gross royalty clause calls for calculation of the author’s royalties based on the publisher’s list price or the money the publisher receives on sales, without deductions for publishing costs or other costs incurred by the publisher. This is the best form of royalty for the author, and the one an author should try to insist on.

Net royalty calculation means that the author’s share of royalties is based on some amount less than what the publisher actually receives. The contract language will use the word “net” or specify that the publisher can deduct certain sums or expenses from the sales proceeds before calculating the author’s share. In cases where the publisher insists on net royalty calculation, the author must insist that the contract specify exactly what expenses the publisher can (and cannot) deduct before calculating the royalties due to the author. Unspecified “net royalty” clauses are dangerous for the author, because the publisher can reduce receipts (and therefore the author’s royalties) by deducting all kinds of costs that the publisher should normally bear.

Remember: in traditional publishing situations, the publisher–and the publisher alone–bears the costs of producing, distributing, and marketing the books. The author does not and should not share those costs.

The language to watch for reads: “Publisher will pay Author X% of Publisher’s net receipts (or net profits) on sales of the Work.”

Paraphrases of this language are equally bad.

When a contract uses the word “net,” or allows the publisher to deduct sums other than taxes and shipping added to the purchase price (meaning taxes and shipping paid by the purchaser over and above the price of the books) authors should, at a minimum, be wary. If changing the contract to gross royalties isn’t an option, and the author still wants to go through with the deal (there are reasons to make such a choice, but only after consultation with a trusted agent or attorney) the author must ensure that “net” is thoroughly and specifically defined and that publisher deductions are based upon “actual, documented” costs – not estimates or undocumented “costs.”

Not all net royalty contracts represent blatant attempts to defraud the author – some reputable publishers do use them – but authors must be very careful about agreeing to royalties based on net, and should never do so without professional advice.

One final word about the term “net” – in recent months, I’ve seen a couple of publishers’ contracts which use the word “net” but define the term in a way that actually represents a gross royalty calculation. Unless you’re well-versed in publishing legalese, you might not be able to tell the difference.

The best way to ensure your rights are properly protected? Find an agent or an attorney you trust and never sign a contract without professional review and advice.

*(Note: these numbers hold if you’re published by a New York publishing house. Digital-only presses, POD publishers, and small independent houses may (and usually do) vary.)

Have questions about this or other publishing legal issues? Please feel free to ask in the comments – I’m glad to help!

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 Susan Spann is a publishing attorney and author from Sacramento, California. Her debut mystery novel, CLAWS OF THE CAT (Minotaur Books, July 2013), is the first in a series featuring ninja detective Hiro Hattori. The sequel, BLADE OF THE SAMURAI, will release on July 15, 2014. Susan blogs about writing, publishing law and seahorses at http://www.SusanSpann.com. Find her on Twitter @SusanSpann or on Facebook.

 

Do You Know Your (Publishing) Rights?

By Susan Spann

The grant of rights to the publisher is among the most important (and trickiest) terms in a publishing contract. Although the paragraph itself is seldom long, it’s often connected to several others, not all of which are obvious during an initial read.

Regardless of the length or complexity of the terms, it’s critical for authors to understand the rights the contract grants to the publishing house.

The most expansive (and most commonly requested) rights provision grants the publisher “exclusive, worldwide rights to publication and distribution in all languages and in forms and formats now known and hereafter developed.”

Although short, the quote above contains the four primary factors authors need to consider in any grant of rights:

1. Exclusivity. Rights granted “exclusively” to the publisher cannot be granted to or utilized by anyone else (including the author) for the duration of the contract (which normally lasts for the term of copyright in the work, unless termination language in the agreement gives other options). It’s normal (and not abusive) for publishers to want exclusivity. The publisher is investing time and money in your work, and deserves to profit from that effort (as do you!). Just make sure the publisher has the resources to exploit the rights granted in the contract. A small, U.S. only publisher may not need exclusive worldwide rights. Exclusive North American (or U.S.) rights may suffice. Then again, it’s difficult to publish ebooks effectively without the right to sell them on the Internet, and Internet sales often cross borders.

2. Geographical Reach. Since the publisher will normally want exclusivity within its territory, pay attention to the manner in which that territory is described. Options include “worldwide” (formerly “throughout the universe”) or any lesser territorial boundaries the parties agree upon. U.S. rights are different than North American rights – so pay attention and be sure to ask if you have any question about the geographic and territorial descriptions in the contract.

3. Languages. The contract should specify what languages the publisher’s rights include. Contracts which merely state “exclusive, worldwide rights” are generally deemed to include all languages. If you intend to grant only English-language rights, the contract must say so. If the publisher wants a more extensive grant of language rights, be sure the publisher has the capacity to translate accurately and distribute in those markets. A poor translation is sometimes worse than no translation at all. On the other hand, you shouldn’t refuse foreign language rights to a publisher with a proven track record and the capacity to translate and market your work abroad.

4. Forms and Formats. Most publishers will request “all forms and formats”  – author, BEWARE. Does this include film, TV, and gaming too? It shouldn’t. Those rights aren’t tied to a publisher’s right to publish the book in print and ebook formats. Make sure your publisher has the capacity to act on all of the formats you grant, and that you don’t give away formats the publisher doesn’t need or deserve. It makes little sense to grant print rights to an e-only publisher – and is equally nonsensical to refuse e-book rights to a major brick and mortar house. Be aware that “all forms and formats” now includes mobile devices and potentially also app, gaming, TV, film, merchandising, and many more. A specific carveout is required if you want to retain those rights.

There are other factors that merit additional consideration, too, and which may appear less commonly in publishing deals. These can include film and TV rights, editing, the use of outside “co-authors” and/or editors, and several other issues. These often take a back seat to the “big four” we discussed today, but they remain important, and we’ll take a look at a few of them next week.

The “right” clause depends on many factors – there is no “one size fits all” – so be vigilant and pay attention, and make the right business decision for you and your book.

Today’s big take-away lesson is this: pay attention to the grant of rights, and know what rights you’re agreeing to give your publisher. A proper grant of rights lays the foundation for a positive, long-term business relationship between the author and the publisher – and that, of course, is good for everyone.

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 Susan Spann is a publishing attorney and author from Sacramento, California. Her debut mystery novel, CLAWS OF THE CAT (Minotaur Books, July 2013), is the first in a series featuring ninja detective Hiro Hattori. The sequel, BLADE OF THE SAMURAI, will release on July 15, 2014. Susan blogs about writing, publishing law and seahorses at http://www.SusanSpann.com. Find her on Twitter @SusanSpann or on Facebook.