Pub Rants

Most Favored Nations

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STATUS: Just finished up two contracts today. Always a great feeling.

What’s playing on the XM or iPod right now? CHRISTMASTIME by Stevie Wonder

With all the changes in the publishing world, this might be a buzz word you’ve heard thrown around lately. Agents are often including Most Favored Nation clauses in publishing contracts where it relates to electronic books.

It’s actually an odd term for it but including it often protects our clients. A quick stop at Wikipedia will give you an in-depth definition of the term. It’s most often used in international economic relations. In short, it means that if the US has a most favored nation status with a state, that state will not be treated less advantageously than any other country the US has trade relations with. They would get the same tariffs, quotas, or breaks etc.

And yes, it’s more complicated than that but you just need the cliff notes version for how I want to talk about it. Great. Most Favored Nations. International economics. What does this have to do with publishing and electronic books?

I’m getting to that. There are various ways to structure the clauses but in general, when an agent includes a most favored nations clause, it means the author will not be subject to a less advantageous electronic royalty rate than any other author at that Publishing house.

TGIF! Have a great weekend.

8 Responses

  1. Leona said:

    Even though I do not remember everything I am exposed to, your continuous generousity in blogging openly about contracts has has benefited me greatly.

    It has made the contract part seem less scary. There is so much involved with writing that is all about business, that, as a writer and artist, I want to cringe. And that’s with a background in bookkeeping, quartilies, and incorporating in my background!

    How much scarier must that unknown quantity be to those who have not had to worry about clauses and dotting the i’s and crossing the t’s?

    Thanks again for all your work on this blog. I don’t comment as often here, so I thought I would let you know you are appreciated your generousity in sharing information.

  2. Dustin said:

    If anyone ever questions why you need a killer agent working for you, just read this post.

    Very informative. I think understood about 10%, but what I read sounded very important. 🙂

  3. Joseph L. Selby said:

    Couldn’t most favored nation also be used to justify keeping e-royalties low? If we increase you’r royalties we’d have to increase everyone’s kind of thing?

    I see the basic value of the clause, but do not understand the situation in which it would be applied.

  4. starkalicious said:

    Okay, so, here’s my two cents [correct me if I’m wrong, because I may be totally out of my league]:

    In international economics, MFN status implies that a country will receive AT LEAST as many ‘advantages’ as the country with the most advantages. Example with fictional statistics: Britain has MFN status. The lowest tariff the US has is a 5% tariff on imported goods from France. Thus, the US must have a tariff rate for the UK of less than or equal to 5%.

    Now, if the UK was the only country with MFN designation, the US could give them further breaks — let’s say a 3% tariff. But then UK would become the ‘most favored nation’ and so any other countries that had MFN status from the US would be dropped down to a 3% import tariff. Make sense?

    Joseph, to respond to your comment, it pretty much equalizes the playing field for e-pub books, as I understand it. Yes, everyone would receive the same level of royalties on e-books, but to me, that makes sense. In any business, mass production is cheaper because the initial costs [design, engineering, equipment/materials purchase, etc] can be spread out over all items sold, lowering the cost of each individual item. This applies to publishing — if you have a mega-seller like JKR or Dan Brown, obviously they’ll receive a higher royalty percentage because they’ll sell through hundreds of thousands of copies, allowing the publishing house to recoup costs even if they offer the author a higher percentage. However, debut novelists would have to start out at a lower royalty rate because the publisher has to figure that all their upfront costs need to be recouped when the initial print run [or sometimes, part of the initial print run] is sold.

    However, none of that applies to e-books, because e-books have virtually no overhead. Web hosting is cheap — at least, cheap compared to ink, paper, and shipping. Thus, since the publisher really has no significant overhead to recover, they can afford to pay the same royalty rate no matter if you’re a debut author selling 10k books or a bestselling author selling a hundred times as many. The MFN clause in contracts would basically ensure that newer authors aren’t shorted on e-royalties.

    That’s how I understood it anyway…

  5. Joseph L. Selby said:

    Currently e-royalties are hovering around 25% or so while a lot of non-publishers feel this should be higher (up to a 50% type of higher).

    Now let’s postulate that Sara or Kristin rep me and I turn out to be as big a draw as JKR. So we go to the publisher and say, we want 50% on all e-royalties as we both know that ebooks are the future and this line needs to be managed now before it’s set in stone.

    Could the publisher, based on MFN, say they cannot increase my e-royalty because then they’d have to raise everyone else’s?

  6. J. T. Shea said:

    MFN is indeed a double edged sword, Joseph, like so most strategies. But I think its upsides outweigh its downsides. Publisher WILL no doubt make the argument you outline. But if you’re as big a draw as JKR there are always other ways of adding to your compensation.

    But is JKR the limit of your ambition, Joseph? I’m aiming at Agatha Christie, at least. Eighty books averaging 25 million copies each, totaling two billion sales so far! If I can just get my leetle gray cells working…

  7. starkalicious said:

    Let’s not forget about bonuses, as Kristin explained in this post:

    I’m guessing the contracts could be structured with incentives similar to sports contracts. [If you score 10+ touchdowns, you receive more money, etc.]

    Thus JKR-types could still get more compensation, like JT said… but at the same time, royalty rates are relatively even for all authors.

    HA. I like the ‘at least’ you slipped in there after Agatha Christie. =Þ

  8. Jeff Baird said:

    This has me confused? Isn’t the point of a contract to establish these breaks on volume, rates etc? Then MFN status would more or less make everyone even. So, how would you negotiate a contract difference. Maybe volume discounts in the rate. Yes, we understand no printing, ink and pages in e-books. But still, should a new author which I am be compensated at the same rates as JKR or Agatha Christie?