Pub Rants

Category: royalties

Content Creators Deserve a Larger Slice of the Earnings Pie

by Kristin Nelson

The verdict is in. With headlines such as HarperCollins Sales Near $2 Billion and Publishing Sales Jumped 18.1% and First Half Profits Soared at Penguin Random House, it’s clear that at least in term of earnings, Covid is not having a negative impact on publishing. I should be thrilled. My industry is sound. This is good for authors. Time to celebrate. Right? Yet, I’m grumpy. Here’s why. 

I’m glad that the future picture of publishing is rosy. I just wish there was movement in the industry to share that financial rosy picture with the content creators who make it possible. The opposite is happening. Royalty share to authors has contracted in the last five to seven years. 

A few examples:

For YA and children’s deals, when I first started in this biz, it was common to negotiate royalties for a project starting at 8% with an escalation to 10%. Now that royalty structure has gone the way of the dinosaur. Publishers hold the line at 7.5% (excepting grandfathered-in authors with higher royalty structures). All this despite the children’s segment being a huge revenue-growth sector for publishing for the last decade. As publishers earned more, authors received a smaller piece of the earning pie with this reduction in royalty. 

In the mid-2000s, Random House used to pay an ebook royalty of 25% of retail price until advance earn-out, and then it switched it to 25% of net receipts (which roughly equals about 17% of retail price). And there were deals where publishers offered 30% or even 40%. That went the way of the dinosaur, too (except for the highest echelon of established authors). And to be clear, I’m talking about traditional publishing here. Plenty of smaller, indie, electronic-only houses probably still offer those kinds of rates. 

The death of the mass-market format. This used to be a whole other royalty revenue channel for the author. It’s mostly just gone now (and ebook sales do not make up the difference). Despite the trade-paperback format becoming king and increasing earnings for publishers, there is no movement from the 7.5% flat royalty rate in over two decades. Two decades. Probably longer. 

And then there is audio. Earnings from this format have skyrocketed in the last five years. Yet here we are at 25% of net receipts for digital download and publishers “insisting” they must control audio rights when agents used to partner with audio-only publishers and would still prefer that. 

So yep. I’m grumpy. 

To add insult to injury, lemon juice to the wound, or insert another catchy phrase here, agents often heard several variations of the following this past year:

  • Because of Covid, we have an abundance of caution and that is reflected in the advance we are offering.
  • Because of Covid, sadly we’ll not be able to pick up this author’s latest option material.
  • Because of Covid, we are not supporting (translation: spending any money on) in-person events.

The litany is that publishing profit margins are “slim,” costs of printing are higher now, etc., etc., etc. Yet these recent headlines paint a different picture. And although Publishers Marketplace recently reported that at long last, advance levels are on the rise for the last quarter of 2021, the advance is only one part of the publishing-earnings pie. A book doesn’t exist without the content creator. The author. I’d love to see a headline that proclaims a publisher is offering authors a bigger slice of that earnings pie. Now that would make me smile.

Photo by Cats Coming from Pexels

Financial Literacy for Authors

by Kristin Nelson

Money, so they say, is a taboo subject, so don’t expect fellow writers to spill financial details.

Until now. Hats off to Heather Demetrios for pulling back the curtain and being brave enough to share her mistakes in the article “How to Lose a Third of a Million Dollars Without Really Trying.” It’s considered gauche to talk about money in this industry, yet it’s probably one of the most important topics authors should be discussing.

Agents are often in a weird position when it comes to talking to our clients about money management. On one hand, we are the author’s business partner; on the other hand, we aren’t their parent. We don’t want to make assumptions about an author’s financial responsibility (or irresponsibility).

Over the years, when I have a debut author who has landed a big advance, I have asked for permission to put on my mom hat and give counsel. If the author says yes, I offer these four pieces of advice:

  1. When the advance comes in, don’t wait. Cut a check for 25% of the total that has come in and mail that check to the IRS right then and there. I’ve heard too many horror stories of authors finding themselves in real trouble when April 15 rolled around and the money was already spent.
  2. Ever heard of the adage “pay yourself first”? Most people don’t know exactly what that means. Well, in investing terms, it means immediately placing the maximum percentage allowed by the IRS for that particular tax year into a retirement account (i.e., a Roth IRA, IRA, Vanguard S&P 500 fund, or similar).
  3. If you have a mortgage your advance can pay down (or, better yet, pay off), that is worth considering. Owning your home outright can create a lot of financial freedom. If you have student loans or other debts, consider eliminating them.
  4. Connect with a financial advisor who only charges by the hour rather than taking a percentage of your investments. This is a way to gain expert advice on reasonable terms—especially for authors who feel lost in the weeds about this whole investing and saving-for-retirement thing. Garrett Planning Network is a good resource that can hook you up with a fee-only certified financial planner.

In the end, the best way to think about your advance is to take that amount and divide it by, say, three years. What would the author’s annual salary then be? For example, if an author is lucky enough to get a $150,000 as an advance (sounds fab, right?), that’s $150,000 minus 25% in taxes, which equals only $37,500 a year for three years. If that’s your sole income for those three years, that might be a bit sobering.

My client Courtney Milan once told me that a blog article I wrote a lifetime ago on authors and retirement really made a difference in how she managed her money. I wish I could find that original blog post, but chances are good the info would be outdated anyway. For more up-to-date info, here are my recommendations for retirement planning:

So thank you, Heather, for getting the ball rolling for authors to talk about money. Mentorship tends to be a key factor for success in publishing. So let’s not be shy about discussing this topic.

 

Creative Commons Credit: Ben Taylor

What To Do If Your Books Are Popular In Iran?

by Kristin Nelson

The short answer is nothing. There actually isn’t much you can do.

Rarely discussed in publishing is the fact that certain countries don’t recognize or honor copyright law. Persian countries (including Iran and Iraq) are an excellent example of territories that don’t. Persian publishers will often translate popular novels and publish them in their countries without a license, and the author does not receive a dime as an advance or royalties.

Kind of shocking, isn’t it?

This situation has happened a number of times for my authors. We usually find out about unlicensed editions when an author receives fan mail or a lovely note from the translator. Even though the Persian publishers don’t feel much obligation to the author, we have found over the years that the translators actually do. And often they will reach out to the author and ask permission to do the translation—even though they know (and are quite apologetic) that the publisher has no plans to compensate the author in any way.

I have a special place in my heart for these morally centered translators.

So what can an author do when it becomes apparent that his or her books are being translated and published in countries that don’t honor copyright protection?

My answer is this. The author should offer to write a special foreword for the edition in exchange for a nominal fee. It’s my attempt to get the author at least some compensation. Yet so far no Iranian publisher has taken me up on this offer.

But I’m hopeful. Someday…

Photo Credit: Peta de Aztlan

Former Egmont Authors: Check Your Royalty Statements

by Kristin Nelson

Publishing is a complex business with a lot of moving parts. Every contract is unique, and most errors we find on royalty statements are caused by data-entry mishaps that occur when contract terms are incorrectly keyed into publishers’ accounting systems.

In other words, human error is often the culprit.

So I’m going to give Lerner the benefit of the doubt and assume that such a scenario is currently at play here.

A recap of history for context: In January 2016, news hit the wires that Egmont USA children’s publisher was closing up shop due to its failure to find a buyer.

This created a lot of consternation, as more than 100 titles that were going to be published were now suddenly in limbo and contracts would most likely be canceled.

Good news was just around the corner, though, in the shape of Lerner, who bought out the titles and committed to honoring the contracts. Authors would live happily ever after!

Until their royalty statements arrived.

On the surface, everything looks normal. Royalty rates appear to be the same as they were under Egmont—except for one very crucial difference. Egmont contracts specified that author royalties would be calculated based on list price. But when the Lerner statements arrived, royalties are now being calculated based on net amounts received.

Not the same thing.

How do they differ? Let’s do some easy math: 10% of list price = approximately 20% of net amounts received. If this in play, the author will earn approximately the same amount of money, regardless of whether the calculation is done based on list price or based on net amounts received.

So not a big deal. The problem occurs if the number “10” stays the same, but how it was calculated changes.

Here’s why: 10% of net amounts receive is one-half (1/2) the royalty money earned in comparison to 10% of list price.

That’s a significant drop for the author.

It’s pretty easy to see how this might simply be a data-entry mistake. Either way, I feel compelled to alert writers might have been unagented when they signed contracts with Egmont and, thus, probably didn’t catch this accounting error—especially if they are unfamiliar with deciphering royalty statements.

It is also possible that a fair amount of literary agents have also missed it—especially if they haven’t yet audited the Lerner statements.

So former Egmont authors, check your contract, and then check your royalty statements. Make sure you’re getting paid everything you’re contractually owed!

Photo Credit: Ano Lobb

Authors, Do You Know Where Your Money Is?

by Angie Hodapp

(Just a note, this post is from our archives. Some references and links may be from past years.)

Every six months, you get an envelope from your agent. You tear it open, take out the enclosed check and royalty statement, and glance at the numbers on both. You shrug and mutter, “Guess that looks about right.” Then you toss the statement on your to-be-filed pile at the back of your closet, endorse the check, and head to the bank.

Sound familiar?

I can’t even begin to tell you how many published authors I’ve talked to at conferences who don’t give their royalty statements much of a glance. Why? Because they don’t know what they’re looking at. “Dammit, Jim, I’m a writer, not an accountant,” they say (or something along those lines). “Besides, isn’t that what I pay my agent to manage for me?”

News flash! Like you, many agents consider themselves word people—not numbers people—and your royalty statements are just as baffling to them as they are to you.

This means that the buck, quite literally, stops with you. Have a conversation with your agent about the level of support he or she is providing when it comes to combing through your statements and making sure you’re getting paid everything you’re owed.

More importantly, educate yourself. Learn how to audit your own statements.

Every year, we at Nelson Literary Agency recover thousands—sometimes tens of thousands—of unpaid dollars on behalf of our clients, simply because we audit their royalty statements.

Does this mean that publishers are nefarious, knowingly cheating authors out of a few bucks here and there to improve their own bottom lines? In our experience, no. (In fact, not all errors we find are made in the publisher’s favor!) Every error we’ve called to a publisher’s attention has immediately resulted in the issuing of a corrected statement and, when called for, a check covering the difference.

Without naming names, here are some examples of errors we’ve recently found on our clients’ royalty statements:

1. Unpaid royalties of approximately $5,000 because the publisher had applied a $10,000 advance against the author’s earnings when the actual contracted and paid advance had been only $5,000. This means the author had actually earned out—though the statement said otherwise—and was now owed nearly $5,000 in earned royalties.

2. Unpaid royalties of approximately $4,200 because the publisher’s accounting department missed the fact the author’s contract contained a royalties escalator. What’s that? A royalties escalator increases the author’s royalty rate in steps, based on units sold. For instance, a contract might specify that the author will earn 10% for the first 5,000 copies sold, 12.5% for the next 5,000 copies sold, and 15% for all copies sold thereafter. In this case, the author had sold about 12,500 copies of a hardcover edition priced at $16.99, but she had earned only 10% for all of those copies. Not one, but two escalators had been missed.

3. Unpaid royalties of approximately $7,300 because the publisher sold nearly 6,500 copies of a $17.99 hardcover edition at “high discount,” even though Agent Kristin had ensured that the author’s contract limited the number of copies the publisher was allowed to sell at high discount. What does that mean? When publishers sell copies of your book at higher-than-usual discounts, it’s common that the author’s contract will specify that she will earn “one-half the prevailing royalty rate” on those copies. Because Agent Kristin had limited the publisher’s high-discount sales, this author should have earned 12.5% on those particular 6,500 copies, but she earned only 6.25%, and we were able to recover the difference. (By the way, does your agent understand this and negotiate your contract’s high-discount clause in your favor?)

Dear Authors, the only way to protect your assets is to do the math. Join me July 30, from 6:00 pm to 8:30 pm, for my Royalty Statements Auditing Workshop, a live webinar sponsored by Nelson Literary Agency. Hope to see you then!

Like Finding Loose Change in the Sofa – Kind of

by Kristin Nelson

So just this week, we received an outstanding Australian royalty statement for one of our clients that had been missing. Because we actually track, review, and audit our statements, even foreign ones (and let me tell you what a nifty trick it is to do the Japanese statements…) we immediately spotted one rather large problem.

Oddly, there were no ebook sales listed anywhere on statement. Dating back since 2013. Not a single ebook sale in the last 2 years is a bit hard to believe, so we pinged the publisher.

Sure enough, the ebook ISBN wasn’t linked to this title in their accounting system. It was there but floating out in the ether with no title to attach to. Once it was appropriately linked, voila, almost $1000.00 was owed to the author.

And as my client so aptly replied to me, like finding loose change in the sofa!

Kind of. 😊

Even if the publisher controls the World Rights, we ask for the statements so we can review. Because I’m pretty certain that given the deluge of statements the internal publishing rights team receive, they aren’t paying super close attention.

Want to know how to audit royalty statements for yourself? We start you off easy by tackling U.S. royalty statements first. Our contracts and royalty guru Angie Hodapp is showing you how on July 30, 2015. Be a smart and savvy author. Auditing royalty statements. Only a couple slots left as there is a cap on attendance.

Photo credit: Branko Collin

Are Subscription Services good For Authors?

by Kristin Nelson

On Wednesday, May 20, I was delighted to be in town for one of the Association of Authors’ Representatives‘ (AAR) monthly educational meetings, which are designed specifically for literary agents. Such a rare treat, since I’m not based in New York. May’s topic was subscription services (i.e. Scribd and Oyster) and whether such programs were good for authors.

I’m going to go out on a limb here and say yes, I do think subscription services are okay for authors—although I’m going to stop short of calling them “good” since these services are still too new, so the verdict is still out. I’ll tell you why, but first let me sum up the evening.

On the panel were four gentleman: Brian Murray (CEO of HarperCollins), Andrew Weinstein (Scribd), Mathew Shatz (Oyster), and Marc Ribot (Content Creators Coalition – Music Industry).

The panel tackled how the model works and why HarperCollins decided to come on board and make their catalog available in these services. And the reason? Because both Scribd and Oyster are paying a full book sale royalty to the Publisher (and then the Publisher pays the author his/her percentage) if a customer reads 20% or more of the actual book via the subscriber platform.

All of this info has already been covered in multiple Publishers Weekly and Publishers Lunch articles, so in essence, the evening didn’t necessarily present new information. Not to mention, since Oyster and Scribd are competitors, neither representative could be completely candid because of proprietary business practices. That, understandably, is going to limit the discussion.

Although I’m not sure the evening actually answered the question posed in the program heading, I did learn two valuable new things:

1) As Marc Ribot noted, this was not how subscriber services worked in the music industry, and had such a royalty set-up existed for this industry, things would be a lot different/better for musicians.

2) Neither Scribd or Oyster is designed for new, frontlist titles. If a new release was featured on the platforms, their systems would be overwhelmed by subscribers’ demands for the new release, and their budgets would be overwhelmed by their agreements to pay out full royalties.

The strength of the platforms is improving the discoverability of a backlist title (defined as having been published and out in the world for at least six months). In other words, demand for the title has leveled off, yet the title could still be discovered by a subscriber at no risk (as they pay a monthly flat fee for all-they-can-read).

That nugget of information finally made subscriber services and their value for authors click for me (along with Scribd addressing the issue of piracy via a robust spider-bot system that searches for illegally uploaded content).

For authors with a long career and extensive library of titles, this is just one more way to reach a reader—and get paid a full royalty, even if the reader does not finish the book.

Article 5: Good Agents Audit Royalty Statements

by Kristin Nelson

Over the last decade, I really wish I had tracked how much money NLA has recovered by carefully auditing our royalty statements every accounting period. Because of some big errors found a couple of years ago, it’s probably to the tune of over $600,000 recovered at this point, and it wouldn’t surprise me if that total was actually more. Even now, nary an accounting period goes by that we don’t recover at least $500 to $3,000 owed to a client.

On rare occasions, we have even found errors in the Publisher’s favor—and yes, we do notify them to highlight the correction. Luckily, those have only amounted to several hundred dollars at any given time. And to be clear, Publishers aren’t being nefarious or deliberately cheating the author (with the exception of a few publishers, which will remain unnamed).

Most errors we catch are human errors. In other words, the Publisher’s in-house royalty management staff simply keyed incorrect information into their accounting system. Also, “accounting departments” at some mid-sized publishers and small presses are staffed by English majors. Mistakes will be made.

These mistakes need to be found and corrected and the monies paid to the author client. Here is the jaw-dropping fact: A good percentage of agents do not audit their clients’ royalty statements.

Let me repeat that. Even though authors hire literary agents to guide their careers and most importantly, manage their business publishing interests (royalties being a huge component of this), many agents do not actively audit or even read client royalty statements. This leaves authors to fend for themselves regarding reading and understanding their statements.

So for me, good literary agents audit royalty statements. When I was newer to this business, I did the time-consuming auditing and analysis myself, every accounting period, and shared my comments with my client. Every accounting period. I even hired a professional book royalty auditor to mentor and read behind me to assess my competence and capability. Then I hired and trained our amazing Contracts & Royalties Manager Angie Hodapp to handle this at NLA.

And Angie took it to a level that leaves me in awe every accounting period. I imagine our clients are often in awe as well when every six months, she sends a detailed letter with my comments as well as her analysis of the statement and what questions we had to track down and if extra monies are owed.

A lot of the larger agencies will have staff in-house to handle this (or I hope they do….I don’t actually know as I’ve not worked in a big agency), but I’m willing to guess that most of the smaller, boutique agencies don’t. This means that the author relies on his/her agent to analyze the statements.

So ask yourself. Is your agent doing this? If you don’t know, ask. It’s part of the agenting job. Recently, Angie has been giving workshops at local writing conferences to teach authors how to audit their own royalty statements. Even if your agent does this on your behalf, it’s not a bad idea to also be checking them. Human errors can happen on our end as well!

So with her permission, and worth its weight in gold, a handy list.

How to Audit Your Own Royalty Statements by Angie Hodapp

Keep an excel spreadsheet for each title, and add the following when each statement arrives:

• Track copies sold and royalty rates applied to each edition. Do the percentages match the contract?

• If you have a royalty escalator, make sure you’re watching units sold so you can see if the escalator is triggered at the right time.

• Track royalty earnings for each edition. Add them all up and subtract them from the advance. Make sure your math matches the math on the statement.

• Check for continuity from the last statement’s bottom line (ending balance) to the current statement’s starting balance.

• If the royalty is based on net receipts, then make sure the net amount received by Publisher is reported on the statement, along with number of copies sold. Do the division. How much is the publisher claiming to have received for each unit? Is it a reasonable amount based on the retail price?

• Look at the number of copies reported sold as “high discount” or “over discount” or “special sales.” Publishers love to sell most copies under these terms, which means smaller royalties for you. Make sure your contract limits the number of copies publishers can sell under these terms!

• Watch reserves. Your contract should specify how much the publisher can hold in reserves, and for how many accounting periods after initial publication. You can ask the publisher to release reserves once returns taper off. That’s more money passing through to you, or applying toward your advance.

• Watch returns. Publishers adjust reserves up and down from period to period based on actual and projected returns.

• Watch subrights licenses. Know the terms of all subrights deals, which may include audio, large print, book club (either a stock-buy or a special printing), or other special editions.

• Watch and track foreign right deals. If your publisher holds world rights and is actively selling your work into foreign territories, ask them each accounting period to give you:

—Details of any new foreign-rights deals, including: advance, royalties split, term of license, publication date or planned publication date, and reporting schedule. (Note that most, but not all, foreign publishers report annually, not bi-annually.)

—Copies of the licensing agreements. Even if they’re in languages you don’t understand, it’s within your best interests to have such things in your physical records.

—Note that foreign monies can take from a year to 18 months to pass through the publisher’s subrights department and show up on your statements.

If you want a more in-depth royalty statement auditing experience, join Angie for her upcoming Royalty Statements Auditing Workshop, scheduled for July 30, 2015.  This Webinar is open to the first twenty attendees to sign up.

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The genesis: In January 2015, Backspace co-founder Karen Dionne and I had a conversation in which she mentioned that writers sometimes want representation so badly they are willing to sign with an average or even a below-average agent. Trust me, not all agents are equal. I replied, “Well, writers don’t know what they don’t know.”

In that moment, a lightbulb went on for both of us. Writers don’t know what a good agent does. How could you if (1) you’ve never experienced it and (2) you’ve only ever had one agent and no way to assess just how strong he or she might be at the job?

Thus, this series of articles was born.

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Archive:

February 2015 Newsletter – Article #1: Agent As Savvy Business Manager

March 2015 Newsletter – Article #2: Commanding Authority: An Agent’s Negotiation Edge.

April 2015 Newsletter – Article #3: Fearless Negotiation: An Agent’s Most Important Role for an Author

May 2015 Newsletter – Article #4: Negotiation Tactics of Good Agents

Article 5: Authors – Are You Auditing Your Royalty Statements? by Karen Dionne

by Kristin Nelson

After I read Kristin’s June article in her “What Makes a Good Agent” series and learned that publishers’ royalty statements sometimes contain significant errors, I took an informal survey. I wanted to know how many of my author friends’ agents audit their statements, and how many of these authors also audit their own.

The authors are split between midlist authors and bestsellers. Almost all said they read their royalty statements carefully. But nearly half don’t audit their statements—mainly because they don’t know how.

Two of the 15 authors were reasonably certain their agents audited their royalty statements before sending them on, while only 3 of the 15 reported their agent took the initiative to help them understand them—suggesting this is a conversation agents and authors should be having more frequently.

Here are the questions and results:

  1. Does your agent actively audit royalty statements?

YES – 2

I THINK SO – 5

NO – 8

 

  1. Do you audit and/or read your own statements? 

YES – 6

READ ONLY – 7

NO – 2

 

  1. Do you know how? 

YES – 6

SOMEWHAT – 3

NO – 6

 

  1. Has your agent ever walked you through a statement? 

YES – 3

ON REQUEST – 2

NO – 10

Royalty statements are difficult to understand. Some of the authors who responded admit they “never learned how to read a royalty statement,”or they “read them, but have a hard time understanding what everything means.”

One author I surveyed believes auditing is the agent’s responsibility. “I don’t audit. That’s her job. If I had to, I’d get an accountant to do it. But I figure that’s why I have an agent. She would walk me through it if I wanted, but that’s one less piece of business I have to do.”

Others take a more active role. “I read my statements multiple times. First, just to review them and make sure everything looks right and complete. Then I go through them page by page and compare to the last statement to see if there is something wonky (good or bad), then I write up a memo to my agent with any questions or concerns, or if there is something odd. We then discuss.”

“I noticed in my last statement, there were line items for Returns for a couple of books that had been released years ago. That seemed illogical, so I asked my agent, and she passed the question on to my editor. Also, I know that a number of my books have been released as audio books as much as a year ago, but I have seen no accounting for sales of those. So I asked my agent, and she asked my editor. Nobody has explained it yet, but I have done payment estimates based on the statements, and our calculations match.” Not surprisingly, this last author adds, “Not only do I know how to read the statements, friends often ask me to interpret theirs.”

Sometimes authors who audit their statements find mistakes. “I once found a $700.00 error on my royalty statement from my publisher that I noticed after scouring the numbers. My publisher apologized and said it was obviously an error and quickly corrected it, but would he have noticed if I hadn’t looked carefully?”

“For two consecutive royalty periods, I had statements passed on to me from a publisher that had gone through the agency’s business department and past my agent that had a glaring error on the first page. Each time, it amounted to an error in my favor of mid four figures. One year the amount totaled approximately $11,000. This was not something anyone should have missed, and certainly not twice. The agent/agency did not catch the error, even after it happened the first time. I did, both times.”

“It’s important for authors to know that even if you have a representative you trust, nothing replaces arming yourself with all the knowledge you can,” my author friend Lauren Baratz-Logsted wisely says, who not coincidentally, zealously reads and audits her royalty statements. Thanks to Kristin’s article and her contract manager’s generous how-to, I’ll be doing the same.

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Karen Dionne is an internationally published thriller author, co-founder of the online writers discussion forum Backspace, and organizer of the Salt Cay Writers Retreat and the Neverending Online Backspace Writers Conference. She is represented by Jeff Kleinman of Folio Literary Management.