Until his untimely demise, I represented a man who claimed to be a member of the underworld. Joey, the Mafia Hit Man, as he called himself, wrote several successful books about his life in crime, and, for Joey, getting a fair shake from a publisher was easier than it is for most authors. Hed simply call the royalty manager and say, If my royalty check aint ready by noon tomorrow, Im gonna marry you to a plate-glass window.
On January 20, 1982, Joey was slain by a shotgun blast outside a motel in San Mateo, California. I dont think a publisher did it. Thats not how they kill authors.
Publishers kill authors by creative bookkeeping. By depriving authors of vital information about book sales, delaying disbursements interminably, obscuring the meaning of figures, manipulating collection dates of subsidiary income, and withholding excessive royalties as a cushion against returns, many publishers figuratively strangle writers and literally poison their good will.
Publishers have always cheated authors. One can imagine Ovid complaining that his publisher sold Phoenician rights to his Metamorphoses and kept the money, or Cicero discovering that his publisher had scribed an extra hundred scrolls of his Philippics and was pocketing the unreported revenue. Barabbas, said the poet Thomas Campbell, was a publisher.
Although royalty reporting has become more honest over the last few years, I believe that some publishers may still not be completely forthcoming with authors. Many writers may find this statement hard to believe, for the publishing people they deal with, their editors, are often honest, congenial men and women, seemingly without a deceitful bone in their bodies. In due time, however, the dual personalities of publishing companies reveal themselves to most authors, and they discover that the pleasant faces mask corporate identities that are often ruthlessly indifferent to authors and think nothing of hiding or keeping their money or holding it improperly, possibly illegally, to boost profits. But whether it comes as a surprise or not, there is little question that many authors are being taken for a ride totaling millions of dollars.
Most trade publishers today are part of larger corporate complexes that demand of them the same annual growth rate they expect from subsidiaries that produce chemicals, vacuum cleaners, and industrial machinery, so the pressures placed on publishing executives to show high profits are therefore intense. And since that kind of growth is extremely difficult to maintain year after year in an industry so dependent on artistic creativity and luck, many companies turn to the treasure trove of authors royalties to help make up the difference. The reason they are able to do so with impunity is that authors and their agents, in their ignorance, naivet, complacency, inexperience, or timidity, all too often fail to require full disclosure of the vital information necessary to assess the financial activity involving their books. And those who do demand disclosure usually run up against a stone wall or, perhaps a better metaphor, enter a labyrinth from which even the most intrepid certified public accountants have emerged babbling incoherently.
Almost all publishing contracts have provisions for reporting royalties to authors. By tradition, publishers issue statements semiannually, but some send only annual statements after sales activity has diminished. Though most publishers find it convenient to schedule the six-month reporting periods to correspond to the first and last six months of the calendar year, this is by no means universally true, and some firms conform their reporting periods to their fiscal years. It doesnt make much difference as far as authors are concerned, as long as the six-month reports are regular and timely.
Publishing contracts provide for the reporting and payment of royalties within a certain time following the close of the royalty period in September, say, for the period ending June 30, and in March for the period ending December 31. The minimum seems to be three months, but many houses call for settlement four months or longer after the close of each six-month reporting period. One house, for example, now issues reports in February for the six-month period ending September 30, and in August for the period ending March 31. Thats a minimum of four months, but in practice it can be as much as five. Indeed, in practice the waiting period often turns out to be more than five months, and you may be sure that lateness is by no means restricted to that publisher.
Why this stretching-out of settlement dates? It certainly cant be attributed to computerization of accounting departments. When I went into publishing, royalty statements made out by hand were rendered in timely fashion no more than ninety days after the end of reporting periods. Why then should it take longer for statements done by lightning-fast computers?
Some observers charitably ascribe the delays to defective computers and incompetent programming. Most agents I know take a far, far dimmer view, pointing out that the lengthening of settlement dates jibes with the growing role of big business, with its emphasis on double-digit growth, in the affairs of publishing companies. Remember that an authors money appreciates every month it is held by a publisher. Figuring that at the end of a reporting period even modest-sized houses may be holding hundreds of thousands or millions of dollars, its easy to see why publishers would rather give that money to bankers than to authors. So even before you receive your royalty statement, you may be the victim of a publishers fiscal manipulations.
And when you finally do get your statement ah, thats when the fun really begins.
What information goes into a royalty statement? There is no statute, uniform code, or tradition defining the form and content of royalty statements. Every company has its own idea of what and how information should appear, or not appear, on its statements. Until quite recently, few publishers adequately reported all that authors need to know, and the first edition of this book was highly critical of the publishing industry for obscuring vital data in royalty statements. Im happy to say that Ive observed a trend toward furnishing more, and more meaningful, information. Authors have become better informed about royalty accounting practices (I like to think the original version of this book had something to do with that) and now commonly ask questions that it never even occurred to them to ask ten or fifteen years ago. Nevertheless, many publishers still fail to provide everything you need to know to understand how your book is doing.
There are eight categories of information that together form a complete picture of a books financial activity. Without any single one of these, you will be as much in the dark as you are when you try to calculate a baseball batting average without knowing the number of at-bats or hits. The components are as follows:
Lets look at these elements in detail.
Number of copies printed. Since this figure is critical to your comprehension of how your book is doing, you would expect it to be included in all royalty statements. Yet, astonishingly, practically no publisher states it. All too often, the only way you get an inkling of the size of your printing is when you read in an announcement or ad for your book that its gone into its third printing, or that there are 50,000 copies in print. And all too often, those figures are inflated sometimes wildly for the trade or the press.
If you dont know how many copies of your book your publisher printed, or how many times the publisher went back to press for additional printings, you dont even know what ballpark youre playing in when you try to evaluate your royalty statement. If your publisher prints (or claims to print) so few copies as to make it impossible for you to recover your advance even if all copies sell out, youre in one ballpark. But if it prints so many, or goes back to press so often, that it is impossible for you not to earn back your advance, youre in quite another.
To keep authors in the dark about the sales activity of their books, then, most publishers do not report the number of printings, and the number of copies printed, when they issue royalty statements.
Number of copies shipped or distributed. Authors often confuse the number of copies printed with the number of copies shipped or distributed, but these figures are not always identical. Of a 50,000-copy printing, a publisher may ship only, say, 40,000, leaving 10,000 behind in the warehouse to cover further demand. Ultimately, then, your royalties will be based on what happens to copies shipped, and you must know that number to determine sales; for, aside from being lost, destroyed, stolen, or given away, only two things can happen to shipped books: Either they are sold, or they are returned. And because this is the critical number, you may be sure that publishers guard it jealously from the inquiring eyes of authors and agents.
Incidentally, I have seldom seen, on a routine royalty statement, any figures relating to copies furnished gratis for review, sample, or publicity and promotion, or copies lost, damaged, and so forth.
Number of copies sold. In most businesses, sold means that a product has been permanently transferred from seller to purchaser in exchange for money. The publishing business, however, is one of the few in which sold does not mean sold. Thats because books are merchandised on a fully returnable basis that is, the bookseller may return them to the publisher for a refund, usually in the form of credit toward the purchase of other books.
So although your royalty statement may show 5000 copies sold that is, paid for by booksellers or distributors some of those copies may well show up unsold (returned) on a future statement, after booksellers or distributors have shipped back the stock they couldnt dispose of. Until it is clear to publishers that the copies theyve shipped will not be returned, they hold some or all of your royalties. This fund of royalties is called a reserve. Well be examining reserves in detail presently.
Type of royalty. As discussed in chapter 4, your contract has a schedule of royalty payments corresponding to various conditions of your books sale. There is the regular royalty, or the basic percentage of your books list (retail) price. There may be a Canadian or foreign export royalty, perhaps one-third or one-half of the regular royalty, reflecting the higher cost of selling a book outside national borders. There may be a reduced royalty covering the sale of your book at a larger-than-normal discount. These various types of royalty are listed on your royalty statement.
Royalty rate. Expressed either as a percentage or as dollars and cents, or sometimes both ways, this is the figure on which your royalties are based.
To help you visualize a typical royalty statement, here is a line from a recent one for a mass market paperback:
Cover Copies Percent of Type of
In the above example, the publisher sold 35,863 copies of a book priced at $9.95. On each copy sold, the publisher paid the author 8 percent of the list price, which amounts to a royalty of $0.72 per copy. The number of copies sold multiplied by $0.72 comes to a royalty of $25,821.36
Number of copies returned. This is the number of books returned to your publisher for credit, and appears as a negative number on your statement, either in parentheses, in red, or with the abbreviation Cr. beside it, meaning credit credited, that is, to your publisher. The number of copies returned, and the amount of returns in dollars, are subtracted from copies sold, and royalties earned, respectively. So after returns are calculated, the statement might look like this:
Cover Copies Percent of Type of
Thus 10,301 copies were returned, which, multiplied by the $0.72 per copy royalty, comes to $7,416.72 deducted from the $25,821.36 you earned through sales, giving you a net royalty of $18,404.64. Incidentally, hardcover books are returned to publishers whole, but in the paperback business only the covers are returned, and the books themselves (minus the covers) are destroyed.
Reserves against returns. Because books are sold on a returnable basis, publishers are entitled by contract to withhold a reasonable percentage of an authors royalties as a reserve against returns. This percentage is based on a publishers past experience with sales of books of a similar nature. If a publisher knows that 50 percent of the copies of every novel in his romance line come back no matter how good the book, he will hold back at least 50 percent of the money he collects from bookstores and distributors, knowing he will eventually have to refund that much. Publishers frequently hold far in excess of the figure their experience tells them is normal and reasonable, however. For instance, for the above line of romances, the publisher may reserve 60 or 75 percent or more.
What is worse, many publishers do not even tell authors in their royalty statements that they are holding a reserve: They just hold it, period. Though they have been paid for the books sold, they keep the money, which earns interest, of course, until they see whether the books are going to come back. Some of them do but some of them dont. After a while, publishers are supposed to release some of the reserve money as it becomes clear that many of the books out there are never going to come back. But some publishers release the money in the most parsimonious fashion. And though ultimately, at the end of a books life, publishers are supposed to render a final accounting, and those held royalties are supposed to be released, some publishers forget to release them, or perhaps decide to hold them another decade or two in case the books are still being returned in the year 2025.
This practice becomes all the more shocking when we realize that unless a book is a bestseller or a backlist classic, its sales fate will be sealed within a year of publication. In fact, as weve seen, the fate of many paperback books is often sealed within weeks of publication, for the shelf life of many paperbacks is only as long as it takes for the next months releases to bump the previous months to the back of the store, or out of it entirely. Yet publishers carry high reserves against returns on their ledgers for years, and, when the book goes out of print, some of them quietly pocket the unclaimed royalties. Having no hard industrywide figures to go by, but estimating from my own and other agents experiences, I would say that this is what happens to many paperback books. Some authors and agents consider it to be fraud. I keep racking my brain for a gentler word, but so far I havent come up with one.
In defense of publishers, I should point out that many of them do find themselves flooded with unexpectedly high returns from time to time: of unsuccessful books, for instance, that the stores have ordered in abundance in anticipation of a bestseller. Or when a paperback edition of a hardcover bestseller is released, the bookstores often ship back large quantities of the hardcover, whose price is now undercut by the paperback edition. Also, many distributors and stores are stretching out their settlement dates with publishers so that publishers have to wait longer to be paid. And some stores with cash-flow problems return to publishers books that might sell eventually but not immediately, and use the credit to buy books that will sell at once. So publishers themselves are to some extent being victimized by market conditions.
Nevertheless, my experience and that of other agents I speak to frequently is that reserves held by publishers may in some instances be substantially higher than what they need to cushion themselves against returns. That excess rightfully belongs to you, the author, but it is kept by publishers until you discover it and fight for it, and during that time it earns interest for the publishers. As one agent said to me recently, I no longer call them books sold, I call them books admitted to being sold.
Details of subsidiary sales and income. As weve seen, the author grants his publisher control over certain subsidiary rights, and the contract provides a schedule of percentages defining how much of the subsidiary income the publisher keeps and how much is supposed to be credited to the authors royalty account.
Your royalty statement is supposed to indicate the sources of your subsidiary income, the amount collected, and the percentage of that amount that has been applied to your account. In reality, this information is often cryptically sketchy, inaccurate, or both. When a publisher handles subsidiary rights to an authors book, it becomes in effect the authors agent, and like any good agent it has a responsibility to collect the authors money, report to him, and remit payments due in a timely and accurate fashion.
Such is not often the case. Whereas agents generally pay their clients immediately after collecting money, publishers are not required to settle up until royalty statements are due. Since royalty accounting periods are six months long, and settlement dates of royalties due come three to five months after the close of the accounting period, a publisher could theoretically hold reprint, book club, or other subsidiary income for as long as nine, ten, or eleven months, or even longer if the publisher drags its heels rendering royalty statements.
For every one of those months, the publisher earns interest on the authors money. If you think this situation makes it tempting for publishers to manipulate collection of reprint and subsidiary income so that it arrives just after the close of one accounting period and the start of the next, youre right. This manipulation suits the subsidiary publishers, too, for if they are allowed to hold a payment for a month or two, they too collect interest.
In addition to such gimmicks, publishers reporting of money collected from subsidiary publishers is often scandalously vague and inaccurate. Where is the author who has not opened a royalty statement and read something like Other income: $175.98, with no explanation whatsoever? Unless authors or agents insist, publishers seldom furnish them with copies of contracts made with subsidiary publishers, nor do they furnish detailed statements describing money collected from other sources. That $175.98 may be correct but it may also be $5000 off. How do you know without a detailed breakdown?
Nor do publishers often provide you with copies of invoices indicating money deducted from your royalty check. Such debits as books purchased by authors, authors alterations on galleys, indexing charges, and the like should be accompanied by copies of bills; but rarely is this done. And those authors fortunate enough to have negotiated advertising and promotional guarantees seldom get to see a detailed accounting of money presumably spent.
Publishing is starting to resemble the movie business, a colleague of mine recently commented. He was referring to the so-called star system, where the big names command millions and everybody else starves on minimum-wage scales. But he overlooked the most significant resemblance; namely, the way both businesses do their bookkeeping. Thanks to creative accounting in the movie industry, profit participants such as stars, directors, and producers rarely see any of their profits after the studio has buried or manipulated the figures. And similarly, despite growing author scrutiny, publishers still manage to hide royalties from their profit participants, the authors, through the many subterfuges Ive described here.
The power of the publishing industry is enormous, and I can safely say that most writers reading this book are not among the privileged few who can boast that their publishers need them more than they need their publishers. What can each of you do to get a fair, or at least fairer, shake in regard to royalty statements?
There are a number of negotiating tactics available to you. Lets look at some that may prove effective:
Combating delays. As I stated earlier, despite computerization of accounting functions publishers have been stretching out the period between the end of their royalty-reporting periods and the settlement dates when the money is paid. A waiting period that used to be no more than three months is now an average of four or five months, not counting late rendering of statements. During this time the publisher earns interest on held royalties. There is no way that authors, working individually, can make publishers shorten their contractual settlement dates collectively, yes; individually, no. But if a publishers contract states that the publisher will render statements and royalties by a certain date, then a penalty should be exacted if the publisher renders them late. Some agents have suggested that publishers should pay interest on late royalties, but publishers usually reply that in that case authors should pay interest on their advance down payments when they deliver manuscripts late.
One solution is to make the contract terminable if royalty statements are rendered, say, fifteen days past their due dates. After all, publishing contracts invest publishers with the right to cancel on an author if that author delivers a manuscript late; the author should be invested with a similar right.
One approach many agents use in the case of hardcover books is to require the publisher to pay the authors share of paperback reprint or book-club monies at the time the publisher collects them, or perhaps no later than thirty days afterward. This is known as a pass-through clause, and it works like this. Suppose you sell your book to a hardcover publisher for a $10,000 advance and, lucky you, your publisher sells paperback rights for $100,000, of which half is paid to the publisher on signing. Assuming your publisher takes the usual 50 percent of paperback money, your share of the $50,000 paperback down payment would be $25,000. Deducting the $10,000 your publisher has advanced you (and leaving hardcover royalties out of our calculations, for simplicitys sake), youd be owed $15,000. With a pass-through clause, rather than wait until royalty-statement time to pay you that $15,000, your publisher would pay it to you on receipt, or within thirty days after receipt. A pass-through clause can be a most effective weapon for an author fighting payout delays, which can run up to one year if the hardcover publisher plays his cards shrewdly.
And incidentally, though pass-through clauses are generally used only in hardcover contracts, they could conceivably be important in paperback ones as well. If, say, you sold your paperback publisher world rights, including British and foreign translation, and your publisher sold foreign rights for a lot of money, you might well benefit from a clause directing your publisher to pass the excess foreign revenue along to you at the time its collected.
Requiring disclosure of vital information. The key weapon publishers use to take advantage of authors is the withholding of information from royalty statements. As I have stressed, authors are helpless to understand their statements, and are at the mercy of their publishers, without such essential data as the number of copies printed, the number shipped, and the amount of money reserved against returns. The reasonable reserve against returns is probably the biggest form of deception the publishing business perpetrates on authors. In paperback publishing particularly, the reserve is rarely explicitly stipulated on royalty statements, and because publishers refuse to narrow their definition of reasonable, they can and often do retain royalties they should be releasing. Although many publishers publicly rail against the archaic system that allows books to be returned for full credit, I suspect that most paperback publishers are actually opposed to shifting to a nonreturnable basis. The reason for this is that the system that permits them to reserve royalties against returns is, quite simply, a profitable one.
If the iniquitous reserve system is to be conquered, publishers must be required to provide enough information in royalty statements to enable authors and agents to see how much is being held in reserve, so that there is at least a basis for negotiating the reserves down to a truly reasonable level, and getting that money released when the books life is over. I therefore propose that the following provision be inserted in publishing contracts in the place where publishers stipulate that they shall render semiannual royalty statements:
Said statements shall specify the dates of first and subsequent printings and
the number of copies printed in the first and subsequent printings; the total
number of copies shipped as of the end of the reporting period; the number of
copies sold, with details of type of sale, royalty rate, and discounts; the
number of copies returned; and the number of copies or amount of royalties held
in reserve against returns. Publisher further agrees to require similarly
detailed statements of account from reprint publishers, book clubs, or other
licensees of subsidiary rights to the Work, and to furnish same to Author with
Publishers statement of account and copies of pertinent contracts with said
licensees. Publisher further agrees to furnish Author with a final statement of
account, incorporating the information required in this provision, upon the
termination of this agreement, and to pay Author any monies due under the terms
of this agreement at that time.
To get publishers to accept such a stipulation is far easier said than done, for it calls for disclosure of information that they prefer not to disclose. Thanks to the pushing of author and agent organizations, a growing number of publishers have installed this disclosure language in their contract boilerplate or at least agreed to disclose royalty details at the request of the author. Some agents send a form to publishers at royalty-statement time that says, in effect, Im sorry, but your statement is inadequate. Please send us the following supplementary information. The form has a list of items such as copies printed, copies shipped, and so forth that the publisher is asked to provide on the form. The effectiveness of this approach depends on the persistence of the agent, but it is no substitute for a contractual provision requiring full disclosure.
Auditing publishers accounts. Few audits of publishers financial records
have been conducted by authors or their agents or accountants. With certified
public accountants charging hundreds of dollars an hour for an audit that might
take weeks for just one book, the procedure is beyond the means of the average
author the person who needs it most. And since results of the few audits that
are undertaken are usually kept confidential, the discovery of improprieties is
rarely of use to other authors and agents.
The average writer can be doubly screwed once when done out of royalties, and again when trying to conduct a prohibitively expensive audit. Nevertheless, you should insist on an auditing clause when you negotiate your contract. Otherwise your publisher may not even let you in the door, even though in other creative fields auditing has been determined to be an implicit right whether its in a contract or not. Heres an auditing clause I try to insert in my clients contracts:
The Publisher shall keep and maintain at its offices accurate and complete
records and books of accounts pertaining to the Work and all transactions
conducted therewith and the Author shall have the right during normal business
hours to examine, or cause to be examined by an authorized certified public
accountant, such records. If a discrepancy of 10 percent or more shall be found
to exist in favor of the Author, the Publisher shall defray all costs in
conjunction with the foregoing examination of accounts, and pay the Author any
sums due within thirty days of determination of said discrepancy.
There is an economical way for authors to do their own royalty audit, and that is to ask their publisher for what is known as a reconciliation to print. This document shows the number of copies printed, distributed, given away/damaged/destroyed, and returned to the warehouse. When you review the rec to print with your latest royalty statement in hand, you will readily be able to calculate the difference between the number of copies distributed and the number reported sold and/or returned. That difference is what your publisher has reserved against returns and not yet reported to you.
The task of correcting the abuses Ive described in this chapter is formidable. Even big-name authors find it difficult to wrest concessions from publishers in the area of prompt and detailed disclosure, for publishers fear creating a precedent for other authors to exploit. Unfortunately, though big-name authors have tremendous leverage with publishers, they often shy away from provoking the goose that lays the golden eggs. And less-known authors, individually, have little clout.
That leaves collective action. This can be a large-caliber weapon. It is my deep conviction that only by means of forceful collective action will the misleading practices weve discussed be curtailed in any meaningful way. The machinery for such action exists in the form of writers and agents organizations. A number of these have the potential to take hard-hitting measures. There is the Authors Guild and well-organized writers groups such as Science Fiction Writers of America, Romance Writers of America, Western Writers of America, and Mystery Writers of America. There is an agents organization, the Association of Authors Representatives. But although these groups do speak out on many of the issues weve been discussing, little has been done by way of aggressive action. Science Fiction Writers of America showed what a determined group can do when it challenged a publishers accounting practices a number of years ago and collected some $250,000 in royalties due many of its members. Other groups, perhaps working together, could do the same thing and more.
Because most publishing companies, like most public companies, are afraid of embarrassing revelations, it may not be necessary to undertake collective audits or class-action lawsuits to unearth hidden royalties or force publishers to disclose basic royalty information. The mere threat of such action might well yield the same results for a fraction of the cost. Even if publishers settlements fell short of what is truly owed, these victories would make it harder for publishers to cheat in the future, and focus badly needed light on their high jinks.
Perhaps legislation will ultimately be necessary to make publishers disclose the information authors should have. Just as Truth in Lending and Truth in Advertising statutes have been passed by federal, state, and city governments, Truth in Reporting should be required of publishers by law. Perhaps its time authors and agents began talking to their legislators.
Meanwhile, the first concrete step is to educate yourself, your fellow writers, your editors, and your agents. I am always amazed, when I talk to editors, that so many of them are ignorant about their companies bookkeeping methods. Few publishing companies provide copies of royalty statements to their own editors to keep them informed about the status of their books or enable them to deal with puzzled or irate authors. Many editors dont know how to interpret royalty statements, and many of them dont feel they should have to do so. I dont believe this state of affairs is entirely coincidental, for this kind of ignorance, coupled with confusion as to whom one is supposed to talk to about ones royalty statements, is another tactic in publishers game plans for making it as hard as possible for authors to penetrate to the truth.
Less forgivable is the ignorance and indifference of some agents. Many of my colleagues are as deeply concerned about these matters as I am. Others, however, dont study royalty statements as carefully as they should, or take a You Cant Beat City Hall attitude, or figure What the hell, as long as we earned something this period, why bother to discover if theres more the publisher hasnt told us about? By keeping pressure on your agents and editors to understand and act, you at least give yourself a fighting chance to get honest accountings.
What seems to be lacking at present is the courage to confront the industry in any significant sort of showdown. That courage will have to be found if authors are to receive the fair measure due them for their lonely dedication to their craft.
A last word about royalty statements. As Ive said, they vary greatly in
format from one publishing house to another. The only thing that is fairly
consistent among statements is their general lack of pertinent information. The
harsh glare of publicity has, however, compelled a few major houses to
incorporate reserved royalties in their reports, and they deserve commendation.
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