Demystifying Contracts #3: Novels – Discounted Royalties

This will be my fourth installment about contracts. For reference you can also refer to:

• Demystifying Contracts #1: Novels – Ownership vs Rights Transfer
  
• Demystifying Contracts #2: Novels – Territories
• Pulling Back the Publishing Veil: Life of Copyright Terms

Today I want to talk about royalties, but a special aspect in the contract that refers to situations where you don’t get full royalty amounts. Generally when publishers sell a book overseas, or through a venue like Wallmart (which requires a heavy discount), they don’t get the same amount of income that they do when selling in the standard channels.  Because their income is reduced, they generally will reduce the amount that the author gets as well.  While I can see the logic, I don’t agree with the fact that they seem to take advantage of this fact.  Let’s look at the shares between author and publisher in various scenarios.

• Hardcover sales 10% – For a $25 book the publisher’s net receipt will be $10 and the author gets $2.50 so they get 400% more 
• Hardcover sales 15% – For a $25 book the publisher’s net receipt will be $8.75 and the author gets $3.75 so they get 233% more
• Trade paperback 7.5%-  For a $14.99 book the publisher’s net receipt will be $6.37 and the author gets $1.12 so they get 569% more
• Mass market paperback 8.0% – For a $7.99 book the publisher’s net receipt will be: $3.36 and the author gets $0.64 so they get 525% more

Every contract I’ve seen has some form of discounted royalty for  the following situations:

• Export sales
• Discounted sales
• Premium – High Discount sales

For me my royalty goes down from 7.5% LIST to 7.5% NET in most of these cases (10% of NET in others). Because the royalty is based on NET I see exactly how much comes in and how much goes to the publisher and how much goes to the author. When the royalty shifts to NET receipts the ratio of publisher to author increases significantly.

• 10% yields 900% more for the publisher than the author so they make $9 of every $1 the author does
• 7.5% yields 1233% more for the publisher than the author so they make $12 for every $1 the author does.

I’ve actually tried to get these royalty rates adjusted on my contracts, but without much luck.  Having the publisher earn 233% – 569% is high, but not unreasonable. When that number top out at more than 1000% I think they are taking advantage.

In my most recent royalty statement I had the following related to discounted royalties:

• 3,660 books sold
• Revenue of $30,342 ($8.29 per book)
• Publisher earned $28,048 verses my $2,294
• That’s 1222% more than I received.

The 3,660 books sold at discount were only 6.4% of the total books sold, (25,603 at full price, 3,660 discounted, 28,367 ebooks) so in the end I didn’t make it a “deal breaker” for my contract. But it still stung, and I do think this shows just one of the ways that the contracts have shifted power to the publishers over the years.  In my negotiations I was shooting for a discounted royalty that would  keep the ratio no greater than 5:1 which equates to 16.67% of NET. This might be a reasonable amount for your own negotiations.

The moral of this story is to realize that you may not always get the royalty you were shown and at a minimum you need to:

• Be aware that this situation exists
• Try to get them adjusted
• If you can’t get them adjusted, be sure you can you be comfortable with the inequity