When Is A Royalty Not A Royalty?

The wide diversity in publishing channels has a dramatic effect on the royalties received by novelists.  Digital, audio, and print-on-demand (POD) methods all have different compensation provisions, leaving many authors wondering if there still is such a thing as a “standard” royalty provision.

Unfortunately, “industry standard” is a diminishing concept.  Traditional royalty provisions have been based upon a book’s list, retail, or cover price, with standard percentages for hardcover and trade paperback at 10-15%; 6-9% for mass market paperback.  For example, if a trade paperback’s cover price is $12.95 and the author has a 12% royalty, the author would receive $1.55 for each sale.  Currently, however, many publishers tie royalty percentages to a “sales revenue,” “net receipts,” or “net revenue” formula, based on the publisher’s actual receipts after certain expenses.  The definition of “net revenue” usually is something like “actual cash receipts from all sales of the Work in any media or format less shipping costs, returns, and sales or value-added taxes remitted to Publisher by the purchaser.”  Put more simply, the author and publisher share in the discount given to booksellers.  This, of course, significantly reduces the author’s royalty.  If the $12.95 paperback is sold by a bookseller that has a standard 40% discount, the author’s 12%  royalty would be $.93 (depending on shipping costs).

But there is another, broader assault on author’s royalties that recently has emerged, primarily among new small and independent presses.  This is the advent of the subsidy publishing agreement.  Unfortunately, many first-time authors who receive such agreements– thrilled they are being published – mistakenly believe they are receiving a standard publishing agreement.  Typically, the publishers do not disabuse them.

These subsidy agreements broaden the net receipts clause to include “printing and insurance,” “distribution costs,” “editorial costs,” and the like.  Here’s a sample from an agreement that, at first glance, makes the author thinks he or she is getting a great deal – a 40% royalty:

Publisher will pay Author forty percent (40%) of all Profits (as defined below) received by Publisher from sales of all versions of the Work (“Author Royalty”). “Profits” are to be defined as gross receipts received by Publisher from the sale of all versions of the Work, less all direct actual and verifiable costs and expenses associated with (a) any returned items, subject to the reserve on returns as set forth below; (b) third party distribution fees (c) shipping and handling; (d) postage; (e) sales taxes (f) the manufacture, sale, promotion, design, and editing relating to the publication of the Work; and (g) any other expenses related to the Work which are mutually agreed upon by Publisher and Author.

In other words, the author is paying for publication – just the reverse of what should occur. Printing and editing costs, especially, are the essence of a standard publisher’s services.  The particular agreement cited above, at least, was entitled “Author Profit Participation Agreement,” which is honest – many other such contracts are simply labeled as “Publishing Agreement.”

There is nothing illegal about this, of course, but new authors often don’t realize their “high” royalty is illusory.  I do not recommend that authors sign subsidy agreements unless they are unable to publish traditionally and do not wish to self-publish.

© 2010 Daniel Steven