Echoing Kris Rusch

Kris Rusch is having issues with malware attacks on her sites, and I find her post important enough to echo it here and over at Mad Genius Club.

The Business Rusch: Royalty Statement Update 2012
Kristine Kathryn Rusch

Over a year ago, I wrote a blog post about the fact that my e-book royalties from a couple of my traditional publishers looked wrong. Significantly wrong. After I posted that blog, dozens of writers contacted me with similar information. More disturbingly, some of these writers had evidence that their paper book royalties were also significantly wrong.

Writers contacted their writers’ organizations. Agents got the news. Everyone in the industry, it seemed, read those blogs, and many of the writers/agents/organizations vowed to do something. And some of them did.

I hoped to do an update within a few weeks after the initial post. I thought my update would come no later than summer of 2011.

I had no idea the update would take a year, and what I can tell you is—

Bupkis. Nada. Nothing. Zip. Zilch.

That doesn’t mean that nothing happened. I personally spoke to the heads of two different writers’ organizations who promised to look into this. I spoke to half a dozen attorneys active in the publishing field who were, as I mentioned in those posts, unsurprised. I spoke to a lot of agents, via e-mail and in person, and I spoke to even more writers.

The writers have kept me informed.  It seems, from the information I’m still getting, that nothing has changed. The publishers that last year used a formula to calculate e-book royalties (rather than report actual sales) still use the formula to calculate e-book royalties this year.

I just got one such royalty statement in April from one of those companies and my e-book sales from them for six months were a laughable ten per novel. My worst selling e-books, with awful covers, have sold more than that. Significantly more.

To this day, writers continue to notify their writers’ organizations, and if those organizations are doing anything, no one has bothered to tell me. Not that they have to. I’m only a member of one writers’ organizations, and I know for fact that one is doing nothing.

But the heads of the organizations I spoke to haven’t kept me apprised. I see nothing in the industry news about writers’ organizations approaching/auditing/dealing with the problems with royalty statements.  Sometimes these things take place behind the scenes, and I understand that. So, if your organization is taking action, please do let me know so that I can update the folks here.

The attorneys I spoke to are handling cases, but most of those cases are individual cases. An attorney represents a single writer with a complaint about royalties. Several of those cases got settled out of court. Others are still pending or are “in review.” I keep hearing noises about class actions, but so far, I haven’t seen any of them, nor has anyone notified me.

The agents disappointed me the most. Dean personally called an agent friend of ours whose agency handles two of the biggest stars in the writing firmament. That agent (having previously read my blog) promised the agency was aware of the problem and  was “handling it.”

Two weeks later, I got an e-mail from a writer with that agency asking me if I knew about the new e-book addendum to all of her contracts that the agency had sent out. The agency had sent the addendum with a “sign immediately” letter. I hadn’t heard any of this. I asked to see the letter and the addendum.

This writer was disturbed that the addendum was generic. It had arrived on her desk—get this—without her name or the name of the book typed in. She was supposed to fill out the contract number, the book’s title, her name, and all that pertinent information.

I had her send me her original contracts, which she did. The addendum destroyed her excellent e-book rights in that contract, substituting better terms for the publisher.  Said publisher handled both of that agency’s bright writing stars.

So I contacted other friends with that agency. They had all received the addendum. Most had just signed the addendum without comparing it to the original contract, trusting their agent who was (after all) supposed to protect them.

Wrong-o. The agency, it turned out, had made a deal with the publisher. The publisher would correct the royalties for the big names if agency sent out the addendum to every contract it had negotiated with that contract. The publisher and the agency both knew that not all writers would sign the addendum, but the publisher (and probably the agency) also knew that a good percentage of the writers would sign without reading it.

In other words, the publisher took the money it was originally paying to small fish and paid it to the big fish—with the small fish’s permission.

Yes, I’m furious about this, but not at the publisher. I’m mad at the authors who signed, but mostly, I’m mad at the agency that made this deal. This agency had a chance to make a good decision for all of its clients. Instead, it opted to make a good deal for only its big names.

Do I know for a fact that this is what happened? Yeah, I do. Can I prove it? No. Which is why I won’t tell you the name of the agency, nor the name of the bestsellers involved. (Who, I’m sure, have no idea what was done in their names.)

On a business level what the agency did makes sense. The agency pocketed millions in future commissions without costing itself a dime on the other side, since most of the writers who signed the addendum probably hadn’t earned out their advances, and probably never would.

On an ethical level it pisses me off. You’ll note that my language about agents has gotten harsher over the past year, and this single incident had something to do with it. Other incidents later added fuel to the fire, but they’re not relevant here. I’ll deal with them in a future post.

Yes, there are good agents in the world. Some work for unethical agencies. Some work for themselves. I still work with an agent who is also a lawyer, and is probably more ethical than I am.

But there are yahoos in the agenting business who make the slimy used car salesmen from 1970s films look like action heroes. But, as I said, that’s a future post.

I have a lot of information from writers, most of which is in private correspondence, none of which I can share, that leads me to believe that this particular agency isn’t the only one that used my blog on royalty statements to benefit their bestsellers and hurt their midlist writers. But again, I can’t prove it.

So I’m sad to report that nothing has changed from last  year on the royalty statement front.

Except…

The reason I was so excited about the Department of Justice lawsuit against the five publishers wasn’t because of the anti-trust issues (which do exist on a variety of levels in publishing, in my opinion), but because the DOJ accountants will dig, and dig, and dig into the records of these traditional publishers, particularly one company named in the suit that’s got truly egregious business practices.

Those practices will change, if only because the DOJ’s forensic accountants will request information that the current accounting systems in most publishing houses do not track. The accounting system in all five of these houses will get overhauled, and brought into the 21st century, and that will benefit writers. It will be an accidental benefit, but it will occur.

The audits alone will unearth a lot of problems. I know that some writers were skeptical that the auditors would look for problems in the royalty statements, but all that shows is a  lack of understanding of how forensic accounting works. In the weeks since the DOJ suit, I’ve contacted several accountants, including two forensic accountants, and they all agree that every pebble, every grain of sand, will be inspected because the best way to hide funds in an accounting audit is to move them to a part of the accounting system not being audited.

So when an organization like the DOJ audits, they get a blanket warrant to look at all of the accounting, not just the files in question. Yes, that’s a massive task. Yes, it will take years. But the change is gonna come.

From the outside.

Those of you in Europe might be seeing some of that change as well, since similar lawsuits are going on in Europe.

I do know that several writers from European countries, New Zealand, and Australia have written to me about similar problems in their royalty statements. The unifying factor in those statements is the companies involved.  Again, you’d recognize the names because they’ve been in the news lately…dealing with lawsuits.

Ironically for me, those two blog posts benefitted me greatly. I had been struggling to get my rights back from one publisher (who is the biggest problem publisher), and the week I posted the blog, I got contacted by my former editor there, who told me that my rights would come back to me ASAP. Because, the former editor told me (as a friend), things had changed since Thursday (the day I post my blog), and I would get everything I needed.

In other words, let’s get the troublemaker out of the house now. Fine with me.

Later, I discovered some problems with a former agency. I pointed out the problems in a letter, and those problems got solved immediately. I have several friends who’ve been dealing with similar things from that agency, and they can’t even get a return e-mail. I know that the quick response I got is because of this blog.

I also know that many writers used the blog posts from last year to negotiate more accountability from their publishers for future royalties. That’s a real plus. Whether or not it happens is another matter because I noted something else in this round of royalty statements.

Actually, that’s not fair. My agent caught it first. I need to give credit where credit is due, and since so many folks believe I bash agents, let me say again that my current agent is quite good, quite sharp, and quite ethical.

My agent noticed that the royalty statements from one of my publishers were basket accounted on the statement itself. Which is odd, considering there is no clause in any of the contracts I have with that company that allows for basket accounting.

For those of you who are unfamiliar with basket accounting, this is what it means:

A writer signs a contract with Publisher A for three books. The contract is a three-book contract. One contract, three books. Got that?

Okay, a contract with a basket-accounting clause allows the publisher to put all three books in the same accounting “basket” as if the books are one entity. So let’s say that book one does poorly, book two does better, and book three blows out of the water.

If book three earns royalties, those royalties go toward paying off the advances on books one and two.

Like this:

Advance for book one: $10,000

Advance for book two: $10,000

Advance for book three: $10,000

Book one only earned back $5,000 toward its advance. Book two only earned $6,000 toward its advance.

Book three earned $12,000—paying off its advance, with a $2,000 profit.

In a standard contract without basket accounting, the writer would have received the $2,000 as a royalty payment.

But with basket accounting, the writer receives nothing. That accounting looks like this:

Advance on contract 1: $30,000

Earnings on contract 1: $23,000

Amount still owed before the advance earns out: $7,000

Instead of getting $2,000, the writer looks at the contract and realizes she still has $7,000 before earning out.

Without basket accounting, she would have to earn $5,000 to earn out Book 1, and $4,000 to earn out Book 2, but Book 3 would be paying her cold hard cash.

Got the difference?

Now, let’s go back to my royalty statement. It covered three books. All three books had three different one-book contracts, signed years apart. You can’t have basket accounting without a basket (or more than one book), but I checked to see if sneaky lawyers had inserted a clause that I missed which allowed the publisher to basket account any books with that publisher that the publisher chose.

Nope.

I got a royalty statement with all of my advances basket accounted because…well, because. The royalty statement doesn’t follow the contract(s) at all.

Accounting error? No. These books had be added separately. Accounting program error (meaning once my name was added, did the program automatically basket account)? Maybe.

But I’ve suspected for nearly three years now that this company (not one of the big traditional publishers, but a smaller [still large] company) has been having serious financial problems. The company has played all kinds of games with my checks, with payments, with fulfilling promises that cost money.

This is just another one of those problems.

My agent caught it because he reads royalty statements. He mentioned it when he forwarded the statements. I would have caught it as well because I read royalty statements. Every single one. And I compare them to the previous statement. And often, I compare them to the contract.

Is this “error” a function of the modern publishing environment? No, not like e-book royalties, which we’ll get back to in a moment. I’m sure publishers have played this kind of trick since time immemorial. Royalty statements are fascinating for what they don’t say rather than for what they say.

For example, on this particular (messed up) royalty statement, e-books are listed as one item, without any identification. The e-books should be listed separately (according to ISBN) because Amazon has its own edition, as does Apple, as does B&N. Just like publishers must track the hardcover, trade paper, and mass market editions under different ISBNs, they should track e-books the same way.

The publisher that made the “error” with my books had no identifying number, and only one line for e-books. Does that mean that this figure included all e-books, from the Amazon edition to the B&N edition to the Apple edition? Or is this publisher, which has trouble getting its books on various sites (go figure), is only tracking Amazon? From the numbers, it would seem so. Because the numbers are somewhat lower than books in the same series that I have on Amazon, but nowhere near the numbers of the books in the same series if you add in Apple and B&N.

I can’t track this because the royalty statement has given me no way to track it. I would have to run an audit on the company. I’m not sure I want to do that because it would take my time, and I’m moving forward.

That’s the dilemma for writers. Do we take on our publishers individually? Because—for the most part—our agents aren’t doing it. The big agencies, the ones who actually have the clout and the numbers to defend their clients, are doing what they can for their big clients and leaving the rest in the dust.

Writers’ organizations seem to be silent on this. And honestly, it’s tough for an organization to take on a massive audit. It’s tough financially and it’s tough politically. I know one writer who headed a writer’s organization a few decades ago. She spearheaded an audit of major publishers, and it cost her her writing career. Not many heads of organizations have the stomach for that.

As for intellectual property attorneys (or any attorney for that matter), very few handle class actions. Most handle cases individually for individual clients. I know of several writers who’ve gone to attorneys and have gotten settlements from publishers. The problem here is that these settlements only benefit one writer, who often must sign a confidentiality agreement so he can’t even talk about what benefit he got from that agreement.

One company that I know of has revamped its royalty statements. They appear to be clearer. The original novel that I have with that company isn’t selling real well as an e-book, and that makes complete sense since the e-book costs damn near $20. (Ridiculous.) The other books that I have with that company, collaborations and tie-ins, seem to be accurately reported, although I have no way to know. I do appreciate that this company has now separated out every single e-book venue into its own category (B&N, Amazon, Apple) via ISBN, and I can actually see the sales breakdown.

So that’s a positive (I think). Some of the smaller companies have accurate statements as well—or at least, statements that match or improve upon the sales figures I’m seeing on indie projects.

This is all a long answer to a very simple question: What’s happened on the royalty statement front in the past year?

A lot less than I had hoped.

So here’s what you traditionally published writers can do. Track your royalty statements. Compare them to your contracts. Make sure the companies are reporting what they should be reporting.

If you’re combining indie and traditional, like I am, make sure the numbers are in the same ballpark. Make sure your traditional Amazon numbers are around the same numbers you get for your indie titles. If they aren’t, look at one thing first: Price. I expect sales to be much lower on that ridiculous $20 e-book. If your e-books through your traditional publisher are $15 or more, then sales will be down. If the e-books from your traditional publisher are priced around $10 or less, then they should be somewhat close in sales to your indie titles. (Or, if traditional publishers are doing the promotion they claim to do, the sales should be better.)

What to do if they’re not close at all? I have no idea. I still think there’s a benefit to contacting your writers’ organizations. Maybe if the organization keeps getting reports of badly done royalty statements, someone will take action.

If you want to hire an attorney or an auditor, remember doing that will cost both time and money. If you’re a bestseller, you might want to consider it. If you’re a midlist writer, it’s probably not worth the time and effort you’ll put in.

But do yourself a favor. Read those royalty statements. If you think they’re bad, then don’t sign a new contract with that publisher. Go somewhere else with your next book.

I wish I could give you better advice. I wish the big agencies actually tried to use their clout for good instead of their own personal profits. I wish the writers’ organizations had done something.

As usual, it’s up to individual writers.

Don’t let anyone screw you. You might not be able to fight the bad accounting on past books, but make sure you don’t allow it to happen on future books.

That means that you negotiate good contracts, you make sure your royalty statements match those contracts, and you don’t sign with a company that puts out royalty statements that don’t reflect your book deal.

I’m quite happy that I walked away from the publisher I mentioned above years ago. I did so because I didn’t like the treatment I got from the financial and production side. The editor was—as editors often are—great. Everything else at the company sucked.

The royalty statement was just confirmation of a good decision for me.

I hope you make good decisions going forward.

Remember: read your royalty statements.

Good luck.

I need to thank everyone who commented, e-mailed, donated, and called because of last week’s post. When I wrote it, all I meant to do was discuss how we all go through tough times and how we, as writers, need to recognize when we’ve hit a wall. It seems I hit a nerve. I forget sometimes that most writers work in a complete vacuum, with no writer friends, no one except family, who much as they care, don’t always understand.

So if you haven’t read last week’s post, take a peek. More importantly, look at the comments for great advice and some wonderful sharing. I appreciate them—and how much they expanded, added, and improved what I had to say. Thanks for that, everyone.

The donate button is below. As always, if you’ve received anything of value from this post or previous posts, please leave a tip on the way out.

Thanks!

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“The Business Rusch: “Royalty Statement Update 2012,” copyright © 2012 by Kristine Kathryn Rusch.

*Sarah Editorial Note: Right now I can’t get to any of her sites, to pick up the paypal link, but she does have one, and if you consistently read her, you should tip.  You also can’t read last week’s post, but once the hacking gets solved you should.  It meant a lot to me.

18 responses to “Echoing Kris Rusch

  1. Thank you. The poor woman has been hounded around something awful.

  2. There is one thing an author can do, in addition to taking the steps outlined above. Name names. No, not the names of publishers who are suspected of acting with an absence of faith and candor. One publisher was cited for improving their act; who? Any publisher making an effort to treat its authors fairly deserves recognition. Develop a White List of honorable publishers so that writers and readers (especially readers) have the option of turning to ethical publishers as their first choice for their trade.

    It probably won’t make much of a difference. Maybe as little as five per cent — which, given the current level of stress in the industry might be significant. We (some of us) select for “fair-trade” coffee, why not develop a preference for “fair-trade” books?

    Of course, NOT being on the White List would not mean a publisher was unethical. It would merely mean they didn’t place a high enough value on ethical treatment of its suppliers to make an effort.

    Look, I am a corporate accountant and a long-winded tedious bore. Don’t give me an opportunity to explain what a company’s fiscal responsibility entails.

  3. Look, I am a corporate accountant and a long-winded tedious bore.

    Isn’t that redundant?

    Just kidding! Don’t smack me with an old-style ledger book! :-)

  4. Some days, I look back at the past 20-odd years, and think “I really should have sent *something* to the Big Publishing Houses, even if it was rejected.”

    Then I read something like this, and realize *not* sending them anything was a far-wiser decision…. :P

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  6. I will echo Kris Rusch, read your contracts and all statements.

    My daddy is, as I have mentioned before, an attorney. He spent a stint as the chief prosecutor of the frauds division in a big city D.A.’s office. After leaving the D.A.’s office, he worked joined a firm dealing with multi-national businesses. One of the things he taught me was to read contracts, ask questions, get clarifications and, whatever you do, don’t sign if you don’t understand.

    (It just occurred to me: it must have been a compliment that he thought I could understand the legalese.)

  7. Kate Paulk

    Thank you for reposting this. I managed to read it on the LJ site before the links back to Kris’s main site triggered the malware alerts. It’s important.

    And I’m with RES – when a publisher is doing it right, let’s praise them to the skies.

  8. Robin Munn

    The more I read about the publishing industry, the more convinced I become that the only way to rescue it will be to burn it (figuratively, I’m not advocating actual arson) to the ground, sow the ground with salt, and plow it under, then build something new on its remains. The few publishers that are doing the right thing will survive, but the rest of ‘em will be more useful once they’re gone.

    The unfortunate part in the whole process is that there are so many authors who’ve bound themselves to those publishers with unbreakable chains of contract. Those authors aren’t going to enjoy the next decade or so, and that’s truly sad. Once the legacy publishers are gone and the new industry (whatever it ends up looking like) arises phoenix-like from the ashes of the old, they’ll have a decent chance at making money from writing again… but in the next decade, I’m afraid we’re going to lose a whole lot of authors who just give up on writing altogether. The best thing that could happen would be for more of them to read things like Kris’s article above, or Sarah’s “He Beats Me, But He’s My Publisher” from a couple years ago, and catch a clue that they should get out NOW. But many are going to be clueless until the industry they’ve depended on for their living collapses around them.

    Whatever happens, there are Interesting Times ahead.

    • I resent the time it has cost me. How unreasonably long it took me to break in, for instance, because I had NO contacts and by then the industry ran mostly on contacts (Which I eventually made through Kris and co, but that kept me out till I had enough money to attend conferences, etc.) and then how I spent ten years spinning my wheels because they wouldn’t let me up and I was too stupid and stubborn to quit. And on that vein, we lost a lot of authors who weren’t that stupid or stubborn in the last ten years, some of them much better than I.
      Note that I’m not saying I’m the best writer since sliced bread. I can’t evaluate my own writing cooly. But I can watch the careers of those around me, and for the last ten years talent/work has had NOTHING to do with results. I presume I’m not an exception. Also, I’ve seen people come in at the level I was in two years into working at this — appalling though that level seems now — and I had to work another thirteen years to break in… because I had no contacts.
      Yeah, I am bleating. Yeah, reality is what it is. Yeah, these days one gets in to ANYTHING through contacts. However that is a sign of malfunction in our job market. It’s the death of meritocracy. And that I reserve the right to resent.
      Um… maybe I’ll go have coffee, then put up Witchfinder, then later today do the Son Of Still Small Voice of Trumpets I’ve been contemplating.

      • It occurs to me that the “Biggest Book Event” of the last decade (fifteen years?) is in large part a result of the failure of the publishers. I refer to J.K. Rowling, who rocketed to fortune based on a series of books that nobody wanted.

        We all know the story of how Harry & Co. were rejected by every publisher in the world, finally ending up at Scholastic, who probably offered her a routine boilerplate “we don’t expect it to make any money so we’re giving you squat in advance and don’t much care about rights” contract. And by the time the industry would have seriously started trying to screw over Ms Rowling she had money and leverage enough to hire lawyers and agents and accountants who would protect her rights and money.

        Consider the likely tale had one of the big publishers bought the series with their usual mid-list if you’re lucky contract, then dumped it in the bookstores with the promotion (and patience) typically accorded such low expectations.

        • No one would have found it. Actually she was lucky to sell in England first, where they gave books a chance in the old fashioned way. And because these were the early days of Amazon UK, Americans ordered them in enough numbers that by the time she crossed over to the US, she was big noise. Pratchett only made it big because he started in the UK and as was they managed to keep him midlist here for YEARS until the sheer force of his selling from across the ocean forced his publisher’s hand.

      • As one of the stupid stubborn ones who has proved that despite hind teat and not singing along to the accepted tunes I can find a few readers, I’d say the bastards still halved my productivity.

  9. One thing that’s becoming clear from this publishing mess is the vast divide between the presses I’m currently working with and the big name houses. Academic publication does have a “who you know” element, but there’s a lot more emphasis on work standing on its own. I wager the lack of advances plays a role, as does the constant push to find new ideas and works in the field. Although more and more academic presses are looking for authors who can overlap, who can write readable and interesting stuff that also meets academic writing criteria for research and argument.

    That said, I wager that especially with e-books becoming common among academic houses, the same contract considerations and royalty concerns will apply. ‘Twill be interesting to see how the two worlds compare.

  10. The more such reports I read, the happier I am that I failed to interest trad-pub houses in my crap. Thank you, Sarah and Kristine.

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