Royalty step-down clause: Factors and formulas

Q: “I am trying to establish a royalty step-down clause for a very successful text. I proposed the three-edition step-down of 75 percent of contractual royalty to 50 percent to 25 percent, assuming this means, for example, when I do not participate at all, I would receive 75 percent of, say, 15 percent, then 50 percent of 15 percent then 25 percent of 15 percent. Is that correct?

My publisher astounded me by saying this means 75 percent of the full royalty, contractual rate, then 50 percent of the new, reduced, rate, and 25 percent of the latter vastly reduced rate!! Doesn’t this depart from common industry practice? It is my understanding from TAA discussions and other sources that the standard step-down is 50 percent of contractual rate, then 25 percent of the same contractual rate, followed by nothing. What’s up??”

A: Zick Rubin The Law Office of Zick Rubin, Publishing / Copyright / Trademark:

“This is a very important item. Here is a formula that is sometimes proposed by authors and that is sometimes acceptable to publishers for a successful textbook: 75 percent of the royalties (i.e., the contractual rate) in the first edition in which the author does not take part, 50 percent of the royalties for the second such edition, and 25 percent of the royalties for the third and subsequent such editions.

This can be an actively negotiated item on both sides. The negotiations reflect a number of factors, including: how successful and established is the book?; how valuable will it be for the publisher to continue listing the original author as ‘author’?; what would be fair and attractive royalties to attract an excellent new author or authors to take over the book? (the publisher will typically be reluctant to expand the total royalty pot); will the initial author play any continuing role as a consultant or in marketing?

You’re not crazy. When these step-downs (whether 50-25 or any other formula), we mean what you think it means: ___% of the original contractual rate for Revision 1, ___% of the original contractual rate for Revision 2, etc. Is your publisher saying that it would agree to 75 percent for Revision 1, then 50 percent of 75 percent (or 37.5 percent) for Revision 2, and then 25 percent of 37.5 percent (or 9.375 percent) for Revision 3? That’s a peculiar way to go about it, but the actual numbers are quite good.”