8 conditions affecting royalty accuracy
In his recent webinar, “Royalty Disputes: Legal Strategies in Pursuit of Information and Payments Due”, David Slarskey, a trial lawyer with Slarskey LLC, defined royalty accuracy as the “accurate reporting, accurate calculation, and accurate recovery of royalties due to authors.”
Slarskey proceeded to identify the following eight conditions as some of the dynamics at play that can create friction in the process of achieving royalty accuracy in publishing relationships.
1) Expertise imbalance
Publishers are dealing with these kinds of arrangements day-to-day with hundreds of thousands of authors, while authors do this seldomly, perhaps even once, for their own purposes. While experts in their own disciplines, most authors are not experts in business negotiations or the publishing industry and are therefore at a disadvantage.
2) Asymmetric information
According to Slarskey, this is one of the fundamental drivers of disputes, and affects the author-publisher relationship because authors generally do not have access to the same information regarding sales and royalty calculations as the publishers. In litigation, the discovery process, requiring information exchange between the parties, can reduce the asymmetry of information. Without discovery, authors operate at a handicap and must rely on information provided by the publisher.
3) Convoluted contracts, amendments, and reporting
Contracts may have amendments, may have been traded or consumed through publishing acquisitions and mergers, may have riders, or otherwise may have complex dynamics that affect author rights. Multiple versions of a title in the marketplace may further complicate the reporting process. As a result, long-term publisher relationships have greater potential for situations that can adversely affect royalty accuracy.
4) “Small” dollars at stake for many authors
For many authors the royalty payments are “small” dollar amounts – less than $100,000. Although potentially significant for the individual, the royalty amount may be small when considering the value of the claim as compared to the cost of litigation. When litigation is unlikely due to the economic assessment, a publisher may be disinclined to invest significant time or resources into identifying or correcting inaccuracies.
5) Marketplace changes in distribution
New methods of distribution, e-book editions, supplements, and the other use of author works may not be contemplated by long-standing agreements, or may require a recalibration of the reporting process to assure accurate payment of royalties. Unclear terms related to distribution methods in contracts can make allocation of royalty payments more challenging.
6) Royalties trending downward
Publishers are under pressure based on industry sales trends. This may result in publishers being more willing to assume the risk of a dispute from inaccurate reporting, where the alternative is a reduction profitability. Sales pressure may also affect the risk-benefit calculations used to determine acceptable royalty rates when entering into new publishing agreements with authors.
7) Incentive for delay
There is an institutional bias towards delaying resolution of these issues because the publisher model is based on the assumption that payments are accurate. Working from this assumption, justification is necessary to invest time and resources in a royalty audit process.
8) “Stickiness” of relationships in a changing market
Many authors have long-term relationships with editors or other key personnel at the publisher. Once a relationship is established, it’s often risky and unappealing to change publishers or to become confrontational to enforce rights as an author. Many authors choose to avoid such confrontation and the potential impact royalty audits, or litigation, may have on those relationships.
Many of these factors weigh in benefit of the publisher. Slarskey suggests that you be aware of these factors to understand the dynamics at play when there are questions of royalty accuracy that require potentially adversarial interaction with the publisher.