Your royalties: The devil is in the details
Are you confused trying to determine how your royalty statement matches your publishing agreement? Do you feel like your royalty check is less than expected? According to Juli Saitz, CPA, Senior Managing Director, Ankura Consulting Group during her recent webinar, “the devil is in the details”.
To better understand how your royalties should be calculated, there are several items you may want to look for in your contract – beyond the basic royalty figures – including clauses on: electronic derivatives, subsidiary rights, custom work, packages, and tiering.
Although ebooks are the most common electronic form of your work, electronic derivatives may include other media types and forms as noted in the following example “Derivatives of the Work” clause. NOTE: This (and other examples in the article) is but one example, and your contract may have different language, even four words, that can dramatically change the royalty calculation.
“… and derivative versions delivered in other media, including, without limitation, via audio (sound recordings), video, motion picture or multimedia versions, and any other forms of electronic media (including but not limited to magnetic and optical media, laser disks, compact disks, and computer programs).”
Clauses like this permit reproduction of your work in many forms “without limitation”. The reuse of such materials may be further allowed with clauses such as “The term Electronic Rights as used in this Agreement shall include, without limitation, all publishing and distribution of the Work, portions thereof, or materials including the Work or portions thereof in any electronic or digital form on the Internet.”
According to Saitz, “a typical share of subsidiary rights is 50% to the author and 50% to the publisher of the net amount received from the subsidiary agreement with the ‘third party’”. When examining your contract for subsidiary rights, look for clauses that identify third parties. Saitz cautions that “based on language, “third party” could be a wholly owned affiliate of the publisher resulting in a lower rate paid to the author through subsidiary rate calculations”.
Custom products that incorporate all or part of the original work can also complicate royalty calculations. According to Saitz, “custom books introduce proportionate calculations of royalties based on the contribution of a work to the custom product”. The devil here is how “contribution” is defined.
In some clauses, this may be a simple page count calculation as shown below.
“The Author’s Custom Share will equal the published or internal list price of the custom work, times a fraction equal to the ‘total page price’ of the Work divided by the sum of all ‘total page prices’ calculated for the custom work.”
In other cases, the pro rata-based royalty calculation may be based on “the percentage of the Work’s content which is used in the Custom Publication multiplied by the net price of the Work at the time the Custom Publication is published multiplied by the royalty percentage” of the original Work.
In even more subjective scenarios, the clause may read as follows.
“… the Publisher shall allocate the Net Sums Received in such manner as it reasonably determines is equitable in light of the relative value, quantity, or usage of the publications contained in such a package.”
When your work is packaged in whole with additional products, such as access codes for related products or student solution manuals, royalties may be affected by the sale price of the package sold. In these cases, clauses may identify the royalties, if any, paid on the other components in the package, as well as the potential effect of the packaging on the royalty paid for the original work, as seen in the example below.
“when allocating the proceeds from the sale of any Subject Value-Pack, the proceeds allocated to the [original] Work included in such Subject Value-Pack shall not be less than the amount that is equal to ninety percent (90%) of the published stand-alone net price for the [original] Work then in effect, and no royalties will be paid to the Authors based on any revenues that might be attributed to the other component of such Subject Value-Pack.”
A final consideration when attempting to understand your earned royalties, is tiering or escalation clauses which base royalty rates on number of units sold. An example of these types of royalty calculations is shown below.
“Ten and one-half percent (10 1/2%) for the first 30,000 units sold; eleven percent (11%) for the next 30,000 units sold (30,001-60,000); thirteen percent (13%) for the next 15,000 units sold (60,001-75,000); and fifteen percent (15%) for all copies sold thereafter for each edition of the Work.”
Two things to consider when examining the details of these clauses are whether the tiering is reapplied to subsequent editions and whether, once a tier level is achieved, the new royalty rate is applied retroactively to all copies sold.
Saitz advises that when entering into a publishing agreement, it is best to think of your contract as the basis for your relationship with the publisher, not a specific individual. People change and royalties may be calculated by people who have never reviewed the agreement and may misinterpret the terms of the agreement. Wherever possible make sure the contract is clear about how royalties should be calculated. After all, the devil is in the details.