How to protect yourself from lower textbook royalties from foreign sales

Textbook authors need to be alert for the possible impact on them of the practice among some U.S. textbook publishers of selling books in foreign countries using an “inter-company” transfer price.

U.S.-based publishers generally sell into overseas markets through relationships with foreign publishers based in the destination country. Books sold in this way are sold to the foreign publisher at a discounted price to compensate the foreign publisher for its role in the distribution process. In such a case, the author’s royalty is calculated on the lesser amount received by the U.S. publisher from that sale.

Q&A: What are the tax advantages and disadvantages of a textbook author setting up an incorporation rather than operating as a ‘sole proprietor’?

Q: “What are the tax advantages and disadvantages of a textbook author setting up an incorporation rather than operating as a ‘sole proprietor’?”

A: Stan Gibilisco, author of several textbooks including Geometry Demystified:

“I tried this when I lived in Hawaii and discovered, to my horror, that my royalty income was subject not only to their income tax, but to their ‘sales’ tax as well (they call it a general excise tax). I figured that if I formed a Nevada corporation and had all my income channeled into it, and then became an employee of that corporation, the royalty income would not be subject to that onerous tax. It was a beautiful theory, but, like so many theories, did not work. The legislators in Hawaii had thought of that before I did and the law was airtight. Love it or leave it. I left.

Q&A: How to go about getting a contract to publish an academic book

Q: “How do you go about getting a contract to publish an academic book? How is the process different from getting a contract for a college-level or K-12 textbook?”

A: Stephen E. Gillen, Attorney, Wood Herron & Evans:

“Textbook contracts vary significantly based on curricular level. The K-12 market works with much higher volumes but is price sensitive (because schools adopt and purchase the books). The college market works on lower volumes but is less price sensitive (because professors adopt but students purchase).

Q&A: What to do when a coauthor transitions toward retirement

Q: “My coauthor on several different titles is transitioning toward retirement. I will soon be starting a revision without his active participation. We have a succession agreement on the royalty split in future editions, so that’s (hopefully) not an issue. However two questions have risen to top of the swirl of concerns that I have as I face this transition: 1) Is this a good opportunity to renegotiate my authoring contract? I suspect that my publisher will want to simply change the authoring designations as an addendum to the current contract. Should I insist on a new contract? Should I avoid that if they insist on a new contract?; 2) Assuming that I should renegotiate, how likely is it that I’ll be able to break them out of their boilerplate?”

A: Stephen E. Gillen, Attorney, Wood Herron & Evans:

“Taking on 100 percent of the writing responsibility is essentially a new deal necessitating some change in the terms of the relationship (royalty share, to name but one important term). There is no magic to how this change in the relationship is memorialized. It can be by amendment or addendum or by substituting a new contract. What is important is that, however it is memorialized, you capture all of the relevant changes.

Q&A: How to determine a good royalty rate offer when negotiating a textbook contract

Q: “I’m in discussions with six publishers right now for my first book. One of them has just made a preliminary offer, including a 12 percent royalty on the first 2,000 sold and 15 percent thereafter. They also offered me a $3,000 advance against royalties to prepare a camera-ready copy over the summer. The editor has informally projected something like 2,000 books/year sold at about $90-100 per, saying it costs them $60-70 per. Here are some of my questions: 1) How common is it to have a lower percentage on the first chunk of books?; 2) Even if it sold only 1,000 at $80, 12 percent of that equals $9,600. Shouldn’t they be willing to part with more than $3,000 of it up front?; 3) How much am I saving them with a camera-ready copy? Doesn’t that cut out a lot of work for them and shouldn’t that translate into a much better deal than this? Sounds like a cookie-cutter offer.”

A: Don Collins, former managing editor at a publishing company:

“First, it is very common to offer a lower rate on the first textbooks published. The publisher is in business for profit and at every point the publisher wants an advantage although in your case it seems slight. Second, up front money is an expense. If the book does not sell then the publisher is out this money. But you get to keep the advance. And lastly, you may think of giving camera ready copy as saving the publisher money. It probably is. But the way publishers play the game is to take only authors who are willing to do this.

Only after your work has proven successful and you have established a reputation will you have much of a chance of negotiating better terms.”

Q&A: What percentage of sales are lost to the used book market over the life of an edition?

Q: “Does anyone know a “rule of thumb” about what percentage of sales are lost to the used book market over the life of an edition? In other words, if the adoption rate remains basically static, how do royalty returns typically decline after the edition has been on the market for one year/two years/three years?”

A: Robert Christopherson, author of Geosystems:

“Quick response on used-book impact. With my 3-year revision cycle we do not stay ahead of the used-book sales erosion. Fortunately in my field there is so much dynamic change that such a revision cycle is warranted.