Kristine Kathryn Rusch » Business Rusch, featured, free nonfiction, On Writing » The Business Rusch: Royalty Statements Update
The Business Rusch: Royalty Statements Update
The Business Rusch: Royalty Statements Update
Kristine Kathryn Rusch
This morning, I got another royalty statement. This one came from a medium-sized national publisher, not one of the erroneously named Big Six. I stared at the statement in shock.
After the week I had just experienced, I forgot that royalty statements could be accurate and informative.
Now, honestly, I haven’t audited this company: I have no definite proof that the statement is accurate. But the book sales were in line with information I had gotten from booksellers, BookScan, and other sources. And the e-book sales were exactly as expected, maybe even a bit higher than expected, given the fact that this e-book was only available on one site, and the e-book outsold other (shorter) stories in the same series.
Honestly, all of that information was refreshing—especially after the week I had had.
I posted last week’s post on inaccurate e-book royalty statements issued by the traditional publishers. Much as I hate the term “the Big Six,” I’m going to use it here, just to delineate those publishers from other publishers that have sprung up in the past fifteen years.
For those of you who haven’t read last week’s post, I suggest you click here, particularly if you are a traditionally published author who has had books published (now or in the past) with the Big Six. If you aren’t a traditionally published author, please forward this blog and last week’s to your writer friends who have had books published from well-known publishing houses. You (and/or those friends) need to check your royalty statements, and you must do so now.
In short, that blog post stated that I had looked at my royalty statements from a Big Six publisher, and could not believe the e-book number. It wasn’t in the realm of reality, particularly given the sales of novellas in the same series that I had put up on Kindle myself. According to all the information I had access to, the novellas sold fewer copies than the traditionally published e-book. The royalty statement, however, indicated that my indie e-books had outsold the traditionally published one ten times over.
I knew that wasn’t possible, and started researching the numbers behind the scenes with lawyers, accountants, agents, writers, and other friends inside the publishing industry. I learned that I wasn’t seeing something unique to me: I was seeing an industry-wide problem that no one was talking about.
So far as I can tell, my blog post was the first mention of this problem in public.
Here’s my great frustration. I can’t tell you much of what I have learned in the intervening seven days. Because I have journalism training and because I’m very clear on my legal obligations as someone who writes nonfiction publicly, I’m not going to give you information I can’t verify. Verification means I need two on-the-record sources. I am not going to list the names of the publishing companies I heard about because I have not looked at other writers’ royalty statements. I do not know if the information reported to me by individuals is correct, because I haven’t checked. (For the record, I believe the information is accurate, but again, I have no actual proof of that.)
I know a lot of you want me to break this habit because other bloggers do.
Other bloggers routinely open themselves up to lawsuits. Even though I have a lot of lawyer friends, I really would rather spend my hard-earned dollars on things other than legal claims, bogus or otherwise.
So, my friendly readers, you’re going to have to put up with my cautiousness and my occasional vague comments. You’ll also have to put up with this: when someone tells me something as deep background, even though I know that information is factual, I am not going to tell you all of the details of that information because I can’t prove it.
Got that?
So…what happened last week?
Well, I posted my blog and within the first 12 hours…
…I got about half of my usual number of comments, no e-mail, and no phone calls. I felt disconcerted. I had expected a pile of comments, a pile of e-mails, and a lot of outrage.
Instead, people were silent.
So I mentioned it to Dean and he gave me this look he has that he reserves for moments when he believes I’m being ridiculous, but he’s unwilling to actually put that statement into words.
Finally, I couldn’t take it any more. I said, “What????”
He said (in his “you’re being unbelievably clueless” voice), “Rusch, they’re checking their royalty statements, contacting their agents, and forwarding the link to their writers organizations.”
Duh.
Turns out he was right. I didn’t get home until late Thursday night, and by then, I had dozens of e-mails and a lot of comments. There are some spectacular observations in those comments. If you haven’t looked at those, please do.
The e-mails and conversations (and comments) continued throughout the weekend and into this week. A lot of people shared private information. I saw copies of letters forwarded to the heads of writers organizations. I also heard from several lawyers who, without breaking confidentiality in their own cases, said, “I read your blog and none of it surprises me.” Meaning: they had known about this and were confirming what I had blogged about.
I received the same comment from a few forensic accountants and one or two agents.
The early comments that surprised me came from indie writers who had never gone the traditional route. The indie writers, who had traditionally published friends, couldn’t believe that the friends had such low e-book numbers. The indie-published writers kept hearing from their traditionally published friends that there wasn’t much money to be made in e-books.
I’d heard that too, and I figured it had more to do with the way that traditional publishers pay for the sales than it did for the sales themselves. For those of you that don’t know, most traditional publishers pay writers 25% of net on e-book sales or 15% of gross. Let’s ignore the definitions of “gross” and “net” for a moment, and pretend that those words equal a hard and fast number when they clearly don’t, and here’s the cold truth of it:
Most writers assume that 25% of net means 25% of 70% of the cover price of the book, which comes out to 17.5% of cover. For traditionally published writers with an agent, that writer will get 25% of 70% minus 15% for the agent or about 14.9% of cover. So for a traditionally published book that sells for $7.99, the publisher would receive $5.59. The publisher would then pay the writer 25% of that amount or about $1.40. That money would then go to an agent, who would remove another 15%. In the end, the writer would receive $1.19.
See why I thought the complaints from traditionally published writers referred to money and not to actual sales?
Apparently, however, the indie writers were hearing this complaint without the knowledge of the way book contracts work, which meant that, in this case, the indie writers heard the complaint correctly. They heard their traditionally published friends say there was no money in e-books because e-books didn’t sell very well.
And…if you only looked at the royalty statements from at least some of the Big Six, that’s exactly what you would believe.
Apparently, some of the Big Six publishers are significantly underreporting the actual number of e-books sold on writers’ royalty statements.
I heard from dozens upon dozens of traditionally published writers last week, and to a person without exception, they had all looked at their royalty statements and found discrepancies like the ones I found. Some—and I find this terrifying—had the exact same numbers reported on their statement as were on my statement.
That’s not possible, folks. In a six-month period, each individual book title sells a different number of copies than another individual book title, even if the titles are in the same genre.
But within one company at least, the one I was most familiar with, several of us had identical e-book sales for the same period. Some writers in that company who had published books in a series had identical e-book numbers for each book in that series. Again, not possible.
Because of my blog post, at least a dozen writers sat down with numbers and calculators in hand. These writers compared the sales of their self-published e-book titles to the sales of their traditionally published e-book titles, and found startling discrepancies. Even adjusting for price differences (Big Six e-books were priced higher than the self-published books), these writers discovered that their Big Six publishers reported e-book sales of one-tenth to one-one-hundredth of their indie-published titles.
Some of these writers are bestsellers. Their bestselling frontlist novels (released in the past year)—with full advertising and company wide support—sold significantly fewer copies than their self-published e-books, books that had been out for years, books that had no promotion at all.
As I said in last week’s post, the reported sales numbers from some of the Big Six publishers do not pass the sniff test.
I still stand by last week’s statement that this comes not from malice, but from an unwillingness to improve accounting systems to accommodate the new technology. (See my blog post and the resulting comments from people who have worked in high-level corporations to understand why.)
I urged writers to notify their writers organizations about this problem, not because I want writers to sue the publishers, although I’m certain some individual writers will. I urged writers to notify their writers organizations because I want a large enough group of writers to demand an audit of their own royalty statements to cause an upheaval in Big Six accounting departments.
If one or two writers request audits, then those writers will benefit from the mistakes they find. If a hundred, two hundred, or a thousand writers per publishing house request an audit of their individual royalty statements, then that’s a large enough number to get the corporation’s attention, and to force changes in the traditionally publishing accounting practices.
The changes need to happen. It is clear to me, from the emails I have received, that at least one Big Six publishing house is using a formula to calculate e-book sales. No one in the accounting department is looking at the actual e-book sales of each individual title. I know from experience that this house is still issuing royalty statements that look no different from royalty statements issued in the 1990s. This suggests to me that someone tried to shoehorn the new technology into an ancient program.
In the recession, no company wants to spend money on parts of a business that seem—from the company’s point of view—to be working just fine. So writers need to make the company realize that this part of the system is not working just fine, and needs repair, immediately.
I now believe such repair will happen. Several writers sent me copies of the letters they sent to the presidents of their writers organizations. I also know that at least two major writers organizations are now looking into the e-book royalty sales reporting problem, and have appointed a task force within the organization to deal with this.
I also know that two major agencies are also investigating the e-book royalty problems. Several other agencies have directed their accounting departments to do exactly what the writers above did: compare the e-book sales as reported by the Big Six for each writer and/or book title represented by the agency. The agencies are already finding what I learned: that at least one company has identical e-book numbers for writers whose print books sell at similar levels.
I don’t know what kind of action these big agencies will take, if any. But the agencies stand to lose millions of dollars in commissions if these e-book sales are misreported, so I suspect the agencies will take some kind of action.
Finally, a handful of authors have let me know that they will be taking action on their own as individuals. Whether that action means an audit or means that these authors are hiring an attorney to investigate, I don’t know and I did not ask. But these writers are, like me, independent-minded, and prefer to take matters into their own hands.
That’s the e-book problem.
During the past seven days, another problem—just as severe—also crossed my desk. Several writers complained that their print sales numbers, as reported on their royalty statements, did not jibe with their Bookscan numbers. One writer went so far as to say not only did the numbers not jibe with Bookscan, the numbers also don’t match the print runs their editor told them that the book actually had (not the estimated run, but the actual run) nor did the numbers match the sales figures provided to the writers by some independent booksellers. In fact, in the case of yet another writer whose book is still on sale—and selling—the numbers are even more baffling. That writer’s royalty statements show no sales at all for the first half of last year, even though the writer knew of hundreds of sales through various outlets.
All of this caught my attention, but the part that really made me sit up and notice were the repeated references to Bookscan numbers.
Why do I consider it important that these writers’ sales do not jibe with Bookscan?
Because Bookscan only tracks 50-70% of the books sold in America. (This percentage may go down with the downfall of Borders.) To a person, each writer reported that their Bookscan numbers were higher than the sales reported on their royalty statements, even for backlist titles on which no reserves against returns were supposedly held.
In other words, the sales figures on the royalty statement should be higher than the Bookscan numbers, and in each writer’s case, the reported numbers from the publishing house on the royalty statement was significantly lower than the Bookscan number for the exact same time period.
That’s not possible, folks.
At first, this disparity came to me from writers with the same Big Six publisher that inspired my blog posts. I figured that publisher had significant problems in its accounting department unique to the publisher. Then I heard from other writers from some other companies. And these writers mentioned a similar problem.
Tellingly, I am not hearing about every Big Six publisher. But I’m hearing about enough of them to be relieved that attorneys, agents, and the writers organizations have finally figured out that there is a huge problem in royalty reporting.
We traditionally published writers have always known that royalty statements were inaccurate. (See my trust-me blog post of a few weeks back.) We assumed, based on audits done in the 1980s and 1990s by various writers organizations, that these inaccuracies were relatively small—a tiny percentage of one percent at the worst. Now, it seems, that these inaccuracies are much higher than any of us realized.
I do think some of that has to do with the economic changes, as well as the changes brought on by consolidation. Many of these large conglomerates stress an increase in quarterly profits, which can’t always be achieved in the publishing industry every quarter. I truly wonder—and I have no information to back this up—if that quarterly profit emphasis forced some creative accounting that benefits the publishing division of the conglomerate and hurts writers across the board.
Because if I believe something else is going on, then, well, we’re entering into the realm of lawyers, and laws regulating corporate activity, and contacting attorneys general, and I really really really don’t want to think about that.
That’s for the large agencies, the various writers advocates, and the writers organizations to worry about.
Before I wrap up this post, however, I need to do two things.
First, I need to thank everyone who e-mailed me, who donated, who commented, and who wrote private letters of support. I can’t tell you how much all of that means. “Thank you” seems very, very inadequate, but thank you!
I also need to thank the people who did not contact me directly. A large number of you blogged about this, sent letters to friends, contacted your writers organizations, and tweeted this to various writing circles. Thank you as well.
The more writers look into this, the better off we will all be. Writers will continue to pursue traditional publishing contracts with the Big Six in the next decade. Because you all have taken action here, those writers will have a better chance of earning a living from their e-book sales than they ever had before.
Secondly, I need to recap what I’ve learned this past week and where exactly we are at. Here’s what I learned:
•The writers who contacted me, to a person, found serious discrepancies in their Big Six e-book sales as reported in their royalty statements.
•Several writers also reported inaccuracies in their print sales as reported in their royalty statements.
•Writers have contacted the major writers organizations.
•At least two of those writers organizations take this matter very seriously and are having meetings to discuss what each individual organization can do.
•At least two major agencies representing some of the biggest bestsellers in the business are now looking into this matter as well. At least one of those agencies has assigned its accounting department to investigate further (whatever that means).
•Several writers have chosen to ask for audits of their Big Six royalty statements on their own.
Even more is happening that I can’t tell you about.
Plus I’m sure a lot has happened that I am not privy to.
I fully expect to hear nothing in the next few weeks about this issue. People/agencies/organizations need time to crunch their own numbers, figure out what course of action to take (if any), and how to resolve any problems that come up as result of the internal investigations.
I’m just happy that people with clout are now taking on this quite serious problem.
I also have to say how honored I am by all the action you readers have taken. I have come a long way from my worry in the hours after I first posted last week’s blog. Dean was right: those of you who could checked your royalty statements; those of you who are indie writers contacted your friends; many, many of you (and I have no idea how many) contacted all of the major writers organizations; and a few of you with better math skills than I have put together stunning presentations that provided good hard evidence using your own numbers, evidence that will go a long way in convincing the right people to take some kind of action, whatever that might mean.
So thanks.
It’s been a mind-blowing week. I hope all of this behind-the-scenes activity will make a significant difference in the lives (and livelihood) of writers in the years to come.
“The Business Rusch: Royalty Statements Update” copyright 2011 by Kristine Kathryn Rusch.
Filed under: Business Rusch, featured, free nonfiction, On Writing · Tags: agencies, Agents, Big Six Publishers, inaccuracies, publishing, royalty statements, writers organizations, writing
98 Responses to "The Business Rusch: Royalty Statements Update"
Courtney,
What I’ve been hearing about is a consistent pattern, not just one royalty period. And yes, the writers are looking at total sales, not per-period sales. (When possible on some of these reports.)
Hmm…so, late payment (particularly habitually late payement) constitutes a breach. Is it just me, or did you just drop the bomb on the solution to getting backlist rights reverted from bad contracts and/or recalcitrant/incompetent/hard-to-deal-with houses?
-Dan
Naw. I wish it were that simple, Dan. Because payments have to be owed, for one thing, and for two, the contracts have clauses that allow for breaches to be remedied before the contract gets terminated. And remember, I am not a lawyer nor do I play one on TV.
Kris, you commented that you weren’t an accountant. Well, I’ve had close to 40 years experience in various financial institutions as everything from credit manager to assistant controller.
Having participated in MANY audits, I do not agree with the comments that ebooks income would be difficult or impossible to audit, because they are just numbers in a database.
Audits don’t just consist of examining the ledgers, which in this day and age are usually (wait for it…) databases. In fact, that is the
least of the things they do. In an audit the audited party is expected to be able to provide backup in various forms to the auditors. This includes contacting third parties for verification, examining bank records, physical inspection of the premises if appropriate, etc etc etc.
In fact, auditors generally do NOT count the physical items in inventory. For one thing, they are dealing with a period that has ended, and subsequent activitity means any count done today MUST be different from the count done at the end of the period. But they do examine the count sheets – yes, those scribbled and wrinkled pages we used to write the numbers on – and they will want to know HOW the count was done.
My current job is in a resort hotel. The units are owned as condos and the hotel operation is run my a management company, so we have two tiny companies – an owners association and a management company. We have one restaurant and a bar. No franchise, no chain affiliation, nothing. Our books are clean, really, really, CLEAN. The accounting is straight-forward vanilla. It still takes two months – including an entire week on site, during which the auditors will appear in the accounting office and ask for random invoices, receipts, bank records, inventory count sheets, whatever they might think of – to get a stamp of approval to take to the ownership
at the annual meeting.
Audits are not just numbers on spreadsheets – ALL audits start with numbers on spreadsheets and in ledger books, but they are much more. As an example: the auditors will inspect the income to the business. Who did it come from? What was it for? Where was the deposit made? Do you have the deposit receipt? Show us where in your general ledger you posted that money. Where did you credit the income? And they can (and will) do this for any item they choose. And if one of the sample items isn’t squeaky clean, then they want to look at ALL those items.
That attention to detail, that willingness to pick through box after box of papers – and believe me, there WILL be paperwork to back up transactions, in spite of the promise of the “paperless” office – is why there are forensic accountants, and why they are well-paid.
So, no. Ebook income is not immune to audit. No more than rental income for a hotel room or an office visit to your doctor is immune. There’s always a trail to follow. And the accountants who are trained auditors know how to follow that trail, even if it isn’t clear to the rest of us.
Taking the fatalistic view that we “can’t” audit ebook income because it’s just numbers in a database or electrons flying through the air is just another excuse to give up – and it just ain’t true!
Ah well.
Thanks for the post. With some of the things that have come up in my business lately, they are excellently timed. Much appreciated!
-Dan
It’s ridiculous that the “Big 6″ can’t get it together, when most of the indies I deal with have automated their systems with simple code that collates report input from a dozen ebook and print distribution channels or more. Said code is capable of providing a text or PDF report, available to authors and agents by email or ONLINE at any time after close of quarter/month and stores old reports indefinitely, in case an author loses the printouts (and stores W-2s as well!). It tracks each book individually, by ASIN (for Amazon) or ISBN (for other systems). It reports each book, at each distribution channel, on a separate line on a royalty report…and further shows the breakdown of amount received gross from the distribution channel for that number of sales (allowing the author to see if the distribution channel is discounting and socking us with it or not and by how much), the percentage the author gets from that distribution channel, and the net amount due to the author, PER BOOK AND DISTRIBUTION CHANNEL. That further allows authors to evaluate which books are selling, when they sell the most (within limitations of the reporting periods), which genres sell best for them, which channels sell best for them…and so forth. Many indie authors live by these reports. There’s no reason why any author shouldn’t have that sort of system.
This tells me one thing. It tells me the “Big 6″ don’t want to do something as simple as this. Why? Because they are lazy or because they already know it benefits them? Either is likely, but I’m not inside their heads. It’s not expense, folks, because if the indies can afford the outlay, the Big 6 certainly can. It’s not that the software is inherently difficult to use. It’s not. Technophobia? Possibly, but they’ve embraced all manner of tech over the years, so probably not.
Oh, just so you know, there is a real-time tracking system for Amazon sales, including ebooks, that authors can use.
Brenna
Thank you for this revelatory post. I am a writer who has finished a work I intend to publish as a series. I had wondered about the wisdom of traditional publishing or self-publishing. Your post makes the choice rather clear.
I think it likely that this underreporting of sales, by big publishers, will do them more harm, than the ebook revolution ever could.
I may write a blog post about your blog post and experience. If so, I will link here. Thanks.
[...] another front, Kristine Kathryn Rusch has a follow-up to her post about royalty statements. I wrote about the original article earlier this week. As [...]
I have only one question. Are the publishers getting any payments on the books sold through Borders?
Chris, thank you, thank you, thank you for that post. Because I’m not an accountant and have never worked in that capacity, I couldn’t articulate what I knew: which is that data from databases can be audited as well.
This is a myth–the idea that e-books are hard to audit–that needs to be crushed now. It’s another way of keeping writers from their money.
Thanks so much.
I do know about the real-time tracking, Brenda, and the reports. So do most authors who also publish indie. That’s how we know that the NY numbers are off.
However, I hadn’t realized you could sort by ASIN, which makes sense. And still, the Big 6 aren’t separating out e-book income in anyway. The statements I’ve seen only use one number for all e-book sales. (And by no means have I seen a statement from each company in the Big 6.)
Fascinating. Thanks for the clarification.
Thanks, Valentine.
Thomas, theoretically, all publishers will get paid for books currently being sold by Borders. In practice, probably not. That all depends on the vagaries of the bankruptcy, what happens in court, what happens to Borders, etc.
Just to back up my sister in “Chris-dom”. Databases and electronic data are quite easy to audit, if you can get your hands on the right data. This is why there was the rash of “e-discovery” and data retention rules a couple years ago.
In this case I doubt you would need information from Amazon. The publisher has records on how much money they were paid by Amazon and how much they paid out to authors. The electronic part is rather irrelevant because what you are trying to prove is that the publisher paid the author the correct amount of the monies received, not that Amazon paid the publisher the correct amount.
The problem would be if some portion of the accounting for eBooks is manual. It’s very likely there are several manual steps and that would be the problem. I bet there is a herd of interns downloading spreadsheets and manually reconciling ASIN & ISBN to internal account numbers trying to find where a big pile of Amazon money should go. Assuming, of course, someone noticed the big pile of Amazon money. I further bet there is a very interesting email chain that someone is thinking about deleting.
Christian, I about fell off my chair laughing at this:
“I further bet there is a very interesting email chain that someone is thinking about deleting.”
Here is something else, I am a computer scientist and I know that even when you delete information, like emails, that information is still in the computer’s memory, or in this case it would be a data server’s memory. There are ways of accessing this information that has been deleted. It is called computer (or digital) forensics and data recovery. I know people who specialize in this. The data they recover is used in court rooms.
Seriously, Chris(es) and Melissa, you all are cheering me up considerably. (Plus giving me story ideas.)
I, too, find the notion that publishers, distributors, and booksellers cannot track sales of a paricular book astonishing. Way back in the mid 70s libraries had ways to track their collections, check circulation numbers, and report the data to other libraries in a fomat that allowed comparisons across systems. Granted, in the checkout card and shelflist days, this took a lot of time. I remember it well!
But now we have systems which track millions individual books in thousands of libraries worldwide, which are using a variety of programs and tracking systems.
It’s not impossible. As one person pointed out, the data collection system is easy to build and standard number systems exist.
As a former attorney and a former farmgirl, this definitley does not pass the smell test. Thanks for airing the dirty laundry, Kris!
And friends wonder why I’m going indie. . .
Melissa, I am glad you enjoyed that.
BTW “Information Security” is in my current job title, so is “Engineer”. Unfortunately it didn’t come with a hat.
The really fun thing about that comment is that if they delete that email, they will get caught. I am guessing that since “the big 6″ are, according to our lovely host, part of large conglomerates they were required to install some sort of e-discovery solution in 07 or 08. And it’s sitting there, being nosey, quietly making copies and archiving all the fun email.
And speaking of story ideas….. I SO need to write a neo-techno-thriller one of these days.
[...] indie! Check the problems traditionally published authors have on Kristine Kathryn Rush’s excellent post. Do I need to mention she’s the wife of excellent Dean Wesley Smith who has wonderful series [...]
I have had brisk sales of my ebooks that I independently publish but I have 3 titles which are still under control of HarperCollins and they refuse to listen to reason. The reason these three titles are selling as well as pet rocks these days it that HC priced them out of the market by pricing them exactly the same as the paperback still on sale at Amazon….Do they think eReaders are stupid? Fact is eReaders are terribly bright and they have done their research and word is out on the Big Six attempt to rip them off with prices as high as or higher than, etc. Readers are savvy to the fact no ebook has ever been warehoused, and that the biggest expense a publisher has is warehoused books. They are aware of the change in distribution of ebooks, the No returns to speak of in ebooks, in short, The Readers Know all your secrets Big Six.
So change your behavior? No, they are like lounge lizards in their thinking if you can call it thinking. More than a year, no sales, but you think they could figure it out? Meanwhile I am selliing avg of a thousan books a month at my pricing between 1.99 and 3.99 which is aside from title, cover art, author’s rep., and the genre associations, and the description the most important sales issue, the price point.
For over thirty years I published with NYC publishers – eight of em…and I worked with about as many agents. My mantra to my family who could never understand why I was not on the bestseller lists? I am surrounded by idiots. As to royalty statements, these are in Legacy publishing the longest-running battle between writer and publisher as they are always a DISASTER, primarily due to RETURNS percentages built in to the royalty statement – monies withheld on the expectation of returns. Returns hardly figure in on an ebook as they are so slight. Maybe four a month for 40 books? At any rate, if your publisher is controlling your books’ DASHBOARD and you have no access to it — or if you agent is doing this — it leaves you in the dark for month after month as their practices do not change. The beauty of being in control of my 45 titles that I put up on Amazon is that I can check my sales numbers any time day or night and there is no opportunity for me to lie to myself or have this publisher make up stories for this author.
Rob
http://www.robertwalkerbooks.com
“The really fun thing about that comment is that if they delete that email, they will get caught. I am guessing that since “the big 6? are, according to our lovely host, part of large conglomerates they were required to install some sort of e-discovery solution in 07 or 08. And it’s sitting there, being nosey, quietly making copies and archiving all the fun email.”
Hahaha =o) That’s great!
I think people may not know what e-discovery is – it is basically digital forensics in action (for those reading who don’t know).
I’m a long-time ebook reader who’s been joyously watching the ebook revolution (because now I have lots of sources of DRM-free ebooks other than Baen, yay!), and I’ve had suspicions about publishing accounting games & glitches for a while. I also work in digital litigation support (scan, print, e-discovery), which is going through its own weird techno-revolution, with similar types of problems.
The old workflows fall apart so we can’t even figure out how many people we should hire if we had money to hire them. The old accounting methods don’t have spots for the new tasks. And if we keep billing everything as “miscellaneous” with different prices on every job, someone’s eventually going to complain.
What I can believe:
There’s no simple, easy way to get individual title sales numbers out of the current software. It probably gives reports by publisher with lines per title, in PDF format. Possibly they receive a printout of the PDF, rather than a digital file. Someone has to manually enter each of those lines into a spreadsheet somewhere–OR someone has to take the whole total, divide by number of authors (perhaps per genre or subcategory like “bestseller” and “midlist” and “backlist”), and plug those averages in somewhere else.
Manually entering those line items is incredibly time-consuming. Getting digital reports that fit in the publisher’s database would take re-programming bits of the seller’s software, which they’re not paying for. Neither is the publisher. We can assume the report spreadsheet is not going to change unless there’s a BIG lawsuit, in a direction this doesn’t look likely to go.
However, extracting info *from* that spreadsheet doesn’t have to be the nightmare of “some temp worker manually enters all those numbers into a new spreadsheet, which is then re-labeled by a SQL specialist, which is then integrated into the main accounting software.” Without getting into weird PDF editing/reformatting technicalities, I can say: it’s likely someone in each publishing house is already doing this, at least partially.
Odds are, some assistant-to-accountant has been extracting the relevant parts of those reports and putting them in a spreadsheet called “Price Change Tracking,” because it’s her job to recommend raising or lowering ebook prices based on number of sales every three months. (Or rather, that’s the accountant’s job. The accountant asked her to “get me a list of all the titles that sold better this month,” and she did.) And she has no idea that the authors aren’t getting paid based on those numbers. She knows nobody else sees her spreadsheet; she assumes that someone else in the company has a much better tool for extracting info from the PDF and she’s not on the trusted list that has access to that software.
Of course, when the lawsuits hit and the company has to report sales more accurately, nobody’s going to realize that that info is already available and all they’d need is to say “please add column 4 to this spreadsheet,” at least temporarily while they sort out exactly what data the new accounting software needs to deal with.
My point: it’s not that extracting the data is hard. It is, somewhat, but that’s fairly irrelevant: if it’s useful data, someone has figured out how to extract it, and the lower-level that person’s job is, the more efficiently they’ve managed it. The point is that many big corporations already *have* people working on, fixing, many of their info-bottleneck problems, and they haven’t been paying attention to who or how.
I’d love to believe a big whomping lawsuit will bring those stopgap solutions forward, and expand them to all the areas they could cover; instead, I’m forced to believe that the companies are likely to invest in Brand!New!Software that promises to fix all the current problems without any ability to integrate with the current workflow.
Thanks, everyone, for all the technical comments. Now when people say that e-books are impossible to audit, you can point them to the comment section on this blog.
Elf, you’re right about all of the ways that it would work in a company except one: finite dollars. A company will spend its finite dollars on what it deems important, just like you do when you pay your bills. Right now, the big companies believe the royalty system is working, therefore not in need of finite dollars to repair the system or to add new software. Audits, lawsuits, all of those will give information, yes. But most importantly, they will show the company that finite dollars need to be moved from some other area of the company to accounting–and that accounting had best be accurate.
Rob, we agree about everything except price. I have similarly priced big six e-books in the same genre as the ones that started these posts, and those sell 10 times more than the indie books. (The good selling e-books are also in the same genre.) Of course, we’re talking $6.99 e-books, not $12.99. I believe any e-book priced over $10 is priced too high, although the Big Six clearly doesn’t agree. So the price disparity is a factor, but not as big a factor as you think. So I know that one company is screwing up the accounting somewhere because even my similarly priced books are outselling the books from that company, when all the other indicators say that the sales should be about the same.
Fascinating. Thank you for sharing and bringing attention to a seriously important issue.
Question:
You mention the ebooks-as-10%-of-market sales figure. If some publishers are underreporting–for whatever reason that may be so–on royalty statements, is it possible there is underestimation of how much of the market ebooks account for? Whose numbers does that figure go by? Because it could be more like 15% or 20% already, couldn’t it, if there is sufficient enough instance of underreporting?
Or are marketshare statistics taken from other sources? Would that make a difference? You mention the discrepancy with Bookscan…
There are quite a few discrepancies, Will, in all of the reporting–who is reporting, who is doing the math, etc. That’s the industry figure, and I’m sticking to it. In Feb, the industry figure was much higher, but we need to wait a month or two to see if that number sustains before we use it as accurate. Right now the number also does not include indie publishers, but that doesn’t make it inaccurate. The market is expanding in e-books, so that has to be taken into account as well. All quite confusing and unsettled.
Oh dear.
I don’t think I own a dead tree copy of a thing you’ve written. It bothers me that you may not have been paid for what I’ve bought.
I have a Kindle, and while I don’t only buy from Amazon, just about every book I’ve bought in the past three years (and I’m a pretty heavy reader) has been an electronic book.
I’m glad to see that it’s looking like an investigation and action will happen.
I also released a Kindle copy of a novel I wrote and while I really am not expecting to make much on it, I’m quite distressed to learn that I probably DON’T have accurate sales figures.
Let me first declare that I have no connection to or special knowledge of the publishing industry and certainly don’t know the particulars about industry-specific accounting requirements. I should also preface this with an “epic post” alert as well. Here’s one more general comment about audits.
Large companies such as the major publishing houses – especially those that are part of publicly traded companies – should undergo not only financial audits but also IT audits. Financial audits look into the published financial statements and the supporting business processes. Please see the excellent summary posted above.
IT audits specifically check up on the systems that store and compile the information that goes into or supports the financial statements, and that doesn’t necessarily mean only actual $$$. This is grossly oversimplified (despite the length), but IT auditors should be looking into many things, including:
1. System access – Who can do what in the system, and are there sufficient checks and balances (ex: can one person alter sales figures, or do any significant changes have to be approved by a second or even third party)
2. Inputs – If data is input manually, what’s the procedure for review and verification before publication; if data is input electronically from a file, who has access to the file and can the file data be manipulated before it goes into the system
3. Accuracy of reporting – For any given report, verify that the numbers are being extracted from the correct table/database and that the totals are correct (this might fall to financial audits, depending)
4. Internal Controls – Verify that the controls the company claims it has in place to secure system access and provide data integrity (see 1 and 2 above) are actually in place and functioning as stated
5. Audit-friendliness (not a technical term) – Does This System Provide An Acceptable Audit Trail
IT auditors should be waving the red flag if they find a problem that presents a material (note the word) risk to the financial statements. ANY system that allegedly tracks/accounts for sales quantity of the primary product of the company – and some of the associated costs of that product – and yet does not provide an audit trail for the numbers should be a MAJOR red flag.
Let me again profess ignorance of all things publishing, but logic dictates that the number of books sold and the amount of royalties due to authors should be major components of the profit, loss and liabilities (at least) of a publishing house and are therefore, by definition, material to the financial statements (this is also a gross oversimplification). One would think auditors somewhere along the line have taken a sample of reported book sales and compared them to the actual sales report received from the selling entity, and then compared that to the royalties paid out to authors. Then again, if the accounting regs for the publishing industry are sufficiently convoluted, that test might not apply (certainly possible).
Each entity reporting sales should have a unique identifier in the publisher’s system (to verify all reports are received from Amazon/B&N/WalMart etc.). Since each book receives an individual ISBN/AISN/Whatever, it should be a big flaw in the system if the publisher can’t tell how many copies of each book were sold within a given timeframe via each reporting entity. I realize there are also returns and other factors to include, but this is, or certainly should be, basic information necessary to run the company.
NOTE: I’m assuming that each e-book receives a unique number, at least for those issued through the major publishers. If that’s not the case, then piece of this might not apply.
I would be shocked if all the major publishers are using the same computer system to house that information, which means they probably all would have different requirements for receiving electronic input files from the entities providing actual sales information. That means any “electronic files” are probably something general, such as PDF or spreadsheets, and that much of the input of actual sales data is still manual, up to a point. I can tell you from experience, the switch to a specifically formatted electronic file that can be picked up and loaded directly into the system will likely have to be forced upon them all – they won’t do it voluntarily. I agree that someone, somewhere is almost certainly converting PDF files and/or formatting spreadsheets for input.
However, I also agree that someone, somewhere in the various publishing houses has found a way to extract this data. Another item auditor should be reviewing is risks to the company. Anyone with even a passing interest in books or publishing is aware of the shift toward e-books and the (related?) struggles of brick-and-mortar stores. A publishing house without a plan to deal with e-books is a publishing house without a future, which is of interest to investors (and the SEC, where applicable). An auditor who doesn’t know about e-books and/or doesn’t recognize this as a potential risk to the company shouldn’t be auditing a publishing house (which should be pointed out by the SEC, where applicable).
The publishing houses can’t have a legitimate plan unless they have legitimate data. They’ve got the information – they just aren’t parting with it.
Noel, thanks for the concern. I greatly appreciate it.
Only a few of my books online are with major houses. Chances are if you’ve bought something of mine online, I either put it there or a company I’m affiliated with did. So don’t worry. Other authors may not be in that position, but I am. Still, I appreciate your note.
Thanks for the long and detailed post, Random Systems Analyst. Much appreciated. Fascinating stuff, which I am going to have to reread.
See why I want large groups of writers on this? The more I learn, the less I’m liking things….
Adding my thanks. Also add one to the tally of writers who retweeted, forwarded, and otherwise discussed this.
[...] her update blog here. Also read the comments if you need to learn anything about accounting and auditing [...]
For those of you that think this is a new phenomenon, go get a job. They figured out how to screw you years ago so either take it or self publish.
Publishers quit caring about literature or good writing years ago. When Snookie can get a contract over a solid writer, it’s time to either cut your wrists or go find a real job. O
I thought I would come into the thread again and say I’m still a regular reader. I listen and don’t talk too frequently right now, with all this collected knowledge in the comments. Thanks to the Freelance Guide /and/ the Business Rusch, I have more work to do and it keeps me busy.
I’m still aiming for traditional, as that’s the dream, but I have indie experiments. And coming to like digital a lot, even if I do have an attachment to print media. This is just the start of an enormous change and tons of new creativity. I say bring it on.
Tomas, I hate to break through all the myths you just spouted, but publishing has always published books like Snookie’s. If you look at the bestseller lists from 100 years ago, they include what would be called celebrity books. The phenomenon really took off in the 1920s. Publishing is and always has been a business. Which means they have never been in it for the literature; they’ve been in it for profit. That so much literature has appeared is a testament to readers, who take good quality work and tell their friends about it. More bad books–published– have fallen by the wayside than good books have risen, and in the history of publishing, it has always been so. I constantly read publishing history books (am struggling through one right now by a former president of Book of the Month club) and the history has always had the tension between a house buying a book someone loves and buying a book that will make a fast buck.
People who believe that publishing is about art are people who need to keep their day jobs. Publishing is a business. Right now, on this blog, we’re dealing with a business problem.
And let me simply say on behalf of all the professional writers who read this blog: we have jobs. We are self-employed and most of us have been for decades. We write books for a living. That’s our job.
Ryan, glad to know you’re still reading and enjoying. And glad you’re having fun with digital. I don’t know if you’re reading my husband’s blog series, “Think Like a Publisher,” but you should give it a peek. Here’s the link: http://www.deanwesleysmith.com/?page_id=3736
“And let me simply say on behalf of all the professional writers who read this blog: we have jobs. We are self-employed and most of us have been for decades. We write books for a living. That’s our job.”
Love.
Kris: Yep, I’m aware of Dean’s series and rec them around just as much as yours. When I start publishing some of my stuff in digital, I will definitely be reading it.
Since publishing houses sell books on consignment, it could take months for the pub house to see any cash from the individual book stores, so there would be some lag between sales and royalties. Plus, Borders stopped paying the major publishers back before Christmas. That might have something to do with the discrepancies in paper book sales. The publisher can’t pay an author if they haven’t gotten their money yet.
Even if this is the problem, the publishing house still has a responsibility to INFORM their authors. I’m not a published writer and have never seen a royalty statement, but from what I’ve read, they make very little sense to the common person. I THINK WRITERS HAVE THE RIGHT TO UNDERSTAND THEIR PAYCHECKS. They should know what time period they are really being paid for. They should know how many books were shipped, how many were returned, what the profit margin for the publishing house was, and what portion of that they are being paid, and why. If part of their royalties are being held back as insurance against returns, they should be told that as well.
As for E-Book sales, I think Amazon and BN should make the sales data available directly to the author as well as the publishing house. If houses are making funny with the math, the authors should know about it.
Jimmie, all of those things you mentioned don’t concern the royalty statements in question. The statements we got in April were for the royalty period of January 2010 to June of 2010. Those are the statements under discussion.
No one has seen statements since Borders collapse unless that writer is with a small or specialty press.
Noel Lynne Figart: What we’re talking about here is underreporting of ebook sales through major, traditional, New York-type publishers, not books self-published directly through Amazon’s KDP program, B&N’s Pubit, etc. Though at this point we’re taking it somewhat on faith that their reporting is accurate, it’s the fact that they numbers we’re getting on such sources are so much HIGHER than reported numbers through traditional publishers that first cued people that there was a problem.
In other words, the issue at hand is a concern of people publishing ebooks indirectly through traditional publishers. Books that are self-published through Amazon, B&N, etc. are not an immediate concern.
And let’s put it this way: while it’s not IMPOSSIBLE that numbers reported through Amazon, etc., are low, if so, the percentage of inaccuracy must be FAR smaller than what we’re seeing through New York.
Thanks, Steve.
My apology for the so-called “unprofessional” question, but can someone advise whether it is possible at all to find out one’s own e-book’s sales except from the paycheck what she receives from her “small” publisher?
Erin, that’s not an unprofessional question. If you’re not self-published, that is if you are published through a publisher large or small, that publisher should get the e-book numbers. Your contract should give you the right to see those numbers. (The publisher should report them to you.) But since this is a small publisher, they might not have that in their contract. So check your contract first. If you have a contractual right to see those numbers (i.e a royalty statement) then insist on getting a copy of that statement. If you don’t have the right to look at those numbers, then you signed a bad contract. See if you can get the numbers anyway (and make a mental note not to sign a contract like that again).
Sometimes agents and book companies do not forward “unearned” royalty statements. In other words, statements in which no money is owed. Insist on getting all royalty statements earned and unearned. Some scam agents will tell you that your royalty statements are unearned and will pocket the money. But besides that, you will need the statements to track things such as the ones we’re discussing in this blog. You should always read your royalty statements.
But first, make sure you’re contractually entitled to them. And in the future, make sure you get a clause in your contract that not only allows you to have royalty statements on a timely basis, but also to audit the company’s statements at a date of your choosing to verify the accuracy of those statements. I hope that helped.
I haven’t read all the comments here but I did go through those on the first e book post.
Point 1 Books aren’t the only intangible items, in the sense of being files of digital information, sold on line. So how do the music and audio book suppliers/publishers deal with this?
Point 2 We have material on Fictionwise and their ‘sales’ figures look pretty suspicious to me and, again, I’m not suggesting dishonesty but I think their software just isn’t up to the job. They make things difficult to analyse by deliberately discounting prices so authors/publishers can’t tell what price an item sold for and hence check the figures. At one stage we obtained monthly figures but when we queried them, and were sucessful in obtaining more money, they stopped giving monthly figures claiming their system was faulty.
Roy, the answer to some of your questions is in the comments. So I’ll leave the auditing information to the experts who have already responded.
As for Fictionwise, I no longer have material with them. They were a great company when they started up in the dot-com boom. Then they didn’t seem to alter their systems with the times. I’m happier indie publishing.
Thank you Kris for the detail explanations about royalty numbers. It really helps!
You’re welcome!