The Business Rusch: Royalty Statements

 

The Business Rusch: Royalty Statements

Kristine Kathryn Rusch

Imagine this:

Pretend you run a very large business.  The business has a lot of built-in problems, things not easily fixed.  You’re aware of the problems and are trying to solve them.  A decade ago, you actually had hope you could solve them.  It will simply take time, you thought, but back then, your business was a leisurely business.  Back then, you had no idea that the word “leisure” would leave your vocabulary and never return.

In that decade, your business has changed dramatically. Your corporate masters sold out to large conglomerates, so now you can no longer point to your small but steady profit as normal for your industry. The conglomerate doesn’t care.  All the conglomerate cares about is quarterly profits, which should rise steadily.

Your industry doesn’t work that way, but you do your best to make those quarterly balance sheets work for the conglomerate.  Unfortunately, that means any long-term outlook you used to have no longer works for your corporate masters.  Now you can only look one year ahead, maximum, because that’s all the focus the conglomerate will allow.

One of your business’s largest problem comes out of the nature of the industry itself. The success of each product cannot be replicated.  Just because you build one really good widget doesn’t mean that your next widget will sell at all.  Your business has a luck aspect to it, an unpredictability that no matter how much you plan, you can’t fix.

The other built-in problems mentioned above cause your prices to verge on too high.  If you solve the built-in problems, you might lose even more revenue, because most of those problems benefit the stores that sell your product. Those stores have made it clear they will not order from you if you take those harmful (to you) perks (to them) away.  So your prices hover at a point too high for an impulse purchase, even though your business does better when consumers can buy your product on impulse.

You have maintained this system for decades now, trying different ways to fix the built-in problems.  None of the solutions work, because the only way to fix the built-in problem would be to have an industry-wide change, one that all of the businesses in the industry agree to.  Unfortunately, if all of the businesses in the industry make that change, it will hurt stores, which will say that the industry businesses colluded to hurt their retail business—and sadly, the stores, under U.S. law, would be right.

So the easy solution is impossible, and all other solutions are half-assed.  You hang on and your business maintains a consistent, if unspectacular, profit year after year after year.

Then some changes hit your industry that force you to cut costs where you can.  Some of that cost cutting comes in employees.  You have to lay off necessary folk and hope that the remaining staff can pick up the slack.  These things have happened before, and you believe that you’ll be able to rehire in a few years.

Only this time, the economy “craters” and a global recession hits.  Every business loses much-needed revenue and products like yours, which are not necessities, sell to fewer and fewer consumers because the consumers have less disposable income.

You anticipate, cutting everything you can, dumping real estate, abandoning rent, maybe even negotiating your way out of some long-term contracts.  At the very end, though, you can’t prevent it: You cut staff to the bone.

Now, in some departments of your business, one person quite literally does the job that five people used to do as recently as a decade ago.  You have no flexibility left.

And then the industry you work in undergoes a technological revolution, one so big, so profound, that it changes the way business gets done.  Because you aren’t flexible, you adapt to the change late.  You can’t hire new employees to help with the shift without firing the remaining good, valuable (and dare we say it), unbelievably efficient employees that you kept when the recession started.  Yet your old employees can’t adapt to the new world.

Worse, this new world requires new systems.  You have to figure out new ways to produce your product.  You need to shoehorn these changes into the existing contracts with your suppliers.  You need an entirely new production crew because the old ways to produce your widgets are becoming obsolete.

And, most annoyingly, you need to develop an entirely new accounting system, because everything you’ve known, everything you’ve done, no longer applies in this brand-spanking new technological age.

But you can’t hire employees who can actually help you develop these systems.  Because those employees won’t earn you any money.  At best, they’ll prevent a loss of revenue. At worst, the systems they develop will cost you money because your suppliers, whom you pay a percentage of the retail price of the product they supply, will realize you’ve been inadvertently shorting them since the technological change hit at the same time as the beginning of the global recession.

In other words, to fix this problem, you will need to invest—in  new employees, in brand new technological systems, in new ways of doing business.  More importantly, you will have to take a huge loss as you make this change.  A loss that might eat into your profits for not one, not two, not three quarters, but maybe for two to three years, something your corporate masters will never, ever allow.

Better to close your eyes and pretend the problem doesn’t exist.  Better to hope no one notices.  Better to keep doing business as usual until profits rise, the recession ends, the world becomes wealthy again, and you can make the changes without causing a series of quarterly losses on your balance sheet.

Better to keep kicking this problem down the road until you retire or move to another company, preferably one which has already solved this problem so you don’t have to deal with it.

Does this scenario sound familiar? It should if you watch the evening news or read a daily newspaper.  Industry after industry suffers a variation of these problems, some caused by inefficiency, some by technological change, and all exacerbated by the worst recession to hit in the last eighty years.

But this blog deals with publishing, and what I just described to you is the situation at traditional publishers—the big publishers, the ones most people mistakenly call The Big Six (there are more than six, but leave it)—all over New York City.

Last fall, I dealt with these problems in depth.  Before you decide to comment on this post and tell me that traditional publishing will die (which I do not believe), read the first few posts I did in the publishing series, starting here.

I’m grappling with the changes in publishing just like everyone else is.  I knew that the changes—particularly the rise of e-publishing—would hit traditional publishing hard.  And it has, although not as hard as I initially thought.  As Publishers Weekly reported earlier in the month, traditional publishers have remained profitable in the transition so far.

The reasons why should sound familiar to those of you who read my earlier posts.  Publishers Weekly puts it succinctly:  “While the improvement in the economy helped all publishers in 2010, companies where profits improved all pointed to two main contributing factors—cost controls and skyrocketing e-book sales.”

Right now, e-books comprise about 10% of the book market, but some analysts believe that e-books will be as much as 50% of the e-book market by 2015.  Some see evidence that e-books will grow faster than that.  A month ago, a Barnes & Noble executive made news when he stated in a speech that e-books will “dominate the market” in 24 months.

We all know these figures are important.  Daily, writers tell me about their careers and then ask me if they should become independent publishers or go to traditional publishing.  As I’ve said repeatedly, I see no harm in doing both.

Earlier this month, however, I opened my mail to find a big fat warning sign of the future.  And if the problem that I—and hundreds of other writers—noted doesn’t get resolved, then traditional publishing will cease to be viable for all writers.

What happened?

I got a royalty statement for backlist titles of one of my on-going series.  The statement came from a traditional publisher.  Let me give you some background.

A few years ago, the publisher refused to buy the next two books in the series saying that while the series had some growth, the growth was not enough to justify the expense of a new contract.  I started writing some novellas in that series and publishing them in the magazine markets while I searched for a new publisher.

Then the e-book revolution hit, and as an experiment, I put up two of those novellas as e-books. Since they were the first two e-books I had ever done, the covers—in a word—sucked.  I did no promotion and no advertising, except to say in the cover copy that these e-books were part of this particular series.

In the first six months of 2010, those badly designed short novels sold about 300 copies each on Kindle, the only venue they were on at the time.  No advertising, bad covers, just hanging out waiting for buyers to find them.

I would occasionally check the Amazon sales ranking (that weird number you see on each book Amazon publishes, the thing they use to compile their hourly bestseller list).  Even though that ranking did not give me actual sales numbers, I did note that the sales of the novellas were less than the sales of the traditionally published e-books on Kindle in the same series.

In August, I wrote to the traditional publisher, asking that my rights revert.  The kind woman in rights reversal explained to  me that she couldn’t revert the book rights because the e-books were “selling too well” to revert.  Okay. All well and good. What I care about is getting books into the hands of my readers. I figured I would eventually be compensated for this.  I just had to wait until the royalty statement hit.

Which it did. At the beginning of this month.

How many e-books did the traditional publisher say I sold? 30.  That’s right. 30.

When the novellas, which had worse sales rankings from Amazon, sold 300 each.

That 30 number didn’t pass the sniff test for me.  So I talked with other writers who have books in the same genre with the same company. The writers I talked with also had some e-book savvy.

Guess what? They had been shocked by how low their e-book numbers were as well, especially in comparison with their indie published titles.  The indie books which had Amazon rankings indicating fewer sales sold more copies than the traditionally published books by a factor of ten or better.

Let me indulge in another sidebar for a moment.  I’m involved with four different indie publishers, two of which allow me to see the day-to-day operations, and one of which I own part of.  We’ve been having trouble setting up an accounting system that works efficiently for more than 100 different e-book titles.  The problem is, in short, that the ebook distributors report sales by publisher and then by title, and not by author, so if you’re published by AAA Publishing and your book is called  The Embalming and I also have an older book called The Embalming through AAA Publishing and they’re both in e-book, AAA Publisher will get sales figures on a daily basis for The Embalming. Which Embalming does that statement refer to?

Also, the e-stributors report at varying times throughout the year (some daily, some monthly, some quarterly), so if I want to know how many copies my book The Embalming sold in March of 2010, I can’t easily get that information because the info might not have been reported yet from some e-bookstore in some faraway country.

What all of the various indie publishers have figured out is that using a standard spreadsheet for each title is labor-intensive.  You can easily input data into a spreadsheet for one or two or even ten novels.  But when it comes to 50 or 100, the data-entry—figuring out what book belongs where and when (even if you use the estributor’s the computerized spreadsheet)—becomes prohibitive.

What we need is a cloud-based system that can be queried.  For example, the system should easily answer these two questions: How many copies did KKR’s The Embalming sell worldwide in March; and how many copies did KKR’s The Embalming sell through Kobo’s out-of-country distribution channels?  Right now, no spreadsheet program can answer that information easily from a pool of 100 titles and various e-book outlets without a lot of man-hours of data entry.

Traditional publishers—and indie publishers, for that matter—don’t have the staff with the ability to organize this wealth of information. Still, traditional publishers must —by contract— report the information to the best of their ability on royalty statements.

To do so, they revert to an old pre-computer accounting method.  The method existed back when there was too much data to be quickly processed. We all learned it in school.  They used little snippets of data to estimate, often using an algebraic equation that goes something like this:   If The Embalming sold (x) copies in January and e-books sales rose on a trajectory of (y) copies over a six-month period of time, then (x) times 6 adjusted for (y) equals the number of sales of The Embalming.

Close enough.  And frankly, I would be satisfied with that, if the number the publisher had come up with wasn’t so wildly off.

For me, in the instance with the traditional publisher I mentioned above, the difference between 30 copies per title and 300 copies per title is pennies on the dollar.  It’s not worth an audit.

But I never think in small terms.  My training in three fields—journalism, history, and the extrapolative field of science fiction—forces me to think in terms of the future.

Right now, e-book rights are a subsidiary right, negligible and relatively unimportant.  Between two and five years from now, e-book rights will become the dominant book right.

If traditional publishers do not change their accounting methods now, then these accounting methods will end up costing writers hundreds of thousands of dollars per year.  (In some writers’ cases, millions of dollars.)

Those of you who have any knowledge of journalism have just looked up and asked, Why the hell did Rusch bury her lead? That’s the story: publishers are screwing writers on e-book royalties.

But those of you who have had journalism careers know why I buried that lead.  When I was a news director faced with a reporter who had brought me information like the information I gave to you above, I would have said, Sounds like a good story.  But it’s all supposition.  Now get me something concrete.  Somthing I can use.

So that’s what I tried to do.  Last week, I contacted dozens of traditionally published writers who also had put up some backlist on their own in electronic format.  The writers who had the information handy responded with actual numbers.  The writers who didn’t told me that they had worried about their royalty numbers when the statements arrived, but had no real proof that anything had gone awry.

I also spoke to some trusted agent friends, several lawyers who are active in the publishing industry, a few certified public accountants, and other professionals who see a lot of publishing data cross their desks, and I asked those people if they had heard of a problem like this.

To a person, they all confirmed that they had. All spoke off the record, none with numbers.  A few hinted that they couldn’t talk because of pending action.

In other words, I got the confirmation I needed, just nothing that a reputable journalist could print.  Most people spoke to me on what’s called deep background, confirming my theory, and giving me some suggestions of places to look, and people to contact.  Several people, mostly writers, spoke on the record, but rather than using their information in isolation, I’ve chosen to keep their statistics confidential and to only go with mine.

Frankly, what I’ve learned is this:

Right now, some—and I must emphasize some, not all—traditional publishing houses are significantly underreporting e-book sales.  In some cases these sales are off by a factor of 10 or more.

This is a problem, but at the moment, not a serious one.  When e-books are 10% of the market, we’re talking a relatively insignificant amount of money per author. As one long-term writer said to me, “Ever since I got into this business, I expect my publisher to screw me on the sales figures.  This is no different.”

If you don’t understand that writer’s point of view, read the trust-me post I wrote a few weeks ago.

In the past, I would have agreed with that writer.  But I don’t in this instance.  We’re at an important moment in publishing.  We have the opportunity to change the behavior of traditional publishers.  We can, with an effort, get them to change their accounting practices.

The reason I started the blog post the way I did is this: I wanted to explain, before I got to the heart of this post, how traditional publishing works.  I wanted understanding before I worried some of you.

Because here’s the truth: traditional publishers are not indulging in a criminal act. They’re doing the best they can out of necessity.  They see no reason to spend precious dollars revamping their accounting systems to accommodate e-publishing when those dollars can be used elsewhere in the company.  Especially when an accounting change will cost them money, and might lead to payouts that will hurt quarterly profits for months to come.

It’s up to writers—and writers organizations—to force publishers to allocate those scarce dollars to develop systems for accurate e-book accounting.

If you are a traditionally published author, do not—I repeat, do not—write a blistering letter to your publisher accusing him of stealing your money.  Instead, contact any writers organization you belong to and point that organization to this blog.

What needs to happen is this: writers organizations need to band together and order group audits of e-book sales on behalf of their traditionally published authors.  One organization cannot handle the cost of this group accounting alone.  It’s better to have all of the writers organizations work in concert here.

A group audit of all the traditional publishers in various publishing divisions will force an accounting change—and that’s all we need.  But we need it before e-books become the dominant way that books are sold.

If you’re a traditionally published author who has also produced some self-published e-books and you want to do more than contact your organization, do this:

1. Look over all of your royalty statements.  Compare your indie e-book sales to your traditionally published e-book sales.  Make sure your comparison is for the same time period. For example, do not compare January 2011 sales to January 2010.

2. Compare similar books.  It’s best if you have books in the same series, some indie published and some traditionally published.  If you don’t have series books, then compare books in the same genre only.  Comparing romance sales to science fiction sales will not work because romance novels always outsell sf novels.

3. If you see a discrepancy, report that—with the numbers—to your writers organization.  Be clear in the letter you send to your organization as to what level of involvement you want in this issue.  Are you only there to provide background information? Will you take part in a group audit? Will you work on this project?

I’ll be honest.  I’m not going to participate in any group action.  Even though I’ve published with every single major publisher in New York, I only have two books caught in this problem.  I’m more interested in getting the rights in those books reverted than I am in insignificant back royalties.

If I was still a reporter, I would spend the month or two going after this story with a vengeance. But I am not.  In  nonfiction, I am just your humble blogger, stirring up the pot.  My career is in fiction, and I have found no problem with the publishers of my frontlist books.  I also have six novels with firm deadlines that won’t allow me to take time away from fiction writing to pursue this.

So all I can offer is a blueprint.

If you’re a reporter who specializes in the publishing industry and you want to tackle this story, e-mail me privately.  I’ll tell you what I can without revealing confidential sources.

If you’re a traditionally published writer, please follow the steps above.

If you’re an indie-only writer, stop gloating and for heavens’ sake don’t tell me or anyone else that this is proof traditional publishing is dead.  The majority of writers don’t want to self-publish, even when told how easy and financially beneficial it is.  They want a traditionally published novel.

Here’s what I believe: If a writer wants to publish traditionally and can secure a contract, then that writer should be treated fairly, with accurate sales reporting and good royalty rates.

Let me state again for the record.  I do not believe that anyone in traditional publishing is setting out to screw writers on this issue.  I do believe the scenario I wrote in the first 800 words of this blog: I think traditional publishers are overwhelmed and stretched to the limit.  Accurate e-book sales reporting is not even on their radar.

Right now, changing the accounting system is not high on their priority list.  It’s up to the writers—acting in concert through their writers organizations—to make accurate e-book sales reporting and accurate e-book royalty accounting a number-one priority in publishing houses across the country.

Let’s work together to solve this glitch before it becomes an industry-wide disaster for writers—anywhere from two to five years from now.

Last week, a few of you asked in e-mail why I have a donate button on this blog.  Also, last week, this blog marked its two-year anniversary. Every Thursday for two years without a miss, I have published an article on freelancing, business, writing or publishing (and sometimes on all four of those topics).  For the first 18 months, those blog posts were part of a book I was writing called The Freelancer’s Survival Guide (which, even though it’s now published, is still available for free on this website).

Initially, I had hoped to make my publishing articles into a book as well, but the industry is changing too fast.  I cannot make the publishing articles into a book that will be accurate in the short time it takes to produce.  So when this month rolled around, I did the numbers like I always do.  When I do a strict economic analysis, I am losing about $100 per week on each post—even with donations.  That’s because I can’t leverage these posts into any other income source.

However, I always ask the next question: am I getting something besides money out of these blogs? Right now, I am.  I would be doing the same research, the same work, and the same analysis with or without the blog.  I would be discussing the changes with my writer pals.  But I would lose the week-to-week contact with writers all over the world, who comment on the blog or in e-mail, sharing their own stories.

And that would be a significant loss.  It more than makes up for the financial loss.  But the donate button is here to minimize some of the financial damage, and to encourage me in busy or difficult weeks to carve out the time to write my post.

I hope that answers the question.  As always, I appreciate the feedback and all of the support.


“The Business Rusch: Royalty Statements” copyright 2011 by Kristine Kathryn Rusch.

 

 

93 responses to “The Business Rusch: Royalty Statements”

  1. […] with receiving royalties from print publishers for ebook sales on Kristine Kathryn Rusch’s blog.  The same argument works with printed book sales but Kristine does not talk about […]

  2. Bob Mayer says:

    Actually, I think the numbers aren’t that far off. There’s a big difference between an author pushing backlist in ebooks reasonably prices, say @2.99 and a trad publisher with backlist they do nothing about selling from $6.99 to $12.99.
    My indie sales of my backlist in one week equal the total of what Random House is doing in six months. So much so, they’re reverting rights to me because, frankly, they don’t care.
    Print rights are indeed going to become subsidiary to erights. Amazon just made a 10 book deal with Houghton Mifflin.
    The worm has turned.
    What will happen is not the death of publishers, but a merging of various forms into something new.
    The real key is the 25% royalty rate from traditional publishers. That can’t stand.

    • Kris says:

      I thought of that, Bob, which is why I checked with other writers and industry professionals before writing this post. Honestly, the number of sales of my e-books from the company that started this for me are not in line with a similarly priced book in the same genre from another traditional publishing house. In that case–and this should scare you–that tradtionally published book outsold the books in the traditionally published series by 50 times in that same time period. In other words, that traditionally published book, price “high” ($6.99) sold 1500 copies in that time period as reported by the publisher–also a traditional publisher. The three traditionally published books, in that time period, were my bestsellers on Amazon, going 1, 2, & 3 for months. The novellas were at the bottom of my “bestselling” list during that time.

      So no, the numbers are not in line with reality, even if you believe that the publisher’s price was too high. (It was $7.99 & 6.99. The other book I refer to above was 6.99. The novellas were 2.99). Other professional writers have reported to me that they have indie books selling in that time period that sold more per day than this same publishing house reported for the entire six-month period. These problems do not exist in all houses (the newer ones seem to have a better handle on the accounting). But this house in particular is seriously, seriously underreporting e-book sales.

      You are right about subsidiary rights. Fascinating the way things are changing.

      I hope some writers with clout negotiate away that 25%. I had hoped Hocking would do it. I haven’t heard if she did. I do know of other good-selling indie writers who walked away from deals because the publisher would not give them more than 25% in e-rights.

  3. Eek! What a mess. One thing I love about your posts is that you’re not “I hate big publishers” – you understand and explain the deeply entrenched problems in the industry.

    But every time I read one of your posts, I end up happier that I’m going the indie route for now. (Although I know that getting reliable sales figures from the various distributors isn’t easy-peasy either…)

  4. Great post and I just tweeted about it!

    I agree with all you say and would add that e-rights reversal is not in the cards, but what about re-negotiating their duration? Say give them for a period of 5 years?

    Because e-rights are, as Konrath and Eisler say, “forever” (or at least 70 years – a very long time) and it’s not fair that traditional publishers should cash in on such a long period when their input has been so small (e-pub costs are minimal)…

  5. Great post! And you’re so right: this is the ULTIMATE battle for writers: if they lose it, e-rights will remain elusive forever. I appreciate the pains of traditional publishers – and I’ve blogged about their problems recently several times (see for example http://claudenougat.blogspot.com/2011/04/is-traditional-publishing-headed-for.html)but I’m still convinced that no one is making gifts to anyone.

    So e-rights reversal is not in the cards but e-rights re-negotiation might still be possible. For example, giving traditional publishers e-rights for a limited period of time – say 5 years.

    Because time here is of the essence. E-rights are “forever” (or at least some 70 years)and that’s the point that should be discussed and fought for…

    • Kris says:

      Claude, just checked out your post. Had to scan because I’m on a deadline this am, but I marked it to return. Looks really fascinating. Like what you said about e-rights expanding the market. I agree. I also agree that we need a sunset clause. Right now we have a velocity clause, which isn’t the same thing. I’m pretty sure, as others have pointed out, that eventually print publishers won’t have the clout that they have at the moment, and will need to give on e-rights percentages. At least, that’s what I hope.

      Alex, the more I write about this, the more I am convincing myself to do a lot of this indie. Although my two current frontlist publishers are still helping the series they publish, so as a fast writer, I feel I can work with them, and not lose a lot of profit on my own. I’m doing both indie & traditional, and at the moment, it’s working. (I say at the moment because things are changing so dang fast!)

  6. Christian K says:

    Just had a rather chilling thought while running errands… Well chilling for the publishing industry. What if the numbers are correct? What if, for whatever reason, Kris is ten times better than a publisher at moving units? It could be price, 2.99/4.99 vs 9.99/12.99? It could be fan loyalty. But what if it isn’t an accounting mistake? What if for every 30 units a publisher can sell, the author can sell 300? What would THAT mean to the publishing industry?

    See I can write a non-epic comment! 🙂

  7. Mike Shatzkin, though he doesn’t use the work “precedent,” seems to think the Amazon/Houghton deal is something new:

    “We’re in a period of transition. Houghton’s deal, just like Barry Eisler’s decision two weeks ago to decline a half-million bucks from a house so he could self-publish, are first times for business practices that will soon be normal.”

    http://www.idealog.com/blog/its-official-putting-books-in-stores-is-a-subsidiary-right

    If Amazon is now licensing print-only rights to a traditional publisher, that seems to open the door for similar deals with smaller publishers (like, say, WMG).

    So there does seem to be a way around traditional publishers’ refusal to break out ebook rights. Publish the ebook first, through your own publishing company, then license the print version as a subsidiary right to get into the big chains.

    And while that’s always been an option in theory, I hadn’t yet noticed this happening in practice.

    As for the Copyright Handbook, I do own it but haven’t looked at it in years. It’s in a box somewhere because I’m moving, but I should probably give it another look in light of the new publishing landscape. 🙂

    David

    • Kris says:

      It is something new, David, just not what you said in your first post. Now print rights are subsidiary rights to e-rights. That’s what’s new.

      Amazon started its print arm because of the success of e-rights. These books were picked up by Amazon print because the e-books sold well. You do realize that those books in that deal have already sold e-rights to Kindle exclusively, right? So the e-rights are sold now. They became exclusive when Amazon did the print rights. So it’s new in that e-rights and success in e-publishing initiated these Amazon book deals, but HMH deal is just an old-fashioned subsidiary rights deal.

      And I stand by my earlier statement. Right now, no traditional publisher–on the primary deal (not the subsidiary rights deal) will make a deal without e-rights. That is still a deal breaker for the primary deal. Even with Amazon.

  8. Great post, Kris. It really worries me as a new writer, I have less to gain and a whole lot more to lose through traditional publishing. I’m still sending novels to them, but I’m certainly pushing harder on my indie side.

    Tom

  9. Hi Kris,

    You can read the original AAP press release here: http://www.mediabistro.com/ebooknewser/ebook-top-trade-publishing-format-in-february_b9154#more-9154

    And I blogged about it here (with a link to this article, I hope you don’t mind): http://davidgaughran.wordpress.com/

    Dave

    • Kris says:

      David G., of course I don’t mind that you cited this article. I want the news to spread, so I appreciate everyone letting others know about this.

  10. Christian K says:

    Just thought of a good analogy… let’s say you’re mechanic and you need a new tool that’s specific to the make of the car. And you know that nationally, Ford accounts for 10% of the auto industry revenue.
    Do you buy the Ford tool for your shop? Do you have enough information? 🙂

  11. And another interesting analysis of the AAP numbers, one which includes an estimate for indie/small press ebook sales that places the ebook percent over the 1/3 mark: http://ebookcomments.blogspot.com/2011/04/february-2011-ebook-sales.html

    Interesting stuff.
    Now, Mike Shatzkin said that the breakdown of print publishing happens when ebooks reach 20-25% – at which point, print publishers lose the economy of scale to produce books at their current cost, and have to raise price, which Shatzkin predicts pushes more people to ebooks, resulting in less print sales and higher print prices, etc. Eventually print stabilizes roughly at POD pricing, but it probably kills the mass-market paperback, or nearly so.

    If ebooks really hit 29-34% in February, we’re past the Shaktzin Point already.

  12. Christian K says:

    (Epic comment warning)

    On Accounting…
    One thing to note is that most of the “heavy lifting” in cooperate accounting is performed by what are essentially interns and temps. The person who is downloading the file, and doing the data entry probably doesn’t even know what they are looking at, and because on the global report, the “big picture”, confirms assumptions (10% ebook sales) no one looks any closer.

    On 10%…
    One thing that really bugs me is that 10% number. Even if the “true number” is 25%, the number is meaningless to most authors. I’ve been sitting here for 15 minutes trying to figure out how to explain this, hope thing makes sense. In my day job I see a lot of statistics like this. Where someone is trying to provide relevant information by providing non-revelvant statistics. If I was paid as an analyst to figure out what that number meant, this is what I would look at…

    What is that number exactly? 10% of the money spent by consumers buying products sold by members of the AAP is spent on ebooks. That means it’s in money earned by publishers net sales, not gross, and NOT units sold. It means it’s also the experience of some specific publishers, not small press and not self publishers. Now let’s look for things that would effect that number, i.e. WHY is it 10%, not 2% or 50%.

    First thing I would look at is what markets are under represented in the membership of the AAP. If you look at the membership, it looks to me that a number of Romance (specifically digital first) and SciFi/Fantasy publishers are missing. I really don’t know, the corporate structure of the publishing industry is… well “interesting”… so it’s hard to tell.

    Next thing I would look at is vender mix, how much of that number is the result of units sold by Amazon, or B&N, or Borders? Is that jump from 10% to 25% for Feb caused by Borders? Did we suddenly loose a major player selling pBooks, but that continued to sell eBooks? Did that major player stop paying the publishers, so that their numbers wouldn’t have been reported? ummm yeah, but how much did that effect those number, no clue.

    I would look at Author mix how much do Patterson, King, Rowlings, Meyers, and other Best Sellers weigh the scales. How much of the total was earned by Best Sellers? If Patterson is selling 80% ebooks, does that mean that ebooks sales only account for 5% of the “non-best-sellers” revenue? If Rowlings doesn’t sell ebooks does that mean that the “non-best-sellers” percentage should be 50%? I use those as examples illustrate a point, best sellers can move that number, most midlist writers can’t. In fact if Patterson and Rowlings earn more than all the midlist put together, the midlist could be 100% ebooks and that 10% would still be 10%.

    Also it’s sensitive to accounting practices, is there a middle man between the publisher and the vender, does the publisher subtract certain expenses before they book that revenue? Are those accounting practices different between eBook and pBooks?

    Finally I would look at what that report completely ignores… Hocking, Konrath, Locke, Nicholson, and other self published authors. It also ignores international book sellers.

    My guess, and it’s only a guess because so much of the information is missing, is that the 10% if pretty much meaningless, for the average author. When an author is trying to figure out how to manage their business, what they need to know is what to expect for the average author. That 10% doesn’t tell that author anything useful, which is very unfortunate.

  13. Kris, I don’t think it’s the case that 10% is the only verifiable data. The issue is that that 10% includes all the business the publishers are doing. It’s not 10% of fiction sales, not according to the numbers the AAP has been reporting for a long time now. People close to publishing love to throw out that 10% figure because it makes ebooks look insignificant (it used to be 5%, or 8%, etc.), but it’s a very misleading figure because it doesn’t refer to the overall percentage of *fiction* sales.

  14. “Because here’s the truth: traditional publishers are not indulging in a criminal act. They’re doing the best they can out of necessity.”

    To me, theft is a criminal act whether through willful manipulation of the numbers or sheer negligence of keeping up with them. Either way, the publisher is keeping money that does not belong to them. A well-meaning publisher, a good person even, can still steal from an author by neglecting to maintain proper business practices. That’s how I see this. Don’t know how a court would interpret the law, precisely, but this is going to lead to litigation eventually.

    • Kris says:

      David, yep, litigation will happen. But in civil court, most likely, not criminal. There are different legal standards, which is all I’m talking about here.

  15. APP press release is here: http://www.publishers.org/press/30/
    And an interesting analysis, including a bit about how much things have changed in just two months here: http://write2publish.blogspot.com/

    • Kris says:

      Kevin, thanks for all the links. It wouldn’t surprise me if we hit 25-35%.

      And again, everyone complaining about the statistic, I only use the industry statistics in this blog. I am using information I can verify, because I was (and still am at heart) a reporter. It may be that e-book sales are higher, but when I wrote that piece (2 whole days ago), the only number I could verify was 10%. And if you don’t understand why that’s a bogus number, even if it’s the only verifiable one, read Christian’s truly excellent comments on how statistics can be misused. He’s right; numbers can lie, if someone knows how to manipulate them.

  16. Shawn says:

    Haven’t read the comments so this may have already been addressed, but why do they track by title name instead of ISBN? Wouldn’t ISBN be a better way of making sure the sales numbers relate to a specific book rather than potentially commingling sales numbers for multiple books that happen to share the same title?

  17. Oh, another thought. Authors don’t have to go it alone. Go to the Federal Trade Commission. They exist to investigate crap like this, and they wield a BIG stick.

  18. To jump on what Debora said, you probably wouldn’t even have to do the legwork to figure that out. Just ask Amazon, et al, for their sales numbers. They keep records (apparently better than the publishing companies do). They might balk at sharing their ranking algorithms, since they’re trade secrets. But if this comes down to legal action (and it sounds like it might), the courts can, and should, compel them to share sales at least. That’s all you’d need to make your case. I’ll bet a couple letters on big-name legal letterhead might get those numbers before courts got involved at all. Hell, Amazon might pony up without legal prodding. It might be their interests. More ebooks sell when prices are lower (at least by Konrath’s experimentation, anyway). More sales = more take for Amazon. Evidence of publisher malfeasance might mean more authors going the independent Amazon route. Therefore more ebooks priced lower. Therefore more sales. Sounds like a win for Amazon. Just a thought.

    • Kris says:

      Michael K, you are right. This will end up in court. Which is, again, why I want writers organizations to do this, and not individual writers. If the organizations do it, the court cases will have an impact on all writers. If a single writer does it, it will only have an impact on that writer.

  19. Just Passing Through says:

    Ah, to a be a writer in the 1920’s and not have to worry about ebooks, social networks and your agent would handle all your royalty statements (with a Cuban cigar in one hand and a martini in the other) so that you could write in Paris while drinking bath tub gin with the Fitzgeralds.

  20. Kris said, “refusing to sell e-rights is now a deal-breaker in traditional publishing.”

    One of the other interesting bits of news today is that Amazon is sold trade paperback rights to 10 titles to Houghton Mifflin Harcourt, without giving ebook rights.

    http://www.publishersweekly.com/pw/by-topic/industry-news/industry-deals/article/46867-houghton-mifflin-harcourt-in-10-book-deal-with-amazon-imprints.html

    Of course, that’s Amazon not an indie author, but Amazon/Houghton were also co-bidders for Amanda Hocking’s next series, with Amazon taking digital and Houghton taking print. Amanda Hocking and her agent decided to go with an underbidder, St. Martins.

    In any case, there is now precedent for splitting print and ebook rights.

    Interesting times.

    David

    • Kris says:

      Um, Dave Wisehart, that’s not a precedent at all. Amazon just licensed a subsidiary right. This is an old-fashioned deal. Once upon a time, different publishers published hardcovers but didn’t publish paperbacks. So they licensed the paperback rights to another publishing house. Apparently, Amazon doesn’t do trade papers. So they licensed the rights under to HMH. This is industry standard, and if the writers have an industry standard contract, they got 50% of the money from that sale. Again, this is no different, nothing new, nothing changed. If you don’t understand what I’m talking about here, get the Copyright Handbook.

      Actually, a closer read of the article says that Amazon (like Hocking) wants to use HMH to get into more retail markets. That’s why Amazon licensed the trade rights when they could have done the book themselves. Think like a business owner, folks, because publishers/retailers certainly are.

  21. Debora Geary says:

    Indie authors might have something to offer here. We know our sales number and our rankings. I have one book floating around 3,000 right now on amazon, and a couple in the 10,000 range. I know what those books sell in a given month (and some months are slower than others, seasonal factors). But I suspect that with data from several indie authors or small indie publishers, you could have a table that translated sales rank on amazon to sales on amazon (with some room for error, but certainly not a factor of ten). That might make it easier to start to quantify the problem, which publishers have the biggest error margins, etc…

    • Kris says:

      You’re right, Debora. I think it’s time for all writers to stop talking at each other about this, and to start sharing info from both sides of the fence. Thanks.

  22. Great insight here, Kris (linked to you from my blog for this). Heard about this from Mike Stackpole yesterday, and you and Dave Farland today. Crazy stuff.

    One quick thought, though: AAP just released new numbers today for ebooks, saying that they had hit 29.5% of combined digital/print book sales in February. That’s up from 8.3% in December.

    I don’t think publishers have til 2015 before ebooks hit the halfway mark. I’m not sure they have until 2012.

    • Kris says:

      Kevin, thanks for the info. As I mentioned, I’ve been away from the computer all day. (Glasses took longer than expected.) Can you send me the link for AAP numbers? Thanks!

  23. Thanks for this post. This is a great first cut at investigating the matter.

    One thing you said which I should make a note about — you said that there are no criminal acts involved. Unfortunately, this may not be the case for publishers who are publicly traded in the US, or who are subsidiaries of publicly traded companies. A failure to maintain strong internal financial accounting controls could run up against section 404 of the Sarbanes-Oxley act, which was the post-Enron act to tighten regulation on business. If the financial errors ever amount to a “material misstatement” (the meaning of which is determined by the court) this could lead to significant penalties against the company, and if there is evidence that the senior officers of the company were aware of this and attempted to cover it up – and the law is deliberately fairly strict about how much those officers are expected to know – those officers would be criminally liable.

    Which is not at all to say that I think that they ought to be prosecuted for this; but the reminder that this is a potential SOX violation could be a very effective way to get the attention of not only the publishers but their parent companies focused on the problem.

    • Kris says:

      Yonatan, thank you for your post. I’m not versed in corporate law, but I did have a vague recollection about accuracy of internal finances and publicly traded corporations. Thanks for confirming my hunch.

      Those of you who have contacted your various organizations should probably add that the organizations should read Yonatan’s comment as well. It’s important. It will, as you say, Yonatan, get the parent companies’ attention.

  24. I figured I had discrepencies and just received royalty statments this past week. Yep–big discrepencies. I just want my rights back to my books. I won’t get them. They are still selling in print and in e-book format (although by my statements you wouldn’t know that so much). It’s ironic how I can sell in more in a day with my self published book in electronic form than I can in a royalty period with traditional publishing. Yes, they price my books much higher than I do, but still…I have to question.

    Thanks for the information.

    • Kris says:

      Ah, Michele, we probably received royalty statements from the same company. Yep. Glad you’re looking at them closely. Glad you’re questioning.

  25. David Farland talks about this in today’s “Weekly Kick” email. He recaps much of what you said here, and sums it up by stating, “In such a world, authors really may have no choice but to walk away from the New York model.”

    David

  26. John Walters says:

    Kris,

    I think your idea of going through writers organizations is viable but – as far as I have observed, because of the nature of the beasts, these organizations, no matter how well-intentioned, move at glacial pace. I have followed SFWA in various litigations, negotiations, and so on, and though I have a lot of respect for the individuals who volunteer to help on the various committees there are quite a few factors that tend to slow them down. First of all, writers are a very ideosyncratic bunch; each has his or her own opinion of how things should be done. In additon, the fact that they are volunteers slows the process down even more, as this is not their primary occupation. You do a blog once a week and fret about writing time lost – how about these people who spend many hours at frustrating negotiations? Plus, as you have pointed out, they are up against a behemoth of an industry that does not suffer suggestions of change kindly and needs a huge amount of space and time to turn around and head in another direction. Eventually change must come, but it will not come tomorrow or any time soon. I’m not saying writers in traditional publishing shouldn’t mobilize – they should, but they should be aware of what they are up against.

    Having said that, even with the knowledge of what you have stated above, I would under certain circumstances consider a decent offer by traditional publishing, but I would go into it with eyes wide open and definite goals in mind – one of the most important being to take a chance on creating a splash, finding new readers, and publicizing my self-published books. I would just need to weigh in the balances what I would gain against what I would lose. However, note that I said consider, and not jump at, such an offer; they’d have to want me badly enough to offer decent terms.

    • Kris says:

      John, good post, especially the “eyes wide open” part. Exactly. I worry less about the glacial aspect. I want writers to have as much clout as they can going into this fight, and that means banding together. Since the organizations already exist, they should be put to good use.

      Thanks, David. See Dave Farland’s comment below. 🙂

  27. Also, Kris, on that 10% figure for ebook sales. I’ve heard numbers more like 20-25% of fiction sales are with ebooks, and based on the February AAP numbers, I think the figure must be even higher than that.

    Ebooks outsold adult hardcovers + mass market paperbacks for the first time ever in February.

    • Kris says:

      Moses, I’ve heard those numbers too, but I didn’t use them because, as I’ve said, I try to use only verifiable information in this blog. Right now, the verifiable info is 10%. I suspect that in a few weeks, we’ll see some believable statistic about the 25%. I also think you’re right about 2012. This revolution is happening quickly.

  28. Thanks so much for writing this, Kris. Scary stuff, and I believe it’s probably true. I remember hearing from Brandon Sanderson in early 2010 when he was saying he wasn’t selling that many ebooks (at Superstars Seminar I). At that time, I knew some indie authors selling thousands of copies a month, so I thought then that something smelled rotten in NY.

    On another subject, for anyone interested in the Apple vs Sony Ebook App battle, the one that has possible implications for Kindle and Nook apps, which could affect our royalties, I researched the issue and wrote a blog post about it.

  29. Kris,
    I may feel sorry for the big NYC publishers and the difficulties they have doing accurate royalty accounting, but at least in the case of my contracts, they have a contractual obligation to provide such accounting. If they do not, they have not fulfilled their contractual obligations, and I can now recover any or all rights covered by that contract.

    If I’m satisfied with the crummy job they’re doing, I don’t have to recover my rights, but that’s my choice.

    Over some fifty years, I’ve encountered dozens of royalty accounting errors with at least 6 NYC publishers. Curiously, every one of those errors meant that I was being shortchanged. Do you wonder why I’ve recovered all my rights for more than 50 books?

    Now all (hah!) I have to worry about is the royalty accounting by Barnes and Noble, Amazon/CreateSpace, and Smashwords, plus a few tiny outlets. It’s still a worry, but it’s something that may prove more accessible. We’ll have to see, however. History isn’t terribly encouraging.

    • Kris says:

      Thanks for the good post, Jerry. You’re right about getting reversions and making decisions for each and every writer. I’m thinking more and more that if you sell a book to (certain) traditional big publishing houses, that book’s advance is all you’ll ever get. You have to be ready to be satisfied with that if you go into traditional publishing.

  30. Frank Hood says:

    My wife has only 2 works currently and only on Amazon. One reason I had her put her works only on Amazon was that it was manageable for me to keep track of it and understand only one contract. I know Dean would beat me up for leaving money on the table by not using Smashwords, and I’m rolling that around my noggin for something to work on.

    I hadn’t thought about how hard it is to keep track from a publisher’s perspective given Amazon’s current reporting system. Amazon knows better than this however. They are, after all, a technology company. Each book has an unambiguous XML identifier in their system–at least the ASIN is tied to all the book information. I know there’s an ontology for books that should enable a web service reporting methodology. I have some expertise in this area, so feel free to contact me via email if you and fellow writers want to plan an approach to this problem.

  31. One factor to go along with your statement that publishers are not deliberately attempting to defraud authors is that their biggest selling authors, the ones with the huge advances, seldom earn out. They never expect to collect royalties. So publishers aren’t overtly concerned with tracking ebook royalties when in theory, their authors have already been paid.

    But I do agree with everything you’ve said. They simply do not have the personnel to develop the necessary software for sorting this out. My publisher sends royalty statements tracked by ISBN# and the statements have become ridiculously long to include different numbers for every freaking e-book outlet in the universe. I’m an accountant, and I’d still go bananas if faced with the nightmare that has become ebook accounting.

  32. Nancy Beck says:

    I’m not traditionally pubbed (will be stepping into the self pub pool soon), but I tweeted this, with a link to this post.

    Thanks for all the info.

    • Kris says:

      Thanks for the RT, Nancy.

      Patricia, thanks for the post. I tell my accountant friends about this all the time, and it puts their hair on fire. They’re all happy that they aren’t part of publishing at the moment. 🙂

  33. Kris, I think that there is a pattern of abuse on e-rights that goes much further than this. We have some publishers printing e-books of work that are out of print and not even bothering to pay the authors. We have one publisher pretending that they have all e-rights to any book they’ve ever written. Another romance publisher has just announced to anyone who tries to get a reversion that they’re novel will be entered into an “exciting new e-book program” which will of course only pay the author 15% royalties, no doubt.

    This is a typical corporate grab going on, not an accounting error. Publishers are losing money hand-over-fist in the traditional book markets, and the only way for them to stay afloat is to take as much money as they can from our e-rights. Given that, the only way that they will pay it back is after a long battle, during which time, they intend to keep our money.

    It’s the old thing that happens with the pharmaceutical markets. They put out bad drugs, knowing they’ll get sued, but hoping that they’ll come up with a real solution to their financial problems before they have to settle. Same thing is happening here.

    Hate to sound so cynical, but given the data points, it seems rather obvious.

    Dave Wolverton/aka David Farland

    • Kris says:

      Dave W., you’re not cynical. You’re correct about the rights grabs and the illegal usage of OP works, but that’s a different problem. The rights grab is blatant and clear, and too many writers just roll over when it happens. I should probably blog about this.

      The accounting problems come from a different part of the business and for a completely different reason. It is, as Patrick said below, an in-house corporate issue. I would wager that if any traditional publishing editors/publishers/vps read my blog today, they headed to the accounting departments to find out what really is going on. In big companies, different divisions behave independently of each other. The accounting problem is different from the rights grabs.

      I’m not defending either, just saying you shouldn’t mix your apples and donuts as you fight the various issues.

  34. Patrick Alan says:

    Accounting systems fall under IT costs. The reality is, no one has been spending on IT costs for the past 3 years because of the market crash. At companies the size of the big six, the average CIO’s tenure is between 18 and 24 months. Replacing the entire accounting application probably takes up to a year to evaluate vendors and then a year to implement/convert existing info. These time lines are probably extended due to understaffing in a tight market.

    What do you think the new CIO does to existing projects when taking over?

    Another weird thing is, most large companies evaluate the cost of the upgrade/conversion/implementation but have no way of assigning a cost to not upgrading, so a project that may pay for itself in two years gets shelved because of short term budget and concerns over quarterly reporting in a down market where small numbers mean everything.

  35. This is why I warn my authors to ignore Amazon rankings. The fact is, they’re worthless as a way of determining actual sales because actual sales are only one of a myriad factors that are utilized to determine ranking.

    You could conceivably sell one book and jump to the top of the rankings.

    There is a program called Dashbook that was specifically designed for use by independent ebook publishers back when everyone else was designing royalty software with the traditional industry in mind: http://www.dashbook.com.

    There is also an excellent online service, http://www.jaya123.com, that while it’s also designed for the traditional industry was also designed with small presses in mind.

    Please note I have no financial involvement with either of these companies; I’m just familiar with their products and find them useful.

  36. […] Note: More on the ebook royalty problem from Kristine Rusch. […]

  37. J. Killick says:

    I support indie publishing, but I also want traditional publishing to survive, albeit in a renewed form. So this news saddens me. In these changing times, publishers need to maintain the support of writers. This sort of thing, clearly, doesn’t help.

    Perhaps it is time for publishers to get together and liaise with ebook sellers to find an accounting / reporting system that works for everyone. After all, authors, publishers and retailers all want the same thing at the end of the day – to make a living by seeing good books in the hands of readers.

  38. JR Tomlin says:

    Great post as usual, Kris.

  39. Hi. Interesting post. 🙂

    I think that a solution to this could be a contract where the author keeps the e-book rights and distribution. A good lawyer could find a way to put such a clause in a contract. And if the publishing house wants to sell e-book versions of a particular book, that should go through the author.

    In other words, the author to sell the e-books to the publishing house at an estimated monthly amount or something like that (for the moment it’s just an idea that occured to me when reading your post above, I haven’t examined it as an auditor yet).

    • Kris says:

      Irene, great idea. Writers have thought of it, agents have tried to negotiate it, but refusing to sell e-rights is now a deal-breaker in traditional publishing.

      Thanks for the links, Elizabeth. I do know that Amazon rankings are weird. But a wide variety of my deep background sources tell me that they have audited some big traditional publishers who shall remain nameless and there is a significant pattern of underreporting going on. I wouldn’t have written the blog if there was any evidence to show that I was wrong here. I’m afraid that the evidence all points to a very deep problem in traditional publishing, and it is so severe, I couldn’t keep quiet about it, even though I am unable to do all of the work to get two on-the-record sources for each number. (The minimum needed for my journalistic training.) I reported what I can, and I do hope that the organizations & others will pick up the gauntlet here.

  40. An Onny Mus says:

    Amazon Kindle gives the data in spreadsheet form, too. (Somewhat to my annoyance.) And it’s per-book, if you’re self-publishing in the Kindle store. It can get pretty tedious to go clicking along… I’m rather appalled they don’t have better interfaces for “real” (traditional) publishers!

    I also wonder if the publishers are estimating, not the actual e-book sales, but via extrapolation of the e-book sales from the physical book sales, at a rate determined back before Kindle (let alone Nook, iPad, etc.) became such common household names. 3,000 sales = 30 ebooks, right? Bleah.

  41. Jason says:

    Wow, what a great article. Thank you. I’m an aspiring writer who just finished writing his first book. And up until a month or so ago, I thought that my only option for publishing and making a name for myself was through traditional publishers.

    I was delighted to read about the rise and popularity of e-books and indie-publishing, and how profitable and fair it can be. I’ve always believed that the people should be the gauge of what is good to read and what isn’t, as apposed to the publishers forcing books down our throats saying “this is the best book since (enter title here).”

    It’s naive to think that the traditional publishing companies always know and do what’s best for our books; mistakes are made. After all, they’re people just like us. I’m just happy that I have another (hopefully more profitable) option to choose from.

  42. Jeff says:

    They’re not setting out to screw writers, but as Bartcop’s Law #2 states, when someone makes a mistake that puts money in their pocket, they will continue to make that mistake.

    • Kris says:

      Great posts, everyone. I spent the day getting new glasses and came home to a lot of comments. Wonderful stuff here. I’ll see what I can answer.

      Jeff, I like Bartcop’s Law. Niiiice.

      An Onny Mus, I hate to say it: You’re probably right. That’s probably how the accounting is done. Which is very, very sad.

      Patrick, thanks for the corporate reality check. So many folks who visit this blog don’t work in the higher levels of corporations and therefore don’t understand the rather unique environment that they create. Good post.

  43. Jennifer says:

    I may be stating the obvious here, but there’s an easy way to solve the problem of accurately and easily tracking sales: stop using a spreadsheet to track the data and start using a database.

    • Kris says:

      As I said, Jennifer, that is correct. However, who is going to change all of the systems in traditional publishing? The accountants? That’s where hiring new people comes in, and traditional publishing is not going to do it until forced.

  44. Great setting out of the problem! With actionable potential solutions to boot. I love that your posts include the analysis of the analysis as well.

  45. Another good and informative post. Thank you!

    Allow me to relate a story: I sold my first novel to a small press some years back. Over time they chose to go in a new direction, leaving me out. I asked to cancel my contract early and they did so. Six months later I got a check from the press for the full retail price of the novel. An ebook copy had sold through a ebook retailer that didn’t pay them for some time after the contract was cancelled *and* they had informed the retailer to stop selling the novel.

    • Kris says:

      Thanks for the comments, everyone.

      Really good point, Ron. I pulled my e-books from a gateway e-book site last June, and I’m still getting royalty payments trickling in. That’s one of the many reasons it’s hard to track according to NY contract language.

  46. Lynn Crain says:

    I’m thankful for that look into traditional publishing. It is very informative. I also like what you’ve said about ebook royalties but would totally take a different stance since those royalties are my bread and butter. To be honest, that’s the only thing you don’t mention and there are those of us who depend upon our ebook royalties to make ends met and more. If I thought my traditional publisher was stiffing me on those, I would get an audit.

    Thanks for putting it all here for us to see.

    Lynn

    • Kris says:

      Lynn, this post is really for traditionally published authors. Right now, it is a subsidiary right to them. You and I both know how big e-royalties are, which is why I’m pointing this out. Most traditionally published writers have no clue.

      As for audits, yes, a traditionally published writer can do it, but it is financially prohibitive. That’s why I’m telling folks to go to their writer’s organization and volunteer to be part of a group audit. That way, the writer isn’t covering the expense. And the numbers of writers involved will make a difference to traditional publishers if writers organizations go at this together.

      So writers! Do this! There’s a lot of money involved for you. 🙂

  47. Kris,

    Thanks for another great post. Wow, I’m amazed. It seems like it shouldn’t be that hard to get the accounting right. Hope this gets worked out quickly.

    I have to take exception to your description of corporate behavior and thought process, though. You’re falling into the “Corporations only care about the quarterly bottom line” meme, which is simply untrue. It seems to go hand in hand with the “all Corporations are inherently evil” meme that many seem to kneejerk to.

    Yes, corporations care about quarterly profits and losses. Good governance dictates that they should, and government reporting requirements force them to. But all corporations and businesses, from the smallest startup to the largest multi-national, have long-term strategic plans. They all routinely take on multi-year projects that will cost money, and maybe make them unprofitable overall, in the short term in order to earn a profit in the long term. We see it all the time: a new automobile assembly plant, a new product launch, you name it. A business couldn’t survive otherwise. You think Apple spontaneously pulled the iphone out in 2007 and made instant $? No, it took years of R&D and investment before they made a single penny on it.

    I think the explanation for what you’re talking about is more simple, and less trite. I’ll give you an example, from my job in the Navy. We often, at the operational level, have ideas for new processes or procedures that we think could make things run better, improve working conditions for our sailors, or make it easier to kill Commies for Mommies :). Some of these things we can implement ourselves, but many require approval from higher in the chain of command. Here’s where the problem comes in.

    Let’s say I’ve got a great idea, and I pass it up to the Admiral for approval. It has to go through layers of underlings and jump through bureaucratic hoops to make it to his desk for approval or disapproval. He’s a pretty busy guy, with lots of plates spinning in the air. His staff has to filter what reaches him pretty carefully, or he’ll be completely swamped. So what will happen a lot of the time is that a staffer will make a decision on a proposal without ever talking to the Admiral about it. Maybe it’s something the staffer was deligated to do, in which case, no problem. But sometimes, it’s something that the staffer thinks he knows the Admiral’s mind on, or something that might just be too hard to pitch to the Admiral (maybe because he might react strongly to the idea and the staffer doesn’t want to get flame-sprayed). So the staffer will just reject the proposal and think nothing of it. But the decision, which should have been made by the Admiral, got made WITHOUT THE ADMIRAL EVER HEARING ABOUT IT. By assuming the boss’ answer, the staffer never gave the proposal a chance for approval.

    How often that really happens, I don’t know. But I suspect it happens a lot. I guarantee every other larger organization (like a big corporation or conglomerate) has similar things happening. There are layers upon layers of staff between the front line storefronts and the CFO or CEO. All sorts of things never make it up to them that should. Why do you think so many executives want to go on Undercover Boss? Sure, it’s probably good PR for their companies, but it’s also an invaluable look into what’s REALLY going on in their businesses.

    It defies logic, from my perspective, to think that the CFO of a big conglomerate, if presented with a logical, well-presented and documented long-term plan for how to overcome the problems you’re talking about, complete with expected costs and cash flow benefits, would reject the proposal out of hand just because it would make the next couple quarters look bad. Now, if the projected cash flow after the improvements wasn’t up to snuff, that’s another matter entirely. But I wonder whether the big decision makers have even been pitched a proposal or not.

  48. Very thought-provoking post. I suppose I could quibble about certain details, but I have little doubt that your overall points are correct. I am not traditionally published, only indie-published, so I can’t take part in this, but it makes sense.

    Let me add one suggestion – for these purposes, it is obviously of value to keep a record of your historical Amazon ranks for all your books. There are several different ways to do this, but the one I use is a site called novelrank.com. It’s free, you just have to enter your ASIN for them to start tracking. So this may not help with past data.

    As I mentioned, novelrank isn’t the only way to do it, the important thing is that you keep track of the rankings. Keeping track of them on the Nookbook store probably also makes sense, though I’m not aware of an automated way to do it. Most successful indie authors are pretty familiar with keeping track of their rankings, but I imagine many traditionally published authors who are only very recently coming to self-publishing e-books may not be.

    One final note – I think this will become a problem for more than just writers if it is not addressed. This could be a “straw that broke the camel’s back” for publishers kind of thing if the situation is as dire as you indicate (and I have no reason to think otherwise). So if – as you note – most authors want something resembling the traditional model to continue, they definitely need to push on this sooner or later. Yes, authors have always assumed they’d be screwed on the numbers. But the size of these discrepancies makes this a bigger problem, and lawsuits will undoubtedly be lost if it is widespread, provable, and not addressed, regardless of contractual language about “the best of their ability.”

  49. Stackpole talked about this on his podcast today as well, and shared some of his numbers. Quite shocking — but not unexpected. Thanks for the deep background!

  50. Great post with a lot of information that can help writers. This is definitely something publishers must get right–they would if they were the ones losing money.

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