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.