The Business Rusch: The End of Reversion Clauses (Deal Breakers 2012)
Dean Wesley Smith and I have spent a good part of this summer teaching, as well as talking to other professional writers. One thing we discuss is the history of the business because it helps us understand how we got to where we are.
In the beginning, publishing was a handshake operation. Writers and publishers were often friends who lived and worked in the same town. If one of them broke the handshake agreement or worse, committed some kind of dishonest act, the entire town knew and would side with the person wronged.
That attitude toward publishing extended well into the last century. After World War II, a lot of publishing houses, particularly paperback publishing houses, started in of the apartments of writers/editors/a few book lovers with money. And once again, everyone knew everyone else, and believed they could trust each other.
Still, by this point, most every business dealing had a contract at the center of it. The contract was pretty simple, essentially licensing rights for a limited time for a certain amount of money. It was a formality spelled out the terms of the handshake agreement or, as it was called then, an agreement between gentlemen. (We women were honorary gentlemen, I suppose.)
Interestingly, to me, the history of publishing—and the science fiction field in particular—contains a lot of books outlining the perfidy of those publishers who dared violate these agreements. And/or the writers who took advantage of their friends—getting contracts for them under one writer’s name, then having the story ghostwritten, and the ghost writer receiving only a small amount of money.
Even when you look at these handshake and gentlemen’s agreements, you see a lot of fudging going on, not to mention a great deal of stealing, outright lying, and some rather nasty personal behavior.
Which brings me to Harlequin. This month, three of Harlequin’s authors filed a class action suit alleging that Harlequin used what was, essentially, a shell game to avoid paying proper royalties.
In contracts issued from 1990-2004, authors were to receive a 50% split with Harlequin on the net amount that Harlequin received on e-book rights. The dates are significant, because in 1990, e-books barely existed. In late 2004, all publishers changed their contracts to get rid of this 50/50 split. (Collusion, anyone? How did all of the major publishers manage to do that at the same time?)
There were a couple of problems in the old Harlequin contracts. First, if the books were sublicensed out—meaning the rights were licensed to another corporate entity—then the author was only entitled to one half of 6% to 8% of cover price, whatever that was.
Here’s the problem: Harlequin created a Swiss company and then sublicensed the rights to that company, as if that company belonged to someone else entirely. Harlequin then paid the authors the lower rate instead of the 50%.
If Harlequin never touched the books again after mailing the files, this might not have been a problem. However, Harlequin continued to produce the books itself or, as the complaint states, “performed all the publishing functions related to the agreements, including exercising, selling, licensing, or sublicensing the e-book rights granted by the authors.”
The result? Authors got paid at a significantly reduced rate. The accompanying material uses this example, “What this means to the authors can be illustrated by an e-book with a hypothetical cover price of $8.00. The ‘net receipts’ made by Harlequin Enterprises Limited from the exercise, sale or license of e-book rights would be at least $4.00, of which authors would be entitled to $2.00 based on their 50% royalty. Computing the “net receipts” based on the “license” between Harlequin’s Swiss entity and Harlequin Enterprises, Plaintiffs’ 50% royalty amounts to only 24 to 32 cents.”
Harlequin claims it has done nothing wrong, and that it was blindsided by the complaint. This is merely a CYA statement, produced by lawyers, having more to do with the court case than with the actual truth. I knew this was in the works for more than a year now, and I’m not a Harlequin author.
If you are a Harlequin author who published books with the company between 1990 and 2004—or if you’re in any of its imprints—check your contracts. You might be party to this class action suit.
Why am I discussing the Harlequin case, when I’m talking about negotiating contracts that don’t yet exist? After all, if the writers win the class, they’ll win on the fact that Harlequin didn’t follow its own contract, rather than on bad contract language.
Well, because, my friends, the Harlequin example points out one other flaw of publishing contracts. They are hard for the writer to get out of. Many of these Harlequin contracts, signed more than twenty years ago, are still in effect.
Last week, I started a piece on deal breakers in publishing contracts because I’m revising blogs I wrote last summer at the request of Novelists, Inc. I reread my piece for them, and realized that while some of what I wrote is still relevant, on several issues, it no longer is.
Because this is such a big topic, I’m taking it in sections. Last week, I dealt with the deal breakers—the things writers should never allow in their contracts—that have remained the same over the past 12 months. This week and next, I’ll cover a couple of topics that have changed drastically in that short amount of time.
Remember, I am not a lawyer, nor do I play one on TV. Nothing in these blogs should be taken as legal advice, just as suggestions for your own negotiations.
Last year, I suggested that writers needed to have a sunset clause in their contract. Contracts, by their very nature, need some sort of ending. They can’t be “forever” or unlimited. They must have a limitation. For the past fifty years or so, the limitation in the U.S. publishing contracts has been what is called sales velocity. If the sales dip below a particular amount, then the writer can ask for a reversion.
In the past, sales were impossible if a book wasn’t in a brick-and-mortar store. So if you couldn’t find your book in a bookstore, and your friendly neighborhood bookseller couldn’t order it, then the book was officially out of print. You would write a letter, demanding your rights back, and your publisher would have six months to put the book back into print or the book would revert to you. Simple (more or less), even if it was contingent on action by the writer (composing and mailing that letter).
The rise of print-on-demand and e-books changed the bookstore calculus. Now, a book could remain “in print” and “available” forever. With the click of a button, a publisher could send another copy of that book to the interested party.
So last year, I suggested this: Define out of print this way: The book shall be deemed out of print if, after five years in print, the author is not receiving a royalty check of at least $500 per six-month period.
In other words, your book has to have earned out its advance, and be paying you royalties of at least $1000 every single year.
Publishers are loathe to agree to this because it’s not in their best interest. Negotiate on the number of years to recoup the advance—three years, five years, ten years—but never on the money. You have to be earning real money on this book for them to hang onto your rights indefinitely.
Shortly after I published this, a publisher friend of mine pointed out that such a small threshold is a tiny price for a publisher to pay to hold onto a book indefinitely. If the book doesn’t earn $500 in real royalties in a time period, then the publisher could pay a $500 “bonus,” to buy the right to remain in print.
I’m not sure that would work, but the point is a good one: any threshold that is based on sales or velocity or money can be worked around in the modern market.
So instead, here’s what I suggest: limit the term of your license.
Technically, because contracts cannot exist in perpetuity, all copyright licenses are limited. But I’m talking about a limitation in years, not in dollars or sales. (If you don’t understand what I’m talking about when I say copyright “license,” then you need to do some reading. Get The Copyright Handbook and learn about copyright, because that’s what you’re dealing with in publishing. You don’t “sell a book,” you “license rights in a property.” Got that?)
A limitation in years would work this way. The publisher would ask for the right to publish your book for five or ten years from the publication date. You would also limit how long it would take them to get the book into print. So, they might have a year from turn-in to publish the book and ten years to keep the book in print.
At that point, all rights would automatically revert to the author unless the publisher asks for an extension or a new contract for the same or better terms.
This sounds unusual to you full-time professionals, I know, but your savvy bestselling cousins do this all the time. Those with greedy agents do not, because if the license is limited, the author can renegotiate the deal without the agent attached or with a new agent to handle the negotiation.
I do know that many long-time major bestselling authors—those who use attorneys to negotiate for them instead of agents—have time-limitations on their licensing deals, rather than sales limitations.
It just makes sense.
Think about it: If your publisher is doing a crap-ass job with your book, you can wait through the publication period and then find a new publisher to take the work. Or, in this modern era, publish it yourself when the license expires.
That’s why so many bestsellers have the time limit instead of the sales limit. Because bestsellers might never sell at a low level, so if they want to jump ship, they need a way to do so. It keeps their publisher on his toes, and it ensures that their writing gets the best presentation possible.
Such limited-time licenses are common in other countries. Every foreign publishing contract I have signed since I fired my foreign agents is a limited-time deal. The contract will expire at a particular date, which then goes into my calendar, so I am aware of it. No sales velocity to worry about, and no earnings amount.
The Hollywood options that I’ve had are also limited-time. I’m in the process right now of renewing a six-month option on a property that seems like it’s gaining legs. The producer holding the option is keen to renew and, in this case, so am I.
In the past, however, I’ve used the time-period limitation to jump from a mediocre option deal to an excellent one. The new producer and I just waited for the old deal to expire, and then we made our agreement. Of course, the old producer wanted to renew—on better terms, because she knew that the new producer was waiting in the wings.
Suddenly, I was in the position of choosing between two good offers, instead of taking whatever came along.
I’ll be honest here. I’m parting with a publishing company that I love this year because they wouldn’t give me a time-limited contract. I negotiated with the company vice president, a very nice man who completely understood my position. He took the deal to the rest of the decision makers, who said no.
Why? The books weren’t selling well enough for them to take a risk on this kind of contract. In other words, they were worried that they wouldn’t recoup the right amount of profit on my titles in a limited-time deal.
“If you were a bestseller,” the nice vice president told me, “we would be having a different conversation.”
I suspect that if it were 2015, we would be having a different conversation as well. If all writers who remain in traditional publishing ask for a limited-time contract, then publishers would have to switch their systems to accommodate us.
I have written about this in the past, but never really took it to deal-breaker status. I am now. I think you should make your deal contingent upon a limited-time contract.
Let me forestall a comment someone will make: Writers organizations can suggest that writers do this, but cannot command it. Nor can writers organizations as a unit go the publishers and demand this change to contracts. Under U.S. law, that’s collusion, and that kind of collusion is what the DOJ is currently suing some publishers over. (Lawsuits over this very issue have been successful in the past.)
Aside from convenience and an ease in future negotiations, why am I suggesting a limited time contract?
Because of what publishing has become. Even back in the day of the handshake agreements, the relationship between publishers and authors was uneasy. Now it’s worse.
And the future is hard to imagine.
Dozens of people who work in traditional publishing companies follow this blog, and many of them write to me about their experiences within their company. They often ask me to make their comments without attribution.
Often, when I get letters from these folks, it’s because they’re seeing a trend inside their company that scares them. Or because they have heard rumors that make them worry.
I got a letter on rights reversions recently from a production editor who currently works at one of the so-called Big Six publishers (and who has worked at others in the past).
This editor says some interesting things, which I am going to excerpt here with the editor’s permission. I’m also going to keep the details about this editor’s job, gender, and past history to myself so the editor doesn’t get in trouble at work.
I was thinking about your post on term limits for contracts. I think this is especially important right now, given what’s going on in publishing. Amazon just bought Avalon, and is in the process of buying Dorchester —for the purpose of putting up their backlist, probably as Kindle exclusives. I think you’re going to continue to see Amazon buying up small presses, and I don’t think it’s out of the question that they’d buy one of the Big Six. The big companies do get sold by their parent divisions from time to time (the last one being Warner Books). In the past, those divisions have been bought by other media companies and have continued on, business as usual, just in a different building.
In the letter, the editor states that Amazon buying Dorchester would be a good thing for Dorchester authors—and it would be much better than getting embroiled in bankruptcy or never seeing print again. The deal would force Amazon to pay back royalties (a good thing!) and it would keep the books in print. So sometimes these mergers are in the writers’ best interest.
But let’s go back to the editor’s other very good points:
Amazon has way, way more cash reserves than other potential bidders. I think, if [Amazon] wanted it, they could buy a major publisher. And then you would suddenly see an enormous portion of the backlist of the last twenty or thirty (or seventy) years on Amazon, probably as Amazon exclusives.
The editor goes on to point out—with examples from the editor’s current and former employers—of how hard it is to get rights reverted “even if the book was truly out of print.” I’m still dealing with rights reversions from one recalcitrant company whom I will eventually have to take to court. I’m waiting until I have the rest of my backlist in print, because I’m hoping someone else will fight this issue out before me.
The editor’s point on rights reversions is an excellent one. The editor then goes on: What I mean is, rights sold to a publisher now could end up—anywhere. Most contracts have very broad language allowing the publisher to sell a book how they want to and at a price they want to. And with Amazon entering the publisher market (and I don’t think it’s impossible to think Google or Apple might as well), there’s no telling if five or ten years down the line an author’s book might wind up being sold, or offered for free, in a way they never anticipated or intended.
I think authors still think that if they sell a book to the publisher, the publisher will follow the traditional path publishing. And even if that is the acquiring editor’s intent, and the publisher’s intent, things are changing so fast now, there’s no guarantee of anything.
We exchanged a number of e-mails on this point, and as the editor pointed out, all of this might get settled in court. But my goal here, folks, is to make you stay out of court. How do you stay out of court? Have the best damn contract going into an agreement with another party (in this case, the publisher).
If you’re scared of negotiation, pick up my short book on negotiating. Negotiating is not as hard as you think it is. And hire an intellectual property attorney to do this part of the job instead of an agent. (Or at least, hire an agent with a law degree. Otherwise, you will get screwed.)
I always tell writers that when negotiating a contract, you must imagine this: that the very nice person sitting across the desk from you negotiating for the other side retires or gets fired, and is replaced by the meanest, nastiest person you can imagine. Think of some movie villain if you have to, but imagine someone who cares nothing about you and will twist every piece of that contract to their company’s benefit at the expense of you and yours. Ideally, that person wants to pay you nothing for your book or your property and wants to do it legally.
When you’re negotiating your contract, imagine you’re negotiating with him. Because as this kind production editor is pointing out, your publishing company (even one of the so-called Big Six) might get sold to That Guy. And if That Guy runs the company, do you think he cares about promises some fired employee of the bought-out business made to you? Of course not. You and your book have become a widget, made for generating profit for That Guy’s company, and nothing else.
You can argue reversions and velocity and sales and money in court. Or you can have a limited-term contract, that automatically expires in five or ten years after publication. Then you leave That Guy’s company legally with a minimum of fuss.
See why I want authors to consider limited-time period contracts as the only kind of contract? It benefits us all.
I still have a couple of other points to make on deal breakers, so I’ll cover this topic next week as well.
When I do posts on things like contract terms, finances, and agents, my donations sink. Yet I believe these are some of the most important blogs I write. I’m not sure what causes this, whether I scare y’all away or if you’re too busy checking your own contracts. I’m less concerned about the donations than I am about you folks. Please consider what I’ve written and think about these things in your future negotiations.
I want to thank everyone who has donated in the past. I also want to thank all of you who email me with leads, suggestions, and pieces of information I wouldn’t get otherwise. I greatly appreciate it. I truly couldn’t do this blog without you.
However, because of the way my finances are set up, this nonfiction blog has to remain self-supporting. If you’ve learned anything, if you like what you’re reading, please leave a tip on the way out.
“The Business Rusch: “The End of Reversion Clauses,” copyright © 2012 by Kristine Kathryn Rusch.