The Business Rusch: Addendums, Rights Grabs & Agents (Yet Again)
Recently, I got e-mail from another career writer, talking about a rights grab from a traditional publisher. I saw the document in question; it’s egregious. I do not have permission to talk about this particular document nor would I, since it’s proprietary, but it’s the kind of document I’ve seen at least six times in the last two years.
These documents are addendums to publishing contracts. Since the rise of e-books, publishers have issued the addendums frequently and often en masse.
Before I go further, let me remind you that I am not a lawyer nor do I play one on TV (or in internet videos, for that matter). I have opinions about legal matters as they pertain to publishing, based on thirty-some years in the business on almost all sides of the business, but I am not an authority on this topic nor does anything in this blog substitute for legal advice.
Once signed, addendums to contracts become part of the contract. All well-written addendums have language that explains the addendum’s relationship to the contract. For example, the addendum might say something like “nothing in this addendum will supersede the terms previously granted in the contract.”
Or, as I’m seeing in all these publishing addendums, they’ll have clauses that say things like “if there is a conflict between a term that is specifically defined in this addendum and a definition of the same term is in the contract, then the definition specified in the addendum governs.”
In other words, the addendum will not only become part of the contract; it will make parts of the contract null and void.
Some addendums I’m seeing are pretty straightforward. They grant e-rights to contracts so old that ebooks did not exist when the contract was signed. Those addendums generally add the ebook information, how the royalties will be calculated, how ebooks are defined—basically the same stuff that would be in a contract if it were signed in 2013 instead of 1983. I know a lot of you traditionally published career writers have signed addendums like these—and many of you have refused, keeping the e-rights for yourself.
That’s all well and good, and is typical business.
But the addendums I’m writing about today are rights grabs. The publisher wants more than the writer has given before, and wants a larger percentage of that right. These addendums change the terms of the existing contract to benefit the publisher and (accidentally) to benefit the agent. The writer loses money and licenses even more of her copyright than she ever has before.
Contracts are the product of a negotiation. Addendums, as part of a contract, are also subject to negotiation.
I know many writers who believe that when they receive an addendum to their contract, they must sign the addendum because it is already a part of their contract. That is wrong. Do not sign until you understand the document before you, what that document changes in the contract, and why the document even exists.
Because contracts are the product of a negotiation, that means both sides need to negotiate. The best way to negotiate is to go into the negotiation calmly, with full understanding of what the opposite party (in this case the publisher) wants, and with strong knowledge of what, if anything, you will agree to.
These rights-grabs addendums are not coming to writers because publishers are evil. Let me do my best to explain how the parties involved with these documents—publishers, agents, and writers—think about these addendums. Then I’ll end with an explanation of what writers should do when they receive one of these documents.
From the perspective of a publishing company, these addendums make sense. Here’s what the big traditional publishers are facing.
They have hundreds of thousands of active contracts, all with different terms. Most of those terms are standard and can fit into a chart or computer program of some kind. It goes like this: If the contract says X, then the publisher must use this calculation to pay the writer Y. It’s really a very simple, very old, system.
Generally speaking, print publishing contracts pay writers a percentage of the cover price of a book, no matter what price the book actually gets sold at. As chain bookstores came into being, and traditional publishers found that they were selling most of their books at a big discount, the big publishers started adding a discount schedule, reducing the rate of the royalty if the book initially sold at less than half of cover price. Everything was based on cover price. Everything.
Pretty simple. If a book had a cover price of $20 and the writer had a 10% royalty, she would get $2 on every copy sold. Heck, I can do that math, and so can you. And so could the accountants in traditional publishing houses in the days before computers.
In the days before computers, which was when some contracts that are still in effect, were signed, no one except those weird science fiction writers (ahem!) imagined books in electronic form. Certainly, no one believed in 1980 that electronic books would become big selling items in 2013.
Right now, publishers and others are involved in lawsuits trying to change the definition of the word “book”—not for a dictionary, but in the legal sense. If they succeed, “book” will be the content, not the format. And then all of those contracts signed in the mid-to-late 20th century will cover ebooks. Some of these lawsuits have already been adjudicated—finding against the publishers. But there’s a lot of money at stake, so expect litigation of this kind to continue.
Contracts written after ebooks became a possibility but before they became a force in the industry, generally defined ebook rights like all other subsidiary rights. Some of my earlier contracts gave me 50% of the rights to a flat-out ebook sale (splitting the profits with the publisher), with royalties being defined as a 50/50 split with the publisher. (In other words, if the publisher sold the book to ebook company EB, and EB paid a $10,000 advance, the publisher would get $5000, and I would get $5000. We would then split the royalties, which would, presumably, have been identical to book royalties.)
Once some publishers started doing their own ebooks, about ten years ago, they changed the ebook clause to work like paper books. The writer would get a percent of the cover price, and that percentage would increase as sales increased.
The clauses looked something like this: The writer would get 8% of cover price up to 10,000 ebook copies sold, 10% of cover price up to 25,000 copies sold, 12% of cover up to 50,000 copies sold, and so on.
Contracts devised after 2009 either paid the author 15% of gross or 25% of net (with net undefined). Most dumb writers believed the 25% was a better deal, and that became industry standard about two years ago.
Now, publishers are faced with an accounting mess. There was no standard for the fifteen years or so that ebooks were a blip on the contractual radar. In order to pay a writer, the publisher has to go deep into the contracts system, figure out how the writer gets paid, and then do the royalty statements.
No chart, no computer program, no easy way to compute this stuff.
The blanket addendums are a way for publishers to streamline their accounting practices—and, added bonus to them, make a shitload more money.
Let me give you one example, and then I’ll quit.
On that $20 hardcover, the author got $2 even if the book sold for $10, because the cover price was $20. If the book was “deep-discounted,” which probably meant it was sold for less than one-quarter of the cover price, the author probably got $1 or 50 cents—even if the book only sold for $3.
So when that $20 hardcover sold 100,000 copies, the writer made $200,000 minimum, more if the royalty rate went up as sales increased.
However, with 25% of net, with net defined as “the amount actually collected by the publishers” minus “taxes, insurance, shipping, mailing, freight, duties, customs clearances or other similar charges,” “commissions and fees,” “charges for digital delivery services” and—okay, I quit. I’m going over three of these addendums and four 2013 contracts as I write this, and I’m finding even more exclusions than I want to think about.
So even defined, “net” is “the amount received” by the publisher. How does the writer know what that amount is? The writer has to trust the publisher to report the amount accurately—or pay for an audit of the publisher’s books. None of these addendums allow for an audit.
But let’s look at 25% of net, and assume the publisher is honest, and is taking reasonable fees. That would be on a $20 ebook (which none of us would buy, I know, but for the sake of argument) about 55% of the cover price (factoring in all the different distributors, all their differing fees and licensing agreements, etc). So the publisher would actually receive $11, and the writer would get 25% of that, which is $2.75. Sounds great, right? Better than above.
Only most ebooks don’t sell for “cover.” They sell for a percentage of cover. So if the ebook sells for $10, the writer will now get $1.30—a loss of $1.45 from the $20 cover royalty (for an ebook). And that’s if there are no fees, commissions, manufacturing costs (which I found in one of these addendums), and so on, attached to the ebook payment structure.
Ten years ago, a writer could expect that $200,000 from 100,000 sales of that $20 cover price. But now? If those 100,000 sales are ebooks discounted to $9.99? The writer might get $130,000. She might get less. But the publisher will get more, because it’s cheaper to produce an e-book than it is to produce a paper book. By a significant margin. That’s why you’re seeing so many articles about ebook profits helping traditional publishers’ bottom lines. That increase is because of the contract terms with the writers and the low cost in producing an ebook—which some of these addendums then charge back to the author’s account.
Corporations are about profit, ultimately, and they will profit from these changes. Streamlining accounting will help, and so will having an industry standard.
Does that mean writers should sign these addendums? No, they shouldn’t, not if the addendum’s terms are not in the writer’s best interest. Understand, though, that there’s huge momentum in the publishing house to get all writers to sign these addendums. It helps everywhere inside the corporation.
But it might not be good for you, the writer.
Before we get to that, let’s add one more party to these agreements:
The role of agents has changed in this new world. Their business model is evolving of necessity. Once, writers needed the contacts and knowledge that an agent had, particularly in dealing with the dozens of New York publishers. Now there are only five major publishing houses, and a handful of small ones. Publishers do not participated in auctions much any more, and they rarely bid against each other, even for a hot property.
Plus, with all the power on their side, most publishers won’t negotiate any but the smallest of contract terms. Agents rarely have clout any longer, and with few exceptions, can’t tell a so-called Big Five Publisher to take a flying leap because that would mean that a hundred clients might not be with that publisher any longer.
Think of the consequences.
Agents make 15% of what they sell to Big Publishers. Some agents have become publishers in their own right, which violates agent law (according to all I’ve read). By this, I mean, the laws that govern anyone who identifies himself as an “agent,” like real estate agents and insurance agents as well as literary agents. Unlike insurance or real estate, literary agents aren’t licensed and very few states have laws on the books protecting the clients of literary agents—other than the over all laws that govern those general creatures called “agents.”
Even so, with the rise of DIY and the consolidation of traditional publishing markets, traditional agents have very little to offer authors. While these agents are redefining their own businesses, they need to continue to earn a living.
Agents are a party to traditional book publishing contracts in one way: they have convinced publishers to include a clause in the contract that stipulates the agent will receive payment as the designated “agent” of the author, which then fulfills the payment terms of the contract. Some agents add all kinds of other things to that clause, most of which have not been litigated. Almost all agent clauses in contracts also stipulate that the agent will receive both payment and their commission for the life of the contract. (We’ve discussed agent clauses in contracts before. Here’s a link if you don’t understand what I’m discussing.)
Agents have a vested interest to remain on current contracts. Right now, a lot of writers are trying to cancel those contracts and get the rights back so the writer can publish books herself. If it becomes hard to revert the rights in the contract, then the agent remains on the book contract and continues to earn the 15% commission.
Well, all of these addendums that I’ve seen have changed the reversion clause in the contract. To get the rights reverted on a book becomes almost impossible.
One addendum in front of me states that the rights will revert in the contract if the book title is not listed on the publisher’s website; if the title is not available for sale by any retailer (or on the publisher’s website) and if the basic data about the book is not updated periodically by the publisher.
This particular addendum does not give the publisher a chance to “cure,” meaning fix the problem, but one of the other addendums I’m looking at gives the publisher six months to fix any problems arising from the contract.
Think about this, though. All the publisher has to do to keep a book in print is to list it for sale on the publisher’s website. That’s all.
If the contract can’t be effectively terminated, then the agent remains the “agent of record” as long as the contract is in existence. Even if the writer fires the agent, and decides to split payments with the agent, the agent would still—according to cases that have gone to court—be entitled to that 15%, usually paid directly from the publisher.
One agency—a very big agency with names you’ll recognize, constant #1 New York Times bestsellers—sent addendums to publishing contracts from one of the so-called Big Six (in those days) to everyone in the agency. These addendums, issued by Big Publisher A, were simply photocopies with blank lines in them.
The addendum said things like this: “Addendum to the Agreement for ____________ (Title) dated _______________ between Big Publisher A and _____________(Author) represented by Big Nasty Agency…”
And it went from there. Big Nasty Agency sent out the addendum with the information filled in by hand by some in-house minion. It was obvious no one in Big Nasty Agency even looked at the contracts in question to see if the addendums they were recommending their clients sign were an improvement over the existing contract.
What happened was that Big Nasty Agency caught Big Publisher A in a major legal/accounting error and negotiated a settlement in favor of the #1 New York Times bestselling authors. However, in order for Big Publisher A to pay out those millions of dollars, Big Publisher A also wanted some concessions. So Big Nasty Agency offered up the e-rights of its non-bestselling clients, saying that it could get all of these smaller clients to sign an agreement that would give Big Publisher A 25% of net (undefined) and more favorable reversion terms.
And guess what? It happened. Most clients signed.
I compared some contracts to the addendum at the request of friends. In each case, the addendum was worse than the contract.
(Those writers didn’t sign. And to a person, they either had already fired Big Nasty Agency or did so after the addendum debacle.)
But the fact that the addendum was worse than the contract really didn’t matter. Because the breach of duty on the part of the agency occurred when that agency traded its lower-earning clients’ well being for the millions of dollars in settlement for the Big Name Writers.
So, when an agent brings an addendum like this to the writer and says that the addendum is good, then the agent might be correct. The addendum might be an improvement in the contract for the agent.
Because, at the moment, agents have a very different agenda than their clients. Agents are trying to save their jobs, and, unfortunately, many of them are willing to do so on the back of the writers they “represent.”
So many writers have no idea what to do when faced with an addendum to their contract. As I stated above, many writers believe they’re required to sign it, and publishers and agents don’t dissuade them of this idea.
For some writers, these addendums might actually be an improvement in their contracts. All publishers have different levels of contract, and if the writer had signed a low level contract, with a lot of rights grabs in it already, the addendum could be an improvement.
I got a major addendum for one of my tie-in novels from a Big Publisher last year. This addendum was clearly going to all of the writers who had not signed an ebook agreement with the publisher. If I had had an original novel with Big Publisher A, I would never have signed that addendum.
But no one at Big Publisher had vetted the contracts. And my tie-in contract did not give me ebook royalties or overseas royalties. The book sold really well overseas. The addendum gave me 25% of net, just like everyone else—on rights that previously, the publisher had kept for itself. (Or maybe the licensor had; I don’t know, and don’t care). Including all foreign rights. Oops.
In other words, for me and the contract I had, the addendum was a great improvement.
For most writers, it was not an improvement at all.
If you’re a traditionally published writer, you will get one of these addendums at some point, guaranteed. Here’s what you do if you get one.
1. Read The Addendum.
I know, it sounds silly to tell you this, but so many writers don’t read the legal material they get. Start now. This is your career and/or your book baby that we’re talking about. Protect it legally.
2. Figure Out What the Addendum Means.
Part of figuring out what the addendum means is understanding how it relates to the existing contract. So…
3. Read the Addendum Along With the Existing Contract.
Compare the clauses in the contract with the clauses in the addendum. See what has been changed and how drastic the change is. Do the math, if there are changes in royalty rates. See if net is undefined or if more things are counted against your royalty payment. Make sure that if the royalty rates are changed that you have an audit clause in your contract. (Make sure of that anyway.)
4. Hire An IP Attorney, Not An Agent.
If you need help understanding the addendum and/or how it relates to the contract, you cannot ask your publisher/editor, and you shouldn’t rely on your agent. Even if your agent is as honest as the day is long, your agent is probably not a lawyer. In fact, most agents have no legal training at all. If they’re with a really big firm, they can ask their in-house lawyer, and then the agent will try to explain this all to you.
Best to cut out all the middlemen, and hire a lawyer yourself. This is your career and/or your book baby, remember. Also remember that the publisher has a whole legal department to rely on, and they believed it was important to draw up this new document. The document will have traps for the unwary in it. Don’t you get trapped by it.
The IP attorney doesn’t have to negotiate anything for you, if you don’t want her to. What you want from this attorney is an explanation of the terms and how they will impact you and your work in the future.
Then you can negotiate—and you can do so through your agent if you want. If your agent refuses to negotiate some of the clauses you and your lawyer believe need to be changed, then you have clear proof that your agent is no longer working for you (if he ever did). Time to fire him.
In that instance, either negotiate yourself or hire the attorney. In most cases, you won’t need the attorney because what you’re going to be saying is no anyway.
5. Do Not Sign Anything Unless You Understand It.
6. Do Not Sign Anything Unless It Benefits You.
In other words, you can…
7. Refuse to Sign Anything That Changes An Already Existing Contract.
It’s allowed. Really. You’re a party to a contract that you theoretically already negotiated and that contract has served you well for years. If you see no reason to tamper with it, then don’t let anyone tamper with it.
These addendums have no force without your signature. So do not let anyone force you to sign something that does not benefit you.
The addendums I’ve seen are nasty business. Very few help the writer, especially a writer who wants to remain a hybrid writer. Tread carefully when you get one of these documents.
And good luck!
I write this business blog for all career writers, whether they’re hybrid writers, new writers, indie writers, or strictly traditionally published writers. We all need to share knowledge, especially since things are changing so fast in this industry. I appreciate the folks who contact me with information and links. I also appreciate folks who forward or share the information published here (with proper attribution, of course!).
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“The Business Rusch: Addendums, Rights Grabs, And Agents, Yet Again” copyright © 2013 by Kristine Kathryn Rusch.