Business Musings: Fighting the Wrong War
Authors GuildAuthors UnitedBerklee Institute for Creative EntrepreneurshipCharlie PuthCopyright HandbookDepartment of JusticeInvestopediaJoe KonrathJohn SeabrookKobaltMarvin GayeMeghan Trainormusic industryNational Public RadioPanos PanaySpotifyThe New Yorker
I know some of you are going to ask me what I think of the latest Authors United letter, the one they’ve just submitted to the United States Department of Justice. For those of you who don’t know, Authors United—a group of New York Times bestsellers—have chosen to speak for all of us…in demanding that the DOJ stop Amazon’s monopolistic practices, because Amazon is ruining the book business.
There’s so many things wrong with the Authors United letter that it makes my brain hurt. Writer Joe Konrath has fisked the letter on his blog, putting a lot of time and effort into debunking almost everything in the letter. Writer Joe Konrath. Bestselling writer Joe Konrath—in case you missed the point.
I’m not going to replicate Joe’s work. He’s fighting The Stupid, so the rest of us don’t have to.
I’m also not going to defend Authors United. I really wish those folks, some of whom were writers I respected (note the tense), would learn the business of publishing, rather than listen to their agents and publishers, who have a different set of concerns than the writers themselves.
Double sigh, as I remind myself to take my fingers off the keyboard until I can refrain from joining the melee….
Back now, calmer.
Here’s what I wish: I wish that writers had business sense. I wish that they would then use their collective multimillion dollar clout to fight the real war, the one that the music industry is slowly turning its attention to.
I’m pretty sure that no writer besides me noticed this headline on National Public Radio’s website on Tuesday: Is Transparency The Music Industry’s Next Battle?
My answer to that question would be a resounding yes. And after that, perhaps someone can tackle transparency in the traditional publishing industry.
Transparency. What does that mean? It is actually a financial term, with a specific meaning. Financial transparency means that a company must make information as clear and accessible as possible for its investors and business partners. There are a million explanations of financial transparency on the web, but my favorite comes from the Investopedia, which has this sentence in the middle of its four-paragraph explanation of the term:
Transparency helps to prevent the corruption that inevitably occurs when a select few have access to important information, allowing them to use it for personal gain.
So, when artists in the music industry are asking for transparency, they want to be able to track the royalties and other income that artists are due, in an easy and explainable way.
Because of the way that the music industry evolved, it’s hard to achieve easy and explainable. The music industry is infinitely more complex than the publishing industry. A November 24, 2014 article by John Seabrook in The New Yorker succinctly explained this complexity better than I could:
Spotify is only one of many streaming sites. There are competing services like Rhapsody (which recently bought a rebranded, fully licensed Napster), Rdio, and Google Play Music, but there are also thousands of other sites where songs are streamed. Labels, publishers, and performing-rights societies struggle with dozens of different technologies to monitor this welter of outlets. And with any given stream of a song there is a myriad of copyrights—performing and mechanical rights apply to both the recording and the composition—which makes sorting out who’s owed what no easy matter.
That’s just one of the issues in the music industry and payments. It doesn’t help that Spotify and other streaming services are paying a fraction of a percent (sometimes as little as .0003 cents) for each stream, nor does it make things any simpler when the streaming service deals with millions of streams.
A single song—a single title—can generate payments that go to the recording artist, the record label, the holder of the song’s performance rights, the writer of the music, the writer of the lyrics, and others as well, depending on various deals and agreements. These deals and agreements might be contractual (between an artist and a record label). They might be mandates from certain organizations (like ASCAP). They might come from terms of service (for those artists not attached to a major label). And they might come from the major record label’s agreement with the streaming service.
Then there’s this complexity, also written in that New Yorker article:
AM/FM radio pays the writer of the song on a per-play basis, but gives the performer and the owner of the recording of the song—generally, the record label—nothing. On digital streaming services like Spotify, the situation is nearly reversed: the owners of the recording get most of the performance royalty money, while the songwriters get only a fraction of it. Songwriters, who can’t go out on the road, are particularly hard hit by the loss of publishing royalties.
There are other deals as well—how much an artist (or a copyright holder or a licensor) gets paid for each CD sale, how much they get paid for each paid MP3 download, how much they get paid for vinyl sales, how much they get paid for performance (such as a live show), how much they get paid for permissions, and how much they get paid for derivative works. If you don’t understand what I mean by permissions and derivative works, then get thee a copy of the Copyright Handbook, because prose writers deal with derivative works all the time.
Here’s a shorthand way of understanding derivative works. A new song by Charlie Puth, “Marvin Gaye” featuring Meghan Trainor, clearly references many Marvin Gaye songs. The Gaye estate had to be paid for those references in one way or another, through copyright. Here’s the video, (which is good but surprisingly [at least to me] not diverse).
And since we’re talking about revenue streams in the music industry, this video represents another—all the income connected to the music video itself.
Think of this complexity, when you contemplate the revenue streams on your one novel. You wrote the novel, and yeah, you might have put it up on various ecommerce sites yourself, so you have a handful of revenue streams that you can keep track of.
Some writers just publish to Amazon, and have a single revenue stream. When that revenue stream gets disrupted, the writers complain loudly. (That’s why those indie writers are complaining about the changes in Kindle Unlimited.) To keep up our music analogy, it’s rather like a band that plays in a local bar, and when that bar closes (or decides it wants other bands playing there instead), the band complains rather than trying to get gigs elsewhere.
If you move to other places besides Amazon to sell your single title, then you have multiple revenue streams on that title. Those of us who have freelanced forever learned the first rule of freelancing is to have more than one revenue stream, because the single stream can close literally overnight.
The complexity for writers grows with the number of titles that you publish. Each title, published on multiple sites and in multiple formats, has multiple revenue streams. Not just streams for subscription services like Oyster, but through the digital sites like Amazon and iBooks, and through print, and audio, and podcasting, and a dozen other licenses.
And that’s just the indie work. Hybrid writers like me have titles in channels we can’t monitor easily. Any book still licensed to a traditional publisher has multiple revenue streams, some of which I control and some of which the traditional publisher controls.
That traditional publisher reports on those revenue streams twice a year, a throwback to the origins of the publishing industry, when all of this stuff was done by hand.
And those books aren’t the only titles that are licensed to other entities. I have published short stories through traditional channels, novels through traditional publishers, a bundle that started this week, a bundle that will start in August, preorders on two novels right now, books I’ve edited, books I’m writing/editing, and on and on and on.
The bookkeeping for my writing business alone is complicated.
Then toss in my husband’s work, since he has been writing as long as I have, and suddenly, the accounting for our two writing businesses becomes nightmarish. (And that doesn’t count the accounting for the other businesses we own. Even the retail store (which we’re expanding to another later this year) has easier accounting than writing does.)
Dean and I have been searching for software that will track all of the writing income and more, but we can’t find any. It doesn’t help that we’re on Macs and the handful of things we’ve found are only for PC. But even the PC software won’t give us a clear picture.
Some writers I know have reinvented the wheel and have found an accountant and/or programmer and/or bookkeeper who can handle all of this, with a lot of data entry—by hand, data entry. But that still doesn’t help with the traditionally published stuff.
Figuring out what’s going on with traditionally published work is truly a nightmare, because traditional publishing is not transparent, in any sense of the word.
Sure, writers get paperwork from our traditional publishers. At the beginning of July, Dean and I each got over 50 sheets of paper royalty statements for some of the tie-in novels that we wrote in the 1990s. We could sign up for the online version of those royalty statements, but we haven’t done it yet. I think we’re being passive-aggressive: we’d rather have the publisher spend the money to print out the things than do it on our own.
Most traditionally published writers also have agents, and have a traditional relationship with those agents. That means the money from all of the various revenue streams funnel to a single point—the agent—who removes his 15% before sending the rest of the money to the writer.
You’d think that financial relationship would be transparent, but it is not. In fact, in all the years I had agents, not a single agent ever sent an overall yearend statement, delineating all of the financial transactions that we had throughout that year. Hell, I just got a financial transaction statement from my veterinarian because we spent quite a bit of money there these past two months. And it was a monthly statement of account.
No agent has ever done that for me, and I’ve had several agents from some of the biggest agencies in the business. Think on that, and look at that Investopedia quote again. Then add 2+2, and see what you come up with.
Most traditionally published writers have no idea that it’s so very hard to keep track of revenue streams on a single book title, let alone on dozens or hundreds or (as in the case of agents and publishers) thousands of titles.
Even with computerization, it’s tough, because you need a dedicated program to handle all the number crunching.
Let’s look at the music industry again. I examine what they’re doing for two reasons. First, they’re about ten years ahead of publishing in digital management; and second, if innovation is going to come on tracking rights and royalties, it’ll come from music.
Have the artists in the music industry come up with an easily accessible computer program to handle all the rights and royalty information?
No. In fact, it’s so complex that a single program can’t handle it easily. Again, from last fall’s New Yorker article:
Not surprisingly, companies that specialize in digital royalty collection constitute one of the hottest growth sectors in the music business. Among the leaders is Kobalt, founded, in 2001, by Willard Ahdritz. Part collection agency, part music publisher, and part tech platform, Kobalt has built a system of enormously complex Oracle databases that compute billions and billions of transactions and royalty lines from all over the world, and collects on behalf of some two thousand artists, including Paul McCartney, Maroon 5, and Skrillex, while the rest of the industry uses Excel spreadsheets to try to piece everything together. On YouTube, Kobalt’s proprietary song-detection technology, ProKlaim, detects unclaimed videos for its clients. Ahdritz says, “We create transparency, which drives liquidity, and the money is now flowing.”
This part is worth repeating: enormously complex Oracle databases that compute billions and billions of transactions… It’s not easy, in this modern world, to track music. And it’s getting harder and harder to track what’s going on with fiction titles as well.
Add to that the fact that the publishing industry, like the music industry, is deliberately opaque. No artists in the publishing industry have gone after the entire industry for its lack of transparency.
Until Tuesday, no one in the music industry had gone after that transparency in an organized manner either. But Tuesday, the Berklee Institute for Creative Entrepreneurship released a study on transparency and fairness in the music industry. Here’s how the press release describes the study:
…the culmination of a year-long examination of the $45 billion global music business [that] explores the underlying challenges within the current compensation structure while proposing solutions to improve licensing, revenue transparency and cash flow for musicians.
There are a lot of recommendations here, and a lot of things that traditional publishing could adopt—or writers in traditional publishing could adopt. I have downloaded the study, but haven’t yet read it. I scanned it yesterday, and decided it was too complex, and too important, to skim. I need to spend some time with it.
If you care about the way that income gets reported in the publishing industry, you should spend some time with this study as well.
Because, as the founding managing director of BerkleeICE, Panos Panay, says in the press release:
There’s a revolution happening in the media business today, and in some ways the creative class has been a passive observer. The matters addressed are critical for all creators…
Writers and the publishing industry are so far behind the music industry on this that we’re fighting about stupid stuff, like trying to stop Amazon. The Author’s Guild had one moment of clarity in May, when it announced the Fair Contract Initiative, and I had hoped the Guild was moving to sensible fights. Sigh.
Of course, even the Fair Contract Initiative is behind the times. It’s something that an organization like the Author’s Guild should have fought for fifty years ago. But the Author’s Guild, unlike many music organizations, is toothless. The Guild has no clout at all (even though it thinks it does), and others in the industry can easily ignore it.
As the Berklee study points out, the artists who handle their own finances and don’t go through what the study calls “intermediaries” like record labels have a better understanding of what the income is from music.
Those of you who are indie published can keep track of what you earn with greater ease than traditionally published writers can. The problem isn’t with the transparency of Amazon or Barnes & Noble or other retailers. As I’ve said before, these large organizations with public stock are governed by very strict laws, some of which address the need for transparency for investors.
The problem for indie writers comes in the amount of data, as I mentioned above, and trying to keep track of all of it.
The problem for traditionally published writers is the same as the problem for musicians who have chosen to go through labels to market their work. As the study says repeatedly:
Data provided to artists and writers with these royalty payments is often opaque. As a result, they often don’t understand the payments and accountings that they receive. One reason for the opacity may be that it benefits intermediaries. —Fair Music: Transparency and Payment Flows in the Music Industry, P. 3
It has been shown time and time again, in industry after industry, that when information on income and earnings is controlled by a single source, that source will bend the information to benefit the source, not the others who also earned the money. It’s not that the source is venal (although it might be). It might simply be inertia or long-existing habits and structures.
Unless pressure comes from the outside, that source will not change because it has no incentive to change.
So rather than contact the DOJ about Amazon with a complaint that completely misunderstands both the law and business, perhaps Authors United, the Authors Guild, and those who claim to care about authors’ rights should start arguing for greater transparency—from publishers, agents, managers, and anyone else who gets revenue that should go to writers.
It’s time that writers act like real business people, and start putting pressure on the organizations who control our income.
Traditional publishers have already gotten into trouble with the Department of Justice for bad business practices. It’s not hard for anyone who understands business to believe that organizations which have already proven that they’ll break the law to have a business advantage will break the law in other places as well. Companies that are willing to cut corners will look at the most vulnerable parties first, and in publishing, those parties are naïve writers, who expect honesty and get none.
Neither the music industry nor the publishing industry has an internal reason to change its reporting structures. Those structures also benefit agents, no matter how much they complain to the press. Because a lot of agents skim. Some do it on the float, by holding money in interest-bearing accounts for as long as a month—which is, by the way, perfectly legal if the writer has agreed to it in a contract. Other agencies actually skim by “losing” payments or by taking a larger percentage than they deserve.
Even if individual agents believe that the system must change, the company they work for, the agency, will not take on this fight. It’s not in an agency’s best interest either.
Writers have to do it. And the big names should stop wasting their time and what little clout they have with things that have nothing to do with the sharp decline in traditionally published writer revenue, and go after the thing that actually has impacted writer revenue: the way that this new digital income gets reported.
I suspect I’m preaching to the choir on my blog here, and nothing will happen. But here’s my hope: someone, somewhere, will organize the big names and some writers organizations into doing something useful, like demanding that publishers have modern financial accounting to their writing partners—and not the online “reports” that some publishers have reluctantly posted. Things like this, also recommended in the Berklee study:
It should be fairly straightforward to give creators access to an app or Web page that electronically accesses real-time, in-depth, and comprehensible royalty information about their sales or plays on these platforms— data that can be reported to provide useful analytics, similar to an online banking platform—and that could conceivably offer a suite of banking services to creators if transparent revenue data was accessible. —Fair Music: Transparency and Payment Flows in the Music Industry, P. 7
I know, I know, I’m dreaming. In a world where Big Name authors believe that the platform that sells most of their books is harming them, expecting sense is probably not logical.
Ah, well. I am putting this idea out there. I do hope it makes a tiny difference.
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“Business Musings: Fighting the Wrong War,” copyright © 2015 by Kristine Kathryn Rusch. Image at the top of the blog copyright © Can Stock Photo Inc. /DrawShop
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