Business Musings: Discount Abuse (Contracts/Dealbreakers)

I am covered in contract dust—quite literally, dust—and growing sadder by the moment. A number of you have shared your contracts with the personal information excised, and I’ve been going through them. Some of these contracts which you folks received and did not sign (thankfully) are the worst of all.

But wowza, are some of these contracts awful. No wonder you sent them to me. Sigh.

Besides the general ickiness of these contracts, I found something else in those contracts which bolsters my memory of things. I have a memory of the way contracts used to be. They were much kinder to the author than current contracts are. I now know that for a fact. I have some contracts that go back to the 1970s and early 1980s from you folks, and while those contracts are similar beasts, they’re not the same as today’s contracts.

The old contracts are more of a partnership agreement. Oh, there’s still some yucky stuff in them. A lot of yucky stuff, to be honest, but most of it can be excised with the strike of a pen. (Some of that is because the contracts were written on typewriters—and who wants to type extra unnecessary words? Now, contracts come from computers, with icky yucky boilerplate added into the template.)

Contracts have gotten worse, much worse in the past thirty years—and that’s with agents (so-called experts) negotiating them.

Now remember, I’m not a lawyer, and nothing I discuss here should be considered legal advice.

Some of this stuff I’ve already dealt with in previous blogs in the contracts/dealbreakers series. I’m going to go over some other things rather quickly in the next few weeks, before turning to agents, the agent clause, and hiring attorneys.

For this blog, however, I’m going to focus on the discount clause.

Before you indie writers go heading off to the hills thinking none of this applies to you, look at the title of this post. Discount Abuse. Many of you indies are as guilty of discount abuse as traditional publishers are.

You just do it in different ways. If you want to understand how to properly discount your books, look at my Discoverability series under pricing or pick up the Discoverability book.

And before your eyes glaze even more, let me add three things:

First: Do not discount any of your titles until you have at least three books. Do not discount your first book at all, if it’s hanging out there all by its little old self. (I know, I know, how will you get readers otherwise? That’s not the question. How will you keep readers? By giving them something else to read after they’ve finished that wonderful book of yours they got for a low price.)

Second: Do not do what traditional publishers do when they discount books. Generally speaking, traditional publishers do it wrong. Or their strategy is aimed at promoting their company, not at promoting an author. Your strategy is to grow your readership. A totally different thing.

Third: Be glad, as you scan this post, that you’re an indie writer. Even if you screw up and decide to discount your first book, you’ll make more money than your traditionally published friends do on their discounted books. (Unless, you put your book up for free. Sigh.)

And—a bonus Fourth: Read this post now in case you decide to get a traditional publisher to publish your paper copies. Especially if you had (or will have) an agent negotiate the deal. Because much of what I’m going to discuss here applies to paper books, not ebooks. This is one of those areas where you, the indie who has gone hybrid, is most likely to get screwed.

In fact, this area is where writers have been getting screwed since some publisher thought to change their contracts in the last 1990s—and then all the other publishers followed suit. (How is this not collusion? Oh…Department of Justice…)

Discount clauses always send a ting of discomfort through me, and not just because the things are damaging to writers’ careers and writers’ incomes. But because they are one of those let’s-screw-the-writer clauses that got added into contracts in the past twenty years or so.

I had a hunch this was true, but I didn’t have proof of it until this afternoon, as I was sorting through the contracts some of you sent me. I got my first book contract in 1989, although I’d been reading book contracts ever since I worked for a textbook publishing company in 1984.

My own contract is buried deep in files that I haven’t searched through, but I have in my hot little hand a contract from a still-existing big 5 (or 2 or whatever they are now) imprint. That publisher used to be an independent publisher, and in 1980, it did not have a discount clause in its contract.

It had a remainder clause. And it’s really simple. It says,

The Publisher shall promptly notify the Author whenever it desires to sell copies of the Work at a discount of seventy-five or more percent (75%) of the list price if after making such sale no more copies of the Work will remain in stock. The Author shall have the right to purchase all of such remaining copies within twenty (20) days after such notice is sent at a price equal to the best price which shall be offered to the Publisher. The Publisher shall not have the right to remainder the Work until twelve (12) months after initial publication.

Wow. How fascinatingly reasonable. The publisher has to notify the author when it plans to sell books significantly under cover price. The publisher is doing this to get rid of inventory of the book on hand, say extra hardcovers to prepare for the paperback edition. And the publisher cannot discount this book for at least a year after publication.

Wow. Shades of another era, huh?

Because modern remainder clauses are not at all the same. And on top of those clauses, there are clauses for cheap editions, discounted editions, “other book publications” and all kinds of other “we-don’t-have to pay-you-the-royalties-we-promised” editions.

Most contracts I’m seeing don’t have a remainder clause at all, because nothing is going out of print any more. Editions continue to exist. A handful of contracts with a remainder clause have something like this:

Remainder sales. On all copies destroyed, given away, or sold at or below cost, no royalties shall be paid. On overstocks or damaged copies, a royalty of ten percent (10%) of the net amount that the Publisher receives in excess of manufacturing cost if the Publisher, at its option, disposes of all or a part of the stock at the best prices it can secure.

But who cares, really, right? Because these are overstocked or damaged items. They’re not a big deal—except that publishing has changed, and is often done with much more sophisticated presses, and such things rarely happen any more. But say they do. It doesn’t matter much, right?

Wrong.

Because as I’ve said repeatedly, a contract is a full document, like a story. And these modern documents have lots of let’s-screw-the-writer clauses. Sometimes they’re bunched into a single clause marked “the discount clause” and sometimes they’re spread out, such as these clauses from a fairly recent contract:

1. Discounted sales. Some sales of the Work in the forms specified in [another part of the contract—forms like hardcover, trade paperback, mass market] above may be to jobbers, chain stores or others at substantial discount. Where the discount is fifty percent (50%) or more from the Retail Price, a royalty equal to one-half the regular royalty. Where the discount is sixty-five percent (65%) or more from the Retail Price, a royalty equal to ten percent (10%) of the Net Receipts per copy sold.
2. Cheap editions. On all net copies sold of any cheap edition that the Publisher publishes at a price not greater than two-thirds (2/3) of the original retail price, a royalty of ten percent (10%) of the Net Receipts, but if the Publisher licenses publication of such edition by another publisher, a royalty of fifty percent (50%) of the Net Receipts.
3. Other Book Publication. For other editions (including but not limited to premiums, mail order, schoolbook and book fair editions, and other special editions) sold in the United States: Ten percent (10%) of the Net Receipts.

This lovely publisher starts screwing writers right from the start. Chain stores or others? Most of the large stores get discounts over 50% as a matter of course, so that means that most of the royalties paid from a writer’s book are paid at half the usual royalty rate.

Oh, wait! It gets worse. These “discounted” books have no time limit, so if your book is really popular, and it sells to Barnes & Noble (chain store) or Wal-Mart (chain store) at publication, the publisher can discount the royalty rate too. Right from the moment of publication. No waiting a year, as in the 1980 contract.

And lookie here! The publisher doesn’t have to pay full royalties on books sold by mail order, which many publishers are now considering as books sold off their websites. In fact that entire clause that mentions other editions? It’s pernicious all by itself.

It says “For other editions (including but not limited to…)”

In other words, they can publish the definitive book, and then all kinds of other editions, because the author didn’t limit the kinds of books the publisher can publish. And believe me, there are a million different editions the publisher can think up, none of which the publisher has to pay full royalties on.

Things get even worse for writers. For example, this lovely publisher from whose contract I’m quoting has an even lovelier clause in its ebook royalty rate. That clause says:

Royalties For Ebook Editions sold in the United States, except as described in paragraphs 1-3 below: Fifteen percent (15%) of the Net Receipts.

Guess what, folks? Paragraphs 1-3 are the clauses I excerpted above. The discount clauses. So if your publisher has this clause in their ebook editions royalty rates, then your publisher can sell your discounted ebook and pay you even less. So that wonderful $1.99 sale they’re doing to “promote” you? Well, that $1.99 is significantly less than 50% of the cover price of your $9.99 ebook, isn’t it? Guess who doesn’t get paid a full 15% of net receipts on the ebook edition.

You.

By the way, the contracts I’m using for this modern stuff were all negotiated by agents, not attorneys. Just pointing this out.

I don’t agree with the Authors Guild about much because they don’t advocate well enough for their authors. But I agree with them on the discount clause—which they call “The Discount Double-cross.”

In fact, the Guild nicely does the math for us using a book with a cover price of $10 in an article titled “End The Discount Double-Cross” from November. I have excerpted a paragraph from the article here, but I’m going to add some paragraphs to the excerpt for clarity’s sake. I’m also making one part of this paragraph bold just so you see it:

At a 55% discount to retailers, the publisher would receive $4.50 per copy, minus the author’s 15% royalty of $1.50. That leaves the publisher $3.00 before printing and other expenses.

Increase that discount to 56%, and the publisher receives only $4.40 from the sale.

But under some “deep discount” clauses, the author’s royalty would suddenly plummet to 15% of that $4.40—just 66 cents—thereby magically increasing the publisher’s take to $3.74.

But what’s magic for the publisher is misery for the author, who takes a haircut of more than 55%.

With a clause like this in effect, why would any rational publisher maintain a higher wholesale price when a lower one would deliver 25% more to its bottom line—entirely at the author’s expense?

Why indeed? Realize this comes from an organization that’s deeply in the pocket of traditional publishers. The Authors Guild is trying to climb out of that pocket—the fair contracts initiative is a beginning—but it’s not doing very well.

Because the “solutions” the Authors Guild poses in that article are not worth quoting. They still assume that the publisher needs deep discounts.

The publisher doesn’t need the deep discounts the way that they’re being applied now. The publisher might need a pass on paying standard royalties for books sold below cost. But even then, the writer should get a payment of some kind.

My solution is to go back to 1980.

First, the publisher can’t discount anything without seeking the author’s permission.

Second, the publisher can only discount a book after the book has been out for a year or more.

If the publisher wants to discount titles to promote sales in the first year of publication, let the publisher eat the difference in the cost. Not the writer.

Here’s what Roxana Robinson of The Authors Guild told the attendees at the Rights and Content in the Digital Age Conference put on by Publishing Perspectives:

Many contracts have clauses that will allow the publisher, under these circumstances of deep discount, to pay no royalties. The publisher gets paid by the middleman. And the middleman gets paid. Only the author will get nothing at all for the sale of this book which she just wrote…The publishers know this. But they do it [sell at discount to middleman vendors] because they want some money now.

In fact, right now, in the existing system, the only person involved in the creation, production, and distribution of a book who does not get paid when the book is deeply discounted is the writer.

And the reason for that is the contract, which the writer signed.

As I was researching this piece, I found several blogs by agents who basically said that a bad deal for a writer is better than no deal at all. That’s ridiculous. It was ridiculous back in the days before the rise of indie publishing, and it’s even more ridiculous now.

It’s truly ridiculous coming from the person who is supposed to (in theory) negotiate better terms for the writer. Clearly, that’s not happening. One reason it’s not happening is that agents don’t understand these contracts any more than the writers do.

Let’s look at this problem in terms that indie and hybrid writers understand. When an indie writer puts her ebook on sale for 99 cents, down from her usual $4.99 “cover” price, she knows that she will receive 35% of that lower price instead of 70% of the higher price.

She’s losing roughly $3.15 per sale, but she has chosen to. I’m assuming here that she chose to lower the price to achieve some goal—to get readers into her series, to increase sales of her other books, to offer a special for a few days to entice new readers—and she knows what she’s losing.

Traditionally published authors have no idea what price their book is selling for and what royalty percentage they will get on that book. Without a full-blown audit of their publisher, there’s no way the traditionally published writer can know.

These discount clauses—which the authors have freely signed—are the way that publishers are increasing their bottom lines. This is also why so many #1 New York Times bestselling authors are seeing their royalty rates decline. It’s not because the books sell fewer copies (although that’s happening as well); it’s because the authors are being paid less per copy sold—significantly less.

These terms crept into contracts one by one. As the business changed, as publishers consolidated, as chain stores rose and the margin for big publishers got slimmer, the money that publishers made came out of the writer’s pocket.

If you insist on selling your book to a traditional publisher, especially one of the Big Whatevers, then accept that you will lose that book for the term of the copyright, and you will not get rich off that book’s sales even if the book is a bestseller.

Do your best to negotiate out these pernicious clauses. If you do manage to get those clauses out of your contract, be prepared to audit your publisher regularly. Because they’ll probably still act as if the clauses are in your contract, and figure you won’t catch them at it.

And you probably won’t—not without an accountant at your side.

My solution? I go traditional for short work and the occasional editing project, but not for my novels. I’m still hybrid, but just barely.

I’m a professional writer. I make my living at writing. Clauses like these make it impossible for writers to make a living at writing.

If your goal is to be validated while you work another job, then go ahead, sign contracts with big traditional publishers. If your goal is to be a professional writer with a long-term career as a writer and no other job, you have to stay away from contracts and clauses like these.

Because, as we saw in previous weeks, getting out of contracts is much harder than getting into them.

We still have a few more weeks of contracts and agents and attorneys before we move to a few other fun topics. (I’ve written them up, because I occasionally need a palate cleanser. Hell, I need a brain cleanser after some of this stuff.)

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“Business Musings: Discount Abuse,” copyright © 2016 by Kristine Kathryn Rusch. Image at the top of the blog copyright © 2016 by Canstock Photo/NiroDesign.