Spread The Word – Kris Rusch – Royalty Statement Update 2012

Kris Kathryn Rusch’s blog was hacked about 12 hours after she posted an update to the infamous Royalty Statement. For anyone who didn’t read it, it was reporting ebook sale underreporting by many major book publishers. It’s gone on to be one of her most famous posts, and people still talk about it.

Not only did her main site go down, but then when she reposted it on another of her sites, *IT* then went down. And now it’s posted on her Livejournal, and it looks like that has malware on it already.

Yeah, a lot of people are speculating about it. It ranges from conspiracy theories, to stalker issues, or a tremendous amount of bad luck. Me? I think one is bad luck. But, now we’re going on three sites, and possibly more? Nah, something else is going on.

Kris Rusch has given approval for everyone to spread the blog post that got hacked far and wide. If you want to also repost it to spread the word, please make sure you leave Kris’s copyright notice at the end of the post intact.

So, here we go…

Beginning of post:

Welcome to one of my other websites. This one is for my mystery persona Paladin, from my Spade/Paladin short stories. She has a website in the stories, and I thought it would be cool to have the website online. It’s currently the least active of my sites, so I figured it was perfect for what I needed today.

Someone hacked my website. Ye Olde Website Guru and I are repairing the damage but it will take some time. The hacker timed the hack to coincide with the posting of my Business Rusch column. Since the hack happened 12 hours after I originally posted the column, I’m assuming that the hacker doesn’t like what I wrote, and is trying to shut me down. Aaaaah. Poor hacker. Can’t argue on logic, merits, or with words, so must use brute force to make his/her/its point. Poor thing.

Since someone didn’t want you to see this post, I figure I’d better get it up ASAP. Obviously there’s something here someone objects to–which makes it a bit more valuable than usual.

Here’s the post, which I am reloading from my word file, so that I don’t embed any malicious code here. I’m even leaving off the atrocious artwork (which we’re redesigning) just to make sure nothing got corrupted from there.

The post directs you to a few links from my website. Obviously, those are inactive at the moment. Sorry about that. I hope you get something out of this post.

I’m also shutting off comments here, just to prevent another short-term hack. Also, I don’t want to transfer them over. If you have comments, send them via e-mail and when the site comes back up, I’ll post them. Mark them “comment” in the header of the e-mail. Thanks!

The Business Rusch: Royalty Statement Update 2012

Kristine Kathryn Rusch

Over a year ago, I wrote a blog post about the fact that my e-book royalties from a couple of my traditional publishers looked wrong. Significantly wrong. After I posted that blog, dozens of writers contacted me with similar information. More disturbingly, some of these writers had evidence that their paper book royalties were also significantly wrong.

Writers contacted their writers’ organizations. Agents got the news. Everyone in the industry, it seemed, read those blogs, and many of the writers/agents/organizations vowed to do something. And some of them did.

I hoped to do an update within a few weeks after the initial post. I thought my update would come no later than summer of 2011.

I had no idea the update would take a year, and what I can tell you is—

Bupkis. Nada. Nothing. Zip. Zilch.

That doesn’t mean that nothing happened. I personally spoke to the heads of two different writers’ organizations who promised to look into this. I spoke to half a dozen attorneys active in the publishing field who were, as I mentioned in those posts, unsurprised. I spoke to a lot of agents, via e-mail and in person, and I spoke to even more writers.

The writers have kept me informed. It seems, from the information I’m still getting, that nothing has changed. The publishers that last year used a formula to calculate e-book royalties (rather than report actual sales) still use the formula to calculate e-book royalties this year.

I just got one such royalty statement in April from one of those companies and my e-book sales from them for six months were a laughable ten per novel. My worst selling e-books, with awful covers, have sold more than that. Significantly more.

To this day, writers continue to notify their writers’ organizations, and if those organizations are doing anything, no one has bothered to tell me. Not that they have to. I’m only a member of one writers’ organizations, and I know for fact that one is doing nothing.

But the heads of the organizations I spoke to haven’t kept me apprised. I see nothing in the industry news about writers’ organizations approaching/auditing/dealing with the problems with royalty statements. Sometimes these things take place behind the scenes, and I understand that. So, if your organization is taking action, please do let me know so that I can update the folks here.

The attorneys I spoke to are handling cases, but most of those cases are individual cases. An attorney represents a single writer with a complaint about royalties. Several of those cases got settled out of court. Others are still pending or are “in review.” I keep hearing noises about class actions, but so far, I haven’t seen any of them, nor has anyone notified me.

The agents disappointed me the most. Dean personally called an agent friend of ours whose agency handles two of the biggest stars in the writing firmament. That agent (having previously read my blog) promised the agency was aware of the problem and was “handling it.”

Two weeks later, I got an e-mail from a writer with that agency asking me if I knew about the new e-book addendum to all of her contracts that the agency had sent out. The agency had sent the addendum with a “sign immediately” letter. I hadn’t heard any of this. I asked to see the letter and the addendum.

This writer was disturbed that the addendum was generic. It had arrived on her desk—get this—without her name or the name of the book typed in. She was supposed to fill out the contract number, the book’s title, her name, and all that pertinent information.

I had her send me her original contracts, which she did. The addendum destroyed her excellent e-book rights in that contract, substituting better terms for the publisher. Said publisher handled both of that agency’s bright writing stars.

So I contacted other friends with that agency. They had all received the addendum. Most had just signed the addendum without comparing it to the original contract, trusting their agent who was (after all) supposed to protect them.

Wrong-o. The agency, it turned out, had made a deal with the publisher. The publisher would correct the royalties for the big names if agency sent out the addendum to every contract it had negotiated with that contract. The publisher and the agency both knew that not all writers would sign the addendum, but the publisher (and probably the agency) also knew that a good percentage of the writers would sign without reading it.

In other words, the publisher took the money it was originally paying to small fish and paid it to the big fish—with the small fish’s permission.

Yes, I’m furious about this, but not at the publisher. I’m mad at the authors who signed, but mostly, I’m mad at the agency that made this deal. This agency had a chance to make a good decision for all of its clients. Instead, it opted to make a good deal for only its big names.

Do I know for a fact that this is what happened? Yeah, I do. Can I prove it? No. Which is why I won’t tell you the name of the agency, nor the name of the bestsellers involved. (Who, I’m sure, have no idea what was done in their names.)

On a business level what the agency did makes sense. The agency pocketed millions in future commissions without costing itself a dime on the other side, since most of the writers who signed the addendum probably hadn’t earned out their advances, and probably never would.

On an ethical level it pisses me off. You’ll note that my language about agents has gotten harsher over the past year, and this single incident had something to do with it. Other incidents later added fuel to the fire, but they’re not relevant here. I’ll deal with them in a future post.

Yes, there are good agents in the world. Some work for unethical agencies. Some work for themselves. I still work with an agent who is also a lawyer, and is probably more ethical than I am.

But there are yahoos in the agenting business who make the slimy used car salesmen from 1970s films look like action heroes. But, as I said, that’s a future post.

I have a lot of information from writers, most of which is in private correspondence, none of which I can share, that leads me to believe that this particular agency isn’t the only one that used my blog on royalty statements to benefit their bestsellers and hurt their midlist writers. But again, I can’t prove it.

So I’m sad to report that nothing has changed from last year on the royalty statement front.

Except…

The reason I was so excited about the Department of Justice lawsuit against the five publishers wasn’t because of the anti-trust issues (which do exist on a variety of levels in publishing, in my opinion), but because the DOJ accountants will dig, and dig, and dig into the records of these traditional publishers, particularly one company named in the suit that’s got truly egregious business practices.

Those practices will change, if only because the DOJ’s forensic accountants will request information that the current accounting systems in most publishing houses do not track. The accounting system in all five of these houses will get overhauled, and brought into the 21st century, and that will benefit writers. It will be an accidental benefit, but it will occur.

The audits alone will unearth a lot of problems. I know that some writers were skeptical that the auditors would look for problems in the royalty statements, but all that shows is a lack of understanding of how forensic accounting works. In the weeks since the DOJ suit, I’ve contacted several accountants, including two forensic accountants, and they all agree that every pebble, every grain of sand, will be inspected because the best way to hide funds in an accounting audit is to move them to a part of the accounting system not being audited.

So when an organization like the DOJ audits, they get a blanket warrant to look at all of the accounting, not just the files in question. Yes, that’s a massive task. Yes, it will take years. But the change is gonna come.

From the outside.

Those of you in Europe might be seeing some of that change as well, since similar lawsuits are going on in Europe.

I do know that several writers from European countries, New Zealand, and Australia have written to me about similar problems in their royalty statements. The unifying factor in those statements is the companies involved. Again, you’d recognize the names because they’ve been in the news lately…dealing with lawsuits.

Ironically for me, those two blog posts benefitted me greatly. I had been struggling to get my rights back from one publisher (who is the biggest problem publisher), and the week I posted the blog, I got contacted by my former editor there, who told me that my rights would come back to me ASAP. Because, the former editor told me (as a friend), things had changed since Thursday (the day I post my blog), and I would get everything I needed.

In other words, let’s get the troublemaker out of the house now. Fine with me.

Later, I discovered some problems with a former agency. I pointed out the problems in a letter, and those problems got solved immediately. I have several friends who’ve been dealing with similar things from that agency, and they can’t even get a return e-mail. I know that the quick response I got is because of this blog.

I also know that many writers used the blog posts from last year to negotiate more accountability from their publishers for future royalties. That’s a real plus. Whether or not it happens is another matter because I noted something else in this round of royalty statements.

Actually, that’s not fair. My agent caught it first. I need to give credit where credit is due, and since so many folks believe I bash agents, let me say again that my current agent is quite good, quite sharp, and quite ethical.

My agent noticed that the royalty statements from one of my publishers were basket accounted on the statement itself. Which is odd, considering there is no clause in any of the contracts I have with that company that allows for basket accounting.

For those of you who are unfamiliar with basket accounting, this is what it means:

A writer signs a contract with Publisher A for three books. The contract is a three-book contract. One contract, three books. Got that?

Okay, a contract with a basket-accounting clause allows the publisher to put all three books in the same accounting “basket” as if the books are one entity. So let’s say that book one does poorly, book two does better, and book three blows out of the water.

If book three earns royalties, those royalties go toward paying off the advances on books one and two.

Like this:

Advance for book one: $10,000

Advance for book two: $10,000

Advance for book three: $10,000

Book one only earned back $5,000 toward its advance. Book two only earned $6,000 toward its advance.

Book three earned $12,000—paying off its advance, with a $2,000 profit.

In a standard contract without basket accounting, the writer would have received the $2,000 as a royalty payment.

But with basket accounting, the writer receives nothing. That accounting looks like this:

Advance on contract 1: $30,000

Earnings on contract 1: $23,000

Amount still owed before the advance earns out: $7,000

Instead of getting $2,000, the writer looks at the contract and realizes she still has $7,000 before earning out.

Without basket accounting, she would have to earn $5,000 to earn out Book 1, and $4,000 to earn out Book 2, but Book 3 would be paying her cold hard cash.

Got the difference?

Now, let’s go back to my royalty statement. It covered three books. All three books had three different one-book contracts, signed years apart. You can’t have basket accounting without a basket (or more than one book), but I checked to see if sneaky lawyers had inserted a clause that I missed which allowed the publisher to basket account any books with that publisher that the publisher chose.

Nope.

I got a royalty statement with all of my advances basket accounted because…well, because. The royalty statement doesn’t follow the contract(s) at all.

Accounting error? No. These books had be added separately. Accounting program error (meaning once my name was added, did the program automatically basket account)? Maybe.

But I’ve suspected for nearly three years now that this company (not one of the big traditional publishers, but a smaller [still large] company) has been having serious financial problems. The company has played all kinds of games with my checks, with payments, with fulfilling promises that cost money.

This is just another one of those problems.

My agent caught it because he reads royalty statements. He mentioned it when he forwarded the statements. I would have caught it as well because I read royalty statements. Every single one. And I compare them to the previous statement. And often, I compare them to the contract.

Is this “error” a function of the modern publishing environment? No, not like e-book royalties, which we’ll get back to in a moment. I’m sure publishers have played this kind of trick since time immemorial. Royalty statements are fascinating for what they don’t say rather than for what they say.

For example, on this particular (messed up) royalty statement, e-books are listed as one item, without any identification. The e-books should be listed separately (according to ISBN) because Amazon has its own edition, as does Apple, as does B&N. Just like publishers must track the hardcover, trade paper, and mass market editions under different ISBNs, they should track e-books the same way.

The publisher that made the “error” with my books had no identifying number, and only one line for e-books. Does that mean that this figure included all e-books, from the Amazon edition to the B&N edition to the Apple edition? Or is this publisher, which has trouble getting its books on various sites (go figure), is only tracking Amazon? From the numbers, it would seem so. Because the numbers are somewhat lower than books in the same series that I have on Amazon, but nowhere near the numbers of the books in the same series if you add in Apple and B&N.

I can’t track this because the royalty statement has given me no way to track it. I would have to run an audit on the company. I’m not sure I want to do that because it would take my time, and I’m moving forward.

That’s the dilemma for writers. Do we take on our publishers individually? Because—for the most part—our agents aren’t doing it. The big agencies, the ones who actually have the clout and the numbers to defend their clients, are doing what they can for their big clients and leaving the rest in the dust.

Writers’ organizations seem to be silent on this. And honestly, it’s tough for an organization to take on a massive audit. It’s tough financially and it’s tough politically. I know one writer who headed a writer’s organization a few decades ago. She spearheaded an audit of major publishers, and it cost her her writing career. Not many heads of organizations have the stomach for that.

As for intellectual property attorneys (or any attorney for that matter), very few handle class actions. Most handle cases individually for individual clients. I know of several writers who’ve gone to attorneys and have gotten settlements from publishers. The problem here is that these settlements only benefit one writer, who often must sign a confidentiality agreement so he can’t even talk about what benefit he got from that agreement.

One company that I know of has revamped its royalty statements. They appear to be clearer. The original novel that I have with that company isn’t selling real well as an e-book, and that makes complete sense since the e-book costs damn near $20. (Ridiculous.) The other books that I have with that company, collaborations and tie-ins, seem to be accurately reported, although I have no way to know. I do appreciate that this company has now separated out every single e-book venue into its own category (B&N, Amazon, Apple) via ISBN, and I can actually see the sales breakdown.

So that’s a positive (I think). Some of the smaller companies have accurate statements as well—or at least, statements that match or improve upon the sales figures I’m seeing on indie projects.

This is all a long answer to a very simple question: What’s happened on the royalty statement front in the past year?

A lot less than I had hoped.

So here’s what you traditionally published writers can do. Track your royalty statements. Compare them to your contracts. Make sure the companies are reporting what they should be reporting.

If you’re combining indie and traditional, like I am, make sure the numbers are in the same ballpark. Make sure your traditional Amazon numbers are around the same numbers you get for your indie titles. If they aren’t, look at one thing first: Price. I expect sales to be much lower on that ridiculous $20 e-book. If your e-books through your traditional publisher are $15 or more, then sales will be down. If the e-books from your traditional publisher are priced around $10 or less, then they should be somewhat close in sales to your indie titles. (Or, if traditional publishers are doing the promotion they claim to do, the sales should be better.)

What to do if they’re not close at all? I have no idea. I still think there’s a benefit to contacting your writers’ organizations. Maybe if the organization keeps getting reports of badly done royalty statements, someone will take action.

If you want to hire an attorney or an auditor, remember doing that will cost both time and money. If you’re a bestseller, you might want to consider it. If you’re a midlist writer, it’s probably not worth the time and effort you’ll put in.

But do yourself a favor. Read those royalty statements. If you think they’re bad, then don’t sign a new contract with that publisher. Go somewhere else with your next book.

I wish I could give you better advice. I wish the big agencies actually tried to use their clout for good instead of their own personal profits. I wish the writers’ organizations had done something.

As usual, it’s up to individual writers.

Don’t let anyone screw you. You might not be able to fight the bad accounting on past books, but make sure you don’t allow it to happen on future books.

That means that you negotiate good contracts, you make sure your royalty statements match those contracts, and you don’t sign with a company that puts out royalty statements that don’t reflect your book deal.

I’m quite happy that I walked away from the publisher I mentioned above years ago. I did so because I didn’t like the treatment I got from the financial and production side. The editor was—as editors often are—great. Everything else at the company sucked.

The royalty statement was just confirmation of a good decision for me.

I hope you make good decisions going forward.

Remember: read your royalty statements.

Good luck.

I need to thank everyone who commented, e-mailed, donated, and called because of last week’s post. When I wrote it, all I meant to do was discuss how we all go through tough times and how we, as writers, need to recognize when we’ve hit a wall. It seems I hit a nerve. I forget sometimes that most writers work in a complete vacuum, with no writer friends, no one except family, who much as they care, don’t always understand.

So if you haven’t read last week’s post, take a peek [link]. More importantly, look at the comments for great advice and some wonderful sharing. I appreciate them—and how much they expanded, added, and improved what I had to say. Thanks for that, everyone.

The donate button is below. As always, if you’ve received anything of value from this post or previous posts, please leave a tip on the way out.

Thanks!

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“The Business Rusch: “Royalty Statement Update 2012,” copyright © 2012 by Kristine Kathryn Rusch.

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Spread The Word - Kris Rusch - Royalty Statement Update 2012J.A. Marlow

Where the Purple Grass Grows

Reporter Steve Gortney expects boredom on the backworld of Vorstogen, but instead must survive a mysterious space-elevator with awakening secrets, and the raiding pirates who are about to trigger it.

Amazon | Barnes & Noble | Smashwords

Author Beware in the New Publishing World

First, the day has gone well. I’ve worked on several small things through the day, and the result is that my to-do list has drastically dwindled. Which means I can dive into revision tomorrow without anything weighing on me. Yay!

Now on to not so nice news.

New clauses are showing up in big publishing contracts, and it’s Author Beware time. It’s being called a rights-grab and it’s starting to get ugly. And they are getting sneaky with it, by inserting items that once had their own clauses into places in the contracts one would never think to look.

Wow.

If you have an offer from either a publisher or an agent, run, don’t walk, to best IP attorney you can find. You’ll need all the help you can get. Read every line and every word. One wrong word in one place could spell disaster.

The Passive Guy makes a very good point that I think needs to be repeated and passed on as much as possible: Yes, this is business, but if there is no respect in the relationship, how can it possibly survive?

Then add in the new Agent clauses showing up, which in effect give the agent a portion of your writing income FOREVER.

EVEN IF YOU FIRE THEM FOR BAD BUSINESS PRACTICES.

As with any career, the writing career requires constant education. Below are a few links to give more information to help you get started:

The Business Rusch – Publishers: Surviving the Transition Part 2/

Strip-Mining the Authors/

Principles of Contracts: Everybody Knows Peggy Lee (or should)

Bottom line: Protect yourself. You are one small writer going up against Big Business. They could care less about you. They want the money, which means all the rights they can get. Protect yourself!

The New Publishers Weekly $149 Self-Publishing Ghetto

Publishers Weekly, a big trade magazines covering traditional publishing has made an announcement about a new quarterly supplement called “PW Select“. It’s dedicated to listing self-published titles and “reviewing those we believe are most deserving of a critical assessment.”

On the surface it sounds interesting. Until you look under the surface.

You see, out of “all self-published books submitted during that period” at least 25 will be reviewed. The $149 does not mean a submitted novel will be reviewed. You are paying ad space of a few lines and then the chance (read: lottery) at a review.

Oh, and the resource directory to be included in “PW Select”? Judging from the ads all over the PW website, count on it being chock-full of vanity publishers who are also on the look-out for naive gullible self-publishers to take money from.

As a part of this deal you get a 6 months digital subscription, which is a $90 value. This means it costs $59 to get one listing into a quarterly supplement that isn’t a part of the regular magazine. The little side-ghetto. Oh, I feel privileged to have this offer available.

Yes, the sarcasm is out nice and heavy about this.

Does this seem harsh? Yep, and for a reason:

MIGHT be reviewed?

Oh look at the pretty carrot. No, let’s call this what it is: a lottery. A big lottery where you pay your money and hope to get lucky. For $149 that is a really bad chance.

If they had been straight-forward about this, that this is for ad placement only, it would be one thing. But a lot of newbies are going to see the carrot of a possible review and submit to something with dubious benefit.

Attracting Readers?

PW has an audience, but what is that audience? It’s people already in the industry such as publishers, agents and libraries. For someone who chose and wants to be Indie, the publishers and agents portion is worthless other than picking up a few side readers, if they have time to read for recreation. Right now it’s difficult to sell Indie books to libraries without jumping through a lot of hoops, so no real advantage to that market, either.

How does this help the author? Just to be listed in a text ad? The mass of readers are not going to read PW to find books. That’s what browse and search is for in the online bookstores, as well as review blogs (which you do not pay in order to have the ‘chance’ of a review) and places like LibraryThing and Goodreads. For the purpose of attracting readers, the listing has very little to no value.

Make money!

Where is the money at for most Indie publishers writing fiction? E-books. What are the instructions from PW?

“We will not accept manuscripts or e-books (this time). Only final bound galleys or finished books will be accepted. Books cannot be returned; once finished the copies are donated to Housing Works Thrift Shop, a worthy local charity.”

Okay, we are asked to buy an ad, but we are to send in a dead tree book? Oh wait, this is tied up with the carrot of a possible review.

Listing Ghetto

If the Indie/self-publishing movement is suddenly so important after being ripped apart by PW in the past, why is it in a separate “supplement”? Why isn’t it a part of industry news? Because PW sees money that it wants but wants to keep the “traditional” industry happy by keeping the wretches away from the ‘legitimate’ publishing industry. Otherwise, this real ‘publishing news’ would be a part of the main magazine.

Financial Woes

Honestly, this move doesn’t surprise me coming from PW. While some of their articles and information are interesting, they’ve also been having financial problems. This is a way for them to bring in a new cash flow.

Oh, and traditionally released books? As far as I can tell they are not charged for listings or the possibility of reviews. Isn’t that nice that they are treating Indies so differently.

In Conclusion

This offer is about making money off the Indie authors, not by selling more subscriptions or making money off of readers. While there are valid expenses associated with going Indie, this sort of thing is not one of them. Stay away!