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STUPIDITY, CUPIDITY
AND ROYALTY STATEMENTS
Posted February 5, 2003
SUMMARY
Rare are royalty errors a sinister plot against authors, but mistakes, even when innocent, can decimate an author's royalty income. Here, a veteran royalty auditor, Paul Rosenzweig, whose firm has recovered more than $6 million, offers tips for authors to protect themselves from errors. This interview appeared originally on the site of the American Society of Journalists and Authors. |
Interview by Christine Larson
What kind of mistakes do publishers make with royalty statements?
We feel the causes of the royalty statement errors at major publishing houses are 80 percent stupidity, 20 percent cupidity. In smaller publishers, the percentages are usually reversed. In the majors, the incidence of errors starts climbing almost geometrically in connection with the mergers, acquisitions and other transactions where titles move from the house in which they were originally contracted.
Why do mergers lead to errors?
Historically, every publisher believed he (and in those days it was always "he") was different than every other publisher. In addition to the different focus, style and other visible attributes, the "back rooms" were also contracted operated in the individual publisher's image. Methods of royalty calculation, timing of statements, format of contracts and contract terms were all different. The only shared style, as it were, was that the royalty statements, while differing in detail formats, were always designed to obfuscate what was really happening in the individual author's account.
Moreover, royalty systems, those mechanical, later computerized systems, were designed to fit the style of that company. Indigestion in the form of mistakes runs rampant when titles shift location. Whether it's an escalation clause or multiple editions, or the definition of high discount, or even something as fundamental as whether royalty is based on cover price or publisher's net receipts, if worded differently from one house to another, that will trigger errors.
What else causes errors?
We often see problems when an author or his/her agent has enough clout to force changes in the boiler plate of the publisher's contract or inserts a clause that the publisher's royalty system is not equipped to handle. Weıre working on a client right now where the agent changed the word "net" to "gross" in connection with the sharing of subrights.
What was your largest recovery for an author?
Our biggest single recover, for an individual title, came as the result of the insertion by the author of a "favored nation" clause in his contract. A "favored nation" clause says that if you pay any author a higher (royalty) rate than youıre paying me, you owe me the higher rate. In 35 years of publishing, I had never, up to that point, seen such a clause in an author's contract. When we notified the publisher that we wanted to see all contracts they had entered into during the specified period, the CFO called me back to ask why we wanted to see those documents. When I explained our authorıs contract had a "favored nation" clause and the CFO said, "Whatıs that?" I knew we had a lucrative assignment.
Including interest, the author collected $940,000. We have since seen "favored nation" clauses in a very successful trade authorıs contracts at another publishing house.
Are these disputes usually settled out of court?
With one exception, none of our reviews has ever resulted in litigation. Rather, the publisher acquiesces to our requests, in a few cases after further negotiation. But I have served as an expert in many publishing-related litigation matters. When Joan Collins sued Random House regarding her "unpublishable" manuscript, I was called in after she won her case to help calculate royalties. It was obvious from the file that here was another matter when case where an agent (the late legendary "Swifty" Lazar) had changed the boilerplate of the contract and the publisher was stuck accordingly.
What can you tell us about class-action lawsuits regarding royalties?
There have been two class-action lawsuits on the issue of royalties in recent memory. One involved romance authors. The publisher refused to pay the author the amount we determined was due from our review. Our claim was about $25,000 and the publisher refused any payment. The author went looking for legal representation. The result was a class action lawsuit that cost the publisher $2.5 million.
Another very recent case involved HarperCollins and every author whose books were shipped to Harper's Canadian, English amp; Australian affiliates from 1993 to 1999. Harper had been systemically systematically ³selling² books to their affiliates at egregiously deep discounts, then paying authors royalties on the resulting superlow "publisher net receipts." The settlement will result in roughly adding an additional 10 25-30 percent to the royalties on sales to affiliates previously paid for that period.
What can authors do to protect themselves from errors?
1. Stay in touch with your editor, showing interest in marketing, reprintings, even gossip.
2. Be alert to readers' and colleauges comments about your book, as to a peculiar particular copy or edition.
3. Get in the habit of visiting local bookstores when traveling, domestic or foreign, looking for copies or translations of your book.
4. Your home library should contain copies of every known edition of your book, particular if you get a call, e-mail or fax to verify that you know about the edition the caller is referring to.
5. Visit Amazon.com and B&N.com regularly to verify that the ISBNs on sale are those you know about. Check similar foreign sites, too.
6. If something "new" shows up from any of these, call your agent and let them chase it down. If you donıt have an agent, contact the publisher gentle and play dumb as to how important your question might be. If the answers arenıt fully satisfactory, press on; if you are ignored or stonewalled, call us.
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The Society of Academic Authors invites members to comment on authoring issues:
editor@sa2.info. |
Paul Rosenzweig
Rosenzweig spent 25 years in financial management positions at publishers, directly overseeing royalty departments. In 1991, he started his own consulting practice. "As far as we know, R&M Royalty Review is still the only full-time practice assisting authors in confirming the accuracy of their royalty statements."
Royalty Review Service |
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