First responses to Harlequin litigation post

Thanks to Twitter, I got some interesting thoughts on last night's post from a person tweeting under the handle @DearAuthor. (I can pull her real name but that's the handle she uses so I'll respect that and use it here).

Although I don't agree with everything she's said, just as she doesn't agree with everything I've said (or anything I've said, it seems), they are definitely instructive. They will definitely inform my thinking as I spend more time on this topic leading up to RWA 2012.


Anyway, Twitter is a tough place to give people props because of the 140-character limit, but if you see this thanks for the read and the thoughts.

Four quick thoughts on the Harlequin e-books class action

To catch up people who haven't read the complaint: a group of authors are suing Harlequin for their business practices in the e-books space. Important note: I'm basing this on a review of the Complaint. Although it's not usually the case that plaintiffs get things grossly wrong in drafting these things, keep in mind that Harlequin hasn't answered any of these points and we're a long way from judgment (or settlement, which I think is way more likely). So Harlequin will probably not agree with the way I'm characterizing things below.

Weasel words out of the way, let's look at the Complaint.

Four last things to remember for now about net profits clauses

1. If your publisher is doing deals with related parties, they have to charge what are called "arm's length" rates. A good way to show this is with an example. If your publisher is charging you a marketing fee  is using a marketing firm in the same corporate family, there's a really strong incentive for them to make the fee as high as possible. The "arm's length" rule says that they can only charge you the same fee that a company not in their corporate family would charge. If your publisher is charging fees against your book that you think are totally crazy, look for some industry data to see if you can use this to change their position.

Three common deductions that publishers and studios take, and tips on what to do in response

Here's three of the most popular or egregious deductions from book and film deals:

1. Distribution fees. Although there are always costs involved in shipping product, many times the distribution fee in a contract is determined as a fixed fee or percentage, such as "20% of gross profits". I'll let you decide whether this kind of calculation is based on actual costs of distribution. If it helps to figure this out: often the distribution company is a related party to the publisher. By the way, the same thing often happens with marketing fees: they are calculated as a percentage of profits and aren't usually tied to actual spending.
2. Overhead. Basically this represents salaries and other internal costs to your publisher. Publishers often try to pass through the cost of editors, accounting staff, lawyers, and other employees. Some even want to charge a fee for things like photocopies, long distance phone calls, and office rent. You'll see this as a percentage of your profits, which is a clear signal that it's nothing to do with the work they've actually done on your project.
3. Interest. If your publisher is paying you an advance, then that's money out of their pockets. If you read the advances and royalties post then you may recall that you don't get paid any royalties until your publisher recoups the advances. Some publishers also charge you interest on the advance; most film and TV studios will do this. So if you get a $15,000 advance and 10% royalties with a book whose wholesale price is $10 but 10% interest, then you don't get paid on copy 15,001. It takes another 1,500 units: you get paid at unit 16,501. Same thing for the marketing and distribution charges: some publishers allocate money to a project and then charge a interest against it even though the money isn't spent yet.

If you see these things, try these responses:

Why net profits can mean no profits: learn how to protect your money

Net profits clauses are almost a dirty word these days, but they didn't start that way and they don't have to be. It really comes down to the way they're written.

Taking net profits used to be something only big names got. One of the first people to take a net profits clause in a contract, if not the first one, was Jimmy Stewart in 1950. His version of the net profits clause would have worked similarly to the way these work today: talent and creators agree to take less money in advance but they get additional funds if the project makes money. The thinking is: if the project is a success then everybody wins, and if not then everyone loses less.


But as time went on that last statement became less and less true. Today there are often clear winners and losers in a net profits situation. And the publishers and studios do their best to make sure they're not the losers.

Understanding advances and royalties clauses, and two things to think about when deciding to take them

Getting paid is great, but getting paid over and over is even better. Or is it? Payments over time are a bit more complex, sometimes a lot more, than a flat fee. But at the end of the day they break down into two buckets:

• Royalties
• Advances on the royalties

You might see a contract say that you'll get $1,500 advance on signing against 10% net royalties. Let's use that as an example. Here's what that means:

1. On the day you sign the contract, your publisher/studio/whatever will give you a check for $1,500. You can cash that, it's yours. But...
2. Effectively, you've borrowed money from yourself. That $1,500 will be paid back from your royalties. If your book (for example) wholesales for $10, let's assume there are no deductions (which is a HUGE assumption and I'll come back to that), then you're making $1.50 per unit sold. So you don't get paid until you've sold at least 1,000 units ($1.50 x 1,000 units = $1,500).
3. At unit 1,001, you start getting $1.50 per unit sold.

Four steps in determining whether a flat fee is right, and three things to consider

In a previous post (http://bit.ly/P4CUUb if you missed it) I discussed the issues that might lead people to take flat fee deals. Now it's time to talk about how to calculate flat fees and whether a flat fee structure is right for you. I'm sorry, but there will be math today...

In the book world it's actually pretty easy to figure out whether a flat fee is a good deal:

Eight basic posts for authors in understanding book publishing deals

If you're an author looking for information on your rights and obligations under publishing contracts: you might be interested in some of these posts:

• The one (or more) steps to knowing when you're done writing under your contract: http://bit.ly/NfTuPf
• Knowing whether you've delivered what you were "supposed to" (and two tips if you didn't): http://bit.ly/LW5Oou
• Three issues for publishers in accepting manuscripts: http://bit.ly/M9gbHq
• Four better ways to determine whether your manuscript is "finished": http://bit.ly/Na0RHD
• Three facts you may not have known about e-books (and two issues they raise): http://bit.ly/NOH2m5
• Three tips if your publisher says your book isn't worth paying for (and one suggestion for what to do next): http://bit.ly/Ok9g9u
• What kind of help is your publisher legally obligated to give: http://bit.ly/Rlkxtq
• Your publisher is asking for the advance back: three things not to do (and one to try): http://bit.ly/N55Nxu

More new content to come. This week I'll continue with tips to help you understand some of the financial terms in your contracts.