Contractual Differences

Warning: Very Long Post!

In the past few weeks and over the last couple of years I’ve been hearing a lot of complaints from writers that basically boil down to “I’m being screwed by a contract clause.” And this isn’t just from new authors who had no prior experience with publishing contracts, but also from experienced authors making the jump to independent e-book publication, boutique/small press and other scale/medium shifts. Many of you may be aware of problems with Dorchester publishing about two years ago in which they dropped print publication and went to electronic only, or instances of Kindle price drops that took authors by surprise, and the recent news that L. J. Smith has been ousted from her long-running bestseller series The Vampire Diaries by the enforcement of her work-for-hire contract. All of these cases and a lot more are the result of one party or the other misunderstanding, not reading, or mis-interpreting/abusing a clause in their publication contract. Lest you become the next poor bastard in line, here are some points for all writers to consider when signing contracts.

There are two types of publication contract in the storytelling-for-profit world: license of rights; and work-for-hire. They are not the same, though the contracts may have clauses in common and the differences can therefor be confusing. If you are a self-published author—and this includes all writers publishing directly and exclusively to e-book via Amazon, Smashwords, B&N or whatever—you are not under a publication contract, because you are the publisher; rather your contracts are for distribution, display, sale, and promotion (and if you are selling physical books, you also contracted and paid for the print and bindery work and probably the editorial and proof reading yourself), which are part of the contract publishing process, but are not, in fact, “publishing.” This is not a slam, but a clarification of the difference between contract (“traditional” or “legacy”) publishing and self-publishing. However, a lot of the pitfalls of contracts still apply to self-publishing authors.

I’ll start with a clarification of terms.

License of rights is the contract type that the majority of “traditional” authors operate under: the writer/creator owns every aspect of the intellectual property that they made (the story, the characters, the situation, the film rights, the print rights, the e-book rights, the audio-book rights, etc.) and they merely give other people limited, legal permission (“grant a license of rights”) to do specific things with that IP in exchange for money or other valuable considerations. The writer controls and retains all the other rights that weren’t specifically or inclusively licensed in that contract. When the contract comes to an end, the licensed rights revert to the author and they continue doing whatever they like with them. (The self-published author also retains all their rights, but they do not license them to anyone—they do the job themselves or contract someone to do it for them without giving anyone a license to exercise their rights for them—a fine, but important distinction.)

Work-for-hire is usually solicited by the publisher/distributor/packager/studio/whatever and the writer does not own anything, but works to a specific requirement in exchange for an agreed upon amount of money. The intellectual property is created for the company, under contract, and all the rights are theirs; the writer is merely a contractor who walks away with money in their pocket once the terms are fulfilled and they retain no rights to the work. (This is the polar opposite of self-publication.)

Now onto the contracts themselves....

First off, contracts bind both parties. Pay attention to the balance of the contract and what you get in exchange for what you give. The publisher/agency/distributor/press/Amazon always has protection clauses if you fail to fulfill, or otherwise break, the contract, but there should be clauses that give you recourse if they fail or break, as well. The terms of failure or breakage for both parties need to be clearly spelled out. For instance, if the press goes out of business while the contract is still in effect, what happens to your story? Do you get your rights back? There are a lot of other balance of power issues to consider too: How long is the term of the license? If this is a work-for-hire, can you mention it on your resume or is it “ghost work” which can’t be mentioned? There should also be a clear description of who’s responsible for what, like promotion or editorial services. If it seems the publisher/distributor/agent is getting the better deal, they probably are—and at the moment most publishing contracts favor the publisher/distributor/agent over the writer because they are the party in lowest supply but high demand, which gives them more power than you—but they shouldn’t be abusive about it. You have more options now than ever before and you don’t have to take a bad deal just to get your book out. (There is always self-publishing, but read on, first.)

Regardless of which type of publication you’re pursuing, you don’t have to have an agent, but you do have to have someone knowledgeable to vet—and in some cases negotiate—your contract before you sign it. Publishing contracts are notorious for clauses that seem straightforward, but aren’t, and for language that seems like plain English, but is actually specialized business terms, as well as the sort of linguistic pay-no-attention-to-the-man-behind-the-curtain handwaving and smoke that misdirects from clauses to which you should be paying a lot more attention. If you don’t have an agent, a publication or media contract lawyer will be your best bet, a general contract lawyer the next best. They aren’t the cheapest folks in the world, but most can power-read through a contract in less than one $200/hour hour and tell you what it really means and where you should ask for a modification, clarification or outright removal of a term/clause. They can also interpret industry specific terms like “work for hire,” “display rights,” “electronic deposit,” “elevator,” “discount rate,” or “on acceptance,” which aren’t quite what they sound like. If you just can’t afford a lawyer—I know a lot of us can’t because... well.. we’re writers—at least reach out to other, more experienced writers in your genre*. Every professional writer in the business has been—or will be—bitten in the backside by the unexpectedly sharp fang of a contract clause sometime in their career, so you’re not alone and there’s no shame in asking for or hiring help. Don’t be a pain in the ass about it, ask politely, get more than one opinion from diverse sources, and you’ll do well—or at least better than a lot of people.

Don’t sign anything until you are utterly sure what you’re getting into! No one means to be a shark, but sometimes they just can’t help themselves--these are corporations after all (it’s in their nature, as the scorpion said the the frog) not people--and you don’t want to be the chum. Especially now when the publishing industry is in a howling hullabaloo, it’s easy to feel pressured or desperate or confused and to find yourself on the short and pointy end of the contractual stick as a result. Take a breath, be calm, pay attention, and look ahead—contracts can be in force for years, so don’t sign in haste to repent at leisure.

Read every single word—no skipping over “the boring bits” or the repetitions—in the proposed contract. Sounds obvious but a lot of people blip past the clauses that seem the same as a previous one after a while and this can bite you in the ass very hard. Just because it looks the same on first glance, doesn’t mean it is the same—one word or number changed, one plural rather than the singular, one proper noun rather than a general noun can make a huge difference in what’s going to happen once the contract is in action. Also, don’t assume you understand a term and then skip over the explanation of how it will be applied or under what circumstances—or, worse, don’t read the definition of terms on the last page. Apparently-obvious words like “discount,” “reserve,” “net,” and “remainder,” have specific meanings and impact and can cause you considerable distress. Ditto terms like “damage to sales” or “at publisher’s/distributor’s/licensee’s discretion,” which look a little scary can be very scary in action. Discretion sounds like such a nice word, doesn’t it? Sounds like we’re going to be discreet and careful, right? Nope. What it means is “we get to do what we want when we want to and you can’t stop us—or force us to do it if we’re not in the mood.” That is one tricky little word—so keep a sharp eye on any word or term that might not mean what you think it means and don’t let them slip past because the contract was long and boring to read.

Don’t rely on friendship to save your ass. The contract may be offered by your absolute bestest buddy in the business and you trust them, but you can’t rely on your buddy still being in charge when ugly contract clauses come into play. They have no more choice about enforcing those clauses than you do since contracts bind both parties. So if the contract or a clause in it gives you the heebie-jeebies, ignore your friend’s assurance that “that never happens;” the clause wouldn’t exist if the situation was impossible and “never happens.” No matter how unlikely, if it happens to you, you’ll still be screwed. Negotiate a change you can live with if (gods forbid) the situation at issue does come to pass, or don’t sign. I’m serious. No matter how badly you want it, some things aren’t worth selling your dignity, your baby, or your soul for.

Don’t get greedy. Just because someone is offering you 70% royalties on your e-book, or a six-figure advance for your YA Epic Fantasy trilogy that doesn’t mean it’s automatically a great deal. Look hard at the terms—no matter whether the contract is licensed, work-for-hire or self-publishing. What are you really giving up to get that nice chunk of money? What hoops do you have to jump? Is it worth it? How long will it take before you get all (or promised installments) of the money? Do you have to put up any money yourself? Or bear costs like cover design, paying for the proofreader, promotion, advertising, or required travel on your own? Will you be unable to sell other stories to other publishers—or to self-publish—while this contract is in effect? How much control do you retain over the rights or the packaging or the sale price? Take for instance Amazon’s Kindle contracts: you have an option of taking a 35% royalty or a 70% royalty. Sounds like a no-brainer—who’s going to opt for less money, right? But look at the clause that allows Amazon to reset your price at their discretion. What did I just say about discretion? Yup, that means that Amazon can change your price whenever they want, to whatever they want, and keep it there for as long as they want. So without any warning or permission, you’re suddenly not making 70% of $2.99, but 70% of $0.99—oh wait... when the price is set below $2.99 you don’t get 70% anymore: you get 35%. And there’s nothing you can do about it. Because you signed the contract that exchanged price control for profit percentage—control versus money. Which do you want? Sign the contract that offers you the clauses you’re most comfortable with in the longest term.

Always consider the worst-case scenario. Remember what I said about the “it never happens” clauses? Every time you see one, stop and think about what the impact on you will be if that terrible thing comes to happen. And if you aren’t really sure what that funky clause is all about, ask! For instance, discount** and remainder*** clauses are often ignored until the writer gets pinched by them, because they think the situation can’t happen—no publisher who’s paying for your work would just throw your book away or sell it at a loss like it was an unwanted roll of toilet paper... would they? But publishers, retailers, and distributors do both these things regularly to protect their longer-term business investments and cut losses and while you often can’t do anything about it in the contract, you can at least understand what these clauses do, what circumstances bring them into play, and how you can prepare to counter them or ride out the storm.

Don't short-sell your future. Most traditional publication contracts include a "first refusal" or "next project" clause and various clauses about when and how your rights revert to you. First refusal gives the publisher the exclusive right to look at and offer for your next project of a certain type, length, or relationship to the current contract and you can't legally show it to anyone else unless and until the first publisher rejects it. Basically this locks you into that publisher in some way until they decide they aren't interested in you anymore. On the one hand, you have the security of knowing the publisher will at least take a look at and probably make some kind of offer for the next manuscript, but if the clause is overly broad it can tie you to that publisher for a long time. If your relationship with them is going sour, you won't want that and neither will they, but... well... you're both bound to it. The rights reversion and/or "out of print" clauses are usually pretty straightforward with respect to print books, but with the excitement over e-books they can sometimes be abusive and draconian. For instance, Simon and Schuster attempted to include language in contract several years ago that defined a book as "in print" and therefore S&S's contractual property, so long as a single electronic copy for POD used existed anywhere in S&S's database or network. Although they claimed this wasn't meant to keep the rights with them in perpetuity, that was the effect the clause would have had. So many people objected to the clause in public that S&S removed it, but variations on it still rear their ugly heads. Don't let the publisher sit on your rights by a technicality. Limit these clauses by making them as specific as possible.

And one last thing for now: if you can’t find a downside to the contract, you’re not looking hard enough.

*Asking within your genre often reveals information that’s specific to the publisher or group you’re contemplating working with and, in some cases, language will be different but the meaning will be the same, so if you’re writing Romance, for instance, you may find other Romance writers the most helpful. Not that writers from other genres won’t have seen the same or similar clauses, but you’re more likely to land help from a writer, agent, editor, or experienced assistant who knows exactly what that clause means coming from that publisher.

**Discounts are abnormally low wholesale prices that cut the publisher’s profit too deeply, so the writer’s royalty is then cut to compensate. Deep discounts became a common demand during the ascendency of the big bookstore chains and “big box” stores like Costco and Amazon. A set percentage discount clause rather than a floating percentage against wholesale price can mean that when a powerful buyer demands a wholesale discount at or below that percentage, the author ends up being paid for their first-run books as if they were last year’s garbage. Pay attention to discount clauses and make sure you ask what the common wholesale discount currently is before you sign.

***Remainders are books that come to the end of their expected shelf life—usually fancy hardcovers and that sort of thing—that are slated for deep discount (and sometimes destruction in the case of mass-market paperbacks which are “pulped”). Remaindered books are usually marked or “stripped” and then sold to jobbers for pennies on the cover price. The author will then receive the “discount” rate payment for those books and the books will be removed from regular sale and the publisher’s inventory. That format or title will then officially go out of print, never to be seen again, in all likelihood. The author may be offered the chance to buy remainders of their own books at a slightly less favorable discount than the jobbers before the books are stripped, marked, and dumped. If you can afford them and have the storage space, remaindered hardcopies or special editions can occasionally become profitable for authors to sell themselves after the edition is out of print and therefor collectible, but you’ll have to invest in a large number of them and store them properly.


Tony said…
Wonderful post and lots of great information. Authors, and other creative types, should take note and bookmark this. It will come in handy in the future.

E.Maree said…
Brilliant post, I've saved it on Google Reader. :D
Brenda Hyde said…
Wow, SO much good information. I can tell you from experience that it's easy to get so excited that you sign something even when your gut is telling you different. I was lucky in that all I lost was a short story- the lesson was one I needed, but it still sucks. Thanks for being so detailed:)
Kat Richardson said…
It's the excitement that gets you. We all get bitten at some point, and I'd like to go into some depth in the future about some of the specific terms and what they actually mean, how they can effect the writer, and what they should never, ever agree to, no matter how good the bait. But not enough room here.
Great post. Thanks for being so explicit in the details.

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