6. Royalties on Publisher’s Editions. For each Edition of the Work published by Publisher under this Agreement, Publisher shall credit Author’s account with the following royalties on Net Revenues (all revenues are paid in USD):
6.1 50% (fifty percent) of the Net Revenues on Net Copies Sold of any Edition, not electronic.
6.2 50% (fifty percent) of the Net Revenues on sales of electronic Editions sold.
6.3 United States Generally Accepted Accounting Principles (US GAAP) defines Net Revenue as the Gross Revenue minus the Costs of Goods, Services, and Production.
6.3.1 Costs of Goods are defined as: Retailer Freight (Distribution Charges), Copyright Registration, International Standard Book Number (ISBN), and Barcode.
6.3.2 Costs of Services and Production are defined as: Managing Editorial, Copy Edit, Proofing, Review, Cover and Interior Design and Typography, Editorial, Marketing, Research, and Sales.
6.3.3 The Costs of Services and Production will not exceed 50% of Gross Revenue after the Costs of Goods have been satisfied.
First, from this section the author can deduce several things:
#6 - We account following Net Revenues, the definition of which is given by GAAP.
#6.1/2 - To emphasize the partnership in sharing of the risk, the author is paid 50% royalties on both Print and Electronic versions (#8 details 50% for all other rights which are licensed.)
#6.3 - Gives the definition of GAAP accounting for the benefit of the author.
#6.3.1 - Defines COGS which as I noted above all have independently verifiable costs. I gather this is not so much of a concern for you.
#6.3.2 - Defines COSS, I also gather that the definition is expected and not what bothers you.
#6.3.3 - If I am following correctly, then this is the point that you are having difficulties with. This means that COGS are re-paid first (this is a set amount that an author can calculate based on sales volume). Following GAAP, Services and Production IS paid before we get to a Net Revenue. Because of this, I contractually limited what can be accounted (paid) to COSS to 50% of what is left after COGS have been re-paid.
I assume the section in the inside quote-box is from your contract: is that right, Travis?
I note that you define all the various costs which will be deducted from gross amounts; but you don't specify what those costs will amount to, and this is what troubles me.
It means that writers won't know how much they'll earn, in real terms, per copy sold.
In order to clarify, you'll have to tell us specifically what a writer can expect to earn per copy sold.
For example, in a contract where (examples simplified for ease) the writer earns 12% of cover price per print copy sold, and 25% of cover price per electronic copy sold, and the cover prices are £10 and £5 respectively, the writer would earn £1.20 per print copy sold and £1.25 for every electronic copy sold.
In a contract where an author would earn 50% of net revenues per electronic book sold, where "net" is defined as the cost of distribution to Amazon, which is set at (I think) 30% of cover price and the book is priced at £5, the author will earn £1.75 per copy sold (which I think is half of what's left after you take 30% off £5--someone please shout if I've done that wrong).
In your contract the author doesn't know what they'll earn because despite all your various complex definitions and explanations, you don't specify the amounts which are deducted under costs.
Thus COSS is an independently verifiable number (it does fluctuate the same way that a
The costs of staff associated with COSS are a percentage of the total COSS. Meaning that Editors are paid a percent of the total COSS, designers are paid a different percent of the COSS and so on. Thus the author need not be concerned with what my staff is paid, just that the total amount that my staff is paid, will not exceed 50% of Gross After Cost of Goods. Does this make sense?
That first para doesn't, because it's not complete.
The rest might just as well be nonsense because you don't provide any specific cost amounts.
Your statement that "the total amount that my staff is paid, will not exceed 50% of Gross After Cost of Goods" does not reassure me: if it's significantly less than 50% of gross after the COGs has been deducted, how will anyone know? How can you be certain it won't exceed that 50%? What will you do if it does? Where will you find that extra money from, and what will happen to your writers' payments if you can't find it?
This is all far too complex, and to be honest it shouldn't be part of your contract with writers. It's your business, not your writers'.
The issue isn't how you define COGS or COSS, or how small or large a percentage of anything either of them are: I want to know how much a writer who you publish will earn per copy sold. That's all.
Let's run the numbers given Sales price of $4.99 and assume 3,000 unit sales, with no returns (eBooks for simplicity):
Gross Rev: $15,000
Total COGS: $4,600
Gross After COGS= $10,400
COSS: $5,200
Net Rev = $5,200
Author 50%: $2,600
Artists 15%: $780
Publisher 35%: $1,820
(I used $5.00 round-up for ease of numbers)
The problem I have with this model is that you, the publisher, are getting all your costs paid first; and then you're splitting what's left between you, the writer, and the artist. So you're covering your own bases before you pay the talent, and at that point you're taking a cut too.
In other words, you're expecting the writers and artists you work with to cover the risk you take in publishing the book without acknowledging the risk they've already taken in writing the book or drawing/designing it.
Please forgive me, I was not meaning to be rude.
Whether you intended to be rude or not, you were.
But we are coming back to economics at this point. In such terms, if you are unwilling to take part in the risk of a project, that is often due to a lingering concern or question over it's earning potential.
Writers take their risk when they write books.
Publishers take their risk when they publish books.
Writers don't expect publishers to cover the costs they incur while writing their books; publishers shouldn't expect writers to cover the costs publishers incur when publishing. But that's exactly what you're doing here, and your repeated implications that writers who aren't prepared to take this risk is because they know in their hearts that their work isn't good enough is patronising, manipulative, and insulting.
The contract is sound and legally equitable, under Washington state law about the only point of concern might be due consideration, which would be satisfied by paying a token of $1.00. Now given the fact that this contract would be viewed as a the formation of a partnership (type of business), and the majority risk and undertaking of execution is with the publisher, the fact that the Author would earn 50% and the publisher only 35-40%, the issue of consideration is null.
Just because your contract is "sound and legally equitable, under Washington state law" it's not automatically also fair to the writers you publish.
The majority risk does not lie with the publisher because you've not taken into account the risk the writer takes by writing the book.
The split isn't 50% to the writer and 35-40% to the publisher because you get your 35-40%
in addition to all your costs of doing business, while expecting the writer to fund all his or her costs out of their 50%.
If you factor in the costs that you take out of the gross revenues, you're getting paid far more than the writers you publish.
Let's go back to this part of your post where you provided that revenue split:
Let's run the numbers given Sales price of $4.99 and assume 3,000 unit sales, with no returns (eBooks for simplicity):
Gross Rev: $15,000
Total COGS: $4,600
Gross After COGS= $10,400
COSS: $5,200
Net Rev = $5,200
Author 50%: $2,600
Artists 15%: $780
Publisher 35%: $1,820
(I used $5.00 round-up for ease of numbers)
In that text, three people earn money: the writer, the artist, and the publisher.
Out of a total income for the book of $15k, the author of the book gets paid $2,600; the artist gets paid $780; and the publisher gets paid the rest of the money, which comes to $11,620--not $1,820. Your authors don't get paid 50% of revenue while you only get 35-40%: the truth is, you take 77.5% of income while your authors get 17.3% and your artists get 5.2%.
Yes, I realise you have to pay for the cost of publishing the books out of your 77.5%; but your authors have to pay for the cost of writing their books out of their 17.3%, and your artists have to pay for the cost of designing and illustrating the books out of their 5.2%.
Now do you see why the risk is not equitable here, you're not splitting the profits with your writers, and you're not getting a smaller percentage of the income than your writers?
I come here and discuss the contract with you out of courtesy, not of any legal concerns. I have had this contract reviewed many times and all in all, this contract is good. Where you're coming into a notion of it being bad are points that you consider to be not good.
Your contract might be legally sound, and it might be good for you, but it's not good for the writers who sign it.
That being said, the language and form of Exhibit 3 is fine. You just don't like, and do not think, that I should ask for Theatre, Film, Radio, and Merchandising rights.
Travis, while I really appreciate your repeated efforts to clarify things for us here, and I am grateful that you have remained courteous and engaged throughout, I don't like your contract, and I don't like your business model.
I don't think you have bad intentions--not at all--but with all due respect I don't think you know enough about publishing to realise where you're going wrong, I don't think your terms are at all writer-friendly, and you're not being nearly as generous as you seem to think you are.
I still cannot recommend that any writers sign with your publishing house.