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United We Stand or Together We Fall: Kristine Kathryn Rusch Post of Royalty Scandal

Background: The following post was originally posted on Kristine Kathryn Rusch's business blog when it was shortly infected with malware. Assuming a coincidence (though a very smelly one, in my book) she reposted the blog on an unlinked blog she uses for a pseudonym. Something happened to that post too.

But we are smarter and stronger than those who would wish to silence us. The call is out for indie authors to post the original post (including the copyright statement at the bottom) on their blog ASAP. By exponentially increasing the targets, they can't take us all down. :) So please, copy what's below and post it up and share it. Let's prove our might!

From Kristine Kathryn Rusch:

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.

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