GUEST POST #1: “A Bit About Contracts” by Michael J. Sullivan

Michael J. Sullivan

 Michael J Sullivan

Michael J. Sullivan is the author of the epic six-book fantasy series, The Riyria Revelations.  Originally published with a small press, the series was picked up this year by Orbit books and is being released in three volumes.  The first, Theft of Swords, released in November, contains the first two volumes.  The second, Rise of Empire, features the third and fourth volumes and came out this month.  The final volume, Heir of Novron, collecting the final two volumes of the series, is due out in January 2012.

This is the first of five posts Michael J. Sullivan will be doing this week on BookBanter.  Check back tomorrow for the next post, or you can subscribe to the BookBanter Blog by entering your email at the top right of the BookBanter Blog page.

Listen to an interview between BookBanter and Michael J. Sullivan.

A Bit About Contracts

Greetings everyone…I want to thank Alex for providing me an opportunity to provide a series of guest posts over the next few days here on BookBanter. He has selected a number of topics that provide some information on the process of publishing and I hope that this helps to peel back the veil of what goes on behind the scenes, and I hope doing so will be of some help to anyone out there that might be an aspiring author.  Today I’m going to speak a bit about contracts.

It should go without saying that you should never sign a contract that gives away the rights to your ideas, world, or characters. The copyright for any written work belongs to the author from the moment they create it, and you should never sell this right. What you do is provide permission for a publisher to create and distribute various formats of your work for a specific amount of time within certain defined geographic areas. There are times when an author may not own the copyright for works they create, for instance in an arrangement known as “work for hire.” In this case the idea is generally coming from the organization that hires the author, and they are the owners of the copyright.

Length of Contract

Some small independent publishers may write their contracts for a given period of time (anywhere from three to seven years) but contracts from the larger big-six publisher are written to be over the term of the copyright of the work.  This means until seventy years after the death of the author, which is a very long time indeed. That being said, most contracts won’t be in effect that long because there are conditions under which the rights revert back to the author. In the “old days” the publishers performed a print run and once all those books were gone, the rights would revert. If the book was popular, the publisher would perform multiple printings and as long as there were books available for sale then the contract remained in force. If a book performs poorly, the publisher might prematurely end the contract by remaindering a book. Keeping books in a warehouse if they aren’t selling is an expensive proposition, so the publisher might choose to sell the books cheaply to a third party (usually by the pound). These are the “bargain books” you sometimes find as new at used bookstores. Because no books are left in the warehouse for sale through normal channels, the books will go “out of print” and the contract would terminate.

In today’s publishing environment it is possible for books to never go “out of print.” Publishers can use print on demand in such a way that they can always have books available for sale with very little investment.  Also, most contracts will purchase both print and ebook rights and making an ebook available to the marketplace costs the publisher nothing.  If the criteria to keep the contract in force is having books “available for sale” then the term could indeed be for the entire life of the copyright.  For this reason modern day contracts should have a clause that indicates what income level is required in order to consider a book still in print. If a book is selling little to no books then the rights should revert to the author. Generally there will be a clause that indicates how many sales per reporting period will determine that the book is still “in print.”

Formats

The contract should clearly define which formats are being sold. In most cases publishers will require print and electronic book rights. How an electronic book is defined should be looked at carefully as technology is changing quickly and books with extended features (sometimes known as enhanced ebooks) which contain added value aspects such as audio or video need to be accounted for. Other possible rights such as movie, television, and merchandising should explicitly be detailed to either remain with the author or available for additional licensing (known as a subsidiary right).

For formats that the publisher does not create themselves, such as: graphic novels, audio books, Braille, book club editions, and the like there will be a clause that states how proceeds from licensing these formats will be shared between the publisher and the author. For instance my publisher has sold book club and audio rights and we share the income from those sales 50/50.

Geographic areas

The most popular choices for geographic areas are worldwide, North American, or English speaking. When worldwide rights are sold, then foreign translations will fall under a subsidiary right and the author and publisher will share the income from any contracts signed.  North American is pretty self explanatory (basically the US and Canada), and English speaking rights extend that to the United Kingdom and Australia.  Because my contract was only for the English language, the sales for Poland, Russia, Spain, France, Germany, Czech Republic, Japan, and Brazil have given me additional income that the publisher did not get a percentage of. If the contract were for worldwide, those sales would have contributed to paying back the advance (see the next section).

Royalties and Advances

The contract will specify the amount that will be advanced to the author. This is usually paid in three installments 1/3 when the contract is signed, 1/3 when the final manuscript is accepted by the publisher, and 1/3 when the book is published.  Any sales made are counted against this advance and no additional money will be paid to the author unless they “earn out”.  (Royalties exceed the amount of the advance). If a subsidiary right is sold by the publisher than the author’s portion will count toward earning out.

Advances are generally considered a “sunk cost” meaning that once paid to the author they don’t have to repay that money if the book performs poorly.  However, if the contract is for multiple books, it is possible that the author won’t get the full advance, as the later books may be cancelled and not actually published.

Readers may be surprised just how little an author makes on each book. Hardcover sales generally pay 10% of list price (which may increase up to 15% based on number of copies sold), while paperbacks will range from 6% – 8%. Print books are based on the books list price (full retail price) whereas audio and ebooks are based on net sales (the amount the publisher actually receives) and are generally 10% for audio CDs and 25% for ebooks and audio books that are downloaded.  I should note that the above royalties are based on big-six contracts and some smaller presses may offer larger percentages especially for ebooks.

Wrap-up

That’s the basics of most contracts. There are a lot of other clauses to the contract that deal with transfer to other parties, what happens in the case of bankruptcy, and clauses that talk about future works. There is too much to go into any detail here, but suffice to say the author should examine the language carefully and make sure that they fully understand what they are signing up for. In particular clauses about competing works may limit what they can write even with regards to other books that are not part of the contract.

So there you have it…Contracts 101. It may not be the most exciting part about the “business of writing” but I hope that this helps to explain a bit about what to expect and what to look out for.  I’ll be back again with some additional guest posts throughout the week. So thank you Alex for sharing your space here at BookBanter.

Help support BookBanter and purchase a copy of Theft of Swords or Rise of Empire.

You might also like . . .

Theft of Swords    Rise of Empire

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