Last night about 11:30, I posted a blog about how embarrassed I think the Skyhorse Publishing team should be about its offer for Night Shade Books. And this morning I got a couple of emails from Tony Lyons (one via his assistant and one from him). Mr. Lyons wants to chat tomorrow and I'm happy to have that call with him. In the meantime, though, I just finished reading through this piece on io9: http://bit.ly/XYJwJG. This is important reading for any Night Shade author and his or her agent. Because here the buyers state their case and it's interesting both for what it says and doesn't say.
For starters, the tone is clear: Skyhorse sees itself as trying to save this publisher and do its authors a service in keeping their books in print. And that's something authors should appreciate. It also makes clear that the owners of Night Shade prioritized making their authors whole and getting them paid all they are due. And that's something authors should really appreciate.
But there are some points that I found interesting. Lyons is quoted as saying "they were paying royalties which really nobody else pays." Now, I can't speak to every contract and author at Night Shade, but I can speak to industry standards. And for fiction they are well established:
Hardcover: 10% of the retail price on the first 5,000 copies sold; 12½% on the next 5,000 copies sold; 15% thereafter
Trade paperback: Tends to be either 7½ of the retail price on all copies sold or 6% on the first 20,000 copies sold and 7½ thereafter. In some instances, you might see higher rates, but these are the standards.
Mass-market paperback: Can be as low as 4% of the retail price on the first 150,000 copies sold; 6% thereafter to the more common 6% to 150,000; 8% thereafter to the also common 8% to 150,000; 10% thereafter.
As Lyons states in the interview, the trade-paperback rate from Night Shade was higher, but the breakpoints were high enough that I would expect few authors to ever actually escalate beyond the initial rate of 8%. So Night Shade was paying about ½% more on the starting rate than many publishers. Okay. Got that.
Additionally, Night Shade was paying about 5% more on eBooks than many publishers, but certainly not all, as some pay 50%. And Mike Stackpole stated in his blog post on this deal that he was getting 50%. But should that break the bank? I would say no, since the costs associated with doing eBook editions are quite low if you are also producing a print edition.
So what broke the house? Lyons, in this article, claims that Night Shade was losing 25% a year, which clearly is not a level of losses any publisher can sustain, and that comment raises the question, How did they last as long as they did?
I imagine the owners might have invested quite a bit of their personal money in the company, but I can only imagine. Because one thing that has not been discussed by either the owners of Night Shade or Skyhorse is hard numbers. How much does Night Shade owe authors? How much does it owe printers? How much does it owe other creditors? And how much does it owe its owners? These numbers are pretty relevant if you want to convince a bunch of authors to take a lower royalty and give up new rights.
The offer from Lyons requires authors to accept 10% of net as a rate on all copies sold, other than eBooks, which would be at 25% of net.
If you go to Google and in "Random House Terms of Sale," you can get here: http://www.randomhouse.biz/booksellers/pdfs/RHPSRetailTOS.pdf. This tells you pretty much all you need to know about what the discount granted might be on a Random House title and your expected "net" on which a net royalty might be based. I couldn't find anything like that for Skyhorse, but then remembered they are currently distributed by Norton, but are moving to Perseus. Presuming most Night Shade sales will be via Perseus, here are the terms of sale: http://www.perseusdistribution.com/salesterms.asp. Based on this, authors' royalties will mostly be based on a net after a 50% discount. So Skyhorse will sell a $15 trade-paperback at $7.50 and the author will get 75 cents. Under his original contract, that author would get $1.20. So the deal loses the author 45 cents per sale. But is some money better than none? (Let's ignore that most authors would read that sentence and think, I only get $1.20 out of $7.50??! That's the reality of publishing.)
Let's look at some other harsh realities here:
Most titles never earn out. That's right. If you talk to people in royalties departments (something I did a lot of when I was the chairperson of the AAR's Royalty Committee), you find out that the vast majority of titles never earn out. This does not mean the titles are not profitable; it just means they never earn out. So for many Night Shade authors, it may not matter at all if their rate is cut.
Many authors never see their royalties escalate. Since the breakpoints are so high and sales volume on most titles is so low, getting to the breakpoints is often a moot issue. So, again, eliminating escalators may not matter.
Now, on the subject of audio rights. I'm not sure if I'm "the one guy" that Lyons refers to in the interview, since I don't think I made it sound like a travesty of justice, but I'll respond anyway. When one does a deal with a publisher, agreements are made with regard to rights. Certain rights are included and others are not. When Night Shade did its deal with Audible, it started making getting the audio rights at a 50/50 split a deal-breaker. Now, keep in mind that once that initial deal was done, Night Shade does no more work to sell the audio rights. It merely puts them into the program. It does nothing to earn its 50%.
Now, some publishers who make rights like audio a deal-breaker will argue that they need "every opportunity to earn back our advance." Okay. Where is the additional advance being paid for these audio rights by Skyhorse? What exactly is Skyhorse doing that it deserves these rights? Well, they might say, we are rescuing the company. Okay, fair enough statement, but does Skyhorse really need to demand assets that are not owned by Night Shade to make this deal work?
The interview continues on this subject, "Why on Earth wouldn't [authors] be thrilled that we're trying to
negotiate on their behalf?" asks Lyon. "Why wouldn't they want us to
sell rights that are as yet unsold, and give them half the money? That
seems like it ought to be a good thing, and yet it's being portrayed as,
'Oh, they're trying to grab rights that weren't included in the
Well, let's be honest, they are trying to grab rights that weren't included in the original contract. It's not a "portrayal," it's a fact. But, also, if I were an author who had unsold audio rights, I wouldn't want to sell the rights to Skyhorse because (1) I don't recall that the contract includes any kind of flow-through provision, i.e., if the audio rights are sold, the author's share is immediately paid to the author within 30 days of receipt. No, instead that money will be applied to the author's royalty account, which means if the author has an unearned advance, then he or she will not see that money, while Skyhorse will put 50% straight into its pocket. Another reason is that Audible has a standing deal with Night Shade, so if you hold the audio rights, your agent can go directly to Audible and cut a deal. Under the Skyhorse deal, you give up 50% and your agent takes 15% of your 50% (presuming you are earned out) and you get 35%. Under the direct route, your agent takes 15% and you pocket 85%. It's not the kind of math one needs to have graduated college to do.
Last but not least, when I read this contract from Night Shade, it has the feel of something cobbled together by the publisher frantically and never run by an attorney. Even if you agree to the basic terms—10% of net royalties for print; 25% of net for eBooks; and giving up audio at 50/50—I'd still say there's plenty of language here that should be negotiated. The audio rights should come back to the author if no audio is produced within one year and should also have a reversion threshold. Also, there needs to be clarity about when these new royalty rates will kick in. Let's say an author agrees to this deal, but is owed royalties. Will those be calculated at the old rate or the new rate? In other words, will the new rates be retroactive? I don't think it's clear in the agreement. Also, note that this agreement states that all accounting will be cash-based and not accrual. So if an account orders 100 books in January but doesn't pay until July, those sales will be accounted for as happening in July. That's not industry standard. There are other issues, of course, but I'm not going to go through the entire agreement here. It seems to me that Night Shade and/or Skyhorse could engage with the Authors Guild, the AAR, or SFWA to discuss this agreement and to make sure that it isn't a contract for indentured servitude. And while I know SFWA has had conversations about this deal, I do not know if it has reviewed this agreement.
In the end, the decision to move forward is each individual author's, but what I'm seeing online isn't promising. Never have I seen a prospective acquisition of a house so publicly discussed and debated. On the one hand, I appreciate and applaud the transparency. On the other, I sympathize with Night Shade and Skyhorse at having to defend itself so publicly and to so many individuals. In the end, though, if authors don't approve some changes that are enough to get Skyhorse to do the deal, the deal will fall through and that could be that. Night Shade could go bankrupt and authors will then have to struggle, individually, to get their rights back. There are no other suitors yet (hello, Amazon!) and no better offer on the table. So as authors bitch and moan and post publicly that they will not be taking this deal, I advise them to be careful what they wish for, as it may come back to haunt them.
In closing, I can't help but think that the real problem here is that this entire deal was "spun" wrong. It's a PR nightmare. If you want to ask authors to take a cut in royalties, fine, but asking them to go from a retail royalty to a net royalty was too aggressive. Asking for more rights than licensed in the original contract was too aggressive, also, and arrogant. If I had had the chance to review this in advance, I would have suggested raising the breakpoints on the hardcover rates and cutting the trade-paperback rate to an industry-standard 7½% straight or even 6% to 20,000 and 7½% thereafter. I would also have reassured authors that the cuts in rates would not be retroactive and offered any and all authors not interested in the deal the opportunity to negotiate a reversion of rights. Let's say your book has earned out. Your rights should be yours for the asking. If your book has not earned out, you can revert rights by paying back the unearned portion of the advance. If you are owed an advance, e.g., an advance due on pub that was not paid, you can have your rights back in exchange for the unpaid advance. However, most authors are loathe to pay a publisher back money. It just never happens, other than in rare legal wrangling. So most would probably accept the reasonable revision of royalties but, the authors would feel as though they were treated more fairly and given more options. And that would have served both of the publishers in this matter better, IMHO.
As I head off to bed, I'm looking forward to my call tomorrow. It will, I'm sure, be interesting and educational, and I do appreciate the willingness of Mr. Lyons to chat with me about all this.