Mark Terry

Thursday, August 31, 2006

Eating a Subsidiary Sandwich

August 31, 2006
I was swapping e-mails with author Joe Moore yesterday. He and Lynn Sholes co-write novels featuring Satellite News Network reporter Cotten Stone. Cotten also happens to be the daughter of a fallen angel. I don't know that provides her with any powers, but it makes her sort of pivotal to preventing Satan from screwing up the world. Their first novel together, The Grail Conspiracy was published last year by Midnight Ink/Llewellyn Worldwide. Their latest, The Last Secret, has just hit bookshelves. (The Grail Conspiracy, by the way, is a very good novel and I'm looking forward to reading The Last Secret).

Anyway, I recently received an e-newsletter from Joe and Lynn promoting their latest, and on it they commented that they were international bestsellers. This was news to me. And I tend to treat all authors who claim their books are bestsellers with a certain skepticism, because there seem to be more "bestselling" authors than there are spots on bestseller lists. But I knew that The Grail Conspiracy had sold an awful lot of foreign rights, so I asked Joe. And as it turns out, The Grail Conspiracy had hit #9 on the Poland bestseller list and #26 (I think) on the Netherlands bestseller list.

I thought this might be a good time to talk just a little bit about subsidiary rights. Disclaimer: I know only a little about it. I know absolutely nothing--ABSOLUTELY NOTHING--about Joe and Lynn's contracts with Midnight Ink. So I'm going to talk just a tiny bit about sub rights and anybody reading who knows more, share. Just, I beg you, don't extrapolate what I say here to be entirely about my contracts, so don't post and tell me what a shitty contract I had or I should get a better agent or my publisher ripped me off. I'm just talking in general here.

Sub rights and secondary rights are that grab bag of things like foreign sales, TV and movie rights, audio book rights, radio, play, e-book, etc. Typically when you sign a contract it starts out with English language rights, probably worldwide, and it'll give you a certain percentage of royalties for a specific amount of books sold, and the royalties increase as the books sold goes higher. I'm told, but don't know for a fact, that some bestselling authors have elevator clauses in them that provide bonuses if their book hits a certain level on The New York Times Bestsellers List, and it's not even unheard of for publishers to give bonuses to authors whose books get picked up for movie deals.

Secondary and sub rights are a sort of bouncing ball in book contracts. They're there for the taking. Publishers typically want to hold as many of these as they can. Agents typically also want to hold as many of these as they can, especially if they have relationships with foreign agents and TV and movie producers and agents. The reason for this is simple. Money. If the publisher holds on to these rights, they get a big chunk of the money from these deals. Let's say, for instance, foreign language translations. They may get a 50% split with the author. That is to say, your publisher held those rights, they sell them to Russia. Vodka Press, LLC buys Russian language rights for $10,000 (US). Your publisher gets $5,000 and the author (you) gets $5000. Maybe.

The maybe comes about from the various agents involved and bookkeeping and accounting practices. I commented to my wife, and confirmed this with my agent, that foreign language rights accounting can resemble the movie industry's in terms of figuring out how much money you're actually going to get. Here's why. My Publisher, Inc, for instance, sold Russian language rights to Vodka Press, LLC for $10,000 U.S. But in order to do that, they used a Russian literary agent, who gets 20%. So, depending on My Publisher, Inc's accounting and business structure, the money coming to My Publisher, Inc is probably $8,000 (US). Now, either that 50/50 split comes out of the $10,000 or it comes out of the $8,000, depending on how My Publisher, Inc. runs their business. And depending on what you agreed with your agent, 15% may or may not come out of the $4000 or $5000 you eventually receive (hold on to that thought for a minute). So out of that $10,000 (US) Russian-language deal, you the author could get as little as $3400, depending on how the deal was structured and how the businesses are run.

Now, it's possible My Publisher, Inc. has a hotshot language rights person on staff with relationships with all these foreign publishers, so there's no foreign agent involved. In which case the $10,000 gets directly split. It's also possible your agent won't take a cut. In which case you get $5000. Right? (Let's not get into taxation and Social Security in this post except to say $3400 isn't going to carry you very far once the various gov't agencies get their hands in your pocket).

Here's the part where I told you to hold that thought for a minute. Because when you signed your contract, you received an advance for the English language rights, the first rights you sold. Let's make our life easier and say that you received an advance of $5000.

So, your book's not out yet, the first royalty check doesn't come until the end of March in the next year, and your publisher just got $10,000 (or $8000) for the foreign sale of your book. Do they immediately cut you a check and send it to you or your agent? No. Why? Because YOU owe THEM money.

REPEAT FOR EMPHASIS: YOU OWE YOUR PUBLISHER MONEY.

They, after all, have paid you an advance against royalties. The publisher has not made any money on your book up until that foreign language sale. So they take their half of the foreign language sale and put it toward their expenses for the production of the book. And they take YOUR half of the foreign language sale and put it toward the ADVANCE.

Now, in this hypothetical situation, assuming $10,000 for Russian sales with no foreign agent involved, your advance has been paid off and your publisher is happy because they've gotten $5000 to help defray the cost of actually publishing and marketing your book. They've got overhead too--not just paper and cover art and catalogues and printings and layout, but office space and utilities and wages and martinis.

You, on the other hand, seemingly have no more money in your pocket than you did when you started out. Your agent took 15% off the $5000 and you paid your taxes on it and you're left with damned near nothing, which you're wasting on marketing, instead of on a new transmission for your 15-year-old SUV.

Except:
As soon as you sell ONE copy, you're into royalties.

So a foreign sale can get more royalties into your pocket faster, because it offsets the cost of your advance.

Now, just for the record, Joe Moore told me that Midnight Ink sold foreign language rights to The Grail Conspiracy to 19 different countries in less than one year. The Last Secret has already been sold to 8, and their next novel, not due out until next year, Indigo Ruby, has already sold to one foreign country.

It doesn't take a genius to figure out that even if Joe and Lynn's books aren't amazing sellers in the U.S., Midnight Ink (assuming their deal provides at least a 50/50 split with the publisher) is doing better than breaking even on their books because of all these foreign language sales. And although I don't actually know anything about their deals, my guess would be that Joe and Lynn are starting to see real money come in because their advances have been covered by all the foreign language deals. This is an enormous hypothetical, but if they received a $5000 advance on their book and sold each of those 19 foreign language rights for $2000 (US), the book would have earned $38,000 before even going to press. If they had a 50/50 split, their cut was $19,000, and you subtract the $5000 advance from that and POTENTIALLY IN THIS TOTALLY FICTIOUS MATHEMATICAL MODEL, they could receive a check for $14,000. Which, as the expression goes, is better than a stick in the eye. And with their books hitting bestseller lists in at least two countries, they may be surpassing their foreign language advances as well, earning royalties on their books in other countries.

As I said earlier, theses sub rights are a bit of a bouncing ball. There are industry standards on splits, if there are splits. Movie and TV rights may be more like 20/80, with the 80% going to the author. That is, assuming those rights were held on to by the publisher. In my case, my agent kept 100% of movie and TV rights.

Publishing houses have different policies about these rights, and so do agents. More than anything else in a book contract, these are what get negotiated and fought over. Had I been doing it myself, the publisher would have gotten damn near everything. Was I completely happy with my contract? No. I doubt any author is ever COMPLETELY happy with their contract. But it was reasonably fair. I watched Irene negotiate and fight for various rights and wording and you live with what you get.

But just a word of caution to writers negotiating your own contracts, particularly if you're negotiating with a small press that doesn't have subsidiary rights agents. There is a lot of potential money floating around these sub rights, and you probably shouldn't be just giving them away without knowing what it is you're doing.

Best,
Mark Terry

7 Comments:

Anonymous Eric Mayer said...

This all sounds very hopeful for you. Sounds like Llwellyn makes plenty of deals for subsidiary rights. Poisoned Pen Press has an excellent subsidiary agent. Trouble is, a publisher's agent is..well...the publisher's agent and may or may not take an interest in a particular author's books.

7:44 AM  
Blogger Mark said...

Eric,
Didn't you guys have Greek rights?

Yes, Llewellyn's foreign rights person apparently is a hotshot and that's good. But as my post might suggest, foreign rights can be a bit complicated to figure out exactly how much is out there and who it's actually going to. I had this discussion with Joe Konrath last summer when I interviewed him for an article with Bankrate.com.

And one topic I didn't get into here is the one of "joint accounting" or "basketed accounting." That is, you don't actually start receiving royalties on, say, your first book, until the advances on ALL the books in your contract, are paid for. And that can also include things like subsidiary rights.

This particular practice is very much in the contracts and may or may not be negotiable. I personally find basketed accounting to be insidious and problematic for the writer (and agent) although, of course, publishers want it. The problem is you can end up having a book that does poorly and a book that does really well and never seeing money on either of them because one book is paying for the other... or others.

8:09 AM  
Anonymous Eric Mayer said...

Yes, One For Sorrow came out in Greek translation from Govostis and they've also bought the rights to Two For Joy. Which is really nice. Seemingly money for nothing. A few of those would add up.

Poisoned Pen Press follows the typical small press practice of small (if any) advances so you don't have to worry about some of the accounting stuff. You *just* have to wait a long time for the money. Once you have a series going it doesn't matter -- you're getting paid every year, but the book that was out before the current one.

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