My Original Post on Sourcebooks’ Contract

This is my original Pitch University column about Sourcebooks’ contract, which I’m reposting in its entirety, followed by the comments and questions and my responses that were posted on that site. For any new comments or questions, use the comment box at the very bottom of the post.

I’m glad to be back at Pitch University. This is the first in a series of posts I’ll be writing about publishing contracts. Each post will review a publishing contract (or maybe two) and I will discuss five points about each contract that are good and/or bad.

Disclaimer:My opinions here are general in nature and should not be interpreted as legal advice for any particular situation. Any recommendations or advice necessarily depends on the specific facts. If you want advice or assistance about a specific situation, feel free to contact me and we’ll discuss whether I can help you.

Today I’m going to start with a contract from Sourcebooks, Inc., a mid to small size publisher based in Naperville, Illinois. I have redacted all of the identifying information (names, addresses, titles, amounts). But I have retained all of the contract’s provisions in order to discuss them here.

I will quote (in bold type) the provisions that I discuss, but I have attached the entire contract for your reference.

POINTS #1 & #2:

(Page 8)

9. EARNED ROYALTIES

A. Primary Rights

(3) For electronic editions of the Works published by the Publisher either directly or through a third party electronic provider, the Publisher shall credit the Author’s account with the following royalties: 

(a)On all electronic editions of the Works sold in its entirety, except as provided below, a royalty of fifteen percent (15%) of the Net Receipts on the first five thousand (5,000) copies and twenty percent (20%) thereafter. Copies sold pursuant to any other subparagraph of this paragraph-9.A shall not be counted in computing sales pursuant to this paragraph 9.A.(3)(a).

(b)Discounted sales. On all net electronic editions sold where the discount to dealers or others is fifty-five (55%) or more of the List Price, a royalty equal to one-half the regular royalty.

Considering that the standard royalty rate on electronic editions is 25%-70%, Sourcebooks’ is the lowest payout in a contract that I’ve seen.

To put things in perspective and let you know what these numbers mean to an author, under Section 9.A.(3)(a), at 15%, a digital book sold for $6.99 (a typical Sourcebooks price) and downloaded from Sourcebooks’ website generates a royalty of $1.05. The author has to sell 5,000 copies in order to move up to the 20% royalty rate, which would then generate a royalty of $1.40 on a book costing $6.99.

Let’s face it, Sourcebooks isn’t going to sell very many copies under this section, so let’s move on to Section 9.A.(3)(b), which covers sales by third party vendors, such as Amazon.com, Barnes & Noble, etc. Sourcebooks placed the author’s book covered by this contract on Amazon for $.99. Let’s do that math. For the first 5,000 books sold, the royalty will be one-half of the regular royalty, or 7.5%, which, on a book selling for $.99, will earn the author $.07. A seven-cent royalty. So if you sell the 5,000 books necessary in order to move up to the higher royalty rate, you will have made a total of $350 in royalties.

For sales above 5,000, the royalty increases to ten percent, so the author would earn a royalty of $.10 per book.

POINT #3:

(Page 10)

9. EARNED ROYALTIES

F. Other Costs and Expenses.

The Publisher is entitled to debit the Author’s account for all costs which the Author is required to pay hereunder. In addition, the Publisher may deduct any invoices arising out of this Agreement outstanding to the Publisher by the Author.

The problem with this provision is that it doesn’t specify what Sourcebooks’ costs (or expenses) are, and therefore doesn’t limit how much Sourcebooks can debit the author’s account.

For example, as written, Sourcebooks can charge an author for telephone calls, postage, photocopies, facsimiles, etc., all of which can add up. And one can even argue that under this provision, Sourcebooks could charge an author for such expenses as copyediting, cover art, product placement, etc.

Publishers tend to favor broad or general language in their contracts that is subject to interpretation. An author, therefore, needs to define and narrow the scope of the language wherever possible in order to avoid disputes about what the parties intended.

POINT #4:

(Page 4)

1. The Manuscript.

C. Right to Edit. The Publisher shall have the right to edit the Works provided the meaning of the text is not materially altered, and shall have the right to publish, distribute, reproduce, sell and use the Works under the Primary and Secondary Rights in suitable style as to paper, printing, binding, cover and/or jacket design, to fix or alter title and price and to select the characteristics and media for all electronic versions, electronic adaptions, and ancillary and derivative products.

The first problem with this clause is that it allows Sourcebooks to change the author’s intellectual property without permission. Even Sourcebooks’ use of the phrase “provided the meaning of the text is not materially altered” is troublesome, because “not materially altered” is not defined or explained. I suspect that what constitutes a material alteration to Sourcebooks is not the  same as what constitutes a material alteration to an author.

The second problem with this clause is that Sourcebooks has control over every facet of the book and the author has no means to object. If Sourcebooks wants to sell a book for $.25, it can do that under this provision: “to fix or alter title and price ….”

This is usually where the author has cover and title approval, or at least has to be consulted on those issues. But the author has no such rights here.

Finally, look at this language: “to select the characteristics and media for all electronic versions, electronic adaptions, and ancillary and derivative products.” Again, there are no definitions or limitations imposed on Sourcebooks here, so this clause means what Sourcebooks says it means, which is a bad place for an author to be, whether it’s Sourcebooks or any other publisher.

For the last provision I want to discuss, there are actually three that work in tandem:
POINT #5, part 1:

Page 5

6. Indemnity.

A. The Author shall indemnify, defend and hold the Publisher, its subsidiaries and affiliates and its and their respective agents, officers, directors and employees harmless from any claims, demands, suits, actions, losses, costs, damages, reasonable attorney’s fees, and expenses that the Publisher shall sustain or incur by reason of any breach or alleged breach of any of the foregoing representations and warranties, and until such claim, demand, or suit has been settled or withdrawn, the Publisher may withhold any sums due to the Author under this Agreement. The foregoing representations, warranties, and indemnity shall apply to all derivative works, adaptations and improvements. The provisions of this paragraph shall survive the termination of this Agreement.

Point #5, part 2:

(Page 6)

D. Security.

In the event any suit is filed, the Publisher shall have the right to withhold payments due the Author under the terms of this Agreement as security for the Author’s obligations under this Agreement as stated above.

Point #5, part 3:

(Page 10)

9. Earned Royalties.

E. Reserve against Claims.

In the event of a Claim against the Publisher that, if sustained, would constitute a breach of any of the Author’s representations and warranties pursuant to this Agreement, the Publisher shall have the right to withhold royalties and any other payment that may be due pursuant to this Agreement pending a final determination thereof. The Publisher shall have the right to apply any of said withheld royalties and other payments then or thereafter accruing hereunder in reduction of the obligation of the Author. If a suit shall not be commenced for a period of six (6) months from the assertion of a Claim, all withheld royalties and any other payments shall be payable at the end of the next succeeding accounting period.

To be fair, most publishing contracts, and most contracts of any type, have indemnification and hold-harmless provisions. So if an author represents to the publisher that the manuscript is an original work but turns out to have been plagiarized or have been published elsewhere, the publisher can ask the author to indemnify or make it whole for its losses. There is nothing unreasonable about that.

But these three provisions seem to conflict in their effect, if not their language. My objection to the Security clause, which serves as a sort of “pre-judgment attachment,” is that Sourcebooks has the right to withhold money owed the author “as security for the Author’s obligations” even before there’s been a determination that the Author owes any money to anyone. In addition, there is no limitation on the amount that Sourcebooks can withhold or the period of time for which Sourcebooks can withhold the author’s money, and you see that this provision can really harm an author.

When you move to the “Reserve against Claims” provision, this gives Sourcebooks yet another means of withholding money due an author simply because a “Claim” has been made. And because there are separate references to a “claim” and a “suit,” a claim is sufficient to trigger this provision. A claim can be a letter demanding payment or some other relief as opposed to an actual lawsuit, but that letter is all that Sourcebooks requires to withhold an author’s royalties and other money, again for an indefinite period of time.

Bear in mind that a claim or lawsuit need not have any legal merit for Sourcebooks to invoke these provisions. In other words, even if a claim or lawsuit has no chance of succeeding, Sourcebooks can still withhold an author’s payments as security or a reserve, until the matter has been resolved, which can take months or years.

Overall, this contract is poorly written, confusing, and often vague.
On my rating scale, I give Sourcebooks’ contract: ☆

____________________________________________

Rating scale:

☆☆☆☆☆  Very good (few revisions needed);

☆☆☆☆      Good (some revisions needed);

☆☆☆          Fair (needs substantial revisions);

☆☆              Poor (contract is heavily weighted against the author)

☆                  Shred it.
______________________________________________
Angelica R. Jackson

Yikes, that is scary! Thanks for breaking this down.

Jeff Mehalic
You’re very welcome. It is scary, but I hope that with some knowledge and understanding of language in contracts such as Sourcebooks’, authors will be able to make informed decisions that end up helping, rather than hurting, them.
Take care.

Katemacnicol
I’m stunned. This is empowering knowledge that all authors present and future should have. I appreciate Mr. Mehalic and Pitch University for doing this series. Thank you!

Jeff Mehalic

Thanks for your kind comments. Diane does a great job for authors, and I am delighted to be with such a dedicated, enthusiastic group. I hope my column helps authors understand what contract language helps them, and particularly what language hurts them.
Thanks again.

JamesT

Wow, what agent signed off on that contract?

Jeff Mehalic

Never underestimate the desire of a writer to be published.

The job of an agent or lawyer representing an author is to negotiate the most favorable terms possible for the author, keeping in mind that publishers will only move so far (especially in the current market and on a debut author), then present the pros and cons of that contract to the author.

I know several agents who have advised authors against signing contracts like Sourcebooks’, but the author’s desire to be published outweighs his or her agent’s objections to the contract, which is the author’s right.

One agent consulted with me even after an editor at Sourcebooks told her that their contract was take-it-or-leave it. The agent raised hell with the editor, but the editor said she wouldn’t fight about it, and if the agent’s client didn’t want to sign, then the editor had 15 other authors waiting who would be happy to sign the contract without any changes

So I repeat: never underestimate the desire of a writer to be published.

Thanks for your question.

Tina Moss

Wow. That’s disgraceful that a publishing house would have such disdain for authors. I hope they amend their contract. I never would have considered this house to have a contract of this nature.

Pete Morin

Isn’t this the publisher that’s gotten into trouble for not paying their authors royalties owed? What’s going on with that?

Jeff Mehalic

Pete,

Thanks for your question. I can’t speak for any other agents or lawyers, but I recently resolved two claims (for two separate authors) against Sourcebooks.

Good to hear from you. How is your practice going?

Hrwdebhale

>>at 15%, a digital book sold for $6.99 (a typical Sourcebooks price) and
downloaded from Sourcebooks’ website generates a royalty of $1.05.

It does?  I can see it if the digital royalty rate was 15% of cover price, but it is actually 15% of NET.  If Sourcebooks sells through Amazon at either a 50% discount model or 70% agency model, the author’s take would be significantly less.  Or am I missing something about how Sourcebooks calculates Net?

Hrwdebhale

Duh!  I see where you say “downloaded from Sourcebooks’ website”.  Still, could the publisher not deduct certain expenses as part of the Net calculation to reduce the author’s take?

Jeff Mehalic

To clarify your question, are you asking if the publisher could hold off from deducting certain expenses in order not to reduce the author’s take further? If that’s your question, the answer is that the publisher will absolutely deduct everything that it can justify, regardless of the effect on the author’s take.

If I still haven’t understood your question, send me an email or post a comment, and I’ll give it another try.

Thanks for writing.

Jkduvall

A good agent would more than likely renegotiate a contract like this. Publishing contracts are rarely written in stone, but if it is, run like hell.

Guest

Not written in stone. I’m a Sourcebooks author and was going to go without an agent until I saw this contract. I scrambled and got an agent who explained a lot of it to me. She renegotiated and even got the first right of refusal clause taken out. She didn’t think she could, but I insisted she try. They didn’t giver her a hard time.

Jami Gold, Jami Gold writes paranormal romance and urban fantasy stories where normal need not apply. Just ask her family—and zombie cat.

Jeff, You’re now one of my new favorite people for sharing this information with authors.  We all need to be aware of these issues.  Thank you, thank you, thank you!

Jeff Mehalic

You’re very welcome, Jami.
Thank you for your kind words, and take care.

Anne R. Allen

Thank you, thank you! A friend suggested I submit to Sourcebooks, but another said be careful because their contract is iffy. Now I know there are no ifs about it–it’s terrible. Thanks for educating us.

Jeff Mehalic

Anne,
You’re welcome, and thanks for your comment.

I think it’s important to share information like this. The more that authors educate themselves about the legal issues that affect their writing careers, the better off they are.

Take care.

~Christine @ Book Cents Lit~

As an agent…

– I will no longer do business with Sourcebooks, Inc.
– I filed 3 complaints (on behalf of three different authors) with the RWA against Sourcebooks, Inc.
– Sourcebooks’ contract has the lowest payout on digital books than any contract I have seen.

Guest

Thank you.  This is very interesting and informative.  I’m looking forward to your regular posts and will check out your site.

Jeff Mehalic

Thank you very much. I appreciate your interest.


Kelle

Jeff,  Thank you so much for giving us an easy to follow lesson in contract reading.  More than ever, I’m thankful that I have a reputable agent to help with contracts when the time comes.  In the meantime, I hope I don’t miss a single one of your columns here or elsewhere.  Off to put a google alert on your name. . .

Jeff Mehalic

Kelle,

Thank you very much. I’m glad you have an agent to represent your interests. That is more necessary now than ever.

I look forward to reviewing and writing about contracts, and appreciate your interest.

Take care.

Lindsay

Jeff,
Thanks for the frighening information.

Jeff Mehalic

Lindsay,

I agree that it is scary. I hope that with some information about contracts, writers and authors will be treated fairly and get better deals from publishers.

Take care.

Suzan Harden

So what it comes down to is if you sue Sourcebooks for not paying, they still won’t pay you?  Or am I misreading something?

Still, I don’t want to be this desperate!

Jeff Mehalic

Suzan,

Sorry for the delay in responding. With it’s Sourcebooks or any other publishing contract, if you aren’t paid according to its terms, you have a potential lawsuit against the publisher. Whether you should pursue the lawsuit is a different question and depends on the circumstances of your situation.

As you recognize in your last comment, an author has to guard against wanting to see his or her work in print so badly that a contract like this one becomes an option. As an author, before you sign on the dotted line, you need to know what your and the publisher’s rights and responsibilities are, so that you don’t have to learn them in a courtroom.

Thanks for your interest.

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2 responses to “My Original Post on Sourcebooks’ Contract”

  1. Morton Design Works says :

    Thanks for this information. I stumbled upon your site while doing some research and I’m glad I did. It reaffirms my drive to remain independent. The work is difficult, and maybe less glamorous than being “just a writer”,but the payoff is worth the effort. I’m a writer, editor, publisher, marketer, salesperson, etc. Oh, and as an independently published author, I see sales margins significantly higher than what you’ve mentioned here in this post. And I have creative control of my work.

    Thanks for sharing your insight!!

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