Hugh Howey Is Right!

So, yes, the big publishers really do treat their authors shittily sometimes.

This example can be considered an extension of my post in March called The Royalty Jar, where I discussed reserves against returns as part of a series of posts on royalty statements.

As I mentioned in that post, we (a) try to review our royalty statements very carefully, including any itemization of the reserve against returns on the royalty statements (b) have contract language that puts some sort of limit on how much money a publisher can hold back in its reserve against returns.

Late last week, I was reviewing a royalty statement from a British publisher.

The contract language we negotiated for this deal says that the publisher can, at its discretion, take a reserve on paperback editions each semi-annual period of up to 25% of the author's royalty earnings for this edition.  Simple, right!  The language even suggests that the publisher could use its discretion to take a smaller reserve.  Not that I'd ever expect it, but it's a nice thought.

So for the second half of 2013, the paperback edition of this book earned £1200, 25% of that would be £300, and the reserve against returns on the royalty statement is -- £500 !!

Here's how the publisher accomplished this trick of turning 25% of £1200 into £500.

The previous royalty period was the first for this particular edition.  The book earned £3200, and of course, the publisher in that instance did the same math as any of the rest of us and took a £800 reserve.

This period, the publisher decided to add in the refund of the prior period reserve to the actual royalty earnings for this period.  Or, to put it another way, even though the author earned £3200 last time and £3200 was used as the basis for calculating the reserve against returns last time, 25% of that £3200 is now being "earned" again.  So what is supposed to be, contractually, a 25% reserve has now become a 41.67% reserve.

The publisher's gift to itself is a gift that keeps on giving.  Because...

The publisher has now taken an extra £200 reserve that it shouldn't, and it will refund that money to the author, and the author will "earn" that money a third time, and the publisher will take an extra £50 on the next reserve against returns.

The publisher still has the correct £300 reserve which it will refund next time, so that money will be "earned" a second time, and that will increase the reserve against returns by £75.

And the time after that, there will now be:
£50 the author will "earn" a fourth time, £12.50 of which will be "earned" a fifth time.
£75 the author will "earn" a third time, £18.75 of which will be "earned" a fourth time
and the correctly held 25% reserve for the first half of 2014, which will be incorrectly "earned" a second time.

Ultimately, when you carry out the math, the £3200 that the author earned on this paperback in the first half of 2013 will become a total "earning" of £4266 when determining the reserve against returns.

Bit by bit, drip by drip, the publisher will forever keep taking more than the 25% reserve against returns which they agreed to take in the contract.

Publishers do sometimes overpay authors, and they can lose millions of dollars on this book and thousands of dollars on that book, because they overpaid.  Then again, those choices are always the publisher's.  There's nothing right or fair about playing games like this with the reserve against returns for one author in order to compensate for bad decisions you might have made for some other author.

Especially when the shift to e-book sales over print sales means the whole rationale for having any reserve against returns is considerably reduced.  There is almost always money coming in from the e-book to make up for any overpayment of royalties due to returns of the print edition.

Now we shall present the publisher with this information...