Marsha Canham's Blog

July 22, 2012

So…the Evil Empire is finally coming under heavy scrutiny

Filed under: Caesars Through the Fence — marshacanham @ 5:05 pm

In case it hasn’t become general knowledge yet the Evil Empire, is being sued. It’s a class action suit spearheaded by three incredibly brave, intelligent authors who, after years of having to put up with creative accounting, did some snooping and found out that H’s practices weren’t just creative, they were downright dirty and quite possibly illegal.

You can read the entire suit here: http://business.financialpost.com/2012/07/19/romance-authors-sue-harlequin-over-unpaid-e-book-royalties/ and if that link from the Financial Post dies over time, you can find it here: http://www.harlequinlawsuit.com/Home_Page.php  The dispute has to do with ebook royalties, something that, up until 2 years ago or so, was treated like just another option clause in a contract. Two years ago, iPads and Kindles exploded and so did self publishing on Amazon, Barnes and Noble, Smashwords, Apple, and now Kobo.  Authors fell off their chairs realizing how much they could earn by publishing themselves and, more importantly, they could see the numbers each month, they could do the math, and they could see how truly creative some publishing houses were being. The Evil Empire already had a lousy reputation for paying out foreign royalties on print books, but some yayhoo in the company, who is no doubt a bazillionaire now for his brilliant idea, came up with a clause further cutting royalties on books that were sold through a subsidiary rights company in foreign lands.

To ‘splain it better, Lucy, I’m lifting this quote from The Passive Voice, –a great blog by the way, and one that every author or would-be, could-be, should-be, wanna-be author should read. It wouldn’t hurt readers to read it too so you have a better grasp of what goes on in our world.

This lawsuit results from Defendant Harlequin Enterprises Limited, the world’s leading publisher of romance fiction, depriving Plaintiffs and the other authors in the class, of e-book royalties due to them under publishing agreements entered into between 1990 and 2004. Harlequin required the authors to enter into those agreements with a Swiss entity that it created for tax purposes, and that it dominates and controls. However, Harlequin, before and after the signing of these agreements, performed all the publishing functions related to the agreements, including exercising, selling, licensing, or sublicensing the e-book rights granted by the authors. Instead of paying the authors a royalty of 50% of its net receipts as required by the agreements, an intercompany license was created by Harlequin with its Swiss entity resulting in authors receiving 3% to 4% of the e-books’ cover price as their 50% share instead of 50% of Harlequin Enterprises’ receipts.

What this means to the authors can be illustrated by an e-book with a hypothetical cover price of $8.00. The “net receipts” made by Harlequin Enterprises Limited from the exercise, sale or license of e-book rights would be at least $4.00, of which authors would be entitled to $2.00 based on their 50% royalty. Computing the “net receipts” based on the “license” between Harlequin’s Swiss entity and Harlequin Enterprises, Plaintiffs’ 50% royalty amounts to only 24 to 32 cents.

In other words, the crafty bastards funnelled their own books through their own subsidiary company and called it a foreign sale.

I have to say I’m chuffed. It’s about damn time. I had shit fits back in 1992 (no, it doesn’t affect me because my book was out of print before they sent out addendums for authors to sign dealing with the ebook royalties) when I saw my first royalty statement for the print book. They somehow managed to wangle an 8% royalty rate down to .6% on sales right here in Canada, where their headquarters were and are located. That was the first time I was told, that although I lived about 5 miles from the Harlequin buildings, I was in a foreign country, and so was my editor, who only lived three blocks from the buildings. Yeah. Creative.

Anyway, at the time my protests fell on deaf ears. Writers could still make good money writing for the Evil Empire…that’s where Nora Roberts got her start, among a gazillion other authors. The books had terrific, worldwide distribution. They were a household name and their authors were happy and prolific and became household names as well. Free copies came in boxes of Tide Detergent, for pity sakes, and for the readers who enjoyed straight, poignant, uncomplicated romances with no serial killers, no tangled plots to unwind, no scenes that made them cringe or faint or bleed from the ears…the Evil Empire had the market cornered.

Greed, however, is a nasty, insidious thing that creeps in wherever profits are to be made.  When ebooks initially came into being, addendums by quite a few publishers (just so you don’t think I’m picking solely on the Evil Empire) were quickly dispatched to cover the *possibility* of that format actually earning a few bucks. I confess my own stupidity in signing one for the books I had at Random House, but at the time, even my agent said “eh, what’s the harm, nothing will ever come of electronic rights and if they sell a few copies, it’s a bonus for you.”(because they were offering 25% rather than the 8-10% for print rights).

Duh.

Fast forward to 2010 when Amazon rose up like a giant tsunami and crashed over all the dozing publishing houses. Kindles were relatively inexpensive (roughly the cost of four hardcover novels), reliable, and could hold 1500 books. They removed the need for extra shelving in the house, an extra big backpack to carry stuff home from bookstores which, co-incidentally, were just as stunned by the same tsunami.

Flump forward another two years, to the present day, when ebooks are creeping up on the 50% market share of books, if they don’t have it already.  Borders ignored the writing on the wall and is gone. Barnes and Noble stumbled a little but luckily had the Nook to cushion the fall. Apple keeps adding stunning features to its iPad, and face it folks, as much I love reading print books, I enjoy the ability to carry War and Peace around on my iPod, tucked in the back pocket of my shorts.

Adding to this is the option authors now have…which they in no way had before…to choose either a traditional publishing house or to self publish. Again, I won’t repeat past posts about numbers and pros and cons, but simply point out that a shocking number of authors have either left the big six completely, or they’ve removed electronic rights from their publishing contracts and elected to self publish their books in digital form.  Why? Because they get a pay cheque every month. Because they don’t have to guess at their sales and hold their breath for six, twelve, eighteen months before they see a penny of their earnings. Because they don’t have to wait a year to see their book for sale. Because they don’t have to have Forty F**king Flowers on the cover of a blood and guts Western (cleverly disguised plug for Under The Desert Moon).

So what do the publishers do? They’ve got the damned print rights locked up.  There is print on demand available to indie authors, but sales are minimal and the marketing is a nightmare.  But publishers publish print books. They market, distribute, advertise, yada yada…that’s what they DO.  It’s what they’ve done for the past 500 years!

Hello? Welcome to the 21’st century. Those tablets we saw in Star Trek, Next Generation are here. We’re reading off them, we’re writing specifically FOR them…but are publishers doing anything to keep their authors happy or make it worthwhile for them to stay in house rather than go independent and self publish?

Noooooooooooooo.  Instead, they find ways, like the Evil Empire, to keep the majority of the massive profits for themselves. They write a token clause into their contract that makes it look like wow, they’re stepping up here, offering 50% of the royalties!!!! Wow!!! Yeah!!!! Sign, Lucy, sign!!!!! But then they funnel and *cough* creatively cut that percentage down to the same, tired, tried and true 6%, and even less.

Seriously? Do they think we’re stupid? Do they think we’re so desperate to claim status as a “imprint published author” that we’ll keep taking crumbs over the ability to pay our mortgages on time?

Do they think authors won’t notice the disparity in royalty rates from 12.5% and 70%?

And do all the big six think authors aren’t going to notice when the ebook sales reported on  their semi-annual statements don’t even come CLOSE to ebook sales numbers they see every month on Amazon?  Or worse,  if they do come close, or even surpass, do they think authors won’t be bristling like porcupines when they see what they’ve earned at 12.5% vs what they could be earning at 70%? Do they think, now that the floodgates are opening, that authors won’t start demanding audits of those ebook sales?

I was a midlist author in print, and I consider myself a midlist author in the ebook world. I don’t make gazillions, not even close. I earn enough to let me breathe a little easier when the bills roll in at the end of the month and to justify picking up a pen and writing new books rather than flipping burgers at the nearby greasy spoon. I kvetch now about some of the *creative* practices of publishing houses, but I can’t even imagine how little hair I would have left if I was a NYTimes bestseller and did the math.

It’s time for ALL publishers to realize that we’re wearing big-girl panties now. We’re on several eloops that have 2000 members apiece and we all talk amongst ourselves, we compare notes, we know what’s happening out there, we’re peering behind those closed doors, and we’re not afraid to crush a few egg shells underfoot.

We will all be watching this lawsuit VERY closely.  If three authors can make ripples throughout  the Evil Empire… *insert maniacal laugh here*

 

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4 Comments »

  1. About damned time! So who are the 3 author-heroines that we can revere?

    Comment by SurferGirl — July 22, 2012 @ 5:36 pm | Reply

  2. This is awesome and so very informative. I can’t wait to see what happens with this.

    Carolyn Hughes

    Comment by caseykelly3 — July 22, 2012 @ 6:14 pm | Reply

  3. Love reading about how you expose the “Evil Empire!” Their practices are so obscene. Go Marsha!

    Comment by Marilyn Keith — July 23, 2012 @ 12:50 am | Reply

  4. It’s pretty sickening to read the types of numbers associated with that Law suit. Why would any writer want to keep writing for those lowball numbers? I have to say I’m glad to see authors making money publishing their own ebooks, being able to write what they want and choosing the covers they like instead of some of the horrid ones the publishers pick for them. I have a friend who is an author and she is having a blast picking out covers for the re-releases of her books.

    Comment by Cormak — August 5, 2012 @ 8:34 pm | Reply


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