Six Tips on How to Avoid Headaches in Your Next Royalty Run

Even at the best of times, calculating royalties is not the most streamlined of publishing operations. The entire process offers many opportunities for errors and unwanted manual interventions, not to mention the potential for damage to the hard-earned trust between author and publisher. This article outlines six steps that publishers might take to avoid those headaches and unnecessary disputes.

At its most simple, the royalty system is designed to calculate payments to authors and agents by multiplying periodic sales activity by a royalty rate, as defined in the contract. That, sadly, is where simplicity ends!

1. Flexible Contract Definition

Contract and title information are the basic data that drive the system. That, and sales data. Clearly, if the basic information is not complete before sales data begins to flow, then those accruals will be missed, and the author will not be paid. This sounds simple enough, but it is not without its complications. Publishers today deal with a proliferation of delivery formats, each of which requires a separate ISBN, royalty rates, and other related data. Sales data is collected by ISBN, but the ISBN is typically not assigned until late in the production process, and there is a lengthy period between contract signing and final completion of title data. This can be troublesome when just the ISBN alone drives the system.

In knk’s system, knkMedia, the contract is defined at the IP level (the project or manuscript or even at a more granular level such as a chapter), and NOT at the ISBN level, and the royalty rate is specified for each format. This allows the royalty contract to be created and the rates for all formats defined well before the saleable items are produced or even planned. The additional benefit of this is that once the contract is created, any new saleable products related to that contract are automatically managed. It also allows the user to reuse individual content components in future titles without setting up a new royalty contract. It often happens that the royalty department is not advised when a new edition (requiring a new ISBN) is created and that leads to missed sales data. And in some systems, it is difficult to rerun the royalty calculations to add missed sales or to correct errors. So, if you do not have this flexibility, you need to ensure there are orderly and timely communications between the production department and the royalty group.

2. Incorrect royalty rates

One title may have several royalty rates depending on the formats and any different escalating rates for those formats. Incorrect rates naturally cause problems and what is worse, they may not be detected for some time, and often well after the royalty invoice is posted, at which time, re-running the system may not be easy or even possible. If the error is noticed before a second royalty invoice is posted then most systems can easily handle that problem by canceling the invoice and changing the rate. However, if the error is not detected until much later, many systems struggle. Under these circumstances, knk’s system allows the original contract to be closed, copied, the required corrections made, and the system restarted, and all the required history follows along automatically. Make sure your system allows for these kinds of corrections to be made.

3. Changing Royalty Recipients

Events may occur that necessitate modifying the royalty recipient. If the author dies, the system must allow adding children, for example. There may then be multiple recipients who are eligible for potentially different payment splits. Make sure your system provides these facilities, otherwise you will face tracking more manual adjustments.

4. Tax Withholding

Some recipients require taxes to be withheld from net payments, and the system will need to include this facility, or subsequent manual payment modifications will be needed.

5. Split Advances based on Events

Advances are often paid in installments where certain events will trigger payments. For example, the first advance payment may be on contract signing, the second on receipt of the manuscript, and a third on the publication date. If the system does not control this automatically, then the royalty department is dependent on another group to prompt them with the necessary data.

6. Subsidiary Rights

The contract may include subsidiary rights where the revenue generated by selling sub rights to third party licensees should be partially paid to the author. The royalty system should be capable of managing this condition. In addition, the system should automatically handle complex royalty splits between the original rights holder and any subsidiary holders (where the splits may be other than just a simple 50/50 split between the parties). If the system cannot provide either facility, then the royalty group will again need to generate manual payments outside of the royalty process.

Summary

All these issues may necessitate tracking of manual data and making payments outside the core royalty system, causing unnecessary effort, disruption, cost – and big headaches for royalty staff. This makes effective communication essential, both within the organization, and between publisher and author. A well-constructed royalty statement is helpful in this regard. The Oxford University Press offers a good statement (https://academic.oup.com/pages/authoring/books/royalties/royalties-us), and The Book Industry Study Group provides excellent advice on this question (https://www.bisg.org/about). With all these variables under control, the result should be fair compensation to the author at minimal cost to the publisher.

 

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