The Anatomy of a Publishing Contract

So I’ve been absent from the blogosphere for a few days, mostly because I’ve been poring over books about publishing and agency contracts, the role of literary agents, and the ways different rights are bought and sold in the publishing universe (which is a whole other planet as far as I’m concerned), and there’s been so much to digest that I’ve only just come up for air. And now, fellow readers, rejoice! For here I am to share it all with you.

But before I start, a disclaimer: don’t consider any of this to be legal advice. If you actually have a contract and have questions about it, certainly use the information I’m providing as a starting point for deciphering what all the different clauses mean, but if you have any questions, doubts, or concerns, or need help negotiating, turn to a lawyer who’s got publishing experience, or try to get an agent to work with you. (That’s me covering my arse so I don’t get in trouble.)

And now: the anatomy of a publishing contract.

What is a publishing contract, anyway?
To understand what goes into a publishing contract (and why each one seemingly uses up half a ream of paper), one must first understand the nature of the publishing industry—or, as my old coworker used to call it with a snarl on her face, the “pub biz.” Some people have compared publishing to a casino, involving books. I tend to agree, because it’s all a gamble.

As genteel or artistic as it may seem, publishing is, bottom line, a business. And like any other business, it involves the exchange of goods for money. But unlike some other businesses, publishing is a highly speculative business. A publisher may be pretty good at predicting how certain books will do on the market, but it’s an imperfect science. “Guaranteed” best-sellers may fall flat on their faces while novels of a literary bent may suddenly catch on, thanks to a number of factors that are hard to control: word of mouth, intriguing or timely subject matter, a hot new trend (like ethnic lit or chick lit), a memorable title, Oprah. So like any business based on speculation, publishing is a risky endeavor.

Think about it. Books aren’t a necessity, like toothpaste or gasoline. Books are more of a luxury commodity, something purchased to enhance a buyer’s life by providing extra information or offering entertainment. This means books are purchased with expendable entertainment income and are not necessarily factored into people’s budgets. So when a publisher is determining whether or not your book deserves to be published by their company, they’re not necessarily evaluating the merit or quality of your book, or at least that’s not the most important aspect they’re looking at. They’re evaluating its salability, its potential to make a buyer look at it and say, “Yes, this is worth spending between twelve to thirty dollars of my expendable income on.”

So when a publisher draws up a contract with a writer, they’re making an investment that they hope will be profitable at a later date. Buy low, sell high, hope to earn back the initial investment and some profit. This is why the first version of a publishing contract has terms that generally tend to financially benefit the publisher at the writer’s expense.

Every publisher is different and each one has a unique contract, but they all include the same basic information:
• which parties are entering into the agreement (the author[s] and publisher);
• when the contract begins and how long it lasts;
• what rights are transferred from author to publisher;
• what compensation the author and publisher will receive when and under what conditions;
• when rights revert back to the author;
• what happens if there are legal problems (I’ll go further into the sorts of legal issues writers could face in a future entry).

Of course, you’ll probably see even more clauses in your contract, but you should be sure that your contract has all these clauses, since they cover essentially all the steps of the publishing business.

Someone’s buying my book! Now what?
After months, or years, of toil, a publisher has finally agreed to buy your book. Your excitement is palpable. You get a copy of the contract in the mail or via email or fax. You’re so excited to get the process started and see your words bound in a book that you sign on the lines and send the contract back to the publisher with hardly a glance at the terms and conditions therein.

If you do this, I’ll be perfectly honest: you deserve a good flogging, preferably with a massively heavy copy of the OED. Common sense dictates that you read something before you sign it or else the only person to blame when you get screwed (because trust me, you will get screwed) is yourself.

Perhaps as a first-time published author you don’t think you’ll understand the legalese. Or perhaps you think that you have to take whatever they offer you or they’ll withdraw the offer and move on to another author desperate to be published. Or maybe you think you have to act fast or they’ll lose interest. None of this is true. Publishers are used to writers (or their agents) negotiating with them to get a mutually beneficial (or at least more mutually beneficial) deal. Publishers are okay with you taking a day or two or more to digest everything, figure it out, get help if you need it. Things don’t happen overnight in book publishing; it may take a year or two for your book to even appear on shelves. Be smart and take the extra time to determine what you’re being offered and what you can do to be sure you don’t get screwed. Don’t sign anything until you’re at least satisfied that you’ve done your best to get what you wanted.

Clauses, clauses, clauses! What do they all mean?
A publishing contract will begin with an introductory clause that lays out the parties involved in the contract (the author and the publisher) and what the contract is in regards to (the manuscript). It also lays out the date when the contract comes into effect. There’s also usually a brief description of the work the author’s submitting. Sometimes this is vague to the point of being nearly indecipherable—just a title and then a few words of description: “Eighteen Wheels: A novel about truckers” or “Finding the Light: How to Rewire a Lamp Yourself—an instructional guide.” You may want to flesh this description out a bit on the contract (or on an attached page that you can refer to as a rider) so that it’s more specific what you understand that the publisher expects from you. “Eighteen Wheels: A novel of approximately 70,000 words about a group of truckers and their adventures traveling across America” or “Finding the Light: How to Rewire a Lamp Yourself—an instructional guide of approximately 50,000 words including directions for working with wiring and projects, along with illustrations and photos.” Inserting this little bit of extra information will give you a little peace of mind, especially considering the next clause that’s included in a publishing contract: delivery and acceptance of the manuscript.

The delivery and acceptance clause gives the date when the publisher expects you to turn in the completed manuscript of your project, and it often also spells out in what format they wish to receive it. If you’re writing fiction, you most likely have the manuscript completed and perhaps only have a few tweaks or formatting issues to resolve before turning the book in, but nonfiction books are often sold on the proposal and one or two sample chapters alone, so the due date is especially important. If you feel that you simply can’t turn in the manuscript by the publisher-assigned date, negotiate it, don’t just ignore it, as turning your work in late can render you in breach of contract.

Also be certain to pay attention to the terms of acceptance included in this clause. It should spell out what you’re expected to turn in and what happens if the publisher is unhappy with the work. Often the wording here is vague, merely saying that the manuscript should be “satisfactory” to the publisher or the publisher can drop the project. But that means different things to different people, so this phrase is a sort of “get-out-of-contract-free” card for the publisher. Make sure you discuss what “satisfactory” (or any other sort of vague wording) means with your editor so that you have an idea of what’s expected from you. You should add in more specific wording as to what “satisfactory” means. And you should add in a phrase saying that if the manuscript isn’t up to the publisher’s standards that you’ll then get a certain amount of time to revise the manuscript to their recommendations.

You'll then find a grant of rights clause listing the rights the author is giving the publisher, the territory in which the rights apply (for instance, the United States and Canada), the amount of time the contract will remain in effect. Basically, what this clause means is that you are transferring ownership of whatever rights are listed to the publisher to do with as he pleases while the agreement is valid. This is where I'm asking you to dredge your memory a bit. Remember when I listed the "bundle of rights" that are yours and are protected by copyright? Here's where they come into play. When you first examine your rights clause, you'll find that your publisher probably wants all of them, and that's not necessarily in your favor. Naturally you want your publisher to have the rights to duplicate and sell your work, otherwise known as primary rights; that's the whole reason you entered into this arrangement in the first place. (Most publishers, however, will allow you to keep your name next to the copyright notice in the front of the book; they just want the right to publish the book, so they don't care if you yourself appear as the copyright owner.) But do you want your publisher to take on ownership of your subsidiary rights (otherwise known as sub rights) to create derivative works, such as screenplays, foreign editions, translations, and audio books? It's a tough call.

Sub rights are a sort of inexact science (what a surprise). Sometimes it's to your benefit to allow your publisher to own and sell these rights; your publisher may already have well-established connections with publishers of mass market paperbacks who'd be interested in printing an edition, or with foreign publishers eager for American books. Or perhaps they're good at getting audio book deals for their authors. If your publisher is a larger house with a separate sub rights department or has a good past track record of successfully selling sub rights for many of their authors, and you also don't have an agent who will help you in the sale of these sub rights (more on this in the agents entry), it's in your best interest to allow your publisher to sell these rights on your behalf and split the profits with you. On the other hand, if you're publishing with a small house that lacks a sub rights department and that doesn't seem to have much clout when it comes to sub rights sales, you're probably better off retaining these rights for yourself and trying to sell them on your own. Think of it this way: why would you give away something that could potentially be valuable to you to another person who's just going to let that potentially valuable thing sit on a shelf and collect dust? You may not make any more headway selling these rights than your publisher would, but at least you retain them so that you have the option to do with them as you please.

Sub rights can be incredibly profitable--sometimes more so than the original book--which is why your publisher, and in turn you, should be so interested in keeping as many of them as possible. These have thus become a big negotiating point. When negotiating with your publisher over sub rights, keep in mind that most publishers tend to split the proceeds from sub rights sales with authors in percentages that favor the author, by 5 or 10 percent or more. Negotiate to get the best deal for you. Determine which rights you want to keep, if any, and which you want your publisher to have. Also decide what percentage of profit will make it worth your while to let your publisher have them. You may also want to add a phrase such as, "All rights not expressly granted to the publisher are hereby reserved by the author." This gets a little knit picky, but it's worthwhile to include. “Rights not expressly granted” could include the right to create and use your name as a website domain, the right to sell author copies, and so on. You can also limit the rights you give your publisher by language or territory, and you can limit the amount of time that the publisher can own specific rights. For instance, if certain rights haven't been sold within 2 or 3 years, you can stipulate that they then automatically revert to you. When it comes to deciding what you want to do with your sub rights, it depends on what kind of potential you and your publisher think the book has for being converted into other formats. Does your how-to book lend itself to a home improvement television series? Does your novel have the potential to be a blockbuster on the big screen? Consider what sort of “life” your manuscript has beyond the bookshelf to determine what sub rights negotiations will be best for you.

Then we come to the lovely advance and royalties clause that determines how and when you’ll get paid. An advance is just what it sounds like: an advanced payment from the publisher paid out before your book is even published. Royalties are a percentage of money that you earn from the sale of each book.

An advance is paid out against royalties—in essence it’s a loan from your publisher. Let’s say you are paid a $5,000 advance against royalties. This means that you get the $5,000 in advance of publication of your book. When your book starts selling, the first $5,000 of royalties you earn won’t go to you; it goes back to your publisher. Any royalties you earn after $5,000 will then be paid to you. If you earn more than $5,000 in royalties, you are said to have earned out your advance, a joyous day in the life of your publisher because many books nowadays don’t even earn that much back.

Advances are usually paid out in 2 or 3 installments: when the contract is signed, when the manuscript is submitted, and when the book is published. Be sure to read your contract carefully to determine whether your publisher expects you to pay back any portions of your advance if your manuscript is rejected, as some publishers expect this.

Royalties are a percentage of money you earn on every book sold. They are often based on an escalating scale—for instance, you might earn 6% royalties on the first 5,000 copies sold, 8% on copies from 5,001 to 10,000, and 10% on copies 10,001 and up. Royalty percentages tend to be lower for paperbacks and higher for hardcovers due to differences in cover price (and thus profitability) of each. Some publishers pay royalties based on the cover price, but this is becoming increasingly rare. Due to rising publishing, warehousing, and distribution costs and the larger discounts being given to booksellers, publishers are more commonly basing royalties on the net profits received by the publisher. Make sure you understand which of these systems your publisher is basing your royalties on and ask how much of a discount they give booksellers and what percentage of the cover price is given to distributors so you’ll have a better idea of how much income to expect from your royalties. You should also find out if nontraditional sales—such as bulk sales to organizations or sales to libraries—are based on a different royalty scale.

If you can, negotiate with your publisher to get a bonus structure if your book achieves bestseller status or wins a literary prize, since these things usually mean increased book sales and subsequently increased profits for the publisher. And be sure to check when you’ll be paid your royalties. Publishers usually pay out royalties in installments during the year, sometimes quarterly, sometimes only once a year.

And what about if you’re using copyrighted material in your manuscript? For instance, each chapter of your novel starts with a song lyric, or you’re using reprints of photographs in your travel guidebook. You’ll need to get permission for these materials. Note the use of the word “you.” Most publishers require the author to go about securing the permissions before publication, and this can be a lengthy and sometimes expensive process. However, if the copyrighted material is something the publisher wants added in (say, additional photos for your guidebook), or if you have to secure a lot of permissions, negotiate with the publisher for assistance, either financial or just help in getting the sources to give permission. Sometimes the clout of the publisher can help you get permission more quickly. But be sure that if getting permission for any material will be important to your book that you work out the details with your publisher.

Beware the option/first right of refusal clause. This clause lets your publisher look at your next manuscript before anyone else does, thus giving them the first chance to either accept or reject it. While this isn’t so bad, be sure to examine the terms surrounding this. Some publishers may say that acceptance of your next manuscript carries with it the same terms as the contract you’re currently signing. This is a lousy deal. By the time your publisher takes on your next book, you’re already an established author and they already have an idea of how your book sold. If your book sold modestly, you may be offered a similar advance and royalty scale as for your first book. But if your book sold very well and had subsequent printings, proving that you’re a valuable commodity to the publisher, it would be pretty crappy to get the same paltry advance and low royalty scale you got the first time around. So be sure that you indicate in your options clause that if the publisher does choose to take on your next project that the terms will be negotiated at the time of acceptance, thereby preventing you from being locked into a contract that could screw you financially.

And be sure that your option clause indicates deadlines for how long your publisher has with your next manuscript—say, 30 days or 90 days. You don’t want to be kept waiting indefinitely for your publisher to make a decision; it’s valuable time you could be using to shop the manuscript around to someone else if your publisher turns it down.

Your contract will also contain a warranties and indemnities clause. This clause basically states that by signing the contract, you verify that you are the sole author of the work in question, that the work doesn’t infringe any copyrights, that it doesn’t contain any deliberately harmful information (recipes containing mushrooms you know are poisonous, for instance), and that it’s free of violations of privacy, defamation, libel, and other potential legal problems. It also states that the author indemnifies the publisher and holds them harmless if legal actions are brought against the book. Although publishers will often help authors somewhat if there are legal problems or will cover authors under the insurance they take out for these very purposes. Sometimes publishers will withhold an author’s royalties towards covering legal fees. So try to cover your bum and be sure your manuscript is as free of potential legal problems as possible. (A little more on these issues later.)

No writer ever wants to think about their book being out of print, but as depressing as the topic may be, it’s important to consider before signing the contract. You should know when a book is considered out of print by your publisher because you want to be sure your rights revert back to you.

One of the most depressing aspects of the publishing industry is how quickly books go out of print. Some cheeses have a longer shelf life than do books. In an industry where the shelf life of a book (the time during which the book is available on shelves in major bookstores) is a year or less, it’s important to know what happens when your book is considered out of print (or OOP in pub biz lingo).

Make sure there’s language in your contract that allows you to get your rights back after your book’s been OOP after a certain amount of time. You should be sure your contract states that your book is considered out of print after a certain amount of time when it’s no longer readily available in bookstores, or after it’s no longer earning a minimal amount of royalties per year.

Obviously this list isn’t exhaustive, because there are so many clauses that make up a publishing contract, but I wanted to try to cover some of the clauses covering rights and payments that can cause writers confusion and angst. I’ll be listing some books soon that list more detailed information on all the parts of a publishing contract that you should use to better familiarize yourself with everything that goes into this complicated—but no longer confusing, hopefully—document.