Caught in the Net that Is “Net”

Since last week, the online publishing world has been ablaze with the news that Harlequin is changing the royalty rates it pays its authors from 6% of cover for category romances and 8% of cover for single title books to 15% of net and 25% of net. This change is retroactive and applies to authors who are “actively writing for Harlequin.”¹ Authors do not need to sign an amended contract to accept the new rates; rather, they must contact Harlequin if they want to turn down the new rates.

There has been a LOT of angst about what this “means” to authors. Is 15%/25% of net more per copy than 6%/8% of cover? Less? About the same?

Harlequin’s stance in the letter is that for most authors, the new terms represent an increased royalty rate, but there’s some evidence that whether that’s true might depend on lot on when the contract in question was written/signed. Elaine English did an analysis for NINC of multiple Harlequin contracts and concluded that in some cases, the royalty paid under the new terms for some books would actually be only 2%-3% of the cover price. Clearly not an improvement. That said, Harlequin has responded via Angela James to some of these concerns on Dear Author this morning, and this analysis of how net is calculated supports the notion that the change is an increase, not a decrease. Even so, individual authors would be wise to review their contracts with their agents to determine whether the change is or is not to their benefit.

But here’s the real kicker in the whole story, at least as far as I’m concerned. Authors have been signing contracts for 25% of net on digital sales FOR YEARS. It’s pretty much the standard rate in the industry. Harlequin has been bagged on for years for offering “only” 8% of cover on single title works, but now that they’re moving to offer the “industry standard” rate, their authors are up in arms, wondering if Harlequin is trying to pull a fast one on them. It’s ironic, don’t you think?

In a post back in March on the Avon Impulse line, I said I thought 25% of net was a pretty terrible royalty rate for digital-first/only books, because it meant you were, at BEST, being paid 17.5% of the cover price. When you compare that to the royalty rates being offered by the digital-first small presses, which are typically around 35%-40% of either the sale price or of net (depending on whether the book is sold directly through the publisher’s website or through a third party), 25% of net starts to look pretty crummy.

However, when you get right down to it, the problem with being paid on “net” isn’t the percentage itself; it’s the fact that it’s typically not clear or disclosed how net is calculated or how much net will be. Angela James’ post on Dear Author (referenced above) seems to indicate that Harlequin’s “net” is calculated on 50% of the cover price, but I know from my own royalty statements from Kensington that my “net” is all over the map–it seems to depend not on the cover price of the book, but the the actual sale price less the distributor’s cut and who knoews what all else.

I’ve never understood, to be honest, why the prevailing terms for digital royalties seem to be based on the net receipts rather than the cover price. Print royalties have ALWAYS been based on the cover price. It doesn’t matter how much the retailer actually sells the book for; the author still gets a predictable royalty on every single copy sold. Why should digital books work differently, especially when the publisher in question is agency-pricing, which means the publisher is getting a predictable portion of every single sale? In theory, if the publisher is agency-pricing your digital books, 25% of net should mean a predictable royalty, but that’s only the case if you know for sure what’s getting netted out AND your publisher never puts a digital special on your books (as both Avon and Hachette did for some backlist titles earlier this month).

I don’t expect to be signing another contract with a publisher any time soon, but more and more, I truly dislike net calculations for royalties because they are so potentially fungible and unpredictable. If and when I’m in that position again, I may well try to negotiate either for digital royalties based on the cover price (although, obviously, I would not be asking for 25% of the cover, but more like 15%) or for a clear disclosure in the contract of exactly how net will be calculated. And that’s partly because, if the publisher later decides to change its terms, I don’t want to have to guess whether the new terms are more or less favorable to me. Which is the net many Harlequin authors feel caught in right now.

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¹From my perspective, the most puzzling thing in the whole announcement wasn’t the royalty change–it’s what the heck “actively writing for Harlequin” means! Are you only actively writing for them if you have an uncompleted manuscript under contract? Do revisions and copy edits consistute “actively writing”? If you’ve completed the last manuscript under your existing contract and have either not yet submitted an option book or don’t have an option clause, are you no longer active even though you have books that have yet to be released? Are you no longer active if you turned down a contract offer from them, even though you still have unreleased books? It’s really very puzzling, and a clear definition of that term would certainly have been helpful!