Monday Morning Royalty Rant

November 20th, 2006 · 2 Comments
by Kassia Krozser

We are fully aware that we rant a bit on the subject of royalties for electronic media. Ranting keeps us young. Plus we think it’s the most important topic facing artists today — and, as evidenced by Saturday’s dinner with a fine, upstanding member of the Director’s Guild of America, we remain concerned that too much faith is being placed in “someone else.”

This particular DGA member professed a vague idea that in the coming year, her guild will be going to battle on her behalf. She felt certain that the DGA will take care of everything, yet wasn’t quite sure what was at stake. Entertainment companies are staking their futures on electronic media. If you lurk in the halls of publishers, music companies, or motion picture studios, you will quickly get a sense of businesses trying to figure out how they can exploit this up-and-coming market…before anyone fully comprehends what the market will be.

One friend, upon hearing the explanation for one potential distribution stream, said, “So, what you’re saying is that they’re making it up as they go along.”

“Exactly! You can’t have answers until we figure out the questions.”

So while these major players are trying to figure out the best ways to squeeze more dollars from their products, artists seem strangely disconnected from the process. Not all artists, of course, but enough that, yes, we’re going to keep harping on this issue until someone rises up in anger and gets out a petition.

In Hollywood, actors, directors, writers, and others get paid residuals, which are a percentage of every dollar earned by the studios in certain distribution arenas (television and home entertainment, mainly). For what was formerly known as the world of videocassettes, this percentage is calculated on 20% of every dollar. This 20% royalty became, as royalties often do, institutionalized. Thus when DVDs rolled around and cost structures changes, the royalty remained, even as the original rationale for said royalty disappeared.

In what was supposed to be a major battle for increased royalties, the guilds decided to fight for better health insurance. Laudable, certainly, but everyone knew the guilds were girding to fight over royalties for electronic media — iTunes and its kin.

Naturally, the studios want to continue with the 20% royalty that has served them so well (stick with us, this will become relevant in a paragraph or two). As noted, they’re pretty much making it up as they go along. The guilds, naturally, are going to battle for calculating residuals and participations on a number that closely resembles, in shape and form, 100%. Unless someone caves, this is going to be ugly.

[We’re going to skip the way musicians get taken because, well, music royalties make even our brain hurt]

Meanwhile, a few years ago, Random House cut the royalty it paid to authors for e-books from 50% of net receipts to 25%, with a decrease after the advance was earned out(a move that made little sense then and even less sense now). Though the Author’s Guild expressed outrage, there wasn’t much anger among the published authors we know. Of course, other publishers take one look at e-books and think, “Six percent. Yes, that should be sufficient.”

And authors sign these contracts!

Over and over and over again, we hear the counter-argument, from authors and publishers alike: but the market simply isn’t that big. Uh huh, this is why the entire entertainment industry is setting world records for meetings in a single day…because the market simply isn’t that big. Overpaid executives don’t sit in overheated conference rooms watching endless Powerpoint presentations when a market simply isn’t that big. They could, instead, be enjoying the fruits of markets that are that big.

Everyone who’s anyone expects the electronic media markets to explode. That includes publishing, though right now, certain books do better electronically than others. That will change as technology changes. Yet authors (and agents) are allowing the worst thing to happen. They’re allowing these lower royalties to become institutionalized. Once something gets into the standard language of a royalty agreement, extricating it becomes very hard. Think pulling wisdom teeth without really good drugs or decent dental apparatus. Those words simply cannot be removed.

In Hollywood, it takes the power of many angry artists to enforce change. As you read the newspapers, pay special attention to battle being planned by the guild. It should resonate.

And yeah, we’re going to rant more on this later.

File Under: The Future of Publishing

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