The Night Shade Books/Skyhorse Publishing Deal: Why I’ll Take A Pass

It’s no secret that Night Shade Books has had financial trouble over the last several years. Jason Williams has been quite frank about their difficulties, both in public and in private conversations with me. I sympathize—Night Shade chose to expand their list just as the economy collapsed and as digital books sales became an increasingly important part of bookselling. Borders’ going out of business really dealt NSB a severe blow—one from which they’ve not been able to recover.

NSB recently sent a letter to all of their authors announcing that they were in negotiations with Skyhorse Publishing to complete an “acquisition of assets.” In essence, Skyhorse would pick up all their assets, assume none of their liabilities, but would pay NSB a sum of money which, according to the letter, would pay off outstanding debts to authors. If such a sale cannot be completed, NSB states clearly that they’re broke, and that who knows what a Bankruptcy Court will do with author property in any settlement.

Now, to be paid, authors just have to agree to some slight modifications of their contracts. I’ll go into those modifications below in greater detail. If enough authors do not agree to the new terms, the deal will be off, and the fate of our property is uncertain. SFWA (The Science Fiction and Fantasy Writers of America) sent an advisory note to its member authors who are published by NSB, suggesting that this settlement is “likely in the best interest” of members who have NSB contracts.

I disagree with that opinion. I also disagree with the deal as offered. My agent and my lawyer concur.

It is critical for anyone reading this essay to bear in mind that I like the folks at NSB. I don’t know anyone at Skyhorse, but I’ll assume they’re all wonderful folks who love books and SF and fantasy and are thrilled at the idea of rescuing the NSB catalog from future difficulties. I’m sure this is an impression that was passed on to SFWA and informed, in part, the board’s discussions and recommendations. I’m sure the offer is being made in good faith, in hopes that it sees to the best interests of all parties concerned.

That said, I’ve always found it useful to measure any agreement not by what someone tells me they will be doing, but what I imagine their heirs or evil twins could do with the contract terms. Yes, it’s a very cynical way of looking at things. Fact of the matter is, I’ve been and am still embroiled in disputes where one company has been engulfed by another, and that company, in turn, has been devoured by yet another. Net result, I don’t get paid, my lawyer gets ignored and I get a touch cranky.

There are several points in the Night Shade Books letter of agreement (which modifies my contracts) that are ripe for abuse. Again, I’m not saying anyone will abuse the terms, but why sign anything where those terms are in the contract? And, no, I’ve not reached out to Skyhorse to negotiate different terms. That would come later, after NSB’s fate has been decided, and Skyhorse can decide if they really wanted my books, or wanted other books that happened to be in the basket with mine.

1) Old Debts: Authors are told that receipts from the sale would go to paying off all royalties and unpaid advances outstanding. I am given to believe that the money would be paid into an escrow account, with disbursement coming within two months of the deal’s finalization. However, details of the escrow account and payment schedule are not included in the agreement. If they are not there, they’re not enforceable. If that is the way things are going to be handled, the details should be in the agreement.

2) Physical Book Royalties: The agreement requires authors to accept a royalty rate of 10% of Net income. Net is defined as the amount of money the booksellers and distributors pay Skyhorse—usually 50% of cover price. For me this net amount is a 50% reduction in my royalty rate.

More importantly, net income is illusory. Let’s say that Skyhorse, in order to get more of my books into a store, offers a distributor or chain an extra 30% off, on the condition that they buy an extra dozen books. So, 36 copies of a $15 book pays Skyhorse $189, of which I make $18.90 as opposed to the $27 I’d make if all 36 had been sold at a normal price, or the $54 I’d make under the NSB contract. (Extra discounts for promotion happen all the time, and might even rope in my books to promote another author’s work.) Moreover, the accounting to make sure that all the right amounts were paid will be all but impossible without an audit.

Even assuming, as I do, that Skyhorse will be above board and pay me everything I’m owed, I still have a fundamental problem. Why, all of a sudden, are my words worth half what they were before? How does that track? Had I been offered then the terms I’m getting now, I wouldn’t have taken the contract.

3) Ebook Royalties: The agreement requires me to lower my cut of ebook income from 50% to 25%. Skyhorse might have a shred of an argument if they actually had to put money into the production of the ebooks, but they don’t. That’s pure turnkey, so why do I take half of what I was getting before? That makes no sense. There’s no expense to them, so digital income is pure profit.

4) Audio and second serial rights: The agreements stipulates that I’ll grant Skyhorse audio and second serial rights to my books—rights which NSB never purchased. They want these rights for no money up front. Moreover, the clause says that the author will be consulted on the sale of same, but that “approval shall not be unreasonably denied, delayed or withheld.” Income from the sale of these rights will be split 50/50 between Skyhorse and the author.

This can lead us to an interesting situation for which there is ample precedent in the publishing world. The publisher forms a sister corporation to handle audio book production and sales. They sell a property to the sister corporation for a tiny advance and pitiful royalty. The sister company makes the money actually selling the product, and yet the publisher can say that they’re following the letter of the contract because they’re splitting all income half and half. (Harlequin just had a lawsuit dismissed against them for doing a similar thing with ebooks.)

I’m not saying Skyhorse will do this, but someone who buys them out just might. And, it should be noted, that all digital publishing rights are already assigned, in the agreement, to a sister corporation called Start Publishing, LLC. (Start Publishing LLC is a subsidiary of Start Media, a privately held media company with interests in, among other things, feature film production.) Skyhorse and Smart are not buying books here, they’re buying Intellectual Properties, and at a bargain price.

5) Term of Copyright: The agreement is a “term of copyright” agreement which, unless I badly misunderstand SFWA’s complaints about the Random House HYDRA contract, was a sticking point there.

6) Reversion Clauses: Reversion clauses allow an author to request a return of all rights granted if, after two years from the date of publication, the book goes out of print. Out of print is defined as fewer than 100 copies sold per annum for a physical book, and less than 100 copies sold for a digital book in a twelve month period. The publisher has six months to reprint the book, and has 90 days to kick the rights back if they choose not to go to press.

Here’s the problem with this wording in the case of digital books: How do you “reprint” an ebook? You can’t, so applying the print standard to an ebook is complete nonsense. And yet, by keeping the book in print in digital, the publisher still controls the rights to the intellectual property, and shares in any secondary sales, like the audio books mentioned above (or games or TV shows or movies, depending on the contract). To be sure, the publisher’s slice of things like True Blood have been quite valuable, and may have even earned more money than the books themselves.

So, how does a publisher beat the ebook out-of-print criterion? Let’s say a book has sold only 60 copies as we are coming down to the end of the year. It’s an $8 ebook. Publisher nets $4, pays the author $2. The publisher, for doing nothing more than letting Amazon and Apple shoot you some electrons, nets $120 a year. Coming down to the end of the year, the publisher puts the book on sale as a .99 special, hits Twitter, moves 40 copies and kills the sale. They’ve guaranteed not only their share of the secondary rights for another year, they’ve guaranteed $120 in income for the next year, and they’re out zero expense since those digital copies cost them nothing to sell cheap.

You might think that $120 is too little for a publisher to bother with, but Skyhorse boasts a 2,000 book backlist. That’s a quarter of a million dollars in sales on digital books alone following the strategy above. Given that in 2011 Skyhorse reported sales of $17 million, I’d guess they likely made as much as $1.7 million in profit. A quarter of a million is a nice chunk of that.

Sure, the author can get the physical rights back but unless the book is a runaway bestseller (in which case the rights wouldn’t be let go anyway), no other publisher is going to pick up the book for physical sales alone. Those rights might not be worthless, but they aren’t worth much. (Okay, a Kickstarter campaign for a collectable hardcover on sale for die-hard fans might work, but that’s not going to generate ongoing income.)

7) Assignment of Rights: The agreement’s Clause 7 just sets my teeth on edge. It reads:

You agree that Skyhorse Publishing, Inc. and/or Start Publishing, LLC may assign their respective rights to any third party without the author’s consent on the same terms and conditions as agreed to herein.

What I don’t like about this language is simple: it says that Skyhorse/Start can cherry-pick the NSB line, keep those books and contracts they feel are winners, and then can sell the rest of the contracts off to anyone they like. Which means, if your contract isn’t one they want to keep, they could a) give it back to you, or b) sell it back to you or c) sell it to anyone who wants to become a publisher. Worst case, Start keeps your ebook rights forever and Skyhorse sells the print rights to Your Worst Enemy with Big Dreams of being Your Publisher. (Upside there is that you can buy his excess inventory cheaply when he defaults on his storage locker rent.)

Skyhorse and Start need only value these contracts for what they’re paying for them. With steady ebook sales to cover that investment, they can afford to ditch print rights for bargain basement prices. If another book of yours hits from another publisher some time, they’re covered in the ebook realm—a cheap bet will pay off even more handsomely.

As I noted above, I’m not saying or suggesting that Skyhorse Publishing has any intention of doing any of the above. The simple fact is that the letter of agreement would allow them to do all  of the above, without any recourse on my part, and would pay me less than my work was originally contracted for.

This letter of agreement does nothing to incentivize me to sign it. In very real world terms, I’ll be losing money. Taking ebook sales as an example, instead of making $2 per ebook, I’ll make $1. Given ebook sales that I’ve seen so far, in return for just over $500 now, I lose thousands down the road. While some folks think a bird in the hand is worth two in the bush, I’ve yet to hear anyone suggest that ebook sales are going to contract in the foreseeable future. For Skyhorse, paying $500 now for thousands later is a heck of an investment; but for me on the back end of that deal, it’s economic suicide.

And to answer another logical question: why not negotiate directly with Skyhorse? This isn’t my deal, this is NSB’s deal. Clearly both NSB and Skyhorse see serious upside for themselves as businesses. There isn’t an upside for me and my business. I’m being asked to make concessions so NSB gets off the hook. I’m sure going along would earn me all sorts of good will with NSB and Skyhorse, but my mortgage company and health insurance companies don’t take good will. This offer isn’t open to negotiation—it’s an all-or-nothing deal, promising that I’ll get nothing if I don’t agree. Either way, the answer to the question “what’s in it for me” is the same: nothing.

I understand that SFWA may be in favor of this settlement because it means that authors will get money. And the vision of books and rights languishing while a bankruptcy court is deciding what to do is horrifying. The reality there is that the books, as assets, could be scooped up by Skyhorse or anyone else at fire sale prices, with the authors getting none of the money they’re owed. At least, in that case, the new owner would be bound by the original terms of the contract, which are decidedly better than these.

I’m putting my thoughts and reasoning out here for everyone because I understand the attraction of the deal. The immediate reward of getting paid royalties and advances is going to make it look really good to lots of folks. Ditto the illusion that under Skyhorse their series will flourish and thrive. This deal could be some serious money for some people. I’m lucky in that what I’m owed, right now, isn’t that much. If I don’t get paid what I’m owed, it’s not going to hurt me.

That means I have the freedom to look a bit further down the line. Having been burned in the past (Game Designers Workshop, FASA, WizKids and TOPPS), I may be a bit more wary than other folks. I see a mountain of loss and risk in this letter of agreement, and very little reward. While I respect any author who comes to a different conclusion, I certainly hope that conclusion is made after study and full understanding of the agreement’s implications.

How all this will affect An Ungrateful Rabble remains to be seen. All I can say right now is that it doesn’t look like it will come out through Night Shade Books, either independently or as an imprint of Skyhorse Publishing. I’ve given a lot of thought to what I can do, and will craft a suitable plan as circumstances unfold.