The Dangers of Bad Contracts

Mar 10, 2013 | The Publishing Industry

So, it’s been a while. Life does get in the way of blogging, doesn’t it? Still, I’m back to being somewhat stable again, and so, I must return to writing on a somewhat regular basis.

This brings me to the recent ridiculousness surrounding the Hydra contract. For those of you not yet up to speed, here’s the play by play from John Scalzi and others:

Long story short… do you remember when Penguin bought the open sewer that is AuthorHouse last year? Here’s what I said then…

It’s about the way that¬†Author Solutions makes money, by selling overpriced packages. This is the same reason why I think that there will be no significant changes to the business, as some people hope. Why would Penguin bother to tinker with a machine that already makes money? The changes that they would have to implement, as many people hope, to clean up ASI’s reputation will be large. If they were going to do that, it would have been easier and less onerous to just build a new division with a clean slate.

And we’ve been proven right. Penguin merged with Random House, and, surprise surprise, Random House launches its own AuthorHouse clones that seem designed to suck money out of authors in desperate need of validation.

The Contract

John’s already gone through why it’s an absolutely horrible contract for authors. It goes without saying that anyone with even a smidgeon of sense should avoid it like the plague. I’d like to go through it from a pure business standpoint. This is a transaction, between the author and the publisher, as John says – so what are each party getting out of it? Let’s think about it a little differently. What if the author is a contracted designer, and the publisher is a manufacturer?

No Advance. The manufacturer would normally pay for the design, and here it does not. The manufacturer gets access to the product (the book) without paying up front. The designer initially gets nothing.

Exclusive worldwide rights to do anything with the product in any format and any language. Until seventy years after the designer’s death, no less. So, the designer cannot sell the product design to anyone else to manufacture, in any other country, in any other form, or in any other language.

Each party gets an equal share of the profits, AFTER the manufacturer’s costs are covered. The designer’s costs are not covered. John does a better job of explaining this, but what it amounts to is that the manufacturer can sell the product, and all its costs – including marketing, possible legal costs, production costs of print versions, everything and the kitchen sink – are paid before any payments are made to the designer. The designer’s hourly costs, and they would be extensive, considering how long it takes to write a marketable book, are ignored.

It’s Hollywood accounting, if anything, because the manufacturer seems to be able to charge a range of costs which are not explained – as Writer Beware noted.

The designer gets one copy of the product in one format. The designer presumably has to pay for more copies in other formats. So, if the designer wants to sell a quantity of the product (because they want to make money, obviously), they have to pay the manufacturer’s price. There’s no selling on consignment, presumably.

The manufacturer gets all rights to just about everything to do with the product, in the present and the future, and they must be the ones to license it – if they choose to. The designer effectively loses all control over the product once they sign this contract.

When the designer creates another product, the manufacturer has the option of grabbing that product too at the same terms. The designer is limited in whether they can sell another product to other manufacturers.

If the manufacturer decides not to continue production (the out-of-print clause), the designer can possibly get the rights back – or maybe not. It’s not made clear at all. In the case of ebooks for example, does an ebook listing on Amazon count? If a digital copy CAN be bought somewhere, is it still considered to be in production even though the manufacturer does nothing?

In Summary

This contract is completely nuts. It’s so unimaginably one-sided that I’m ashamed a company the size of Random House ever conceived of it to begin with. To quote John Scalzi again:


That’s pretty much it. The contract takes all control from one business partner and gives it to the other in exchange for nothing. Normally arrangements of this kind involve a large payment in exchange for control, in fact. That this one doesn’t pretty much says everything you need to know about how Random House views the authors that make its business possible.

This contract does not treat authors like business partners in a joint venture. It treats them like commodities. It tarnishes Random House’s reputation if nothing else, and certainly ensures that I will not consider any kind of business relationship with them. It begs the question: if this is how they really view their partners, why would anyone want to be in business with them?