Showing posts with label Contract Negotiations. Show all posts
Showing posts with label Contract Negotiations. Show all posts
Wednesday, December 31, 2014

How a Non-Assignment Clause Can Destroy a Publishing Company's Valuation

When the owner of an independent publishing company wishes to sell their company they will
need to establish the value of the business they have built.  The yardstick that will be used is based on cash flow and, ultimately determined by the soundness of its author agreements.  Many start-ups are poorly financed, and in the beginning, the owners have neither the time nor the legal acumen to focus on their most important asset, their boilerplate author agreement.   At the outset of a publisher's career, this error can frustrate their ability to sell the company in later years.    

Problems often arise when publishers borrow agreements found online.  Lacking the necessary legal acumen, a start-up publisher may delete essential provisions that they do not fully understand.  For example, the assignment clause. 
 
Don't Let a Non-Assignment Clause Sink Your Ship

Experience is a hard school. To illustrate, Owen, a successful independent publisher with a backlist of 75 books, decides to sell his company. In his mid-50s, with no children to take over the business, his exit strategy is to bankroll the sale of his growing company into early retirement. As part of the due diligence process, he compiles all of the company’s author agreements, foreign translation licenses, and other important documents for a potential buyer to review. To his dismay, his attorney and broker call to say the deal had fallen through because the publishing agreement he filched off the Internet when money was tight contains a non-assignment clause.  The insidious clause reads, “Neither this agreement nor any right or obligation hereunder may be assigned or delegated, in whole or part, by either party without the prior express written consent of the other.”

What could have been a quick and very profitable business transaction requires the consent of all of Owen's authors, and in one instance, all of a deceased author's uncompromising heirs. And, the author of the crown jewel of Owen's backlist (which accounts for 50% of his gross annual revenue) will exploit the pending sale to renegotiate her contract -- a contract she desperately wants to get out of. 

While there are publishing programs at many universities and organizations such as the IBPA, you can only learn publishing by doing.  Since you are dealing with copyrights - intangible assets -- you must, at least, have an excellent foundation author-publisher agreement.   Then, through persistence and luck, you are in a position to make the most of the opportunities ahead.    

If you intend to sell your publishing company tomorrow, or 20-years from now, you need to pay attention to your author-publisher contract today. As Owen discovered, a well-drafted publishing agreement is a publisher’s most valuable asset.

Taking the boilerplate provisions for granted can also have severe consequences for authors.

Before signing a contract, it is important to understand what the contract says (not what the publisher says it says). In his autobiography, Twain lamented on his lack of legal acumen in negotiating a publishing contract with an onerous non-compete clause:

“I made my contract for The Innocents Abroad with American Publishing Company. Then after two or three months . . . it occurred to me that perhaps I was violating the contract, there being a clause forbidding me to publish books with any other firm during the term of a year or so. Of course that clause could not cover a book which had been published before the contract was made; anybody else would have known that. But I didn't know it, for I was not in the habit of knowing anything that was valuable and I was not in the habit of asking others for information.. It was my ignorant opinion that I was honor bound to suppress The Jumping Frog book and take it permanently out of print. [My publisher] as willing to accommodate me on these terms: that I should surrender to him, free of royalty, all bound and unbound copies which might be in New Company’s hands; also that I hand him eight hundred dollars cash; also that he supervise the breaking up the plates of the book…. One may perceive by these details that [my publisher] had some talent as a trader.” - Mark Twain
Had Twain been wiser, he would have hired a publishing attorney to help him navigate the competitive books clause in his contract.

Most publishing contracts today still contain Twain-like non-competition clauses that can prevent an author from publishing other books during the contract term. While no non-fiction publisher will strike its non-compete clause, if asked politely, most will offer the author a more palatable version of the clause than the one initially presented. In the case of fiction, the non-compete clause should be deleted. The literary result being the fiction publisher has to rely on the next book or option clause to protect its legitimate interests.

Nothing is demeaning or unseemly about asking a publisher to modify specific contract terms. For example, if a book is tied to an existing brand or business, most publishers will tweak their boilerplate out of respect for the author's branding (or trademark) concerns. Book contracts typically give the publisher (not the author) the right to determine the work's title. If the book is an extension or outgrowth of the author’s existing business (e.g., Chicken Soup for the Soul®), asking for approval and ownership of the title – which also functions as a trademark – becomes a critical issue. But don't assume a publisher will change anything -- despite their assurances -- once the ink on your signature is dry. That's not how the Game of Authors is played. As negotiations are winding down, make sure you straighten out misunderstandings and memorialize what has been agreed to. Once a contract has been signed, the parties are under no obligation to vary the terms.

Why formal agreements are necessary.

The key to a good contract is clarity and understanding the business (not just legal) issues endemic to the publishing industry. Ambiguity and inconsistency are the two critical ingredients in litigation soup.

For authors, it is helpful to keep in mind that most contracts are not take-it-or-leave-it propositions. Be courteous. Be tactful. Knowing what to ask for is critical. Use an agent or attorney who understands the parameters of the typical publishing deal to negotiate your contract. Also, working through an agent or attorney allows an author to preserve her creative relationship with the editor or publishing house while her representative hammers out the business issues.

For publishers, an overly author-friendly contract can be problematic when it comes to selling their company. Perhaps, Michael Joseph, a UK publisher, said it best, “No publisher can afford to fall in love with literature.”

Keep in mind that the duration of most publishing contracts today are for the life of the copyright. If the book is financially successful, the publisher and the author (or author’s heirs) will be bound together for a very long time. The above examples should clarify that getting stuck with a bad contract is a long-term, perhaps, intractable problem.