Paperback rights

It was once the case that the sale of mass-market paperback rights attracted attention both in the trade and the general media, since it was in this area of publishing that licensing revenue rose spectacularly. The trend started in the United States in the 1970s and led to advances such as the $3,208,875 paid by Bantam in 1979 for Judith Krantz’s Princess Daisy, still the all-time record for fiction. By the 1990s, advances tended to be more modest (although Pocket Books reportedly paid $2,600,000 for Terry McMillan’s Waiting to Exhale). There has been a substantial shift in the overall strategy for hardback/paperback editions in the last 30 years. In the past, the sale of paperback rights involved the original hardback

publisher licensing the rights to an independently owned, mass-market paperback publisher. Almost all such imprints are now part of large publishing groups, many of them multinationals. This consolidation of publishing houses has had a major impact on paperback rights; many of the groups embarked on a systematic programme of recovering paperback rights from external licensees and publishing the books under their own paperback imprints. Publishing a trade title in hardback alone is rarely profitable in the present climate. For new titles, a more comprehensive package of rights is now sought from agents and authors, with many titles now being published by a hardback imprint and a paperback imprint under the umbrella of the same group: a ‘vertical’ publishing deal. Thus, if a major property is being auctioned by the author’s agent, the hardback and paperback imprints from the same group may well bid together to secure rights. A purchase of this kind may be more beneficial for the author, who would then normally receive a full royalty on both hardback and paperback editions rather than receiving a contractual share of the royalty from a sublicensed paperback edition. In the United States, in particular, the impact of chains such as Costco discounting the original hardback book at 50-70 per cent has had a significant impact on the size of paperback sales. If a vertical publishing deal is not involved, a hardback house may still

seek to team up with an outside paperback house in order to bid for rights. In such cases, the hardback publisher may then issue a sublicence to the

paperback house, and an agreed share of the proceeds (at least 50 per cent but sometimes as high as 90 per cent) is passed on to the author; alternatively, both publishers will contribute to the advance payment and the author will be paid royalties separately on each edition. It may also be the case that a title first published (whether in hardback or in trade paperback form) by a small independent publisher which has limited access to the major retail outlets is of interest to a mass-market paperback imprint, and licensing may then be a sensible route to make the book more widely available, hence the retention of coverage of this type of licensing. Although publication of a sublicensed paperback edition normally takes

place some time after the appearance of the original edition, if a licensing policy is to be actively pursued it is important to keep the appropriate editors at the paperback houses informed of possible titles at the earliest stage. An outline followed by a copy of the manuscript is the usual sales material; at the very latest, page proofs or electronic files. If the book or the author is unknown, it may still be possible to generate interest from a paperback house after publication if the original publisher’s edition is unexpectedly successful; a reading copy can be supplied with copies of favourable reviews and details of initial sales figures. When promoting to paperback publishers, it is essential to become

familiar with the profile of each house by studying its catalogues and website, its output in bookshops and at book fairs, and by scanning the trade press for features on forthcoming paperbacks, advertisements and news of acquisitions (and, if possible, the amounts paid!). It is also vital to find out the likely tastes of individual editors. If a project is submitted to a paperback house, it is important to make it

clear on what basis this is being done – whether it is an individual submission, a multiple submission to several houses or a full-scale auction (see Chapter 6). While the money involved in paperback licences can sometimes still be significant, it is almost certainly a mistake to oversell a property if one is to maintain good relations with the buyer in the future. A licence negotiated on the basis of a more modest advance payment may earn well over a period of years if the property has been placed with a publisher prepared to put the weight of its marketing and sales forces behind the book. Once a deal has been agreed, the paperback house will usually submit its

own form of contract rather than follow the tradition of the licensor providing the contract. However, there is usually some flexibility for alterations, depending on the circumstances of the licence and the importance of the title. Paperback houses often seek to acquire rights in ‘all paperback editions’

in the English language; there is no automatic definition of the format in which the paperback edition will be produced, although educational editions containing critical apparatus (see Chapter 13) may specifically be excluded. For many years, all UK paperback editions were published in the traditional pocketbook format of 175 111 mm. This size is referred to as

‘A format’; for some titles a larger ‘B format’ of 198 129 mm has been introduced. Large-format trade paperbacks – sometimes referred to as ‘C format’ for marketing purposes to distinguish them from pocketbook editions – may be published in royal format (250 150 mm) or demy octavo (222 143 mm) by some houses, often following the format of the original hardback edition. By leaving the format unspecified in the contract, the paperback publisher has the choice of which to use, and if there is a perceived market for both editions the same book could be published first as a larger-format, more expensive trade paperback and then as a cheaper pocketbook edition. The licensor should bear in mind that by granting rights for all paperback editions, they would then be giving up the right to produce any paperback edition themselves, even if the licensee subsequently produces only in the traditional pocketbook format. The term of licence granted to a paperback publisher could be for the

full term of copyright, with provision for termination if the paperback edition goes out of print or in the case of breach by the licensee. For a reference work such as a dictionary, the contract should be limited to the current edition, so that a new contract would have to be negotiated if the hardback publisher produced a revised edition. In recent years (as for author contracts), the trend has been towards granting limited-term licences. A UK paperback house will usually be prepared to accept a minimum period of eight years from first publication of the paperback edition, with a possibility of renewing for a further period (perhaps for five years) on terms to be agreed at the time; a refresher advance would be common. It is therefore important that any hardback publisher granting a paperback licence ensure that they themselves have control of the rights in the property from the author for a sufficient period to cover the period between signature of the paperback licence and publication of the paperback edition, plus the term of the licence granted. Some paperback houses now require that if the licence expires, the hardback publisher may not offer paperback rights elsewhere at the same or lower terms than those negotiated for the original licence without returning to consult them. If the licence is to terminate, the paperback publisher will require a period of time (usually 12 months) in which to sell off any remaining stock; they should not be permitted to reprint within that period. It is usual to require that the paperback edition shall first appear in the

exclusive market granted at least one year after publication of the original publisher’s edition, to give them a reasonable period of time to achieve sales of the that edition. Thus, if a licence is being granted for a new hardback title, it is advisable for the contract to specify that the licensed paperback edition is to be published ‘no earlier than … and no later than … ’. Some paperback licensees may wish to qualify that they will meet the publication date unless prevented from doing so by circumstances outside their control. It should be remembered that late publication may affect payment of one or

more instalments of the advance if payment of such instalments is linked to ‘publication’ rather than to specific calendar dates. The market granted to the paperback publisher depends on a number of

factors: the market under the exclusive control of the licensor; the market required by the paperback publisher and their ability to service that market; and whether arrangements have already been made or are planned for an alternative paperback edition in another part of the world market. A paperback publisher could seek exclusive rights in the United Kingdom and countries of the Commonwealth, plus designated European markets; if anything less than world rights are to be granted, a full schedule of the exclusive territories should be attached to the contract (see Appendix 2 for a list of the exclusive territories traditionally sought by UK publishers). A paperback house with its own American operation might seek world

paperback rights. However, if the licensor has already made arrangements for a US edition with an American house, it is likely that the right to produce or to sublicense an American paperback edition will have been included in that licence, and in this case the rights available to license to a UK paperback house will be restricted. Even if an American deal has not yet been finalized, to offer such rights minus US paperback rights may lessen the chances of placing the book in the American market. The timing of deals with American houses (Chapter 9) and UK paperback houses therefore requires careful thought. If US paperback rights are unavailable, the UK paperback publisher may

accept exclusive rights in the United Kingdom and Commonwealth, but if there are to be two competing paperback editions the question of the open market will arise. The European market in particular remains the subject of controversy, and paperback editions are a sensitive area; some paperback houses may seek at least the original 15 member countries of the European Union (see Chapter 1) as part of their exclusive market. Any open market territories should also be listed in an appendix to the contract. If Europe is an open market, many British publishers remain concerned

that American paperback editions, often priced lower than their UK counterparts, may enter the UK market under the provisions for free movement of goods across the borders of EU countries, and that parallel importation of this kind has increased as US publishers, wholesalers, jobbers and internet booksellers on both sides of the Atlantic have all become more active (see Chapter 9). It is important that such suppliers are provided with clear information on territorial restrictions so that buyers are referred to the correct source. UK paperback publishers may seek a provision to publish an early

export edition in the open market territories in order to compete with the US edition. This export edition could therefore appear in advance of the earliest publication date specified in the contract. Some thought should be given to whether the appearance of a modestly priced English-language

edition earlier than was originally planned in some overseas markets with a high ability to speak English (say the Netherlands and the Scandinavian countries) could have an adverse effect on publication plans for licensed translations in those markets; Dutch publishers in particular have been known to lobby against early export editions of potential bestsellers. Another reason for early release of the paperback edition would be if the

book is considered to be a likely candidate for exploitation on the stage, as a cinema film or on television. In such cases, the paperback house may include a provision for early release in order to maximize sales generated by such exposure; it will then seek to publish its edition with a tie-in cover. Some paperback houses may include in their contract a requirement for the hardback publisher to use its best endeavours to secure for them the right to use the title of the film or television version if this differs from that of the original book. Paperback publishers now commonly require the right to publish ‘reason-

able extracts’ from the book free of charge in print and online for marketing purposes. Payment for paperback rights is usually made on the basis of an advance

payment against a royalty for each copy sold; the advance payment is commonly paid in instalments. Advances have ranged from a modest fourfigure sum (usually payable half on signature of the licence contract and half on publication of the paperback edition) to the high six-figure advances commanded by a major author. Then, the advance might be paid one-third on signature of the contract, one-third on publication and one-third an agreed number of months after publication. In the heady days of paperback licensing, the trend was to push up advances to very high levels, particularly if paperback rights were being auctioned. However, subsequent sales of the paperback have sometimes not justified the initial outlay, and this can make the same buyer more cautious of future offers from the same source. Royalty rates for paperback licences also vary according to the nature of

the book and the status of the author. An initial modest royalty rate could be 7.5 per cent of the UK recommended retail price for sales made in the home market, rising to 10 per cent after an agreed number of copies have been sold. If the licence has been granted for the full term of copyright and the paperback edition is expected to have a long life, further royalty escalation points can be introduced. For an exceptional property the initial royalty rates may be higher and could rise to as high as 15 per cent. Royalty payments for export sales are now usually calculated on the sum

received by the paperback publisher and could start at 10 per cent. With the major book chains, supermarkets and online retailers pressing for high discounts, there will almost certainly be special arrangements for copies sold at high discount; the definition of what constitutes high discount will need to be agreed between the parties, but could be 55 per cent or over. Royalties on high discount sales may be calculated on the sum received by the

paperback publisher or the contract may specify that royalties on such sales will move to a proportion of the full royalty (e.g. 4/5 of the full royalty rate for sales made at a discount of 55 per cent or more and 3/5 of the full rate for sales made at 60 per cent or 62.5 per cent or more discount). There will also be special arrangements for copies sold outside normal trade channels, e.g. as mail order sales or as a premium in connection with other goods or services (often paid for at 5 per cent of the sum received). Paperback publishers may wish to make arrangements with one of the

few remaining book clubs, such as those run by Scholastic (see Chapter 10). Copies would usually be supplied from stock, and the paperback publisher would then pay the original publisher a royalty based on the price received from the book club (often equivalent to the base royalty rate payable on normal home sales). The question of whether a paperback licensee might also seek e-book

rights is an interesting one. They are unlikely to be granted by the licensor while the original edition is still in print, but some paperback houses are now seeking to add e-book rights to older licences where any edition published by the original publisher is long out of print. Some paperback houses offer the original publisher e-book royalties of 25 per cent of net receipts where the e-book version is offered from the paperback publisher’s own website or through e-book retailers such as Amazon, both methods of supply which will be categorized by the paperback publisher as a sale rather than as a sublicence and where the sum received will be the e-book price less VAT and any discount granted. However, many authors and literary agents are pressing for higher royalty rates on e-book sales (see Chapter 2). For more on e-books in general, see Chapter 25. Traditionally many paperback houses sought to include in their contracts

a small reprint clause which permitted them to undertake small top-up printings that would not accrue to cumulative sales and hence towards a rising royalty rate. The justification was that such reprints are only undertaken when a larger printing is uneconomic, but some paperback publishers have now abandoned this requirement on the grounds that improved technology and print-on-demand makes small printings far more viable. If the clause is to be included it would be advisable to restrict it by specifying that no more than one such printing should be undertaken in any 12-month period. Paperback royalties are usually accounted for twice yearly, but because of

the high incidence of copies returned unsold from retailers (often over 50 per cent) most paperback contracts will specify that there should be a reserve against returns, so that some part of the royalties will be held back until accounting can be adjusted to allow for the unsold copies, often after the third royalty statement. Some paperback publishers specify the percentage holdback, which could be as high as 25-30 per cent. The paperback publisher will make certain requirements of the hardback

publisher in the contract. If India is regarded as a major export market for

the paperback edition, a provision may be included whereby the hardback publisher should consult with the paperback licensee if they are considering licensing a low-price edition of the book to that market (see Chapter 12), since the price of the Indian edition could well compete with that of the paperback. In the past, the larger paperback publishers restricted the original publishers from making special sales arrangements for the same title (e.g. with The Book People, see Chapter 13), or premium deals; however, these restrictions would now be regarded as in breach of competition law. The paperback publisher may require that the hardback publisher does

not remainder the original edition before or within six months after publication of the paperback edition. Paperback publishers were restricted from remaindering within an agreed period of time after first publication, but most now seek to be able to remainder at any time and pay a reduced royalty rate (often 5 per cent on sums received from such sales, unless copies are sold at or below cost). The paperback publisher must not knowingly sell copies of that edition to be bound up in hardback; this is intended to protect sales of the hardback edition to the library market and is usually reinforced by a notice on the title verso of the paperback edition precluding any form of rebinding. The licensor is normally required to provide stringent warranties and

indemnities to the paperback publisher to guarantee that the work is original, that it will not infringe any copyright, that it is not obscene, indecent, defamatory or libellous and that any statements in the book purporting to be facts are true. Some may require that the content does not contravene the requirements of the Official Secrets Act (this in view of the publication of memoirs of former employees of the security services). The licensor will thus need to check whether such warranties and indemnities have been guaranteed by the author in the head contract; if some elements have not been covered, the text of the warranty and indemnity clause may need to be modified. Paperback publishers may require the text to be amended if it is deemed actionable, and if agreement on this cannot be reached with the hardback publisher the contract may have to be cancelled and any advance paid returned. Paperback publishers will normally expect their licence to include the right to reproduce any third party copyright material contained in the book without further charge. The hardback publisher will therefore need to check whether the original permissions secured for the use of text or illustrations extend to English-language publication generally or may perhaps have been restricted to a specific print run, a single edition or to publication only under their own imprint. Paperback publishers often reproduce the typographical setting of the

original publisher’s edition; they may require as many as ten working copies of that edition. Alternatively, the paperback publisher may wish to have access to electronic files; these can be particularly useful if the work is to be abridged or edited, e.g. a dictionary, and should be charged for. If

they wish to reproduce directly from copies of the original publisher’s edition, an offset fee can be charged; at the time of writing, a rate of £3 to £4 per page is not uncommon. In cases where hardback and paperback publishers are involved in bidding jointly for a property, they may agree to share the origination costs. A paperback publisher will usually seek an option on the next book by

the same author (or the next edition of a reference book) if control of the rights will lie with the same licensor, on financial terms to be agreed at the time. An option clause will normally specify the period of time from receipt of adequate material for the new title, with specification that if no agreement can be reached on terms, the rights may be offered elsewhere provided that the licensor will not accept another offer equal to or lower than the original offer from the option holder. The decision on whether to agree to an option clause of this kind may depend on the status of the author, and hence on whether the rights in the next work are likely to be offered on the basis of a single submission of this kind or by auction. If an auction is planned for the next book, it could perhaps be agreed that the paperback publisher of the current title could have first sight of the book and/or ‘topping’ rights (see Chapter 6). The current trend towards granting shorter terms for paperback licences

may mean that when the licence expires the paperback publisher has to re-contract for substantially higher terms or compete at auction for a renewal of the licence, or finds that the paperback rights are placed elsewhere. There have been many instances of this, particularly where the original hardback publisher has since acquired or set up its own paperback imprint within the same publishing group. The long-term effect of removing a title from a licensee must be balanced against the benefit that would be derived from placing the rights elsewhere or recovering them for publication ‘in the family’. If a licence is terminated, the paperback publisher must be allowed a period of grace in which to dispose of existing stock (usually 12 months). It is essential for those handling paperback rights to monitor carefully

when licences are scheduled to expire in order to formulate a suitable strategy in good time. A computerized database greatly facilitates this exercise. It should be capable of producing a report of all licences due to expire within a given future period of time so that appropriate action can be taken in advance of the expiry date. It is of course also vital to check whether there has been, or is likely to be, any change in the overall control of rights in the title in question. If the original publisher’s own publication arrangement with the author is about to expire and may not be renewed, this will affect the possibility of renewing sublicences. If a contract is terminated, provision should normally be made for any sublicences properly negotiated during the term of the contract to be allowed to run for their allotted term.