Friday, July 24, 2009

Royalties: A Philosophical Study

Written by kassia

I’ll confess: when I moved to Los Angeles, the last thing on my career horizon was a job involving math. More specifically, a job involving algebra. When the temp agency, which specialized in placing people with motion picture studios, called and said “We have a 3 month job in a department called Participations, you game?”, I asked the obvious questions: Huh? Participations? Huh?

The agency didn’t know.

I soon learned. About a year later, the Buchwald v. Paramount case made news, and the whole world (thought they) learned. Bottom line: I have spent a good portion of my adult life reading contracts, analyzing contracts, verifying that people were paid in accordance with said contracts, and, yes, doing all manner of royalty calculations.

I won’t bore you with the details. Instead, I’ll bore you with a few lessons I learned during these years:

• Sweat the Details: Take time in the beginning to get things right: names, addresses, contract terms. Getting it right from the start makes for smooth reporting in the future.
• Manual is Messy: Royalty calculations are not particularly complex, but there is a lot of data to crunch. It is a given that the file layouts from various eretailers, etc are not the same, and manually processing these files is time- and labor-intensive. When you’re working to meet a reporting deadline, rushing through the process can lead to errors.
• In Good Systems We Trust: Good royalty systems are designed to take and process complex inbound feeds, turning streams of data into accurate, understandable royalty statements (no really, understandable!). They automate processes like recouping advances, royalties based on format, and changes in royalty rates based on unit sales. I have done this stuff by hand, and it is not pretty. One screwed up decimal makes for many bottles of aspirin.
• But Double-Checking Is Good Business: Not only should one double-check to make sure royalty statements reflect the agreement with the author, but doing an overall reality check before issuing statements and associated payments should be part of everyone’s best practices. I don’t mean that you need to recalculate every line item after comparing them to source feeds (been there, done that), but some testing and verification gives everyone comfort.
• Responsibility Matters: Issuing statements and payments accurately and on time is critical. When I was a young whippersnapper, my boss and I had a disagreement. I can’t remember the subject matter (my best recollection is I took an overly aggressive approach on an audit point), but I do remember her saying, “It’s their money.” That line has stuck with me ever since. She wasn’t telling me to do the stupid thing, but she was reminding me that we, as a company, had a responsibility to another party. It’s a principle I take seriously.

A little over a week ago, we announced two key partnerships with MetaComet Systems and Firebrand Technologies. I noted then that working with these two companies was essential to our core mission, and I meant it. As we were evaluating royalty systems, the points I noted above were foremost in my mind (we’ll be talking more about Firebrand in another post).

Royalty systems aren’t sexy (unless you’re me, in which case you get a little too excited about them), but they are critical. Getting royalties wrong can destroy the most important relationships a publisher has: those with authors. We were impressed by MetaComet for many reasons, not the least of which was their willingness to engage in conversation with us — they weren’t just selling a product, and I appreciate the time MetaComet devoted to learning what we wanted.

And what we wanted was a system that worked with our business. I believe we got much more than that.