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Cross-Collateralization
by Daniel Steven
Q. What is cross-collateralization,
and is there a cure?
A. Cross-collateralization is an accounting concept (stay
with me here) used in publishing agreements (and also commercial
loans). It refers to the right of the publisher to charge
your royalty account for any amount owing to the publisher under any
other agreement. Unfortunately, many writers fail to
understand the impact cross-collateralization can have on their royalty
income.
Let’s say you have just submitted your third novel, KILLING MADLY, to
your publisher. Your first novel, KILLING SPREE, sold well,
but your second, KILLING FRENZY, earned out only $10,000 of its $12,500
advance.
Under the terms of your current publishing agreement, you are to
receive a $15,000 advance for KILLING MADLY, upon acceptance.
But when the check comes, it’s only for $12,500 – the publisher has
deducted the $2,500 shortfall from KILLING FRENZY.
(Alternatively, the publisher might pay you the full $15,000 advance,
but after it is earned out, it deducts the $2,500 from future
royalties.)
Why? Because you have this clause (or one like it) in your
publishing agreement: “all Works covered by this Agreement or any other
agreement between Publisher and Author shall be considered one account
and shall be accounted for jointly or collectively.”
What could you have done about it? Ideally, you could have
struck out the offending clause, usually found under headings such as
Payments, Royalties, Overpayment, or Accounting. Some
publishers, however, won’t delete it, so you’ll have consider the
negotiating points and issues:
- If this is your first agreement with
the publisher, the clause won’t matter until and unless you sign
another agreement with the publisher. You probably can allow
the clause in the first agreement, then push hard to have it deleted in
the second contract. Keep in mind that, unless your first
book was somewhat of a success, it’s doubtful you’ll get a second
contract from that publisher anyway. You also might try to
“cap” the cross-collateralization to a specific dollar amount, e.g.,
that no more than X amount can be setoff from any one contract.
- If you are offered a multi-book
deal, consider whether keeping the clause will leave you better or
worse off versus signing individual deals. In other words, is
the guarantee of publication from this publisher enough to outweigh the
fact that one ordinary book may soak up the benefits of commercial
success in another book? You might be better off selling to
different publishers. You also might try putting time limits
on the operation of the cross-collateralization clause: In other words,
let the publisher cross-collateralize only after an eighteen month or
two year period from the release of each book. This should at
least prevent any amount being take out of an advance for the next
book.
- You could try limiting the
cross-collateralization to specific editions of a book – i.e, only
hardcovers can be cross-collateralized against other hardcover
editions, not trade paperback.
The key, as always, is reading and understanding
all of the clauses in your publishing agreements – even the ones that,
at first glance, may seem innocuous.
© 2005 Daniel Steven
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