“A Ponzi scheme (also a Ponzi game) is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading.” – Wikipedia
For the purposes of this article, a Publisher Ponzi Scheme involves bringing in as many new authors as possible (or upselling existing authors on over-priced and often worthless products and services) to try to pay the royalties of existing authors…because they’re misappropriating their authors’ funds.
As promised in last week’s article, this week I’m going to explain the workings of book sales, payments from retailers/distributors to publishers, and responsible management of authors’ royalties. Publishers who give lame excuses about late royalty payments are usually lying. There is NO EXCUSE WHATSOVER to pay an authors’ royalties late because the publisher already has the money! Where did the authors’ portion of that money really go? We’ll tell ya!
When the Oklahoma Attorney General announced that Tate Publishing’s owners were diverting authors’ funds to their personal bank accounts (they were charged embezzlement), we were not at all surprised. Authors had long been complaining about Tate’s unpaid royalties by that time. What is surprising is how many authors believe their publisher’s lame excuses for late payment of royalties, or non-payment at all. And, despite the numerous complaints about Tate Publishing appearing online, new authors kept signing up with them!
NOTE: Retailer purchases of print on demand books directly from publishers is rare. Most are ordered from Ingram so that’s the example we’re using here. In the rare instance that a retailer orders directly from a publisher, the terms are usually Net 30 so, within 30 days, the publisher should have the money from the retailer, and should have placed the authors’ portion of that money in an escrow account. Most public book purchases are made through Amazon, not through the publishers’ websites.
For almost all print on demand book sales, this is how the money trail works:
1. Customer buys a book and PAYS THE RETAILER FOR THE BOOK UP FRONT (this is important). This money is then shared by the retailer, the distributor/printer, the publisher, and the author, in that order.
2.a. If the retailer already has the book in stock (this is rare for print on demand books), they ship it to the customer. If they really do have the book in stock, the retailer previously ordered the book from Ingram, which is the largest book distributor, and which also owns the largest print on demand printer in the world. If the retailer has had the book for 30 or more days, the retailer has LIKELY ALREADY PAID THE DISTRIBUTOR/PRINTER FOR THE BOOK.
2.b. If the book isn’t in stock, the retailer will order the book from Ingram. Ingram’s printing division will print/ship the book to the retailer, or even to the customer directly. (Amazon often has Ingram print/ship titles directly to their customers, even using an Amazon.com return address label). In these cases, the retailer likely has a credit account set up with Ingram, and has around 30 days to pay the bill. At that point, THE RETAILER PAYS THE DISTRIBUTOR/PRINTER.
3. Once the distributor/printer has been paid by the retailer, the distributor deducts their fees, and SENDS THE REST OF THE MONEY TO THE PUBLISHER. The publisher should then put the authors’ portion of the funds into an escrow account.
4. When the next royalty pay-day arrives (this is usually monthly or quarterly), THE PUBLISHER IS SUPPOSED TO THEN PAY THE AUTHOR.
Ingram pays publishers 3-4 months after the fact, likely because they aren’t pre-paid by their retail clients. So, it’s not at all unusual for a publisher to wait to credit their authors’ accounts until they are paid by Ingram.
Once a publisher is paid by Ingram, that money should be put in an account for their authors. When royalty pay-day comes around, they are supposed to distribute those royalties to their authors. Remember that many publishers have thresholds to release payments. Even if there is a delay in paying the authors, those authors should be able to see their sales in their accounts on their publisher’s website within a few days of the publisher being paid by the distributor/printer.
RE-CAPPING THE PAY-FLOW
1. Customer pays retailer
2. Retailer pays distributor/printer
3. Distributor/printer pays publisher
4. Publisher pays author
The first three are pretty seamless. Why? Because, if the retailer doesn’t pay the distributor/printer, they won’t be able to continue buying books for their customers, which would eventually put them out of business.
It’s #4 where things can come to a screeching halt because books can still flow from the distributor/printer to the retailer, and payments can continue to flow all the way down to the publisher, even if the publisher isn’t paying their authors. So, money keeps flowing into the publisher’s coffers regardless if they’re paying their authors’ royalties or not.
With some unscrupulous publishers, the last step in the payment chain doesn’t happen. And, when that happens, authors receive a litany of excuses, like:
1. “Your book hasn’t sold any copies.” If you’re getting this excuse from your publisher, and you’re pretty certain you book HAS been selling, check this out (many of our competitors got very upset when we published this!):
2. “We haven’t been paid for those sales yet.”
If it’s been more than four months, they very likely HAVE been paid by Ingram for those sales. We’ve been doing business with Ingram for 19 years now and they’ve never missed a payment. Sure, they’re slow (3-4 months after the fact), but they’re consistent.
3. “Our accounting system is down.”
This is total B.S. Any responsible company backs up their accounting system daily. If something goes awry, they should be able to quickly re-load the accounting software, and then re-load the back-up files. At BookLocker, we’ve had a handful of software and hardware crashes over the years but we’ve never paid royalties late. We even paid royalties EARLY the week before Hurricane Irma hit because we feared we’d lose electricity and Internet service.
4. “Your check was lost in the mail and, um, so was the replacement check we mailed you.”
Yes, if they mailed you a check, it may have gotten lost in the mail. If they claimed to mail you another one, which also got lost, chances are they’re lying. Insist they make payment to you immediately via Paypal or another online payment processor. If they refuse, or if they stop responding to your demands, they’ve stolen your money. And, they’re likely going to keep stealing your money until you move your book to another publisher.
The worst excuse for non-payment is no excuse at all. Is your publisher ignoring your emails, phone calls, faxes, certified letters, etc.? This is the worst warning sign of all. Have you ever watched American Greed? Just before the death of the Ponzi schemes, the crooks simply stop responding to their victims. When a scammer stops trying to appease their victims, their demise is imminent. If your publisher is ignoring all correspondence, they’re in deep doo doo…and so are you if they close their doors while they’re still selling your book, and still holding your production files!
WHEN AUTHORS ERR…
Many authors assume, once their book goes up on Amazon, that is MUST be selling. That’s simply not the case. There are millions of books on Amazon that you’re competing with. If you’re not actively and consistently promoting your book, it’s not going to sell. Do not accuse your publisher of fraud unless you have proof. For that proof, see the link above to test your publisher’s sales reports.
“SO, WHERE DID THEY SPEND MY ROYALTIES?!”
As I mentioned above, a Publisher Ponzi Scheme involves publishers who must constantly get setup fees from new authors (or upsell their existing authors on more worthless products and services) so they can try to pay the royalties they owe their existing authors. If they aren’t getting enough revenue in from new authors, they’ll likely spend that check they received from the distributor/printer on other expenses (like rent and salaries) in an attempt to keep their doors open. Some POD publishers grow too big…too fast. This can be the case when a company is trying to go public (so the owners can get rich, cash out, and leave the company). They get initial investors, and waste thousands or millions to make it appear they’re profitable and successful. Of course, other smaller publishers can just be plain stupid, living beyond their means, and hoping they don’t get caught.
Examples of wasteful spending by publishers include:
1. Hiring too many people too fast, offering company cars or other extravagant perks, renting lavish offices that aren’t necessary for that type of business, etc. These ongoing expenses may require them to later use credit to keep up with their ongoing expenses. This leads to debt, which can snowball, and bury the publisher over time.
2. Outsourcing their services overseas (which requires opening new offices, and hiring numerous personnel). In my opinion, this is the dumbest move a publisher can make. Many of our competitors have laid off U.S. employees, and moved their operations overseas. As evidenced by the numerous complaints about customer service and quality issues posted online about those firms, doing that was a HUGE mistake.
3. Paying salaries that are way too high (to the owners and management in particular).
4. Outright theft! Owners might be skimming the profits off the top. In the case of Tate Publishing, the Oklahoma Attorney General alleges the owners were depositing authors’ funds into the company’s bank account, and then transferring that money to the owners’ personal bank accounts.
If a company grows too fast, and is spending money unwisely, they then may make desperate attempts to bring in new authors, or to upsell their existing authors on expensive (worthless!) products and services in order to pay their existing expenses. Of course, they’ll then create even more worthless products and services that they’ll try to sell to their existing authors, all in a panicked attempt to keep their doors open. Most POD publishers don’t care if you sell any copies of your books. They’re far more concerned about getting as much money as they can out of your wallet – up front (and later through upselling). Once they’ve drained you, they’ll move on to the next author.
This is why you should NEVER spend thousands of dollars getting published and/or promoting your book! See reasonable publishing service fees here:
To read how publishers SHOULD run their businesses, CLICK HERE.
DON’T BE AFRAID OF SELF-PUBLISHING…JUST DO YOUR HOMEWORK FIRST!
I’m not sharing all of this to dissuade any author from self-publishing. Far from it, in fact, since we own a publishing services/Print on Demand firm. I just want you to be aware of the warning signs of a Publishing Ponzi Scheme.
HOW TO AVOID BECOMING A VICTIM OF A PUBLISHING PONZI SCHEME:
1. Don’t sign up with a publisher if you find complaints about non-payment of royalties. While some authors don’t know how the system works, and may post false accusations (“I know somebody MUST have bought my book in the past 3 months!”), legitimate complaints share realistic details, and provide an reasonable and believable picture of what’s going on (“I purchased copies from Amazon myself six months ago and my publisher still says I haven’t sold any!”). Incidentally, we see that last complaint a LOT!
2. If you do suspect your publisher is running a Publishing Ponzi Scheme, test their royalties first. If they are ripping you off, and if you can prove it, make as much noise as possible. Post complaints about them to these popular websites:
And, of course, report them to Victoria Strauss at Writer Beware!
3. Don’t allow your publisher to keep ripping you off! Move your book to reputable firm ASAP! See:
A MESSAGE FOR THE HOLD-OUTS! STILL HOPEFUL YOU’LL SEE YOUR ROYALTIES SOMEDAY?
As long as you stay with a Ponzi Scheme Publisher, they’re going to keep stealing from you until they go out of business. As with any Ponzi scheme, the scam can’t last forever. The complaints stack up, the new business slows, and, before you know it, their offices are empty, and their phone is disconnected.
Could the demise of your Ponzi Scheme Publisher be imminent? Protect yourself now! See:
How BookLocker Has Remained Profitable for 17 Years…when so many others have failed
22 Signs That So-Called “Publisher” is an AUTHOR MILL!
Complains about Specific Publishers
Print on Demand (POD) Price Comparison!
Self-publishing? How Many Book Sales Needed to Recoup Your Investment?
About The Author
Angela Hoy is the publisher of WritersWeekly.com, the author of 19 books, and the co-owner of BookLocker.com (one of the original POD publishers that still gets books to market in less than a month), PubPreppers.com (print and ebook design for authors who truly want to self-publish), and Abuzz Press (the publishing co-op that charges no setup fees).
Angela lives on a 52' Irwin Center Cockpit Ketch (sailboat) with her family and pets. Keep up with her family's adventurous liveaboard lifestyle at GotNoTanLines.com
WritersWeekly.com - the free marketing ezine for writers, which features new paying markets and freelance job listings every Wednesday.
BookLocker.com - According to attorney Mark Levine, author of The Fine Print, BookLocker is: "As close to perfection as you're going to find in the world of ebook and POD publishing. The ebook royalties are the highest I've ever seen, and the print royalties are better than average. BookLocker understands what new authors experience, and have put together a package that is the best in the business. You can't go wrong here. Plus, they're selective and won't publish any manuscript just because it's accompanied by a check. Also, the web site is well trafficked. If you can find a POD or epublisher with as much integrity and dedication to selling authors' books, but with lower POD publishing fees, please let me know."
Abuzz Press offers FAST and FREE book publication, but only accepts a small percentage of submissions, and only works with U.S. authors.
PubPreppers.com - "We Prep, You Publish!" Print and ebook design for authors who truly want to self-publish. Offers formatting and design services only, and then provides simple instructions for authors on where to sign up to have the print and ebook editions printed/listed/sold. Cut out the middle man. Keep 100% of what bookstores pay for your book!
Angela's POD Secrets Revealed Series can be found HERE.
Have a POD Book with another publisher? See if BookLocker can give you a better deal. (BookLocker offers "disgruntled author discounts" to those who want to move from other POD services.)
See BookLocker's publishing packages HERE.
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