Keeping Up the Conversation

Back to the questions you're asking... On recent blogs, we've had some people ask questions in the "comments" section that I felt would be helpful for everyone to read. 

Lea Anne asked, "With publishers facing such a tough publishing environment, are advances going to be a thing of the past? Do you see publishers moving toward book-on-demand systems, and paying authors with royalties only?"

It's true that advances are down (I've heard several agents use the joke "Fifteen is the new thirty" when talking about the deals they're doing). And yes, we're seeing some elements of publishing move away from paying any advance, relying strictly on royalties to compensate authors. There's some fairness to that, I suppose, since it mitigates the risk for publishers. But no, I don't see advances going away. Here's why... publishing is a competitive environment. Every company is looking to sell more books than the other guy. And publishing is very much an 80/20 business (that is, 80% of the income comes from 20% of the books). In fact, publishing might well have become a 90/10 business in recent years. The big, breakout books are what pays the bills. And to keep signing up bestselling authors, publishers are going to have to pay advances, because an author routinely hitting the bestseller lists is going to get offers from other publishers. So if one house decides not to pay an advance, you can be sure somebody else will. 

Things are definitely changing, of course. Publishers are getting squeezed by bookstores, who want to be able to return any unsold books. That's not how it works in most industries -- you purchase product, and if you can't sell it, you discount it and sell it for less, or use it as a loss leader, or give it away. With books, if a store hasn't sold them in 90 days, they can return them for full credit, so the publisher has unique financial pitfalls to deal with. And publishers are taking steps to put more of the burden on the authors -- Random House's decision to try and withhold one-quarter of the advance until a year after a book releases is one very unfair example. (I'll bet they aren't asking the printer to wait a year to be paid 1/4 of their fee, or UPS to wait a year to be paid 1/4 of the deliver charge.) We're seeing publishers try new avenues for making money (the recent decisions by Thomas Nelson and Harlequin to get into self-publishing is just one example). But do I think all advances will disappear? Nope, I don't. At least not anytime soon. An author understands that, at some point, he or she needs some sort of guarantee that they're going to make SOMEthing for their work. 

On a related note, Cecelia asked, "Is it true some big-time, bestselling authors don't earn out their advance? They get a huge advance, and the publisher knows they won't earn it out, and that's okay? Why would a publisher do that -- just to make the author happy?"

Actually, the majority of books don't earn out their advances. And yes, sometimes a publisher will pay a huge advance on a book because they know they can sell enough to make money even if the book never earns out. But this gets to a truth many authors miss: just because a book doesn't earn out its advance, that does NOT mean the publisher lost money. Some writers just don't understand this. An unearned advance means the publisher made less, but it does not equate to a "loss." If you did a book with Acme Publishers, they paid you a $10,000 advance, and you earned back $9000 of it, the overall numbers don't equate to a publisher "losing" $1000. Why? Because you, as the author, were paid 10% of the retail price as your royalty. Where does the other 90% go? To the publisher. 

That's not a bad thing, of course. The publisher is the one who put up all the money to edit, design, cover, produce, and ship your book. They've got big costs, even on a small book. But they've gauged your advance by the number of copies they think they can sell. If your book tanks, sure, they might lose money. But more than half of all books don't earn back their advance, and they couldn't stay in business if they were constantly losing money on each title. 

Let's look at some numbers... A 256-page hardcover book costs about $3 in ink/paper/binding costs. There's another dollar in overhead costs, maybe some money in marketing. So the publisher is into your book somewhere between four and five bucks. The book retails for $21.99, and they sell it to Borders for a bit less than ten bucks. They pay you a royalty of $2.20, and keep the remaining $7.50. So their profit after all expenses is maybe $2.50 per book. If a book breaks out, the production costs go down and the profits go up. They try to plan out a strategy where they won't actually LOSE money on the book. A publisher will argue that they "lose" money if an advance doesn't earn out -- but in the big picture that's not correct. What really happened is that they didn't make as much profit (which is different from losing money). 

And Susanne asked, "How does an author working with a smaller publisher wrangle a good contract without an agent? I'm on my fifth book contract, but because I work with smaller publishers, I've had agents say, 'You're not worth my time.'"

There's nothing wrong with an author choosing to work with a small house -- I did it myself when I was making my living as a writer, Susanne. The best thing to do is to become self-taught at things like contracts and marketing, since you're going to have to negotiate your own deal AND become your own marketing manager. If you want to wrangle a good contract, you're going to have to learn how to negotiate, and that means learning the economics of publishing (so that you make it a financial win for both sides) as well as learning how to talk through the process and stand up for yourself. You should definitely study up on book contracts (Mark Levine and Jonathan Kirsch both have good books on the subject), and maybe do some study on the art of negotiation (there are dozens of good books on the topic). The biggest thing I've found when negotiating with a small publisher is to understand their economy of scale -- what is reasonable and workable for their size company? what added value can I bring? what is and is not important to me? 

As for having agents tell you you're not worth their time... well, I'm sorry, and I sincerely hope they were more polite about it. But do understand the cost-to-value equation. If you're doing small deals, and their commission is 15%, it may NOT be worth their time. Let's say I help an author do a $1000 deal... my commission on that is only $150, but it takes just as much time as a $10,000 deal. Frankly, I could earn more doing something else, so the cost-to-value isn't there for me. I might help answer some questions just to be nice, but... well, I'm not sure it would be worth it to me to take it on, then face doing several more $1000 contracts. You could try talking to newer agents, who are often willing to do smaller deals just to get their foot in the door. But you've got to balance that by making sure that agent knows what he or she is doing, so ask questions. You don't want to get stuck with some Bozo who locks you into a bad deal because he doesn't understand the business. 

Comments

[yarnbuck]

Thanks again, Chip. Current insight is helpful – if not gleeful.

[AimeeLS]

I'm glad you answered the question about being worth an agent's time...I had wondered about that one.

Thanks for keeping on keeping on in the midst of the Christmas rush!

[Lynn Rush]

Great post. I liked how you described the big-time authors not earning out their advances. Makes total sense.

Have a great day.

[Sharon A Lavy]

You educated me today about the advances that don't earn out.

Thanks.

[Karen Robbins]

Great information. I always thought that not earning out the advance actually made it a loss for the publisher. Your example helped explain that. You always manage to hit the areas that others miss on their blogs. Thanks!

[Lauradroege.wordpress.com]

Chip, thanks for explaining the business side of publishing in an understandable fashion. I've learned a lot from reading your blog posts.

[Lauren Sylvan]

Good info, Chip.
But I have a question which has come to a head with yesterday's announcement of the demise of Kirkus Reviews. Where do you see the future of curation going? How are readers of all kinds of content, from ebooks to hardback, going to hear about and choose which books get their scarce attention?
Also, with the increase in online buying, how will publishers get the word out when their customers are on thousands of disparate channels?