Tuesday, June 21, 2005

Advances -- part 1

Today and tomorrow I intend to write about advances. And, without insulting anyone’s intelligence, I shall try to make what I have to say as easy to understand as possible. However, I have to say from the outset that this is a fairly complicated issue and if you are to gain any benefit from the discussion you will have to concentrate.

In other words this isn’t your average blog post that you can digest in one quick glance. It needs a bit of thought. It may even require you to do some sums with a pencil and paper.

First, some basic information.

If and when you ever sign a contract with a publisher, you can usually expect to be paid a sum of money known as an advance. In fact, of course, this isn’t an advance payment at all; it’s a retrospective payment.

Very few publishers in this world will give you a contract for a novel unless you have written it in full; so you’ve already done 95% of the work before you see a penny.

The size of this advance is a matter of much interest to the average writer. And hence the basis on which it is calculated is also of some interest (or should be).

The basis on which advances are calculated was a topic that I discussed in an article that I wrote for a journal called The Author in the Spring of 2001. (The Author is the journal of the UK Society of Authors.) And I begin my discussion of advances on the GOB by reproducing that article in full. It is set out immediately below.

Please be aware that the article is written in a much more formal style than is usually the case with posts on this blog. That is because I was trying to treat the subject with as much academic rigour as the data would allow. In other words, I was trying to establish facts – as opposed to the rumour, gossip and hearsay which are so beloved of the publishing community – and, having established the facts, I was trying to draw some meaningful conclusions.

Immediately before publication, I showed the draft of the article to the consultant who had drafted the reports which I refer to in it. He was kind enough to confirm that I had not misrepresented the facts and that my conclusions were reasonable.

Whether or not the facts and conclusions in this article are of interest and value to you, only you can decide. But be aware, please, that part two of the present discussion, current thoughts based on the 2001 article, follows tomorrow.

Here is the full text of the 2001 article:

ADVANCES -- is your advance big enough?

Introduction

Some writers want nothing more from their publisher than to be able to hold in their hands a printed copy of their very own book. Others care mostly about the size of their bank balance; it is to them that this article is addressed.

As most authors soon discover, the majority of books earn precious little. But how much can we reasonably expect to be paid? In particular, what is a fair advance?

This question is of special interest to those who negotiate their own contracts, and the latest Society of Authors earnings survey (published in the summer 2000 issue of The Author) shows that there are a surprisingly large number of unagented writers.

The traditional calculation for an advance

In the past, it was not uncommon to be told that a fair basis for the calculation of an author’s advance was for the publisher to work out the expected royalty income from sales of the first edition, and then to offer half, or two thirds, of that figure.

Take, for instance, Charles Clark’s classic guide to publishing agreements. In his 1993 edition he tells us that, for general books, ‘most Minimum Terms Agreements include a formula for calculating the minimum advance sum to be paid.... Where the publisher is to publish in hardcover only, 65 per cent is commonly specified; whereas for vertical contracts 55 per cent is the norm.’

Recent evidence suggests, however, that publishers regularly pay much larger advances than would be made on the basis of this calculation.

The BPIB reports

The evidence relating to advances is provided in two reports published by The Bookseller, one in 1995 and the other in 1999. Both were entitled Book Publishing in Britain (henceforth abbreviated to BPIB 1995 and BPIB 1999 respectively).

If you have not heard of these reports, or come across them on the shelves of your local library, it is probably because they are not cheap. The 1995 version was offered, I believe, at £395, while the 1999 version is currently available from Amazon at £545. (I understand that, even at these prices, the reports are not profit-making enterprises for either the author or publisher.)

These two Bookseller reports are the latest in a long line of surveys of the book trade which have been carried out by consultants of one kind or another. In 1976, for example, Euromonitor published a book-readership survey at £400. This was followed by other similarly high-priced publications. Among those which have passed across my desk are Jordan and Son’s report on Britain’s book-publishing industry (1991, £165) and the Key Note report (1993, £350). In 1996 Euromonitor produced a new survey, this time priced at £3,500. You can, apparently pay more for information if you wish: a subscription to Book Marketing Ltd’s survey of book purchases was priced in 1996 at £9,500.

In my experience, the content of these reports varies from the extremely valuable to the obvious. It is not particularly enlightening to be told, for instance, that female readers prefer romantic and historical novels, while male readers favour thrillers and war stories.

The two Bookseller reports are much the most valuable that I have come across. BPIB 1995 was based mainly on information derived from published accounts, supplemented by interviews and discussions with representatives of major firms. BPIB 1999 is similarly broadly based, and includes detailed financial profiles of over 70 firms; it runs to 484 pages. Both reports contain a great deal of information which is interesting and relevant to writers of all kinds, but this article will concentrate on the sections which deal with payments to the creators of books.

BPIB 1995 contains a series of pie charts showing how publishers’ revenues are spent. The expenditure headings shown are production, sales and distribution, other indirect costs, net profit, and payments to authors.

In the case of popular trade books, including mass-market paperbacks, BPIB 1995 reports that payments to authors took up 35% of publishers’ total revenues. For ‘minority interest trade books’ (a term not defined), payments to authors constituted 25%. (The sums going to authors in other fields, such as academic publishing, were much smaller.)

What do these figures mean for the average author? Well, to begin with, the payments are much higher than would be the case if no advances were paid and all authors were remunerated strictly according to the scale of royalties set out in each contract.

BPIB 1995 tells us that ‘there are no industry-wide rules on advances’, though they are usually related to ‘potential earnings from the first print run – in some cases 100% of this figure, in others a proportion varying between firms of from 50% to 75%.’

So far so orthodox, then (when compared with what Clark tells us about the usual practice). But BPIB 1995 goes on to say that ‘one comparatively small publisher reported that only one in five advances was “earned” in the sense that it was exceeded by accrued royalties. Large publishers reported that unearned advances represented between 8% and 10% of turnover.’

So, BPIB 1995 demonstrated that, on average, across all major British trade publishers, payments to authors of popular books were typically amounting to 35% of publishers’ revenues. Since the publishers were receiving, on average, 50% of the retail price, this meant that payments to authors were equivalent to a flat-rate royalty of some 17% or 18%.

No doubt a proportion of the so-called unearned advances were accounted for by the high sums paid to super-sellers. BPIB 1995 confirms this by stating that the normal formula for calculating the advance is ‘often waived in the case of expected bestsellers.’ Projected royalty rates are largely irrelevant for writers who can deliver the big sellers which publishers need, and advances in those cases are calculated on an acceptable division of the projected profits.

However, it is important to note that BPIB 1995 gives no indication that high payments to super-sellers are the sole reason (or even the main reason) for expenditure in excess of what the standard royalty rate would generate. Nor is there any suggestion that publishers are hopelessly inaccurate when estimating future sales. The impression conveyed is that making payments to authors of the order of 35% of revenues is a perfectly acceptable practice, year in and year out.

The phrase ‘perfectly acceptable’ needs some qualification. Of course publishers would much rather that payments to authors were zero. If every company could make satisfactory profits by reprinting out-of-copyright classics, and nothing else, then that is what they would do. But they can’t, and therefore they don’t. What they have to do is buy the best product, and in a competitive market at that. This forces them to pay a rate for the job which is higher than the normal scale of royalties would suggest. And, judging by the figures provided, they do it more often than not. Bear in mind the small publisher who reported that four out of five of his books did not earn out their advance. There is no suggestion in BPIB 1995 that such a case is untypical.

BPIB 1999

It is instructive to compare the data in BPIB 1995 with those in BPIB 1999. Such a comparison may enable us to see whether the trend is towards spending more or less on authors.

BPIB 1999 has comparatively little to say on the question of authors’ payments. Is it possible, perhaps, that some of those working at a high level in the finance offices of leading publishers felt that in 1995 they had been a little too generous with the truth? Did they decide, in 1999, that this time around they would be a bit more discreet?

In any event, in the 1999 report the section on ‘payments to authors’ has vanished and has been replaced by a mere two paragraphs on ‘royalty provisions’ in the section on adult consumer publishing. Here there is a discussion of advances paid in author-led areas of the market (which are defined as ‘fiction and certain areas of non-fiction where books are author-branded and author initiated’).

In theory, says the 1999 report, advances ‘should be in line with expected royalties. In practice advances are usually greater than the eventual royalty stream.’ (Note that word usually. Not sometimes, or occasionally. Usually.)

Advances exceed the sums due under royalty calculations ‘by 8% to 10% of total sales.... If the average author royalty is between 8% and 10% of the cover price of a book or between 16% and 20% of publisher income, then it is fair to say that most author-led publishers pay advances that are on average 50% greater than expected royalties.’

Again, there is no suggestion here that paying more than would be justified on a strict royalty calculation is an unusual or exceptional practice. The report states that if publishers are paying anything less than this sort of level of advance, they are likely to be under-investing in new authors.

Unfortunately, the 1999 report does not break down any data on payments to authors to show how the mass-market field varies from the minority-interest field, or any other. However, the 1999 figure for payments to authors, expressed as a percentage of publishers’ income, is 16% to 20%, plus 50% of that figure, which gives us a total figure in the 24% to 30% range.

Thus BPIB 1999 tells us that the average publisher in an author-led field is paying out to authors anything up to 30% of revenues.

The comparable figure provided in BPIB 1995 was 35% for popular trade books (including mass-market paperbacks). The latest BPIB report therefore suggests that there has been a slight drop in the level of so-called unearned advances since 1995.

This is probably the result of reduced competition; as more and more publishers merge, the number of competing firms inevitably diminishes, so publishers don’t have to pay as much as they once did. Another factor is the wider availability of accurate sales information, which makes it easier for publishers to find out how well a particular author has sold.

Nevertheless, the key point to note is that payments to authors in the more popular fields remained in 1999 at a substantially higher level than would be accounted for by a straightforward calculation on a royalty scale.

Conclusions

What conclusions can we draw from these data? Here are a few.

The BPIB data may or may not give a totally reliable picture of what is happening in British publishing, but they are the best information we have. The introductory essay to BPIB 1999 says that it is ‘the most comprehensive study yet undertaken.... The objective has been to create the most detailed overview of the industry possible by synthesising all the available sources.’

The figures show that, over a four-year period, British trade publishers were systematically paying advances to authors which exceeded, by a substantial amount, the sums which would have been due under a royalty calculation. These payments were not exceptional aberrations caused by hopeless optimism in isolated cases – they were the result of the state of the market.

This level of remuneration did not result in the collapse of the book trade as we know it. On the contrary, BPIB 1999 says that, ‘The big trade houses are making more money than they have made at any time in the last 20 years.’ (I understand that they have done less well in the past 12 months.)

The consequence of this situation is that any writer who has ever felt guilty because a book did not earn out its advance should cease and desist. ‘So what?’ is the more appropriate response. Happens all the time. Maybe, just for once, you got paid a fair rate for the job.

In 1995, a distinguished lady novelist made a statement to the press in which she objected to the high sums being paid to some writers, and declared with evident pride that her own books always earned out their advances. Some might consider that this attitude does her credit; but, in light of the BPIB figures, others might wonder whether her agent is getting her the right deal.

The data should be borne in mind when next you yourself next negotiate a contract. Of course, you will not necessarily be able to insist that you are paid, as an advance, a sum of money equal to, say, 150% of what would be due under a royalty calculation. But you might be able to squeeze out a bit more than was originally offered. In the Society’s recent survey of authors’ earnings, 14% of unagented respondents (and 30% of agented respondents) said that over half their books did not earn as much as the advance; so it can be done.

Finally, if you are the author of a mass-market book and you are faced with an editor who insists that the firm never, ever, pays an advance of more than 50% of expected royalties, then you will know that you are dealing with an editor who is young, inexperienced, and fiscally illiterate. The only other possibility (which is so remote as to be scarcely worth mentioning) is that you are dealing with someone who is trying to pull the wool over your eyes. And the people who work in British publishing are far too nice ever to do any such thing.

As you well know.

10 comments:

paulv said...

Once again, GOB (incidentally, you don't seem all that grumpy), an excellent post. You really do offer an invaluable service to writers. I reckon you're worth 2 or 3 times what we're paying you--maybe more. Thank you!

Jeremy Snippet said...

I enjoyed your pieces on authors' advances and look forward to further bulletins.

I have a memoir coming out next year, for which I have been paid the derisory advance of £1,000. I am also negotiating the sale of a novel to a London publisher who, with luck, will offer me an advance of £5,000.

It could well be that I shall have two books published next year, making me the envy of my friends. But, given that my only other income (around £10,000 a year) comes from freelance journalism, I can look forward to earnings of, at best, £16,000 in 2006.

Binmen do rather better, and work shorter hours.

I agree with your conclusions on the whole business of advances, but wonder how these are affected by sales of paperbacks.

Let me put a case:

Novelist Geoffrey Gloom receives an advance of £5,000 for his poignant (yet richly comic) study of middle age, The Shadows Lengthen. It sells 3,000 copies in hardback at £12.00 a throw, yielding a nominal £36,000. Gloom's 10 per cent share of this is £3,600.

Six months later, the paperback, boosted by a generally positive critical reception, sells 12,000 copies at £6.00, giving a net yield to the publisher of £72,000. Gloom's 7.5 per cent comes to (hold on!) £5,400.

Should the publisher, Messrs Bladder & Tweak, sell the book on to publishers in, say, Germany and France, for a total of €6,000 (£4,000), Gloom, as I understand it would receive half, ie £2,000.

His total receipts now come to £11,000, less agent's fee and some expenses. Yet his book has been a modest success, with sales in three countries.

But how has the publisher done. According to your argument, they have received (at most) half of the £108,000 net yield. Let us call their take £50,000. They also get half of the foreign rights, another £2,000 (plus any royalties subsequently due). From this total of £52,000 must come printing and distribution costs, plus a share of overheads. I should imagine (from talking to a small publisher friend of mine) that it cost Bladder no more than £8,000 to print 4,000 copies of the hardback, And the same for the paperback run of 15,000. Add £5,000 for distribution and, at most, £2,000 for overheads, and Bladder is left with earnings of £29,000. Even if we add a further £5,000 for "hidden" costs (hidden from me, that is), B&T have creamed a nice £24,000 in profits, against Gloom's eleven grand.

And while Gloom's editor and sales reps sit back to enjoy brandy and cigars, Gloom must now pay out £1,650 to his agent (who got him into this fix in the first place) and another £350 or so in legitimate expenses.

So! Where does this leave us?

Author's total profit for a year's hard labour: £9,000.
Publisher's take for, at most, three months's work: £24,000 (minimum)

Am I wrong? And how long does it take for paperback sales to translate into money in Gloom's pocket?

Best wishes,

Jeremy Snippet

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teething symptoms said...

I have to say that this is a fairly complicated issue and if you are to gain any benefit from the discussion you will have to concentrate.

teething symptoms said...

This level of remuneration did not result in the collapse of the book trade as we know it.