Friday, December 02, 2005

Publishers' profits

Some months ago, a correspondent who used the pseudonym Jeremy Snippet wrote a lengthy comment about publishers' profits. His essay appeared in response to my first article, in a series of three, on authors' advances.

Mr Snippet will long since have abandoned all hope that I was ever going to respond to what he had to say, but I never quite forgot his point, and periodically, while shaving or whatever, I have been mulling things over.

Basically, Jeremy was arguing that writers are underpaid by comparison with publishers, and that publishers make really quite hefty profits.

Jeremy presented a lengthy example of the sales of a hypothetical novelist, one Geoffrey Gloom, and the royalties resulting. He went on to suggest that, from total sales income (customers' money handed over the counter) of £108,000, the publisher would end up with a net profit of £24,000. The author, by contrast, might get £11,000, less agent's commission, less expenses.

Actually, Jeremy's figures (if I understand them correctly) are not quite correct in terms of their own arithmetic, because he forgot to deduct the author's royalty from the publisher's profit, so the £24,000 becomes £13,000. But, having noted that point, let us summarise Jeremy's estimates, as seen from the publisher's perspective, and consider how the £108,000 which is handed over the counter actually gets distributed. In rounded percentage terms, the figures work out as follows:

Booksellers' share: 54%
Manufacturing costs: 15%
Overheads: 4%
Distribution and marketing: 5%
Royalties: 10%
Publisher's profit: 12%

The next question is, do these figures correspond with reality? In other words, how typical are they of the year-in, year-out figures produced by the average major trade publisher in the UK?

Now that's a difficult question to answer, for a variety of reasons. Here are some of those reasons.

To know how well a particular company is doing, you need access to that company's accounts. Very few people have such access. True, you can apply to Company House for the publicly available information, but few of us do that. Even if we did, we aren't able to make much sense of the figures unless we are experienced accountants.

Christopher Gasson is a man who knows as much about the accounts of publishers as any man breathing. If you want to gain some insight into that arcane art, find a copy of Gasson's Who Owns Whom, 2002, Bookseller Publications, ISBN 0 85021 330. (Amazon link.)

In his section on business ratios, at the back of this book, Gasson points out that published accounts 'are not wholly reliable.... Publishers have 'considerable scope for creative accountancy.' This is particularly true of those firms which are part of big international conglomerates.

What this means is that, even if the bosses of the company are born-again Christians, and are determined to obey every law and principle of good accounting practice known to man, there are perfectly legal and sensible variations in the way in which accounts can be drawn up. Many publishers, for example, 'write off against the first year's sales the plant costs of a book and any author's advance that has not been earned out in royalties.' On the other hand, 'Element Books famously wrote its plant costs off over five years... with the result that the company was able to declare a double-digit operating profit not long before it went into receivership.'

And, of course, not all company bosses are born-again Christians. Think Robert Maxwell, Enron, WorldCom.

Another problem is that the pattern of income and expenditure will vary considerably as between different types of publisher. A publisher of academic books, for example, will typically give a much smaller discount to retailers and will also pay his authors less. But he will not necessarily make a much bigger profit, because it is, on the whole, harder to sell a book on the economics of maize production in Malawi than it is to sell the latest scandalous autobiography by a celebrity.

My guess is that, at any given time, there may be as many as two people in any major firm who have a pretty good feel for how things actually are. One is the overall chief executive, and the other is the chief financial officer. Whether either of these people will ever tell you the truth about the real position is a matter of opinion, and will doubtless vary according to the personalities involved.

Having said all that, there are occasionally glimpses of something approaching a true picture, glimpses obtained through the general smoke-screen generated by commercial confidentiality and deliberate obfuscation. Who Owns Whom provides one such glimpse, as does British Book Publishing as a Business since the 1960s, by Eric de Bellaigue. There were a number of earlier published reports on the financial state of British publishing, and some of those are referred to in my first article on advances, mentioned above. None of these books or reports suggest to me that publishing is a highly profitable business. Quite the reverse.

And, finally, the Society of Authors magazine The Author published in 1998 an article by Tim Hely Hutchinson (CEO of Hodder Headline) in which he analysed the pie chart of publisher's income along similar lines to those suggested by Jeremy Snippet. Here is the Hely Hutchinson breakdown of how the customer's pound was distributed, as seen by a major trade publisher in 1998:

Booksellers' share: 55%
Manufacturing costs: 15%
Overheads: 9%
Distribution and marketing: 8%
Royalties: 8%
Publisher's profit: 5%

In his article, Hely Hutchinson compared these figures with those that he had drawn up in a similar article ten years earlier. The bookseller's discount was up 5% (and will, I guess, have risen further still by now). Manufacturing costs had been pared from 17% to 15%; overheads were down from 10% to 9%; distribution and marketing remained the same, as did publishers' profits; but the authors' share of the cake, unsurprisingly, was down from 10% to 8%.

I think that's probably as good a picture as we're ever going to get. What it means is that trade publishers are struggling, and by and large failing, to maintain their share of the customer's pound, in the face of ever-increasing demands for more discount from the bookselling chains and the supermarkets. And they are tending to make up for (some of) what they've lost by hammering the authors.

Publishers are not making vast profits. And quite a lot of them aren't making any profit at all.

Publishers, particularly the ones which can make you a star, are big, strong, and (relatively) knowledgeable. Writers, even with the aid of a good agent, are small, weak, and often don't know nuffink. Who'd be one?

4 comments:

Dave Munger said...

Great post, but I'd say that how much a publisher makes depends totally on the success of a book. For a big hit -- a million seller, the publisher will make tons. Most of the costs are fixed costs, and the rest is gravy. The problem is, most books are not hits, so the large number of flops ends up financing the hits.

If he/she gets a decent advance, the author makes more on a flop than the publisher ever will.

Dave Munger said...

oops... I mean the hits finance the flops, but you get the idea.

wfzimmerman said...

Publishers have a huge information advantage over authors -- which is why I became a publisher. If you like seeing all the numbers (and being responsible for making them add up), become an independent publisher. It's never been easier.

Anonymous said...

Jeremy Snippet here, Grumps. I appreciate your point about authors, on the whole, being mugs in a mugs' game. But I think what I was really saying in my previous post was that most publishers and agents live a lot better than I do – or at least have a lot more money – and achieve this trick largely by sleight of hand.

It seems to have litttle to do with real economics. Publishers pay millions each year to a handful of authors and buttons to the rest. It makes no sense. there is no m arketplace logic to it. But the trick works and it benefits those it was always intended to beneift: publishers themselves, the better known agents and an approved list of top authors.

I used to be a Fleet Street journalist and have met lots of senior publishers down the years. They live for the most part well-heeled and "agreeable" lives. Some, of course, have trouble making ends meet, as do some agents. Not everyone keeps his snout securely in the trough. But if they are employed as editors or executives within one of the four or five conglomerates who dominate the industry, or as agents within an established firm, they make, typically, £75,000 a year, plus bonuses. Some, of course, make a great deal more.

My last agent, though totally useless, has a fine office in a large block in central London. His secretary and assistant occupy the outer office. Various colleagues enjoy similar suites. He lives in a large house in North London and has a second home in the country.

My current publisher is sleek and prosperous, as are his senior colleagues. Yet he cheerfully admits that
he pays his authors as little as possible. I can certainly vouch for that.

Now let me think of the authors I know. One, with an enviable Fleet Street platform, was paid £100,000 for two novels, the first of which sold badly. Another, in a similarly elevated position, secured two advances, one in the UK, the other in America, for a beautifully written book that did well in Britain but bombed in the States. Both are engaged on their latest projects – but only when they have time off from their day jobs.

Another friend, no longer a journalist, has secured three advances of, I believe, £40,000, for three books, all of which have done quite well but not exactly stormed the bestseller lists. He makes an honest living but could not remain in London were it not for his wife.

My favourite example (an acquaintance, not a friend) is a man, already well employed, who is paid upwards of £150,000 a pop for his books, which are well reviewed in London and New York but never sell more than a few thousand copies. In recent months, he has expressed some annoyance at the fact that his luck seems to be running out. But given that he has amassed close to a million pounds in the meantime, my sympathies are limited.

Against all this, I also have friends who struggle to sell their books at all. It doesn't seem to matter that they are at least as good writers as their successful brethren: they lack "platform." They are not seen by agents and publishers as "one of us."

When I consider that Piers Morgan received a reported £1 million for his book, The Outsider, which went on to sell about 20,000 in hardback and 80,000 in paperback (thus earning out a mere fraction of his advance), I am forced to the conclusion that certain classes of well-connected writers are not paid royalties, they are paid fees – and these fees must be appropriate to their status, having no regard to the number of books they might actually sell.

There are innumerable examples of this. We read about them all the time. In some cases, I can verify the authenticity of the reports. I can think of one man who wrote an instant book on a "hot" subject in 2004. It was full of the most egregious errors, yet was treated as holy writ. A sequel was immediately commissioned.

Rageh Omaar – a charming man – received £800,000 for two books. The first, on Iraq, sold a reported 6,000 copies; the second has yet to be written. But is he worried? No – for he is about to start a new job with Al Jazeera on, I would guess, a salary of a quarter of a million pounds a year. He continues to be held in high regard. Besides, he was not paid an advance, he was paid a fee.

Meanwhile, at the bottom of the heap, full-time authors are routinely paid advances of as little as £10,000 (sometimes less) for books that take them a year or more to write. The publishers take them on in the hope that that maybe one of them will break through into the bigtime, thus adding a fresh carriage to the gravy train. They are just one notch up from the slush pile, and if they don't deliver the goods, they are soon shunted into a siding.

But you can be sure that the publishers and agents will still raise their glasses when they meet over lunch and drink to "success." Whose success do they mean? Theirs and their mates'. It certainly ain't mine.