Wednesday, June 22, 2005

Advances -- part 2

If you haven't yet read Advances -- part 1, which appeared yesterday, perhaps I might suggest that you do so as a preliminary to today's discussion.

OK, now that you're back, let's see what else we can profitably learn from the available facts.

I referred last week to Amanda Mann, who a while back posted some interesting figures from her royalty statements on her blog. Today I want to use those figures as the starting point for some calculations.

Of course, I dare say that Amanda would tell us a good deal more about her advances if we asked her, but those things are really none of our business, and she has already been frank above and beyond the call of duty. So let us depersonalise the issue.

Let us suppose, for the purpose of this discussion, that we found ourselves in a restaurant, seated right behind an author and her friend. The author we will call Miss Smith. From shamelessly earwigging the author's conversation with her friend we learnt the following facts:

Miss Smith has had a novel published as a paperback original. The print run was 7,500 copies. So far, Miss Smith's royalty statement shows that 5,380 copies have been sold. And the royalty statement shows an unearned balance, when set against the advance, of £1069. Miss Smith, we gather, is a little worried that she has not earned out her advance. Her editor has not contacted her recently. Does Miss Smith have any genuine reason to worry?

Let us start by trying to establish what sort of sums of money are involved here, both for the publisher and the writer.

We will assume that Miss Smith's book was priced, officially, at £5.99, which we will call £6; this was a fairly typical price at about the time when Miss Smith's book was published. We will further assume, using Charles Clark's book of precedents, that Miss Smith's contract called for her to be paid a royalty of 7.5% of the retail price on each copy sold.

This means that, for each copy sold, Miss Smith was nominally entitled to a payment of 45 pence per copy (£6 x 7.5%). If the whole print run of 7,500 was sold, in the home market, without any special deals, Miss Smith would contractually be entitled to a total of £3375 (45p x 7,500).

You see how easy it is to get rich quick in this game. Publish ten novels a year at that rate and you might make a decent living.

Selling the whole print run, by the way, is an unusual circumstance; there are frequently a few hundred, or thousand, left hanging around in the warehouse.

For the publisher, using the same assumptions, the figures look like this. If we assume, very generously in today's market, that the publisher gets 50% of the official retail price for each copy sold, then the total income to the publisher is £22,500 (50% of £6 x 7,500).

Out of that sum, the publisher has to pay various costs, such as production, sales and distribution, overheads, and, not least, the author. The net profit will vary from publisher to publisher, and will depend on the efficiency of the firm. However, if the publisher was regularly generating a net profit which equated to 5% of retail price, or 10% of income, he would be happy. So in this case a net profit of £2250 (10% of £22,500) would be acceptable.

You begin to see why publishers have to publish a lot of books.

Now let's go back to Miss Smith. How big do you think her advance was?

Using the data which we scribbled down on a paper napkin, all the time pretending to discuss the weather with our own friend, we can make some informed guesses.

We noted yesterday that a publisher will use the projected royalty income from the first print run as the basis for calculating the advance.

We know that Miss Smith has sold 5,380 copies. And 5380 copies, at the royalty rate of 7.5%, yield £2,421. And Miss Smith's royalty statement shows an 'unearned balance' of £1069. If we add £2421 to £1069 we get £3,490. Which is, near as dammit, £3,500.

Furthermore, we have already calculated that, if all 7,500 copies of the book were sold in the home market, Miss smith's contract would require her to be paid £3,375. We can therefore reasonably assume that, in this case, Miss Smith's publisher gave her an advance of 100% of anticipated royalty income on the first print run. (The £3,375 would, I suggest, be rounded up to £3,500.)

How generous, you say.

Well, it is generous if we consider Charles Clark's statement, quoted yesterday, that most Minimum Terms Agreements call for an advance of perhaps two thirds of anticipated royalty income. (A Minimum Terms Agreement, by the way, is a contractual agreement negotiated between the Society of Authors and a number of publishers, laying down the minimum acceptable terms for individual book contracts. In practice, any halfway decent agent would expect to better these terms.)

But Miss Smith's advance is not remotely generous if we look at the facts as set out in yesterday's article. There we had it quite clearly demonstrated that, at least in the 1990s, publishers were regularly paying authors advances of substantially more than 100% of the anticipated royalty income. Not because they were feeling generous, but because, day in and day out, that is what it cost in the market place to obtain the material that they need in order to stay in business. That is how literary agents earn their keep and justify their existence.

A typical advance, at about the time when Miss Smith signed her contract, would have been a figure which was about 50% higher than anticipated royalty income on the first edition. In other words, the publisher could in this case have given Miss Smith an advance of £3,500 plus 50% = £5250. Which would probably have been rounded to £5,000.

Such an advance, I repeat, would not have been at all unusual, and would therefore not have placed the publisher in any difficulties. In Miss Smith's case, because the publisher had given her a less than typical advance, the publisher's net profit on the book would have risen to £3750 (£2250 plus the difference between £5,000 and £3,500).

In other words, by achieving an economy at the expense of the author (not, I have to say, a rare occurrence in publishing), the publisher has effected a 66% increase in his net profit on the book. Not bad, eh? And even if Miss Smith's agent was really on the ball, and asked what the print run would be, the publisher could always be less than honest and say 5,000 when he meant to do 7,500 all along.

No no. I withdraw that. That is less than kind. Let us say that the publisher first assessed the likely market for this book at 5,000 copies and later, in view of enthusiasm in the office, decided to increase the print run.

Miss Smith, of course, is young, beautiful, ambitious, and wildly talented. And so, when her editor doesn't ring her weekly, and buy her lunch at the Ivy, she worries.

Is she right to worry?

I suggest not.

First of all, Miss Smith's paperback original, brilliantly written though it is, is but a small fish in a very large pond. To Miss Smith, an advance of £3,500 (less agent's commission, less expenses, less tax) is a significant sum of money. But to a big-time publisher it is neither here nor there.

Miss Smith's editor is not going to worry about an unearned balance of just over a thousand quid. It is the unearned balance of £450,000 on a £500,000 advance which will ruin her career. So Miss Smith can rest easy.

But what of that other lady novelist, whom we mentioned yesterday. You remember? The distinguished lady novelist who boasted proudly that her books always earned out their advances. What of her?

Well, it has always been the practice on this blog to avoid ad hominem and ad feminam criticism, and I don't intend to start today. So let us summon up another imaginary lady called Miss Jones.

Miss Jones, we will say, once won the Booker. At least one of her many books has been a New York Times bestseller, and at least one has been filmed by Hollywood. How do you think Miss Jones's publisher feels when she announces how proud she is that she earns out her advance?

My guess is that the finance director of that firm would have had a hard time keeping a straight face. Because the truth is, Miss Jones is working for way below her market value. And is proud of it!

Of course, if Miss Jones's contract does not embody standard industry royalty rates, then Miss Jones's point is nonsense and she is just babbling.

Miss Jones's editor may, for all I know, be one of those intense literary types who thinks that a spreadsheet is something that you put on a table for a banquet. She may remain in blissful ignorance of the economics of publishing, and may believe, in all honesty, that the contract that she offers Miss Jones is a fair one.

But what of the lady's agent? Is it possible, even in today's world, that she doesn't have one?

You know what? I haven't finished. I think there will have to be a (shortish) Advances -- part 3 tomorrow.


Dr Ian Hocking said...

This last post, and the one before it, have both been excellent and well-researched. Thanks, Michael.

Stephanie Zia said...

Gosh. Thanks for this, it's fascinating. You were spot on! Except they chose to round down to £3,000 advance per book, rather than up to £3,500. What I sometimes wonder is how much they made from the sell-out to the remainders stores?

paulv said...

At the risk of me-tooism, I also appreciate your shining a lamp into this murky topic. Many thanks--not least for the high quality of your prose...

archer said...

GBS said he'd write a column on music that would be read by deaf stockbrokers. You have written a column on business that can be grasped by the innumerate. As only the innumerate can really appreciate the significance of this feat, I congratulate you.

Anonymous said...

Um ... me, too!

I just found your blog. This is the first post I read. If this is any indication of the quality, I'm blow away. Best writing/publishing blog, bar none.

Never thought about the -other- side of 'always earned out' before. It's so obvious, though ...