Why Royalties?

Below Evan Schnittman shares his personal opinions on royalties and advances. This isn’t Oxford University Press’s official stance – but represents just one of the many opinions floating around our office on this very tricky subject. We hope that by sharing his views an open dialog can be initiated.

In his blog post Royalties Macmillan CEO Richard Charkin, posits that trade publishers and authors/agents would be well served if the standard for paying authors switched from a percentage of retail price to a percentage of gross earnings. He writes, “How about agreeing new equitable royalty rates based on real money not a notional recommended retail price?

Charkin also points out that, “The percentage is linked to a price which applies in only a minority of cases. It doesn’t apply to all sales overseas; it doesn’t apply to nearly all sales made in supermarkets, Internet bookshops and many bookshop chains.” In other words, paying on the percentage of a price that isn’t applicable to the majority of income isn’t logical or easy – which may lead to wildly confusing royalty statements.

As expected, within hours a series of rebuttals hit the comments field by individuals and groups rejecting Charkin’s notion as folly; stating the view that the retail price is the only thing that is transparent on publishers’ royalty statements, which are notoriously mysterious and murky at best.

While the debate will continue, it misses a far more important problem. Adjusting the way royalties are paid may make for clearer royalty statements, but it ignores the 800-pound elephant in the room, advances.

The real issue we have to fix isn’t whether publishers are clear enough when we show what a book has earned to date – the real issue is the fact that the vast majority of trade books have advances that never earn out. To wit, here is a post from the Grumpy Old Bookman circa 2005 which spells out in layman’s terms two landmark industry studies performed by the Bookseller in the UK – BPIB 1995 and BPIB 1999:

“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.”

Furthermore, Grumpy points out that 10 years ago the cost of Authors were over 1/3rd of publishers spending:

“BPIB 1995 contains a series of pie charts… 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… 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.”

This, and many other studies and articles point out the inconvenient truth that exists in publishing today – publishers rarely pay royalties. We never get a chance as the advances paid exceed the rate at which they can be earned out. Therefore, I believe that the only logical way forward is to eliminate royalties altogether.

Before you roll your eyes at my naivety, hear me out.

I propose that trade contracts move to a flat fee or payment for the standard rights associated with publishing a book. This fee would function just like an advance in that it would be paid on signing, delivery and acceptance, but it would be the only expected payment for the work.

This isn’t to say that best sellers wouldn’t be rewarded – they would be in three important ways. First, a book that is expected to sell say 500,000 copies would receive a far larger fee than a book that is expected to sell 5,000 copies. (Publishers would ostensibly use the same calculation they do now – which, in theory, estimates how many copies they can sell, multiplied by the expected income received, deducting all related costs, and deciding how much they can afford to apportion to the author.)

Second, performance would be rewarded by creating a kicker in the terms. For example, once might sign a book expecting to sell 20,000 hardcover units and pay a fee of $40,000. However, at the point the book sells say 25,000 copies, a kicker would be paid to the author of $5,000 – when it hits 30,000 units, another $5,000 is paid and so on. It could even have an escalator so that the amount paid escalates at the higher units.

Finally, flat fee contracts should be only for set periods of time – say 5-10 years for Hardcover and 10-20 years for Paperback. The notion of a standard term will protect the interest of the author, as they will be free to renegotiate a better deal at the end of the term. If the author isn’t happy, the rights of the publisher expire and the author is free to go elsewhere. That said, publishers should only expect to pay for the value they will collect – and a term may limit that value.

The state of book publishing requires a radical change to the standard business practices that have existed for decades. This has to happen from within the core assumptions of the most basic elements of the business. Retail price vs. gross earnings are just window dressing on the real problems of trade publishing.

By buying a book for a term and having all rights to create sales and income opportunities that engender profit making, publishers will buy more responsibly and back their purchases more effectively. This will lead to better deals for authors and agents who can earn more from better performance and leverage that into fair renewal terms or, if needed, the ability to take their business elsewhere.

Evan’s PictureEvan Schnittman is OUP’s Vice President of Business Development and Rights for the Academic and USA Divisions. His career in publishing spans nearly 20 years and includes positions as varied as Executive Vice President at The Princeton Review and Professor at New York University’s Center for Publishing. He lives in New Jersey with his wife and two children.

5 Responses to “Why Royalties?”
  1. John Cowan says:

    I fear this is much too sensible and rational ever to actually take off. The problem is that every author, in his heart of hearts, believes that his next book is going to make him the next Stephen King or J.K. Rowling. Consequently, publishers that offer potentially immense returns for phantom huge sales appeal to the authorial ego.

    Why else would contracts be written such that royalties massively *increase* when a sufficiently huge number of books are sold? Because the publisher knows that isn’t going to happen, and the author can go on hoping. (I note that even your proposal includes this economically irrational escalator.) Doubtless if both author and publisher weren’t irrational optimists, they’d go into some less risky line of work, but

  2. Joe Ford says:

    Why publishers?

    The perversely tiny fraction of retail price earned by the small minority of authors who ever receive any royalties at all is scanty, rude, and — to people outside the publishing industry — downright bizarre. Doyle Brunson was so stunned by the royalty schedule proposed by a prospective publisher of his poker manual Super/System, he said, “No, thanks,” and used his own capital to self-publish. Brunson of course was an outsider, and had money. (And thanks to alternative publishing, he now has a lot more of it.) As the cost of alternative means of distribution continues to fall, Brunson’s approach becomes increasingly viable, even for non-wealthy writers.

    In a world where content-creators can attract public attention at little or no cost, based largely on their own creativity and vim, and can distribute their content at negligible cost, the antiquated model of the publishing world is doomed. Writers of the future will expect, and will get, a greater portion of their project’s revenue, not a lesser one.

  3. [...] thoughts on the issue of royalties and advances back in 2007 on the OUP blog – check it out here: http://blog.oup.com/2007/08/royalties/ I would love to hear your feedback on both the Meyer’s piece and my [...]

  4. [...] the Oxford University Press to do away with advances.Schnittman followed up the Charkin post with a suggesting the elimination of advances and providing some evidentiary proof that advances could be breaking the back of the publishing [...]

  5. [...] a proposal from Evan Schnittman, OUP’s Vice President of Business Development and Rights for the Academic and USA Divisions. [...]

Leave a Reply