Wednesday, July 19, 2006

The Dastardly Deep Discount

I said yesterday that I was going to write more about deep-discount clauses and so here I am.

Whenever a publisher makes an offer to an author, the general approach is to promise the following royalties:

10% on the first 5,000 copies sold; 12 ½% on the next 5,000 copies sold; 15% thereafter

These royalties are based on such things as the “retail price” or the “Suggested Customer Price.”  In other words, the price actually printed on the book.

What no editor in history (I believe) has ever said while making an offer is the following:  “Of course, we won’t be paying those royalties on all copies.  Just on the ones that we sell for lower-than-average discounts.  Once the discount gets above 50% or so, we’ll cut that in half, or change it to 10% of the ‘amount received’ or we’ll subtract from the author one-half of the difference between the discount granted and 48%.”

Just in case this isn’t clear, let’s clarify.  If you could get your hands on the average publisher’s discount schedule, i.e., the document that says if you buy one copy of one book you get this discount, but if you buy ten copies of ten different books, you get a much higher discount, you’d find that most publishers have an “average” discount on hardcover books just under 50% or so.  This, of course, is why bookstores can give you, the reader, such a great discount.  They get that $25.00 hardcover book for around $12.50, then sell it to you for $17.50, or a 28% or so profit.  But it gets better for the bookseller.  And, of course, worse for the author.

The more books a bookseller buys, the deeper the discount.  And, in many cases, the fewer books they return to publishers for credit, the deeper more the discount can be, as an incentive to not return too many books.

Thus, this is why in some cases an author can receive a royalty statement in which 85% of all sales are at a reduced royalty.

Now what’s to be done about this?  Well, a savvy agent can try and limit the number of copies that can be accounted for—versus sold—at the reduced royalty. So, yes, the publisher can sell 85% of the books at a 56% discount, but can only account for 50% of the books at a lower royalty.  Because, after all, an author has no control over discount and, more importantly, deep-discount sales should be the exception, not the norm.

What can you, as a reader, do about this?  Well, probably not a lot.  Are you going to stop shopping at Barnes & Noble or Amazon.com?  If you are willing to do that, then find your local small, independent bookseller and buy your books there.  Visit the Booksense website at http://www.booksense.com/ to find one.  You can even search for a store that will let you buy your books online.  Chances are that a smaller independent is not buying enough copies to qualify for truly “deep” discounts and thus sales by them are likely accounted for at the full royalty to the author.

And if you are the author, well, read your royalty statements closely and be sure to question if you see a large number of copies at less than your full royalty.  In one case, such a question resulted in an additional payment of $8,000 to one of my clients!

Z

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