Wednesday, October 31, 2007

Royalties? What royalties?

Yesterday, I wrote about publishers’ slow-paying practices when it comes to authors’ on-signing advances and suggested the writers’ groups should make this one of their rallying issues.

Next, I think, they should ask publishers why, if Barnes & Noble and other accounts report sales in real time, does it take a publishing house 90–120 days to report royalties and make payments?

In truth, every publisher could pay monthly, except each wants that time to massage the numbers and hedge their bets.

If I send statements for the period ending June 30th to arrive by September 30th, I get a whole additional two months to watch the returns. That way, even though the statement is so supposed to reflect sales and returns as of 6/30, I now get additional return information, which allows me to formulate a great “reserve for returns.” I honestly can’t think of another business that gets to hedge its bets so much.

Meanwhile, this all has quite the vicious effect on the business. It encourages authors and agents not to look for advances that accurately predict sales, but for advances that ensure the book will never earn out. People choose salaries over commission because a salary is steady and a commission is not. Similarly, agents and authors would rather get a large advance that is unlikely to earn out, rather than counting on the publisher to work hard enough to ensure the book earns out and results in future royalty payments. Personally, I don’t think this helps the business and some days I think it would be far, far more practical if publishers paid modest advances and then reported monthly.

Of course, one problem with this model is that it is tied to the booksellers-don’t-pay-their-bills model. Let’s say I’m an independent bookshop owner. I’ve been in business for three years. Now, there’s no doubt that when I opened my shop, I had to pay a good deal of start-up money to get stock. But let’s say I didn’t pay the bills for those first books I ordered right away. I held out for ninety days. And each thirty days, I returned whatever hadn’t sold in the prior thirty days and ordered some more books, using the credits for the returns I sent in. If 50% of all books are returned, then it would seem possible that the most I would ever have to pay for is 50% of the books I ordered. And since publishers won’t put me on credit hold for being thirty, sixty, or even ninety days late with payments, I can play this game a long, long time while paying out very little money.

One recent story about the new Harry Potter was that a large UK retailer was put on credit hold (they owed the publisher £2 million or so, I think) and was told they would not get the new Harry Potter until they paid. They did.

For this reason, publishers love “tent pole” books, or books that booksellers are going to want a lot of copies of and that will have better-than-average sell-throughs (they hope). So for a Harry Potter, this means the booksellers may not have enough in credits to get the copies they want. Thus, they will actually have to pay real money toward their bills.

You see, since publishing is a business, it’s as much about how much you bill as how much you sell. To my knowledge, no publisher will write a check back to the bookseller for returns. They will only give credit. So a bookseller orders new books, sells what he can, and returns the rest. And the publisher counts those sales and returns and calculates a reserve for returns and pays the author what’s left over, which is, more often than not, nothing. Is it any wonder that when an author hits it big after years and years of effort, one of the first things they often do is change houses? After all, if you’ve been in a bad marriage where your spouse didn’t respect you and treat you well, are you going to stick around if you suddenly become famous or get a great new job? No, you’re going to bail and find someone who loves you for you. Or at least respects what you bring to the table in the publishing deal.

Ultimately, I understand completely publishers’ desire to avoid paying out royalties before they really know the final sales numbers. But I think that desire is the result of a flawed sales system, which is a system only publishers, not authors, can change.



Hathery said...

120 days??? That's really a bit excessive. I had no idea that it could take that long to see the royalties...I'll keep that in mind when my husband eventually gets a book published.

Karen Duvall said...

Your blog is extremely informative, Andrew. Thanks so much for sharing your knowledge of the business. This kind of information is hard to find. This is a real treat.

Michael S. Hugh said...

In my experience, that model is pervading most large businesses in recent years, which leades me to puzzle why the largest companies have been adopting this model with all suppliers (authors included) while shoovelling money out the door on wasted projects.

Typical examples are the car industry (6 months - and they write it into their contracts) - all major banks take 90 days (but they understand the benefit of the float) etc.

Good luck in changing this industry - it may if the model ever changes to a download model etc.

Very nice post and very informative - your recent posts have provided me a very clear insight into the norms of this business.

Many thanks


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