Calling All Authors: What is Your ”Net” Worth?

Once upon a time in the “good” old days – say, about 70 years ago – book publishing was a “traditional industry,” governed by “traditional” relationships between publishers, authors, and retailers. Unless a publisher was signing a deal with a Hemingway, it was always a risky business investing in the creative whims of those who hurled manuscript after manuscript at the door. But invest they did; not only in the capital to pull off and distribute a print run, but in the finalization of the creative process – the editing, the illustrating, the coaching required to get the best out of those creative whims; to turn ideas into books; to make writers into authors; to win and wow the hearts and minds of readers.

This paradigm, flawed as it may have been in some of its details, endured for about 55 years until the arrival of big-box retailers. The collapse of relationship-driven book publishing was not, however, solely a product of book-lovers not-being-able-to-make-up-their-minds while Starbucks-sipping and browsing a gazillion titles in behemoth book stores. It was a simple failure of arithmetic, propogated by greed.

Let’s go back those 70 years. Let’s say that a book in 1940 sold for (ouch!) $10.00. It almost certainly would have been a hardcover edition. Of that $10.00, the split on a bookstore sale typically went like this: development, production and distribution (the publisher’s cost and risk): 30 percent; retailer’s mark-up: 40 percent; publisher’s net: 30 percent. So, a $10.00 book cost $3.00 to make; and was wholesaled to the retailer for $6.00. The retailer made $4.00 on the sale; the publisher netted $3.00. Here comes the nice part. Realizing that publishers and authors were in it together, the traditional publishing contract of the day split that $3.00 equally between author and publisher. The publisher made a 15 percent profit on each sale (no profit, of course, actually being posted until all the production costs were recouped); the author made 15 percent of the retail price as his or her royalty rate. So, on a book that retailed for $10.00, the author made $1.50.

From the author’s point of view, things started to slide as paperback books began to dominate the market. The publisher still aimed for a 30 percent net; however, most contracts began to peg the author’s share of the retail price on paperback sales at 10 percent – presumably because there were more sales to be had. So, on that $10.00 dollar book, the author made $1.00, and the publisher netted an instant $0.50 windfall on each sale, now making $2.00. Granted, the author probably sold more books. (But so did the publisher.)

That slide turned into an outright avalanche with the arrival of the big box stores in the 1990s. The big-boxers began to demand a greater share of the list price. At first it was 41 or 42 percent; then 45 percent; then, as much as 51 percent. When online sales outlets arrived, some asked for 55 percent of the list price. Their argument to publishers was something like: “Yes, you will make less per sale; but you will make more sales, so the overall financial return will be similar…er-ish.” Many of the corner store retailers saw this and, although they could not promise more sales, they also began to insist on a larger chunk of the pie. Rather than telling the retailers, big and small, to stuff it, most publishers chimed in, thereby – in my opinion – sealing the fate of the traditional book publishing industry.

If you, as a publisher, have just lost another 10 percent to 15 percent of a book’s list price to retailers, how are you going to recoup that shortfall? Let’s see… After trimming your editorial and support staff and buying a more energy efficient refrigerator for the coffee room, you’ll be obliged to hive another chunk off the author’s share. Mind you, you will pretty much have to do this, because if you are selling a $10.00 book to Chapters for $4.90; to Munro’s for $6.00; and to Amazon for $4.50; how are you going to keep track of the accounting for umpteen authors and umpteen titles? You have, you remember, just trimmed your office staff.

Enter the most evil publishing contract detail from the author’s point of view: payment as a percentage of net receipts. This devil had always been there in most contracts, but it had been reserved for sales to book clubs or bulk sales for conventions, etc. It only applied to the likes of Hemingways, so few authors cared about it. From about 1999 onward, many Canadian book publishers began applying it to all book sales. Under many contracts, all of the revenue received for a particular title during a specific accounting period now goes into a kitty, and then is apportioned to the author according to a contract-specified royalty rate. This is typically 15 percent of net, but it can be as low as 12.5 percent or as high as 17 percent. In the best case scenario at 15 percent of net, that $10.00 paperback book that sells to Munro’s for $6.00, now earns the author $0.90 instead of the $1.00 that it formerly did. That’s an instant 10 percent pay cut.

But it gets worse. On any sale made at a greater than 50 percent discount, many contracts specify that the author receives 10 percent of net. So, if a big-boxer buys 1000 copies of that $10.00 book at $4.90 per copy, the author now makes $490.00 instead of the once-upon-a-time $1000.00. Assuming that the big-boxer pays – and some take as much as a year to do so – the publisher makes $4410.00. (A deeper dive into the math shows that the publisher is still making a 14.1 percent profit – almost as good as the 15 percent in the old days. In terms of relative loss of income, the publisher has lost 6 percent; the author has lost 51 percent.) Just to make sure that it covers its bases, the publisher will withhold 20-30 percent of what it owes the author in case, at the end of the year the big-boxer shows up at the door with 867 unsold books instead of cash – a reality that has taken down at least two major Canadian publishers/distributors in the last four years. Conservative estimates show that the big-boxers sell at least 40 percent of the books in Canada.

Many mainstream publishers now seal royalty payments as a percentage of net by contracting book distribution out-of-house. In order for an independent distributor to make a living, they must be able to sell a book to a retailer at 60 percent of list price (best case scenario). In order for this to happen, the distributor must receive the book from the publisher at 45 percent of list price. EVERY book sold by a publisher in this fashion defaults to the author receiving a percentage of net receipts and thus negates any meaningful royalty payment to the author. The only royalties that will be calculated as a percentage of list price will be on sales made by online orders directly from the publisher’s website.

These economics marginalize creativity; they do not turn writers or would-be writers into authors; they turn them into don’t-quit-your-day-jobbers, who must now convince the Canada Revenue Agency that the meagre returns on their efforts actually do qualify as a professional activity. Many of them write one title and, disillusioned, go back to driving cabs or waiting on tables. Those with mettle, jump ship, and with the inexpensive help of an outfit like
Book Baby, publish digitally.

These economics prevent many creative ideas and creative people from finding their voices, from being heard, from being read. These economics impoverish the creative fabric on which we all depend for inspiration, for solace, for guidance, for joy, for education, for insight. These economics may reduce the gene pool of book-published authors so that in the near future as you browse in your local big box store, you will be able to choose between John Grisham, Margaret Atwood, and John Grisham. (Nothing against these fine authors.) These economics have put an end to a publisher’s commitment to the career of any individual writer. These economics have opened the door, for better or worse, to the flood of do-it-yourself authors. (Let’s hope they each hire a good freelance editor.)

Publishers now advertise on the Internet, seeking book proposal submissions, lining up an endless parade of never-before and, probably, never-to-be-again published writers to put through the mill. These economics have destroyed the traditional relationships in book publishing and have turned the enterprise into a bland equation of units shipped, dollars received, and grants applied for.

Oh yes, about that: Many publishers receive funding from the Department of Canadian Heritage to help stabilize their programs. Some of them take that money and print off-shore. Your tax dollars at work. But that’s another rant….