Are Royalties Fair? A Publisher Weighs In
The Authors Guild released a chilling report on January 5th showing a drastic decline in author earnings over the last decade. The New York Times article on the report largely blames this decline on Amazon’s dominance of the book marketplace. There’s no getting around the reality of this. Amazon’s share of the market grows each year, and their ability to insist on better terms and increased coop and other fees increases proportionally. Publishers are getting squeezed, and are, in turn, lowering the advances they pay for all but superstar projects.
At the same time that authors’ incomes have been dropping, the number of books being published, through publishers and self-published, has grown dramatically. Self-published books alone grew more than 28% in 2017, to over one million books published. With consolidation of the marketplace, lower advances, and an increasing number of books published, it’s no wonder authors are getting squeezed.
While it’s natural for authors and agents to prefer higher royalties, there seems to be a general recognition by most industry players that this isn’t the source of the problem. Even in the Authors Guild’s analysis, the focus isn’t on publishers paying more, except in the areas of eBooks and deeply discounted book sales.
“...is the current system of advances and royalties equally fair to all authors?”
The standard royalty rates in the publishing industry have evolved throughout history, the result of an ongoing push and pull between powerful literary agencies and publishers. I doubt there’s any objective way of establishing whether these rates are "fair," and, if they aren’t, what "fair" royalties would be. In this blog post I want to look at a more nuanced question: is the current system of advances and royalties equally fair to all authors?
How Authors Are Paid
As I’m sure most readers of this blog already know, standard publishing deals provide an advance against royalties. The advance is an amount of money that the author gets for delivering an acceptable manuscript, and the author gets to keep that money, regardless of how the book sells. BenBella generally pays half of the advance on signing and half on delivery and acceptance of the manuscript, but some publishers pay in thirds or even in quarters. Regardless of how it’s doled out, that advance is a guaranteed payment to the author.
Advances range broadly, from a few thousand dollars (or less) to millions, but royalties, at least among the top houses, are basically the same. Authors are paid, for hardcovers, 10% of the cover price on the first 5,000 copies sold, 12.5% on the next 5,000, and 15% thereafter. For paperbacks authors receive 7.5% of the cover price (occasionally with an escalator) and for eBooks 25% of the publisher’s net receipts. Many independent publishers pay lower royalties than these, but rarely do they pay higher. Competition between publishers takes the form of advance competition, with royalties generally being very similar, especially at the big houses.
“...it’s a can of worms that publishers don’t want to open up.”
Why don’t publishers compete on royalty rates? I suspect because it’s a can of worms that publishers don’t want to open up. It would make every deal very complicated, as there would be multiple rates to be negotiated. It’s a lot easier to just have a standard royalty rate and compete on advances (not to mention easier on the accounting department).
Also, it’s my understanding that often, the most powerful authors and agents have negotiated "most favored nation" clauses into their contracts, meaning that if that publishing house offers a higher royalty rate to a new author, they have to match that rate on these older contracts, which no one wants to do. Obviously, contracts and terms are confidential, so I’m sure there are deals out there that don’t follow this practice, but I ran this by a few agents who do very large deals and they confirmed that competition is generally on advances, not royalties.
An interesting twist on this is that, reportedly, fewer than half of all books "earn out," or make back in royalties earned the money paid from the advance, so for the majority of authors, the royalties are irrelevant. In retrospect, these authors essentially receive a flat fee (in the form of their advance) from the publisher.
Looking at the big picture, the system makes sense. Advances provide an immediate income to support the author’s writing and ensures (at least in theory) that the publisher has some skin in the game. If the book does well, the author benefits from the upside, but their risk is minimized by the fact that the advance is nonrefundable.
It makes sense, but is it fair?
The Unfairness of the Current System
Fairness is subjective, of course, but it’s clear that some authors do a lot better in this system than others. I don’t mean that some authors sell more books than others; there’s nothing unfair about an author that sells more books making more money as a result. I mean that some authors get to keep a much bigger part of the value they generate than others.
Perhaps the easiest way to look at this is to consider the percentage of the publisher’s revenue that is paid to the author. Under standard royalties, an author gets roughly 20 to 30% of the publisher’s revenue for a hardcover, 15% for a trade paperback, and 25% for an eBook. So, very roughly, every hardcover release that earns out brings the author something like 25% of all revenue earned by the publisher. This percentage would drop once the paperback comes out, if it sells in significant numbers.
Obviously, an author that doesn’t earn out keeps a larger percentage of the total revenues than one who does. If an author gets a $100,000 advance, and has total net books sales of $100,000, the author keeps 100% of all revenue (in this scenario the publisher, of course, takes a bath).
“...the authors that earn out and sell very well fund the books that don’t earn out...”
Consider this from the publisher’s perspective: A book that earns out (assuming the advance was not trivial) is nicely profitable. A book that continues to sell well after earning out is incredibly profitable. In these scenarios, the publisher is keeping (something like) 75% of a book’s revenue. Of course, the publisher has to pay for printing and other expenses out of that 75%, but this still leaves room for significant profit. This profit goes to supporting the overhead of the publishing house and to funding another major cost—unearned advances. In other words, at any given publisher, the authors that earn out and sell very well fund the books that don’t earn out—the big celebrity memoir that disappoints, the amazing debut novel that falls flat, etc.
If a publisher didn’t have to pay advances, royalties could be significantly higher. How much higher would vary by publisher, but I do recall that at a publishing conference I attended a few years ago, one CEO of a major publishing house stated that their total payments to authors (advances and royalties) were between 40 and 45% of revenues. So if an author that earns out keeps 25% of revenues, royalties could be roughly 70% higher in a world without advances. This number is a rough swag, but considering that the majority of books don’t earn out, and the huge advances that are often paid in high-profile auctions for books that don’t work out, it’s likely in the right ballpark.
“The publishing business is notoriously unpredictable...”
So, the authors that earn out subsidize the authors that don’t, but this isn’t necessarily unfair. The publishing business is notoriously unpredictable (the first printing of the first Harry Potter book was around 1,000 copies). One can think of advances as being like fire insurance: If your home doesn’t burn down, you are subsidizing the person whose house goes up in flames. Yet it’s innately fair because no one knows whose house will wind up needing the coverage.
But this analogy only goes so far in describing the situation of authors. There is a subset of authors that have a reasonably good idea of how many copies they are likely to sell, at least relative to most authors. I’m going to focus on non-fiction here, because that’s the world I understand.
Who Loses in the Current System
Consider the niche non-fiction author. This author is writing a book on a very specific topic that he or she knows very well. To give a goofy example, imagine that an author is an expert on recycling human waste (turning it into compost) and is writing a how-to book on the topic. I’m pretty sure that I would reject this proposal very quickly because, one, yuck, and two, how many people are likely to want this book?
“Unless the niche is particularly sexy, niche authors generally get very modest offers, if they get any offer at all.”
But this author knows their topic, works with homesteaders and environmentalists, and has every reason to believe that there is a market for this book. This niche author, like every niche author, knows their field much better than the publisher does. They believe this book will sell well, and have a reasonable basis for this belief, but will have a hard time convincing a publisher. Unless the niche is particularly sexy, niche authors generally get very modest offers, if they get any offer at all. In other words, they will get advances that are very likely to earn out. (By the way, The Humanure Handbook, by Joseph C. Jenkins, was originally self-published, and has sold well over 100,000 copies.)
Now consider the big-platform author. For non-fiction books, the author’s platform is a very important component of the book deal. Platform can mean many things—it can mean reputation, relationships with influencers, size of email list and social media network, ability to get media, and more. There are two elements of platform that are critical to understand: One, the author’s platform is somewhat measurable. The numbers don’t always mean the same thing (what’s a million Twitter followers worth?), but there is some basis for a publisher to very roughly estimate the value of the author’s platform. Two, the author understands his or her platform better than the publisher does. The author knows how good the relationship with the Dr. Phil producers really is. The author knows how many Twitter followers were bought, rather than organically generated. The author knows his or her followers’ level of enthusiasm and support and how much they’ve spent on previous projects. The author knows the strength of his or her reputation with key influencers. Or at least, the author knows these things better than the publisher does.
When an agent works with an author to put together their book proposal, they put the platform front and center, and quite rightly. The platform is positioned to appear as strong and powerful as possible. The publisher’s job is to figure out how strong the platform really is. It’s easy to get this wrong.
“...some big-platform books are undervalued by publishers.”
Some big-platform books wow the publishers, and generate aggressive bidding at auctions, resulting in advances that are unlikely to be earned out. But some big-platform books are undervalued by publishers. This can happen for many reasons. The topic may be unsexy or out of favor, or the platform simply may be stronger than it appears on paper.
I recall sitting down with Colin and Tom Campbell over a decade ago, when they were pitching me their science-heavy book on the merits of a plant-based lifestyle. They told me something I’d never heard from an author before—they didn’t want an advance. What they did want were extraordinary royalties, considerably higher than standard. As an independent publisher, I was able to agree to this request. The China Study has gone on to sell over three million copies.
What Colin and Tom knew, and what many big-platform authors know, is how strong their platform really is. But if they can’t communicate this to their publisher, they will get a relatively modest advance (it could still be large, but modest relative to the project’s true potential). Again, they are very likely to earn out. So for some sets of authors, the current system really isn’t fair. They get deals that are very likely to earn out, and so get a smaller percentage of their books’ potential than authors with more sexy projects. But what can they do about it?
“...while self-publishing is a great option for many authors, there are inherent limitations.”
Increasingly, they are turning to self-publishing as a more viable option. Rather than agree to a deal where the bulk of the profits will likely accrue to the publisher, some authors, particularly large-platform authors, are experimenting with this. But while self-publishing is a great option for many authors, there are inherent limitations. It is very hard to replicate the capabilities of a strong, experienced publisher, in everything from editorial attention and cover design to marketing and distribution. At BenBella, we’ve taken on a handful of already successful self-published books, and have frequently managed to sell five to tentimes as many books in our edition.
I think there’s a better alternative, one that BenBella has been pursuing for years.
“These deals aren’t for everyone, but the authors that like them, really like them.”
The Profit-Sharing Model
About one-third of our book deals are profit-shares, generally with no advances (the rest are traditional deals as described above). We offer these selectively to authors with strong market potential, and who do not need the immediate cash of an advance. These profit-share deals can pay up to double the royalties of a traditional deal—if the book sells well. These deals shift the economics of the publishing deal, allowing authors to be compensated fairly based on the value they create, rather than by their ability to attract an outsized advance. These deals aren’t for everyone, but the authors that like them, really like them.
Over the last three years or so, I’ve noticed that many sophisticated agents are more interested in profit-share arrangements. These agents are modeling what they believe their author’s P&Ls are likely to be, just like the publishers do. And they push for advances that are likely to capture a respectable portion of the total profits generated by the project. I’ve noticed that for some of these agents, BenBella is Plan B. Plan A is to get a significant advance relative to the project’s potential. But if they only get offers that are likely to earn out very quickly, a profit-share looks increasingly attractive.
“The strong-selling books—the books that keep the lights on in most publishing houses—are a lot less profitable under a profit-share than a traditional royalty arrangement.”
From the publisher’s point of view, profit-share deals have advantages and disadvantages. The strong-selling books—the books that keep the lights on in most publishing houses—are a lot less profitable under a profit-share than a traditional royalty arrangement. On the other hand, there are no unearned advances to fund. And there is one fundamental advantage. Because authors’ understand their platform better than publishers do, authors that are attracted to the profit-share model tend to be authors you’d want to bet on.
There are other advantages to the profit-share model, especially for a publishing house like ours that makes an enormous commitment to author partnership. While we work hard to achieve true partnership on every book we publish, the profit-share facilitates it. On every issue, from format and paper choice to marketing budget and print runs, a profit-share gives authors and publishers a common perspective. There can still be disagreements, but a profit share focuses all of us on the same goal—maximizing the total value created by every book project.
Glenn Yeffeth is founder and Publisher of BenBella Books, a leading independent publishing house. For fifteen years, Glenn was a corporate strategist and marketer who ran companies in Chicago, London, and Dallas. In 2001, Glenn formed BenBella Books (named after Glenn’s children Benjamin and Isabella) to combine his love for books with his passion for marketing. Glenn has an MBA in Marketing and Finance from the University of Chicago and a BA in History from Oberlin College. His favorite book is The DaVinci Mole, a little-known work by the eminent philosopher Dr. Ian Browne. More about Glenn can be found at LinkedIn. He can be reached at firstname.lastname@example.org