Author Pay and Publishing Profits

“The AAA welcomes the debate instigated by Nicola Solomon’s article about publishers’ profits and indeed Andrew Franklin’s views on the same,” Kremer tells us.

“One of our responsibilities as agents is to remind publishers that authors are their business partners and as such they should be included in conversations about the economics of publishing. We welcomed Andrew’s acknowledgement that an unearned advance does not, in and of itself, signal an unprofitable book. Authors are not a cost to the publishing industry: they are its most precious assets.

“I can also add from my own perspective as an agent,” Kremer says, “that it goes to follow that, as publishing’s most precious assets, authors should be rewarded by at minimum fair royalties and, in many cases, by a greater share of the profit than a standard royalty can allow. In most cases this means that a ‘fair’ advance may well be one that will never earn out.”

Kremer’s statement sets the stage, then, for our look here at (a) Solomon’s opening salvo, (b) Franklin’s publishing-house response, and (c) special commentary provided to Publishing Perspectives by literary agent Andrew Lownie.

The highest level takeaway from this exercise is a reminder that book publishing in many markets is still an industry easily accused of obfuscation because such figures typically aren’t explicated in financial reports. As in the call this week from BIC  for industry players to stop putting promotional content into title and subtitle fields, this is an argument well worth watching.

The Authors’ Case: ‘Proper Returns’

The Society of Authors’ president, Philip Pullman, was quoted in Solomon’s essay clarifying the nature of the authors’ complaint this way: “To allow corporate profits to be so high at a time when author earnings are markedly falling is, apart from anything else, shockingly bad husbandry.

“It’s perfectly possible to make a good profit and pay a fair return to all of those on whose work, after all, everything else depends,” Pullman said. “But that’s not happening at the moment. I like every individual editor, designer, marketing and publicity person I deal with; but I don’t like what publishers, corporately, are doing to the ecology of the book world. It’s damaging, and it should change.”

And when, Solomon writes, the UK’s Publishers Association created its study, The Contribution of the Publishing Industry to the UK Economy, the consultancy doing the survey estimated that in 2016, £161 million (US$224.9 million) was paid to authors in advances, royalties and secondary rights revenue. The UK publishing industry’s turnover was reported to be £5.1 billion (US$7.1 billion), of which book sales contributed £3.5 billion (69 percent) and sales of academic journals £1.2 billion 24 percent.

“That means,” writes Solomon, that “authors received around 3 percent of publisher turnover. Even if we take out journal revenue—where authors are, shockingly, paid next to nothing—authors were receiving less than 5 percent of turnover in the same year that (major) publishers’ profits were around 13 percent.”

Solomon, in signing off on her essay, basically puts the classic golden goose dilemma on the table: “Publishers, of course, have a duty to make a profit for shareholders. But unless authors receive proper returns, the supply of quality work will inevitably diminish.”

A Publisher’s Answer: ‘To Remain Solvent’

The Bookseller’s response from a publisher comes from Andrew Franklin of the independent house Profile. And one of his first points is that the publisher takes a hit from the beginning, in effect, by paying an advance against royalties that may well not earn out. “Profile’s offer is always for an advance against royalties (and rights income if the publisher is taking, say, translation rights),” Franklin writes.

“In theory, publishers pitch advances at a level that will be covered by the royalties the author earns. In practice, the advance is frequently not ‘earned out,’ so the author is taking a higher share of the total revenue from the book than the royalties would earn.”

He goes on to cite other issues including a retail sector that takes “more than half the recommended retail price.” And he points to the effect of discounts on a publisher’s take. “An author on a 10-percent royalty for a £10 hardback is taking £1, or 10 percent of the total price. But if the publisher is selling the book at a 56-percent discount to bookshops, then the author will receive 23 percent of the publisher’s total net revenue. This is extraordinarily close to the 25 percent of net receipts that is now the gold standard for ebook royalties.”

To his credit, Franklin does go on to name the percentage his house is paying to authors, and it sounds comparatively good: “So bookshops take more than half of the total and publishers give almost a quarter of their revenue to the author. In both 2016 and 2017, Profile paid out just over 22 percent of its total revenues to its authors. But where does the rest go?”

Franklin then goes into a helpfully candid and extensive look at expenses to which publishers are exposed, including, for example, what he says is approximately £335,000 for rent of his company’s 40-person office space in the Central London area called Angel. “Business rates are on top,” he writes, “and are about to increase significantly. Fixed costs also include capital expenditure. All that has to be paid for from the net receipts of sales of books.”

Beyond this, of course, Franklin writes, are “the direct costs attached to each book…the costs of sales.”

Here, he’s discussing sales force, distribution, marketing, printing and binding, editorial and design, and the challenge of paying for returns–books returned unsold by retailers. “Profile’s total returns on UK sales,” Franklin writes, “are approximately 14 percent, but that average hides some books with far worse rates. Sometimes more than 40 percent or even 50 percent. Returns are a real cost, because the publisher has paid to print and deliver the books, and when the books come back they are generally pulped.”

And in sum, Franklin ends saying much the same for “his team,” if you will, that Solomon is saying for hers.

Just as she points out that dwindling compensation for authors will drive authors–and good content–out of the business, Franklin says that publishers are in a kind of mirrored, precarious bind: “We do not forget, he writes, “that, like all businesses in a capitalist world, we must make a profit. And we will never forget that if we do not, after a few years we will go under. We mustn’t lose sight of our duty to remain solvent.”

An Agent’s Perspective: ‘The Rusty Standard’

Andrew Lownie is among London’s best known agents. His Andrew Lownie Literary Agency in Westminster–with his oars from Magdelene College, Cambridge, over his desk–was founded in 1988, and its representation is divided between Lownie handling nonfiction and his associate With David Haviland representing fiction. Together, Lownie and Haviland are carrying the work of roughly 200 authors.

Lownie is also an author, and his wryly observed biography of Guy Burgess, Stalin’s Englishman, was published in late 2015 by Hodder & Stoughton and captured the St. Ermin’s Intelligence Book of the Year award along with accolades from The Times, The Guardian, the Daily Mail, and the BBC, which named it History Book of the Year.

Having given Franklin’s publisher viewpoint careful consideration, Lownie tells Publishing Perspectives, “I only wish authors were being paid a royalty of £1 on each home sale of a £10 hardback or 75 pence on the home sale of a £10 paperback. The reality though is that such a royalty is only likely to be paid on less than 15 percent of trade home sales and in some cases, particularly with paperbacks, less than 5 percent of trade home sales.”

Here’s where Lownie’s long years of negotiation and management kick in to provide a context as nuanced from the agent’s purview as Franklin’s is from the publishers. The detail he has provided might not be needed by all our readers, of course, but we want to quote him in full, as The Bookseller rightly did with Franklin’s statement.

“Given discounts,” Lownie says, “authors’ royalties tend to be reduced by a fifth on sales at between 50 percent at 55 percent discount and by two-fifths on sales between 55 percent and 60 percent discount. The royalty on home sales at 60 percent or more discount in many cases will be based not on the retail price but the amount actually received by the publisher.

“So on home sales of £10 hardback to a bookseller at 56-percent discount, the author will be receiving less than 14 percent of the publisher’s net revenue. It is not at all unusual for the royalty on the majority of home sales to be based on three-fifths of the full rate and/or the amount received.  Of course these royalty reduction provisions vary from publisher to publisher, both in the amount by which the full royalty is reduced and the points at which those reductions apply—fairness of which can only be judged once the royalty statements arrive.

“In some cases,” Lownie says, “the structure of these provisions is such that an author could be forgiven for the opinion that they act as an incentive to the publisher increasing the discounts they offer to booksellers by 0.5 percent or 1 percent. The truth then is that very few authors receive a proportion of a publisher’s net revenue from home sales which is anywhere close to the rusty standard of a 25-percent net receipts ebook royalty.”

With that “gold standard” on ebook royalties having been tarnished to a “rusty” one, in Lownie’s assessment, he goes on to place another factor on the table of the debate.

“Increasingly,” he says, “where the major publishers are concerned, there’s another factor which results in the author receiving considerably less than that £1 per copy–special sales to discount wholesalers/retailers. The royalty on such sales is invariably based on the amount received by the publisher and that can be as little as 20 percent or even 15 percent of the full retail price.

“There’s nothing particularly new about special sales,” Lownie says, “except that increasingly nowadays they seem to be part of the initial marketing and sales strategy, rather than a just a useful tool for reinvigorating interest in a book or disposing of surplus stock.

“The benefits to the publisher of these deals—increased print runs/lower ppb [paper, printing, and binding] per book, increase in turnover, lower cost of distribution/sale and no returns to deal with—are of little to no benefit to authors. Even with the quantities involved the royalty earnings often do little more than to put a dent in the unearned balance of the advance.”

And as The Bookseller editor Philip Jones writes in his column on the “Profits From Publishing” debate, “In a flat market, the more authors who are published, the less each will receive,” and—another dependable reality—”the big books still bail out the rest.”

Nevertheless, Jones goes on to say—and with Andrew Lownie’s practiced perspective on the matter, we agree—”Nicola Solomon is right to raise the questions; publishers could do worse than provide some answers,” as Andrew Franklin has done.

More from Publishing Perspectives on authors is here.