October 27 2009

There have been some questions on the site about the Author royalties and the economics of publishing economics in general, and Makana suggested I explain the basics. I’ve been involved in the economics as editor-in-chief of a mid-size New York publishing house, as editorial director in a small publisher based on Maui, and I was also involved in drafting their basic contracts, which reflect how the business is run. I have also been a literary agent for almost 15 years. So I can see the issues from several perspectives. The following are necessarily generalizations, and the devil is always in the details; there are exceptions to prove every rule. But the basics of the economics haven’t changed that much at the publisher’s end. They have changed drastically at the bookselling end, the proverbial tail that wags the dog. The dog is the Publisher, or the Author, depending on your point of view.

I won’t try and cover the whole subject in one blog—I doubt anyone would read it.

Today I’ll discuss Author royalties. Then I’ll discuss how booksellers operate, and how that affects Authors and their Publishers. Then I’ll discuss the main economic issues the Publishers have to consider when they acquire a book.

List and Net Royalties

Authors’ royalties depend on the system of payment used by their publisher. Most major national publishers pay royalties on the basis of the list price of their books—the price printed on the cover and in their catalogs. Smaller publishers and university presses pay royalties on the basis of net receipts—the cash they actually receive from sales by the bookseller.

Major publishers can afford to give list-price based royalties--about double the net receipts rate of the smaller publishers-- because in theory the major publishers sell books in much larger numbers, which translates into economies of scale in printing, and also make much more from subsidiary rights.

Author royalties vary, depending on the type of publisher, the type of book, the volume of sales, and the discounts given by the publisher and the bookseller.

Standard Royalty Rates

Standard royalties for hardcover titles at national publishers start at 10% of list price. The escalation points are negotiable, but often rise by 2.5% every 5,000 copies sold, to a ceiling of 15%. The publisher tries to recoup his preparation costs before allowing escalation. Standard royalties for paperback titles at a national publisher are generally 7% of list price, escalating to 10%.

Standard royalties at smaller publishers tend to be 10% of net receipts for hardcovers, and often do not escalate. For paperbacks royalties can start as low as 6%, and can escalate to 10%.

Standard royalties for illustrated books at a national publisher can be as low as 5% of list price, and 5% of net receipts for small publishers.

The Selling Price is the Key

The key to the “trade” publishing business (i.e. all books found in a general bookstore) is the actual selling price of the books. That is largely controlled by the bookstores. The chain bookstores with their hundreds of stores and their centralized buying dominate the bookselling business.

In Hawaii we have very few independent bookstores. This may seem unfortunate, until you realize that only 15 years ago there were no Borders or Barnes & Noble stores in Hawaii.

Next: The bookseller and the economics of publishing.

Post-Script: Where the Wild Things Aren’t

We went to see the movie of Where the Wild Things Are, based on Maurice Sendak’s classic children’s book. It was hard to imagine how a movie could be made of a book of 14 images, resonant as those images were. However we’d seen Karen Beardsley play Max in a New York City Opera version and enjoyed that a lot. Now The New York Times had given the movie a rave, and so had various friends. We were very disappointed! Annoyed! The director, Spike Jonze, avoided the obvious entry to Max’s dream, added an unnecessary boyfriend to distract Max’s mother, and spent forever on the Monsters’ literal personal problems. I interviewed Maurice Sendak when he published his In the Night Kitchen, and he then resolutely resisted any literal interpretation of his stories--but he seems to have been much involved in this movie. I went back to review the book, and his wonderful original images and stories have thankfully erased the movie from my mind.

Tags: Add new tag, Karen Beardsley, Maurice Sendak, net receipts, opera, Royalties. List price, royalty escalation, Spike Jonze, standard royalties, The New York Times, Where the Wild Things Are

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