Home » Big Publishing, Royalties » Who got the better deal from Big Publishing – E.L. James or Hugh Howey?

Who got the better deal from Big Publishing – E.L. James or Hugh Howey?

15 December 2012

From Shawn Coyn via Steven Pressfield:

[W]hen the largest English Language publishers in the world came calling in March 2012, Ms. James (a pseudonym for a former British television producer named Erika Leonard) and her agent Valerie Hoskins decided to hear them out.  If a big publisher were to take over the production of the paperbacks, the price would surely fall, the availability of the books would be radically improved and thus more people would be able to afford and find them.

The Executive Vice President and Publisher Anne Messitte at Vintage, a paperback division of Random House, made the most compelling argument. So Ms. James decided to sign over the paperback publishing rights to her works to Vintage for that magical phrase…the seven figure advance.

But there was catch. In order to cash the $1,000,000 check, Ms. James would have to sign over not just the paperback rights, but all rights, including eBook rights.

Let me assure you that Vintage did not pull a fast one here. It was not the only publisher interested in the books and I can safely say (although I was in no way privy to any of these negotiations) that every single big six publisher that Ms. James met insisted that she turn over eBook rights—including Random House’s rival Simon & Schuster.

No eBook rights, no deal.  It was a line in the sand that none of the Big Six were willing to cross in March 2012 . . . Just 8 and a half months ago. If E.L. James wanted a big six publisher to publish her books, she had to give them her eBooks too.

A case study of the numbers involved with the Fifty Shades trilogy, though, reveals just how expensive it was for Ms. James to agree to these terms. I wonder how many more bestselling self-published writers will be willing to play by them in the future . . . I can guarantee far fewer after other news that was practically ignored by big media from this past Wednesday . . . more on that below.

. . . .

Here is the math for the Fifty Shades of Grey trilogy.

Estimated total units sold in 2012 (from numerous reports): 35,000,000.

I’m going to assume that 50% of those units were sold as eBooks.  My gut is that the percentage of eBooks sold is far higher than that. Early in the heated selling climate just after RH/Vintage took over, Amazon.com reported that the trilogy eBooks were selling at a rate six times as much as the paperbacks.  But to be conservative, for the sake of argument let’s just say 17,500,000 eBooks were sold and 17,500,000 physical copies were sold.

How much money did they make for Random House/Vintage versus E.L. James?

. . . .

The paperback revenue ($140,000,000) minus the $40,000,000 in production, warehousing and shipping costs (20,000,000 copies x $2.00) leaves $100,000,000 of net revenue to Random House.

But Random House/Vintage has to pay the author too.  They don’t get to keep all of that pot for themselves.

. . . .

So Random House/Vintage’s conservative net profit on just the sale of 17,500,000 paperbacks is:

(140,000,000-40,000,000-28,000,000)

$72,000,000.

E.L. James’ share is:

$28,000,000.

I’d argue that that distribution of income is fair given the fact that Random House/Vintage dealt with an extraordinary number of variables to bring the books to the marketplace.

But that’s not all of the revenue . . . we now have to look at the revenue generated by eBook sales.

The eBooks retail for $9.99, which is the same price as the original The Writers Coffee Shop version that sold 250,000 units.  Random House/Vintage sells the eBook under the agency model and collects 70% of all revenue from the sale of the $9.99 book, or $7.00 a unit.  The remaining 30% goes to the retailer.

So the total amount of revenue generated by 17,500,000 eBook copies sold is (17,500,000 x $7.00) $122,500,000.

. . . .

The standard royalty rate for eBook from the big six publishers is (ahem) 25% of net dollars received.  It’s hard not to believe that there is not some sort of gentleman’s agreement among the big six in place about not breaking this barrier. I’m not saying that the six heads got together and shook hands on it.  I’m saying that they didn’t have to.

So E.L. James received 25% of $122,000,000 or $30,500,000 of the eBook revenue pool.

Random House/Vintage on the other hand received $91,500,000 of net revenue for that same sale of eBooks.

So the totals for the 35,000,000 copies sold are:

Random House/Vintage: $163,500,000 net profit

E.L. James: $58,500,000 in royalties

Now, let’s add up what Random House/Vintage brought to the table to earn almost 3 times as much money on the sale of E.L. James’ work than she earned.

A new jacket?  No. Random House/Vintage wisely used the same cover art that made the books number one bestsellers before they took over the franchise.

New publicity? Not really. All of the publicity generated by Fifty Shades was pretty much in the works before RH/Vintage took over. In fact, all subsequent ink is devoted to how successful the books are more than anything else. I doubt that Vintage had to expend more than 100 hours of a single publicist’s time managing this campaign.

. . . .

Can an argument be made that without Random House/Vintage the trilogy would not have become the sensation that it became?  If there weren’t stacks and stacks of paperbacks at Barnes & Noble, the book would just not have done as well.  I think that’s true.

For fun, let’s say we take away 75% of the volume of sale of the trilogy to offset the loss of Random House/Vintage.  That is, even though Fifty Shades of Grey was a number one New York Times bestseller without the help of Random House/Vintage, it never hit full throttle velocity and sold just a quarter as well. And because the paperback situation never got sorted out, it only sold in eBook.

So instead of 35,000,000 copies sold, it sold 8,750,000. Only in eBook.

In this case E.L. James would receive $61,250,000. Instead of $1.75 a unit (25% of the $7.00 RH/Vintage received from eBook retailers), she’d receive the full 70% of retail cover price eBook revenue or $7.00 a unit times 8,750,000.

Without doing the deal at RH/Vintage, E.L. James would have made $2,625,000 more selling just 25% of the 35,000,000 she sold with Random House/Vintage.

. . . .

If E.L. James just sold the physical paperback rights to Random House/Vintage and kept the eBook rights for herself, Random House/Vintage would have made $72,000,000 . . .

$72,000,000 represents an entire year’s worth of profit for a Big Six publisher.

$72,000,000 is even enough to cover generous $5,000 bonuses for 5343 employees (approx $27,000,000) with quite a bit of net profit in to the coffers left over too.

How do I know that Simon & Schuster did this math?

Because they just did a deal with agent Kristin Nelson and her client Hugh Howey. Howey wrote and self published books in yet another bestselling series called Wool. Howey hasn’t sold 250,000 eBooks like E.L. James did on her own though.  He’s sold 300,000.

Simon & Schuster ceded eBook rights entirely to Howey and agreed to just publish hardcover and paperback copies.

You’d think that the 1100 online news sources that covered the generous Random House bonus story would be all over this Hugh Howey story right? I just did another Google search for the Hugh Howey deal and got 36 hits. So no . . . few people understand this development for what it really is.

. . . .

This physical copy only deal is a game changer. It’s nothing short of revolutionary.

Think about it. Simon and Schuster didn’t raise the eBook royalty for Hugh Howey from 25% to 30% of net receipts to lure him to do a deal with them.  They didn’t even go to 50%. They walked away from eBook entirely.

Why?

There are any number of reasons why S&S did this deal (not the least of which is that CBS is probably in the middle of negotiations with News Corp. to sell them). But one reason makes the most sense. Someone at Simon & Schuster sees the future (I’m pretty sure I know who).

And the future is in the hands of long tail business creators who have the foresight to take the advice “forget the myths . . . follow the money” as seriously as they do their craft.

Link to the rest at Steven Pressfield and thanks to Sean for the tip.

Big Publishing, Royalties

26 Comments to “Who got the better deal from Big Publishing – E.L. James or Hugh Howey?”

  1. When I first read about Howey’s deal I thought I was in bizzaro land. A Big 6 publisher actually signed a contract with a self-pub author, for a (possibly) seven-figure advance, and they walked away from the ebook rights? I honestly hope this becomes the standard business model going forward, as it is pretty dead simple to make up a good looking ebook, but it’s still a little complicated to set up a print-on-demand book – that truly is what the Big 6 are good at.

    • Hugh passed up the 7 figure deal (twice!) to take a lesser monetary offer that let him keep ebook rights. I expect it was a lot less, but he didn’t specify.

      I’ll speculate a bit and guess the reason this deal didn’t get the press the EL James and Hocking deals got is because there wasn’t a press release from the publisher out to all media contacts spouting off about aquiring the book rights for 7 figures. But I think Hugh has quietly taken the smarter path into hybrid publishing even if it didn’t start the hype machine. I hope it works out better than John Locke’s paper deal did. I’ve never noticed his book on a shelf. Hugh deserves better.

      • Not that much less – PW reported it as a ‘Significant deal’ which puts it in the $250-500,000 range. I’d say Hugh still comes out *way* ahead on this one. :)

        • If you look at the math in that article, if the author is anywhere near correct (and I believe that he is) then that Hugh came out “way ahead” is putting it mildly. :)

  2. Yes! So happy to see someone spitballing how much these “big” contracts actually cost writers! And of course James’ agent is getting a bite of her share….

  3. I was somewhat baffled as well to the underwhelming coverage of the Howey deal. – Though when you look at the backwater book sections of a lot of mainstream media like the Globe & Mail they really are little more than promotional venues for publishing houses – so maybe it should actually be of little surprise.

    That said, and although Howey is not the first to negotiate this type of deal I think he does represent a very real standardization that going forward will define the industry. This is a big deal IMHO, not just in how he negotiated deals with publishers but the manner in which he developed his Wool series – with his success you can be sure a lot of aspiring authors will attempt to emulate his approach.

  4. Everyone self-publishing books out there who wishes to have a trad deal someday owes Hugh Howey a big thanks for holding fast to his beliefs and goals and breaking ground for those who will come behind him. But to be fair, let’s also give Bella Andre a huge round of applause for doing the exact same thing *before* Hugh did. Pioneers!

  5. Outstanding article! Preach it! Never, ever give up your e-book rights. You can make more money with e-book only.

    And the fact that Random still would have made 72,000,000 with print rights only, is something for Publishers to think about. I think Steven Pressfield’s point that S&S Were thinking about that with Hugh’s deal is probably dead on point.

  6. I always suspected that this is how it works. Publishing is a business; the publishers are not in it for the benefit of the writer. Why should they be? The writing is the product. Sell product = make money.

    And it’s so easy to dangle money in front of the writer…more money than they’ve ever seen in their lives. A million dollars, wow. But to a big corporation, $1M is ready money.

    Thank you for continuing to show writers the reality of the different forms of publishing. I don’t have anything against writers who want to be traditionally published; as long as you go into the deal in the full knowledge of the respective risks and benefits, it’s your book and you can do what you like with it. But you’ve got to know where the money’s going before you sign.

  7. Coyne used to work at Rondom House, is now a literary agent.
    http://www.storylogue.com/docs/interviews.html?documentId=22

    John Locke’s deal with Simon & Schuster: the print version is published by Locke’s company, S&S is his distributor. Still, a huge deal.

    http://www.mediabistro.com/galleycat/simon-schuster-to-handle-sales-distribution-for-john-locke-print-books_b36824

    Bella Andre is the first to get a print-only deal from a major traditional publisher, Howey is the first to get a print-only deal from one of the Big Six. Both deals are ground-breaking.

  8. This is that rarity — a good and well-researched article about some facet of self-publishing. Well worth reading.

  9. Thanks to Elle and Sean for mentioning my 7 figure print-only deal with Harlequin, which happened in September. I, too, have been shocked by how little coverage my groundbreaking deal has gotten (although TIME Magazine did write about it last week, so kudos to them!). In fact, I was speaking at a publishing conference in October and on a panel next door to me, several agents and editors said “No one will ever do a print-only deal”…and there I was presenting a workshop in the room next door, having done exactly that for seven figures with Harlequin.

    For those who don’t know about my game-changing deal, in September I signed a 7 figure deal with Harlequin MIRA for world English print rights only for my self-pub NYT best selling Sullivan series. I retained all digital, foreign, audio and tv/ film rights. Harlequin is doing  a major global paperback launch starting June 2013 in the US, UK, Canada and Australia, so obviously they get the value of the print-only rights and they have been amazing to work with. I have sold more than 1.4 million self-pub books so far.


    ~ Bella Andre

    http://www.bellaandre.com

    • Bella, thank for stopping by and letting us know the details of your deal. That was really cool.

      Impressive that you were able to negotiate a print-right only deal. And since it was with MIRA, I can only approve. :)

      • Thank you, Mira! Everyone said the print-only deal couldn’t be done…but I always believed it could. Maybe this is my degree in Economics talking :) but at a certain point in every situation, the numbers make more sense than anything else. Fact is, while my Sullivans have reached a tremendously large audience in ebook, there is still 70-90 percent of the reading market to be reached in paperback. I’m *very* excited about Harlequin’s ability to do just that.

        ~ Bella

    • BAM! Pioneer, ground-breaker, butt-kickin’ lady author. I was at that conference … so inspired not only by the success but with the generosity of the authors who were willing to share so much information openly with others. So glad we have such strong-willed indies with vision at the helm of this ship!

      • Thank you, Elle! I’ve always been incredibly inspired by the success of other authors. In fact it was a NYT bestselling friend of mine who first suggested I self publish in 2010. Boy am I glad she did….
        :) Bella

  10. To answer The Passive Voice’s question, I’m going to go with EL James. WOOL is utterly devoid of titillation, which means it is going to sell a FRACTION of what 50 Shades sold. I don’t think we’ll see another phenomenon like 50 Shades for a long, long time.

    I have to tip my hat to James, Locke, Andre, Hocking, Eisler, Konrath, and all those whose names will be remembered far longer than mine. Plenty of authors took much longer strides. And of course, I applaud Simon and Schuster for making the deal and my agent Kristin Nelson for supporting me in turning down offers that would’ve been far more lucrative for her. In fact, looking at the list, I think I probably come around 21st or 22nd among the people who deserve credit. My wife ranks higher than I do.

    Anyway, the answer is still EL James. I think she did just fine.

    • You might just come out ahead, long-term, don’t forget. I think you did wonderfully and I can’t wait to take the time to read Wool.

      • Hugh,

        I’m going to respectfully disagree with you on that one, for one simple reason.

        I seriously doubt that EL James has another 50 Shades-ish book in her. I’m baseing this on the source material and the level of writing. I just dont see lightning striking twice there.

        You, however, give me the impression that you have several books and many years of writing ahead of you. I think Wool is just the start.

        So I would say that you both got the best deal for what your respective futures hold. (I would not be surprised if we never heard from EL James again.)

    • You’re right that you couldn’t have done it alone. A good writer knows that. But you’re the magic component. You’re the factor that’s different from 50 Shades and some Wikipedia-scraped pile of trash. You’re a humble guy, which is awesome, but at least let this comment make you blush with pride in private. :D

  11. I was at that publishing conference in October that Bella mentioned and it was like Galileo who was unable to convince the powers that be that the earth revolved around the sun. They would not be convinced and he muttered under his breath–and yet it moves. Indeed, and yet it moves. Bella and Hugh Howey and Barbara Freethy have an ability to see beyond the iron clad shibboleths of publishing, straight to the heart of the matter. The relationship between writer and reader.

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