Home » Amazon, Big Publishing, Mike Shatzkin » No, the Big Five are not a cartel and it really ignores reality to label them as one

No, the Big Five are not a cartel and it really ignores reality to label them as one

30 January 2015

From veteran publishing consultant Mike Shatzkin:

One of the best-attended breakout sessions of Digital Book World 2015 was the discussion called “Should Amazon Be Constrained, and Can they Be?” which shared the very last slot on the two day program. That conversation was moderated by veteran New Yorker journalist Ken Auletta, and included Annie Lowrey of New York Magazine, thriller author Barry Eisler, and Barry Lynn of the New America Foundation.

It turns out that the two Barrys, who have pretty much diametrically opposed positions on Amazon (Lynn wants them investigated by the DoJ as a competition-stifling monopoly; Eisler casts them, for the most part, as the heroes of the book business’s digital transition) have a common position on the Big Five publishers. They refer to them as a “cartel”. Eisler is sneeringly dismissive of “New York”, which he refers to the way Republicans of the 1980s referred to “Moscow”, as an obvious pejorative. He appears befuddled by how anybody interested in the well-being of authors and the reading public could take the side of these publishers who maintain high prices for books, contract with authors to pay them smaller percentages of sales than Amazon does (either through Amazon’s own publishing operations or through their self-publishing options), and notoriously reject a very high percentage of the authors who come to them for deals.

Perhaps because the focus was Amazon, perhaps because Eisler was both emphatic and entertaining in his roasting of the publishing establishment, and perhaps because the facts to defend them are not well known.

. . . .

I am not certain that Amazon can or should be constrained, but I am damn sure that the Big Five publishers are not villains, and they are certainly not a cartel. They do seem to be extremely poor defenders of their own virtue but they are doing yeoman work maintaining the value in the old publishing model — for themselves and for authors — while adjusting to changes in their ecosystem that require that they develop strong B2C capabilities while maintaining their traditional B2B model, the death of which has been greatly exaggerated. If I’d been on that stage, the discussion of Amazon would have been diverted when the trashing of the big publishers began.

I took the step of confirming in an email exchange my recollection of the counts in Eisler’s very entertaining, persuasive, and unchallenged indictment of the big publishers.

1. Their basic contract terms are all the same, which it felt at the time he was suggesting demonstrated collusion, but which in our subsequent exchange he clarified he interprets as evidence of “asymmetrical market power and a lack of meaningful competition”;

2. They pay too low royalties on ebooks, which he also attributes to their “asymmetrical power” and “an implicit recognition that publishers come out ahead if they don’t compete on digital royalties”;

3. They only pay royalties twice a year, rather than more frequently or more promptly, which Eisler also attributes to a lack of competition;

4. The term of big publisher contracts is normally “life of copyright”, which Eisler calls “forever terms”

. . . .

First of all, the Big Five have plenty of competition: from each other, as well as from smaller niche publishers who may but be “big” but certainly aren’t “small”. (That is why the big ones so often buy the smaller ones — they add scale and simultaneously bring heterogeneous talent in-house). They are all quite aware of the authors housed elsewhere among them who might be wooable. In fact, since we have started doing our Logical Marketing work, we have done several jobs which were big author audits commissioned by publishers who wanted to steal the author, not by the one which presently has them signed.

. . . .

But the big flaw in Eisler’s logic is the same one that dooms Hugh Howey’s“ Author Earnings” project to irrelevance: the assumption that the per-copy royalty terms and rights splits are the most important element of publishing contracts. In fact, they’re not. Actually, those terms matter in 20 percent or fewer of the agented author contracts with the Big Five. Why? Because the agents get the publishers to pay advances that don’t earn out!

In fact, I have been told by three different big houses what they calculated the percentage of their revenues paid to authors amounted to. We could call that thetrue royalty rate. The three numbers were 36, 40, and 42 percent. That includes what they paid for sales of paperbacks, all of which carry “stipulated” royalties of well less than 10 percent of the cover price (and therefore below 20 percent of revenue).

Take that on board. Big publishers are paying 40 percent of their revenue to authors!

. . . .

Not only were the authors’ collective royalty rates much higher than contracts stipulated, the authors got most of that money in advance, eliminating the authors’ risk. The only contracts on which the royalty terms matter are those that do earn out (and, arguably, those that are close). For all the others, most of Eisler’s list of complaints is irrelevant. And, for the record, I have never heard an author complain about that show of confidence, the work that follows in helping him or her reach an audience (which benefits all involved), nor the cash upfront.

More frequent accounting doesn’t matter if you aren’t owed any money. And if the solution to “forever” contracts were that you could buy your way out by paying back what you got in advances that your book didn’t “earn”, how many authors would do that?

. . . .

First of all, the standard terms in big house contracts are almost always more generous than the terms in smaller publisher contracts. Few — if any — of the smaller ones pay a hardcover royalty as high as 15 percent of list. Although higher digital royalties can sometimes be found, usually those are from publishers who have little capacity to deliver print sales, so digital royalties is all you’re going to get. (That might be okay for a romance novel where a big majority of sales could be digital. It would be disaster for the author of just about anything except genre fiction.) And some smaller publishers actually pay less than 25 percent for digital royalties.

So the Big Five terms are generally better and they routinely pay agented authors advances that no other publisher would attempt to match.

But, beyond that, the idea that they are a “cartel” (a characterization enthusiastically seconded by Amazon critic Barry Lynn after it was introduced by Amazon supporter Eisler), is really preposterous. In fact, the Big Five are, to varying degrees, federations of imprints that even compete internally for books, sometimes to the extent that they will bid against each other when an agent conducts an auction.

Link to the rest at The Shatzkin Files and thanks to Daniel and many others for the tip.

Everybody who believes that 80% of the authors publishing with Big Publishing are not expected to earn out their advances, please raise your hands.

And the price-fixing that the Price-fix Six engaged in with Amazon is the very definition of cartel behavior.

Amazon, Big Publishing, Mike Shatzkin

131 Comments to “No, the Big Five are not a cartel and it really ignores reality to label them as one”

  1. Eisler is sneeringly dismissive of “New York”, which he refers to the way Republicans of the 1980s referred to “Moscow”, as an obvious pejorative.

    What a bizarre statement. ‘Republicans of the 1980s’ referred to Moscow that way because it presided over a vicious, authoritarian culture that had to lock its people behind the Iron Curtain to keep them from running away.

    Is he really comparing the Big Five to the Soviet Union?

  2. “Take that on board. Big publishers are paying 40 percent of their revenue to authors!”

    I don’t get it : if advances are so risky, why don’t publishers negociate for lower advances against higher royalties ?

    Lower advances, sure. Higher royalties ? Didn’t see anyone mentioning anything like that.

    • Many people have said that publishers deliberately give big advances to best-selling authors knowing that they’ll never officially earn out; then they can tell Joe Newbie that they’re getting a 25% royalty rate, just like Joe Best-Seller, even though the best-seller rate ends up being much better than that when you compare the advance to the actual book sales.

      Meanwhile, what happens to Joe Newbie if he gets two or three $5.000 advances that don’t earn out? Most likely, he never gets another one.

      • Of course you’re right ^^

      • I have to say Edward, help me here. Im confused, 40% and 25% royalty rates? It’s more like 5-8-12% and if , IF it were 20%, I guarantee that was on wholesale. The wholesaling of books to AMZ for instance, can take 60-67% off cover price and still make a profit for AMZ and PUB but a pittance for author. The wholesaling of books to Costco, Wally, etc, has cost the authors dearly. But particularly through AMZ online. And 40%? I’m sorry, I dont understand. If big PUB is offering 40 on retail, I’m going to reinstate my last broken contract with Randy Penguino. lol

        • Shatzkin’s 40% is not a royalty rate. He claims it is the average percentage of publisher revenues being paid to authors through both advances and royalties. If an advance never earns out, then the author will have received a higher percentage of revenues than the nominal royalty rate in their contract.

          And the 25% royalty rate being mentioned is the typical rate for ebooks. However, it is 25% of net or “wholesale” (not a % of the list price as is typical of print book royalties) so it works out to approximately 17.5% of list price (again only for ebooks). The royalty rate is generally lower for paper books as you mentioned.

      • Also, I wonder how many books don’t turn of a profit (on paper) due to high authors advances and marketing costs.

        Probably a trick they learn from Hollywood…. See: Lord of the Rings, Harry Potter, Batman movies.

    • Shifting the focus from royalties to advances has several advantages for the more shady aspects of the traditional publishing industry:

      1. Writers are encouraged to think of an advance as a kind of buyout of the book, thus they aren’t supposed to worry as much about the small royalty payments, or the way those payments are accounted. Large numbers of traditional publishers simply don’t pay fair royalties, even based on the lousy contracts signed. IE: they steal the money due the writer. If the writer wants another deal, another advance, he’s got to accept the shady accounting and not demand audits. Best selling authors, aware they are generally stollen from, demand a lot more up front to make up for the thievery.

      2. If writers were simply offered buyouts, they would demand more money up front, but the promise of imaginary royalties, even if they are unlikely to be seen, allows publishers to keep advances smaller. The writer is assured if it is a hit, they will see at least some payout. And, if the book does well enough, the publisher has the option of tossing some money the writers way to keep him from going to another publisher.

      3. Most agents are also aware that writers royalties are being stolen. They are in on the scam. So they want their money upfront. This encourages them to be on the publisher’s side, not the writer’s side. Publishers can give generous advances on some deals to keep agents happy, while agents don’t fight for increases in royalties or demand real accounting.

      4. Advances are a graft, nepotism and influence peddling bonanza! Publishers win, agents win, and the literary elite win! If all publishers simply paid fair royalties, how to reward politicians, literary darlings and children of the rich? After all, they would have to actually write books people want to read. But thanks to the “tradition” of giving advances, big publishers can “estimate” that a politician’s boring life story is going to make a mint and pay a four million dollar advance. Doesn’t sell? Oops! They overestimated “potential” sales. Is Buffy’s literary masterpiece on the struggles of a pampered prep schooler a tad boring? Not to worry, simply pay a nice advance, shuffle books around, and then pulp them. No one even needs to know how badly the book did.

      5. Advances are a great way to steal from Peter to pay Paul. Specifically, money can be stolen from the small advances and nonexistent royalties paid to genre and mid-list writers and shifted in the form of big advances to the favored. But don’t worry, in the end it all evens out for agents taking 15%. Not so much for genre writers, but heck, they just write those books people actually read. They’re really boring at cocktail parties.

      • I can promise the higher the advance the more the average author will have to work like a dog touring, social media-ing, interviewing– and… NOT writing. But rather writing to order. Schwartzkopf was paid 5M for a bio that no one remembers. Rushdie, likewise, 5M. I never met a person who actually read his work all the way through, including myself, lol

        My 02? Many a vp/prez pub is a celebrity groupie, a chubby chaser, a person addicted to the next one-book wonder jolt of weird admiration the upper level publishers preen each other by/with. To me, the culture being corrupt is second order… that’s just the outcome of some at the top who are psychopaths, meaning persons without a conscience. I’ve heard so much of the ‘insider talk’ that would make any decent person’s stomach turn, that I am still sickened by the venus fly trap PURPOSEFUL atmosphere created to entrap authors in the pub culture.

        Sometimes you’re lucky, you have an editor and maybe a pub who believes in you sincerely. That wont last for most. There’s an off with their heads culture in big pub. Its exciting to some; arousing. I’m serious. You may lose you editor in a heartbeat. No matter how venerable they have been. Phyllis Graham, Ann Godoff, Susan Kennedy Peterson, Jane Friedman…. queens and visionaries… all taken to London Tower by ‘King Henry’ Bertalsmann or King Ruppie or other.

    • Secret info from inside sources isn’t what I would call high quality evidence. It is more akin to what racetrack touts specialize in.

  3. This is what reached out and grabbed me:

    “and notoriously reject a very high percentage of the authors who come to them for deals.”

    Is that what they’re calling the submission, query, submission (rinse, repeat) process?

    This year is the 20th anniversary of my first book being published. I’m a traditionally published author who’s also an Indie author.

    At no time did I think I was going to my publisher for a deal. Good grief.

  4. Why is it that whenever we see a Shatzkin article here, my reaction is that it’s unkind for us to speak ill of the dead?

  5. Shatzkin said: Not only were the authors’ collective royalty rates much higher than contracts stipulated, the authors got most of that money in advance, eliminating the authors’ risk.

    I don’t buy most of what he’s selling, but the statement above can be true in some cases. It pretty much describes the scenario under which I was willing to sell a series to NY–with a fantastic advance where I got most of the $$ up front and hardly any non-compete to speak of. I don’t think it’s fair to say that NY is completely unwilling to negotiate, because that hasn’t been my experience–at all. I think it depends largely on the author’s track record and sales history. If you have neither of those things, then a NY contract probably isn’t going to be a good deal for you.

    • Marie,

      I agree absolutely with your point about publishers.

      I’d bet that Shatzkin’s continuing point about advances not earning out (as a de facto method of paying higher royalties) is largely restricted to the highest tier of bestsellers. Lower-selling authors may not earn out, but in their case it is regarded as the failure of the book, not some roundabout way to give them higher royalties.

      That said, I have found the reality of negotiating with publishers (if you have any kind of track record to show) to be far different than the generally-accepted indie point of view (which I suspect reflects earlier publishing experiences and not current ones). While I would say that a successful indie is likely to make more money overall self-publishing, I have also found that things like non-competes, options clauses, publication schedules, etc., can be negotiated very advantageously.

      • Non-competes shouldn’t even be on the table. Or anywhere nearby. As in, same time zone.

        Unless they go both ways, of course.

        Take care.

      • I have also found that things like non-competes, options clauses, publication schedules, etc., can be negotiated very advantageously.

        Tell that to Dustin downthread:

        I’ve had two mid 6-figure offers from some of the bigger players in the traditional science fiction publishing field, and both had identical non-negotiable non-competes.

    • It’s reasonable to say Amazon won’t negotiate terms with KDP authors. But, at the same time, we can recognize they probably would negotiate them Stephen King.

      It’s way too much work to qualify everything to encompass all the outliers.

    • Yeah, it doesn’t eliminate the author’s risk; it just gives the publisher more leverage on when and how to publish.

      And I agree with PV – does anyone really think that publishers are expecting most books to not earn out advances? Does anyone think they take on a book with this in mind? Are they not in business to make money?

      The only explanation for this is that they take on a first book or two knowing this, but hoping the author will eventually earn them a great deal more, which explains non-compete clauses – they’re basically creating indentured servants by proclaiming that they paid out up front, so the author now owes them his or her fealty until the contract is paid off…which is usually never since the rates always change.

  6. The other cartels have been complaining that the big five publishers have been sullying their reputation.

  7. Is he basically saying that authors should look at Trad Pub as a work-for-hire arrangement?

    “Here’s five grand for your book. Don’t bother waiting for any more, because you probably won’t see it.”

  8. QUOTING MIKE SCHATZKIN: In fact, I have been told by three different big houses what they calculated the percentage of their revenues paid to authors amounted to. We could call that thetrue royalty rate. The three numbers were 36, 40, and 42 percent. That includes what they paid for sales of paperbacks, all of which carry “stipulated” royalties of well less than 10 percent of the cover price (and therefore below 20 percent of revenue).

    Take that on board. Big publishers are paying 40 percent of their revenue to authors!

    Much of my professional background is in economic development where I dealt with several dozen industries–none so bizarre as book publishing. None where you get an entirely different set of industry statistics, telling a COMPLETELY DIFFERENT STORY depending on who you listen to and when you happen to listen.

    For example, I know I’ve seen quoted many times that average book advances these days are under $5 or $6 thousand dollars, the result of steady year-after-year declines, and the desperation of authors wanting to be published and in bookstores.

    But not so. Not if you accept at face value the statement quoted above.

    So, I want to really get my head around the perspective Mike Schatzkin has offered here and thank the Big 5 for their generosity, especially, as captains of an industry where they are in such strong negotiating positions…. To show such forbearance is exemplary and much appreciated….

    One final request: Can you help me square this portrait of the Big Five with the observations that a/ more books are published now than ever, even in physical form; and b/ book stores (at least B&N stores are shrinking in terms of total #s of titles carried; and c/ in all of the non bookstore retail spaces where books are sold, they carry the same 200 books, more or less (which implies to me a narrowing of the range of authors likely to receive such big advances).

    I will say this: compared to other industries, this one that publishes books… is fascinating… like being a cat lover and discovering a whole new breed of cat.

    :o)

    • Assuming those percentages are true, that number probably comes from the few mega advances mixed with the more numerous 5K advances. That number is great if you’re a superstar author but not so if you’re midlist or below.

      • I think this dead on. I remember in high school when my math teacher brought up an interesting fact: the average salary for a geography major from the University of North Carolina – Chapel Hill was well into six figures. Much, much higher than geography majors from other schools. All the students in class puzzled over that one. Did UNC have a direct pipeline to Rand McNally?

        Nope. It turns out that Michael Jordan was a UNC geography major and was singlehandedly wrecking the average.

        Now think of how much Lena Dunham’s 3.7 million dollar advance and Tina Fey’s 6 million dollar advance messed up the metrics.

    • I pubbed 11 books with major publishers. I got advances ranging from $100 (yes) to $5K. Most were $2500. All earned out, just barely usually. It hardly seemed worth it for them or for me.
      This was, from what my friends tell me, quite common with publishers of my genre, romance (AKA The Cash Cow). Most of us earned out pretty small advances. If we didn’t earn out, we were usually dropped.

  9. I just can’t wait to see Joe Joe Konrath fisk this one.

  10. A relevant question is: How are the advances/royalties distributed across all of the authors published by the big houses? If a handful of best-selling authors are receiving say 50, 60 or even 70% or more of the net revenues from their books, that would majorly skew the figure for the percentage of all revenue paid to all authors, especially since the brand name bestselling authors must be earning a much higher percentage of overall revenue at most publishing houses than say an average mid-list author. And it would leave most traditionally published authors up in the cheap seats with small advances and net earnings close to the 25% of net in their contract (or even less for print books). It is a lot more likely to never earn out a multi-million dollar advance than it is to never earn out a $5-10,000 advance.

    Personally I do not care if Stephen King is making way more per book sold than most other traditionally published authors. But I do care that I am making way more per book sold than most traditionally published authors.

    • According to a news article about a year back, King has a contract all of his own, and doesn’t take an advance, just royalties. AFAIR he splits the profits 50:50 with the publisher (and presumably ensures they don’t try Hollywood accounting on him).

      • Yes, and I was just using him as a generic example without knowing the actual terms he gets. In any case, King probably does skew the percentage that Shatzkin is quoting.

      • Edward, the way I understand from being sometimes on the ‘inside’ is that certain already bestselling authors are made an offer by top pub: Hit the bestseller list for x number of weeks/months/years and we give you a premium atop ‘normally’ agented royalties. In the case of SK, he has so much money, that he could take 2% or 50% and it is overfilling the cauldron regardless. But do the numbers: lower advance vs higher royalties [on demon-dirven wholesale that deteriorates author earnings more and more each year] or larger advance, and ‘normal’ royalties, which are higher than’normal’ than those of not-best-selling authors.

        Also, there is this fact. In the high income earners, one may pay far far less in taxes in US for trickle income in any given year, thereby retaining more of one’s income vs huge advance that sole proprietor is required to pay estimated taxes on 4 times a year… and doesnt have the use of that tax payment each quarter, whether gov at end of year returns some or not, [without interest]. The amounts of tax paid in quarterly can be huge on advances, esp those structured as most are; in 4 pays; on deal closing, on acceptance of final, on pub of hardcover, on pub of paperback.

        anyway, just a .02. It would be interesting to know if some hi sale authors like patterson, cussler, sk and rowling have s corps or non-profits so set aside/protect/pay forward. I know sk funds huge numbers of things for kids.

  11. I just don’t get this. Advances are paid back using substandard royalty rates. For every book sold under those terms, the publisher keeps most of the money. Then, if royalties don’t surpass the advance, the author is said to have gotten a “deal” – ? Really?

    • I don’t get it. Who is this guy’s audience, beyond people that really, really want to agree with him / have some personal stake in agreeing with him? Is anyone taken in by this who has done any research at all?

      Do they just write these types of articles as a form of self-referential validation? Doesn’t matter if what the article says is completely delusional.

      “I’m okay because, see!!, right here, this article says I am.”

      • “Who is this guy’s audience”

        Gabby,

        Look at the comment here. There are certain controversialists in the media who deliberatly offer wild opinions and positions that they know will insense a portion of the population.

        Lotsa clicks, lotsa publicity, huge infamy-fame.

        Weez all yakking about it, ain’t we?

        brendan

      • Shatzkin is a corporate bootlick. He shills for the Big 5 cause they pay his bills.

      • “Is anyone taken in by this who has done any research at all?”

        Seriously Gabby, get some coffee, or a Red Bull, or whatever. Haven’t you been paying attention? 😉

        When the Shatz has data, like a BigPub report that supports his narrative it’s beyond refute or debate. Because…DATA!

        When YOU have real data, like and AER report or something that contradicts what he’s selling, then…A-HA, you still lose because he has ANECDATA from his leagues of nameless, faceless “industry insiders” that always trumps your actual data. Because…well, just because.

        So, arguing with the Shatz is always a losing effort. But it’s still entertaining. 😛

      • LOL… yes, they have pulled us all in and stirred the pot. I just found it surprising that they (he) don’t even try to disguise it as coherent/logical.

        (And also subscribing to comments at TPV… woah, not the best idea. I have like 43 email notices in my inbox since yesterday evening.)

    • I think Dave Mich, many bestselling authors do made advance plus royalties and for often decades after. even with used books mounting up for post-sales markets, and theft and etc.

      And you’r right, there is so much wrong with the system of output and pay that it boggles.

      advances can help alot to pay off something, for it is often more money, even at 1k or 3k than a lot of people have ever been able to amass at one time. Or to save it and parse it out to help supplement other income sources. It doesnt last it is true. And meanwhile if youre trad pub you are busting your everything to try to sell pre and post pub. Not write.

      It is ‘horrible-normal’ in my exp that many of us orig trad pub’d authors worked for min two yrs after pub, far far harder than any ‘support’ from trad pub, daily, to try to sell our wares, traveling until we nearly dropped, exhausting ourselves and our paycheck from dayjob to try to make our mark.

      The system of pay from trad pub depends on the author giving tons of time AFTER publication, and because the author is invested in their own work, but the pub is just calling le jeaux son fait, pub is on to next one day/ one year/ wonder, leaving authors all labor-dense in selling because sales dept has in that system, moved on. And on. Selling from trunk of car, going to every small and large bookstore, was the path of many many. And often one would meet other authors slogging away having done their gig at that store, just as you and two other authors were slogging in to hope to tell those gathered [IF there were any gathered] about your work. The readers who showed up were wonderful people. And many books were sold face to face. But also, the author’s advance could not cover the incessant travel, nor the doctor visits for health issues. When y ou go bookstore to bookstore, unless you have strength of bull, whatever people in that place have in sniffles, flu, etc, you often come down with too.

      The advance cannot cover the madness of actively trying to meet readers in meaningful ways, nor the day to day expenses of family, dog, cat, home, gasoline, and health. How many of us for a billion years here in usa were without health insurance, for instance.

      So just .02, advance and being able to write are often at odds with each other.my exp, with advance, your life will not be your own re big pub, for a long time after pub. With royalties only, you might live spare, but likely you will find the interstices to write. To keep writing. There are millions of scenarios about advances and etc when pub w big 5. Im just speaking about a few I know personally

  12. The Medellín Cartel did compete too…OPEC competes… I think he’s ignoring what a cartel actually is like. That said I don’t think anyone seriously thinks the Big5 are an official cartel, just that they have similarities.

    As for their competing for authors, is he trying to imply that it’s common? I doubt if even .1% of traditional authors get 2 bids on their books. I could easily be wrong though, just rarely heard anyone mention more than one offer. Being published over time by multiple houses isn’t the same at all.

    • That said I don’t think anyone seriously thinks the Big5 are an official cartel, just that they have similarities.

      When all the major players in an industry get together in one room to fix prices, that’s a cartel. Ditto when they do so by email. The U.S. Justice Department has had every one of the Big Five dead to rights on both those counts, if you include Penguin as the corporate predecessor to RHP.

      • Oh I agree they were guilty there, but one act doesn’t make it a cartel. That just makes them criminals.

        Eisler’s repeated point of asymmetrical market power explains most of it. They don’t compete to offer better deals or terms(like removing non compete clauses across the board) in general because their competitors don’t need to undercut them. Why? Because authors have traditionally thrown themselves at them repeatedly.

        Only if profits start to shrink will they compete meaningfully (as in not just for a few potential bestsellers), and that hasn’t happened yet because their share of eBook royalties has increased their profits. Even if market share drops, if their profits go up they can still keep the big multinationals that own them happy.

        • Thing is, New York publishing has been acting in concert for over a hundred years now.
          The agency conspiracy wasn’t their first.
          Collusion has long been the bedrock of their corporate culture.

        • All true.

        • “They don’t compete to offer better deals or terms(like removing non compete clauses across the board)”

          Am I the only one that noticed that after a few high profile print only deals for Indies, Hugh’s being probably the most publicized, those deals seemed to vanish overnight?

          I’ve always found that interesting.

          • I have been told by a couple of agents that’s because his book sales tanked so publishers don’t want to offer print only deals anymore. I’m of the opinion that’s a load of BS, and the real reason is publishers all got together and shook hands on never offering these deals again because of the much higher ebook margins they salivate over.

          • I asked a program panel recently with 2 literary agents, 2 publishers, and an editor whether we’ll see any more print-only deals in the traditional market, or whether new companies will arise that fill that niche by offering print-only deals.

            They all said: NEITHER. They said print isn’t profitable enough anymore for a company to be interested in print-only rights, and it won’t happen.

            Whether that’s accurate or not, it certainly seems to represent present thinking to a fairly wide degree among publishers and “industry professionals.”

  13. Check out William Ockham’s comment on Shatzkin’s post regarding why the Big 5 are actually acting like a cartel even when they give authors big advances. It is typically brilliant.

    And by the way, I find the comments on Schatzkin’s blog do not load on Firefox, but they do work on Chrome.

  14. “…on top of that, no author in the US can possibly have a “forever” contract because the copyright law of 1978 requires the publisher to revert rights to the copyright holder after 35 years on request.”

    He’s absolutely right, its not forever people, its ONLY 35 years!!

    Face-palm-head-desk.

    • Can someone clarify for me about copyright?

      Shatzkin: “no author in the US can possibly have a “forever” contract because the copyright law of 1978 requires the publisher to revert rights to the copyright holder after 35 years on request.”

      I thought most contracts were for life of copyright, which (I thought) was author’s lifetime + like 70 more years.

      Which is correct? Because honestly, 35 years doesn’t sound so bad to me. The whole problem with life + 70 is if a book does become a perennial classic. If rights revert at 35 years (possibly DURING the author’s lifetime) that might be okay.

      • The way I have read the copyright law (and I’m no copyright expert or lawyer) it seems that after 35 years the original author can request a rights reversion – but they only have a 5 year window to do it in. So the original contract could say life of copyright, and if the author doesn’t request a reversion between years 35 and 40, the publisher would keep them for the duration of the copyright.

        Notice the way Shatzkin even writes the sentence is loaded though – making it sound like the publisher is required to revert rights after 35 years, it’s only the phrase at the end “upon request” that actually gives accurate meaning to the sentence. He was choosing his word order carefully there for maximum effect.

        • I think that’s basically correct (but I’m not a lawyer either) but I believe the term is you “revoke” the copyright. This only applies to works created after 1978, before that it gets complicated.

          If you are planning to revoke the copyright, I believe you can serve notice of the fact a few years before the 35-40 year window and see if you can get better terms. (Consult a lawyer if this is something you want to do.)

        • “He was choosing his word order carefully there for maximum effect.”

          That’s how highly paid consultants become highly paid consultants.

    • That was my thought exactly. It’s only nearly half the human lifespan – no big deal.

    • LOL!

    • As Amy’s question points out, it’s not like every author knows that or their heirs. KKR mentions reading up on copyright often but how many of us actually have? I’ve only picked up pieces here and there and I don’t think I’m in a tiny minority.

    • That must be going around the publisher lackeys. Zacharias said that too. It was like, you know, when your boss tells you he’s giving you a quarter per hour raise! And you realize actually the minimum wage is going up, and he’s claiming credit.

      The fact that there is a law allowing creators of art to reclaim their copyright if they do it the right way in a five-year period 35 years later… and seriously. The publisher (and Schatzkin) act like it’s their big gift to us and they should get gratitude.

  15. “Clarice, doesn’t this random scattering of sites seem desperately random – like the elaborations of a bad liar? Ta, Hannibal Lecter.”

    This post from Shatz made me think of this quote. The fact that an industry consultant is wasting his time trying to discredit the views of people that he doesn’t even consider to be in his industry…. Makes me wonder if people are asking questions.

  16. Me, the whole time, “Thou doth protest too much…”

  17. Oh look, Shatzkin is talking again.

    The Baghdad Bob of New York publishing bragging about potato yields and the success of the latest Five Year Plan.

  18. It still confuses the hell out of me how anyone can convince themselves that Amazon is a monopoly.

    Last time I checked, there were AT LEAST six other companies in business selling e-books to the Western English speaking world. I don’t know how many there are in other parts of the world.

    I mean, in the most simple of layman’s terms, a monopoly exists where a consumer can only obtain a good or service from one entity, who is free to charge what it wants and trample on service standards without repercussion. When you could only buy phone service from one company nationwide, yes, that could be described as a monopoly. If I could ONLY buy e-books from Amazon, perhaps it could be described as a monopoly entity in a marketplace containing only itself.

    But that’s not what it is. I am so tired of hearing supposedly educated people prattle on about Amazon.

    ETA: I’ve been working on my year end statements and our taxes today. Thank you for providing me a place to vent my misplaced rage. 😛 🙂

    • Mia, if you’re going to attempt to use facts and logic, then you can’t play.

      • I know. I might break the internet. Or at least cause some people’s illogical brains to implode. Or something. 🙁

        On the bright side, we are getting a refund…

      • Seriously. Where is the fun in reading something rational and devoid of flouncing? It’s Friday. I demand to be entertained!

    • They are looking to standards from the early 1900s when Progressivism emerged to challenge classical liberalism. Foer mentioned them in both his New Republic article and in the debate with Konrath.

      Those standards also tried to protect producers from competition from each other. So, much of the economic argument we hear from the traditionals comes straight from 1910.

      There was nothing particularly wrong with their ideas in 1910. The economy was facing challenges and situations not seen before. But since 1910, we have experienced lots more, learned from that experience, and found some of those ideas just don’t work well.

      The traditionalists would like a publishing world anchored in 1910, and protected from commercial challenge. The economic ideas of 1910 go with that.

    • Amazon has the biggest market share of ebook retailing. One can be considered a monopoly even if there are others out there engaged in the same business.

      • A monopolist has to control production. If he doesn’t, then anyone else can enter the market. That means a retail monopolist has to also be a monopsonist. Amazon fails at both.

        Monopolists also make the most money by curtailing production to keep prices up. They can do this because nobody else can get the goods and sell them. The monopolist is stuck with the consumer demand curve. So he picks the spot on that curve where he makes the most. He holds production back.

        With Amazon, we see the opposite of a monopolist. They are doing everything they can to increase production, and they are encouraging low prices.

        At the same time, two giant companies, with more financial clout than Amazon, are also in the book business.

        It would help if we had an examples of a retail monopolists so we would know if Amazon qualifies. Anyone know of any?

        • I don’t know of any, but as long as writers and readers are not feeling the pinch then there is nothing to worry about. Oh, the doomsayers might be right in the end and Amazon might morph into a puppy fueled death machine, but I hardly think that’s assured or likely.

          Ten years from now when something like Craigslist or something is killing Amazon the historical record will look like so much yammering. 🙂

  19. “He appears befuddled”

    P.G.

    Phew…considering the subject of Mr Eisler’s books-and suspecting that he has more than a little practical knowledge of the martial arts–I’d be a little circumspect in referring to him as befuddled.

    brendan

  20. “Actually, those terms matter in 20 percent or fewer of the agented author contracts with the Big Five. Why? Because the agents get the publishers to pay advances that don’t earn out!”

    I can’t even read this garbage but this was especially good.

    So why exactly do so many authors get back their rights and immediately make income on those backlisted titles?

    Ugh. So much is wrong with this article that it makes me tired.

  21. Lots of people have provided good reasons why that 40% is very suspect. One giant glaring flaw is that it could only possibly be true for a given book after it has sold a certain number of units. Which suggests that the number only stays at 40% for a given title if it never sells another book.

    How is that 40% measured? Across all books since the beginning of the publishing company? If so then it includes lots of books that were only available in print in the days before Amazon, when you’d only have a few weeks on shelves to succeed or not. Is it for advances given in a certain number of years, like the last year or the last 5 years? Then it has only given those books that many years to earn out their advances. If a book keeps selling, that effective rate will keep creeping down towards the anemic legacy industry royalty rate.

    And if you they are looking at a fixed time frame, the rolling average for the company could indeed be 40% of revenue (especially when you include all those insane advances for mega best-sellers), but that doesn’t mean the effective rate for individual books or authors will stay at 40% (which is what we actually care about). It can’t. because every book sold lowers the effective royalty rate until the advance is earned out.

    • How is that 40% measured?

      Gross revenue?

      Or net revenue?

      Huge difference. As well as the issue everyone upthread has been mentioning: 40% across all titles. How many titles distribute 50% or more to the author? And how many distribute much less?

      • Basically, it’s measured badly. If there ever was any doubt, I think the discrepancies between the data of last year’s sales pretty much shows that publishers don’t have the foggiest idea of how many books they sell.

        If they don’t know that, they can’t know when your advance pays out.

        And that’s supposing they don’t cook the books.

        Take care.

        • Well, they’re pretty much by definition not math majors.

          • Neiter is most people, and yet, if you pay less than you get, you get in trouble. At the grocer, at the bank, at… A lot of mid-sized businessmen are not math majors, and they manage to have a decent real time inventory.

            Nope. Take care.

          • Mid-sized businessmen, on the other hand, know enough math to understand their own books, and they hire competent accountants to keep those books.

            The publishing industry is the only business I have ever encountered in which senior people are actually proud of their own innumeracy.

  22. Schatzkin + duct tape FTW.

  23. My first thought is that if the Manhattan Mafia (omerta and all) doesn’t want to be considered a cartel, they should stop acting like one.

    My second thought is that there are other terms that apply just as accurately to their culture and M.O.;
    http://www.vocabulary.com/dictionary/syndicate

    “A syndicate is a group of corporations working for a common interest. A syndicate might collectively raise money for a real estate project. A syndicate sometimes has a criminal side — it can also describe a similar alliance of gangsters.

    “Syndicate entered English in the 17th century from the French word syndicat, meaning “representative of a corporation.” The Lloyd’s of London insurance group is an early example of a syndicate. Syndicate can also describe an agency that sells the rights to copyrighted material, such as feature articles, to newspapers or magazines.”

  24. If publishers paid a higher royalty, more authors would earn out.

  25. I am a bit surprised that people haven’t reasoned through how damning Shatzkin’s revelation (40% of revenue goes to authors) really is for the Big Five.

    Think about what that means. If you earned out with a Big Five deal, you were a sucker. You got ripped off. Lee Child needs a better agent.

    Also, the size of your advance tells you how many units they intend to sell. There is a reason that ebook royalties are so low. They have a hard time controlling how many units they sell with ebooks. Go look at the Author Earnings report on the percentage of Big Five ebook sales that are backlist. Think about what that means.

    • If you spend too much time on TPV your idea of hot is William Ockham explaining publishing statistics on a Friday night. You have been warned.

      I’ll be in my bunk. Thinking.

    • Think about what that means. If you earned out with a Big Five deal, you were a sucker.

      Yep. The higher your sales numbers, the lower your “actual” royalty rate.

  26. I don’t know if anyone else has said this, but I think “the big 5 are not a cartel” falls into the “I’m not stupid” category.

    Simply denying it is proof that it is true.

  27. Not gonna bother to read the original post. The comments here are way more fun, anyway.

  28. Thank god for Shat again!

    I am beginning to wonder how I made it all this time without him. Take my previous understanding of the word ‘cartel’. I thought it was a group of suppliers colluding to control prices or isolate themselves from competition.

    whew. Guess not. You see ‘colluding’ doesn’t mean what I think it means either.

    Examples of things that are not collusion:

    The big 5 (or whatever you want to call them):

    1) Fix prices
    2) pay exactly the same print royalty rates
    3) pay the same electronic royalties
    4) require the same non-compete clauses
    5) pay the same range of advances
    6) have the same submissions system
    7) have the same rights-grabs in their contracts
    8) have the same accounting practices
    Should I go on or is it clear I have no idea what collusion is when I see it?

  29. I can’t get particularly excited about the 40%. As presented, that is 40% of the revenue the publisher gets.

    Let’s say the publisher sells his stuff to the bookstore at 50% of list price. That means retail revenue is twice what the publisher’s revenue is. (Without retail discount off list.)

    And that means the author is getting a royalty of 20% of list price.

    I don’t know if 40% is right or wrong, but even if it is right, big deal.

    • We do tend to get overly focused on ebooks around here, but 40% on ebooks is about 28% of list which is a bit higher than the nominal rate of 25% net/17.5% list.

      Plus, if the average is 40% paid to authors, then some authors are getting 50%, 60% or maybe sometimes more. Did Hilary Clinton’s publisher make more than $14 million in revenues? I doubt it, so she probably made more than 100%.

      However, it does mean that with bestselling authors and celebrity authors probably receiving much higher percentages than the average, most Big 5 authors are probably receiving much less than 40% of revenue for their books and probably close to the rate in their contract (if they even really receive that given the questions about publishing accounting practices). I love the Michael Jordan example further up in these comments.

      So in a sense, your comment is valid in that the average author is probably not getting much more than their contract rate, and so Shatzkin’s claim is not very meaningful or worth getting excited about.

  30. Oh, and it looks like it’s entirely different here, this side of the pond :

    According to this report on French Publishing results (with data from multiple publishers including Big5 see the list p 5), the authors related costs are … more or less 20% (see p 19)

    https://www.scribd.com/fullscreen/253965303?access_key=key-7iGMiOoRFbJ6dXpSrFTZ&allow_share=true&escape=false&view

  31. “I am not certain that Amazon can or should be constrained, but I am damn sure that the Big Five publishers are not villains…”

    Non-compete clauses. Unless those non-compete clauses mean Trad Pub won’t publish any titles by other authors that might compete with yours.

    Dan

    • I’ve had two mid 6-figure offers from some of the bigger players in the traditional science fiction publishing field, and both had identical non-negotiable non-competes. Coincidence?

      For some reason I doubt it.

  32. I think traditional publishing is using a variant of the 80/20 rule.

    I’d call it the Re-stated 90/10 rule:

    10% of the authors get 90% of the money; while the remaining 90% of the authors get 10% of the money.

    :o/

  33. Shatzkin claims his big whammo to indie earnings focuses on the trad pub advance.

    But the big flaw in Eisler’s logic is the same one that dooms Hugh Howey’s “Author Earnings” project to irrelevance: the assumption that the per-copy royalty terms and rights splits are the most important element of publishing contracts. In fact, they’re not. Actually, those terms matter in 20 percent or fewer of the agented author contracts with the Big Five. Why? Because the agents get the publishers to pay advances that don’t earn out![emphasis added]

    It’s a valid question because if the advances are substantially larger than the sales numbers Howey grabs on Amazon, then Howey’s data is as reliable as the trad pub industry reports that ignore the big shadow market of non-ISBN ebooks.

    So how much money are we talking about?

    HOW BIG ARE ADVANCES?

    I don’t know of any accurate report of averages. We do have the following:

    – Surveys of authors who self-report their advances like Hiatt’s Show Me The Money and Tobias Buckell’s How Much Does a Science Fiction and Fantasy Writer Make? which are awesome because they are better than nothing, but might not be statistically valid.

    – News reports like this one which offers an average based on “most publishers I talked to” but not clarifying if that was three or seven or seventy-five or if they were big or small or what.

    If we assume these are in the ballpark, then we’re looking at somewhere between $10k-$20k per book across all genres, with some genres like romance giving out advances that are far less.

    MORE “DATA”

    Here are two other squishy data points.

    An editor at Tor Books is quoted as saying that “Most books sell 5, 10, or 15 thousand copies. Most are midlist books.” Is that just in SFF or all genres?

    Shatzkin says that publishers reported to him that 80% of advances don’t earn out, ever.

    Well, if we accept these statements, you can use the first chart here to eyeball we’re probably somewhere in that $10-$20k range.

    Of course, if you look at the Publishers Weekly annual facts and figures posts, you’ll see that the best sellers cut off usually around 100k units. There’s a lot of real estate between 10-15k and 100k copies.

    But unless someone has something better, let’s go with the $10k-$20k amount.

    HOW MUCH OF THAT IS MISSED?

    The next question is how much of this does Howey miss?

    Even if 80% of the authors don’t earn out, do they get close? Do most earn 80% of their advance? 50%? 25%? How much?

    No idea.

    So we don’t know how much Howey’s data under-represents trad pub author earnings.

    But it doesn’t seem like we’re talking about tens of thousands of dollars. We’re talking $3k, $5k, $10k in 80% of the cases (if all of these data points actually can be trusted).

    If that’s accurate, I wonder how that would change Howey’s pie charts?

    I don’t think it would even fit into any of them because he’s not looking at a book’s lifetime sales. At least he hasn’t crunched that yet.

    Of course, we have the fact that many indies making good money couldn’t get a trad pub gig at all. Or switched and are now making a lot more. And that there is a trad pub graveyard where all the authors and books go that didn’t break out in their short window.

    Still, it seems Shatzkin raises a question worth digging into. I’m betting if we actually get data, we’ll see the under-representation is small.

    THE REAL DATA?

    The real comparison would be to randomly assign authors at roughly the same skill level to a number of cohorts. Some cohorts would try the trad pub route, the others the indie route, and then we’d track sales over a year, two, three, four.

    The next best would be to track the fortunes of some randomly selected authors from both groups over the same period and see what happens. But you’d have to eliminate the bias that’s created by virtue of the fact that Amazon is open to all authors at all skill levels, whereas trad pub isn’t.

    • Just for comparison, Data Guy plugged Shatzkin’s 40% figure into his computations and guess what? It was not an earth shattering difference when it comes down to author’s income: indie authors’ overall share dropped from 40% to 31%. That is a drop but it is not as if they fell out of the sky (and of course the actual amount of indie income stayed the same-just the proportional share changed since this calculation assumed the higher percentage of revenue for traditional authors).

      And as a counter-balancing argument, Authorearnings does not include the 15% most traditional authors give to an agent when calculating their income. So you can also argue that they over-report the income of traditional authors with agents by that margin.

  34. I would be interested to know how many books are accepted for publication (say, every year); how many of the authors receive advances; and in how many cases, and to what extent, do these advances fail to earn out?

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