Are Royalties Fair? A Publisher Weighs In

From Mark Gottlieb Talks Books:

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?

. . . .

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.

. . . .

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.

. . . .

“…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.

Link to the rest at Mark Gottlieb Talks Books and thanks to S. and others for the tip.

PG didn’t see a date on the OP, but thinks it may be a couple of years old.

The author of the OP is the Publisher at Benbella Books. Per the company’s website:

BenBella Books is a publishing boutique that aims to be the publisher of choice for a select group of authors who value personal attention, a partnership philosophy, flexibility and a creative approach to marketing.

Benbella lists two imprints, SmartPop Books, “Proudly geeking out about pop culture since 2003”, and Benbella Vegan, “Whether you’re a veteran vegan or simply experimenting with more veg in your diet . . . .”

Benbella’s website featured Broke in America: Seeing, Understanding, and Ending US Poverty and The Actor’s Life: A Survival Guide along with several other titles.

PG checked out each of these two titles on Amazon:

Broke in America: Seeing, Understanding, and Ending US Poverty, released in February, 2021, was ranked #200,724 in Kindle Store, #206,093 in Books and 48,984 in Audible Books & Originals.

The Actor’s Life: A Survival Guide, released in 2017, was ranked #87,034 in Kindle Store, #19,916 in Books and #8,166 in Audible Books & Originals.

PG picked the two Benbella books because they were the first two that showed up on the publisher’s Featured Titles listing. Other books from this publisher may be selling better right now.

PG suspects a lot of indie authors can point to books that are selling better on the Zon than the two PG checked out even with self-publishing’s “inherent limitations” whatever that means.

13 thoughts on “Are Royalties Fair? A Publisher Weighs In”

  1. Earning out is a meaningless term without the value of the advance and royalty. Publishers can make lots of money on books that don’t earn out. Publishers can lose lots of money on books that don’t earn out. It seems many authors don’t realize this.

    Who would favor dropping advances in favor a pure royalty system? One group would be undercapitalized publishers.

  2. Past experience with various of the sources here counsels caution. Context matters.

    Note, too, that the entire thread presumes honest accounting and full honoring of all terms of the contract requiring payment to the author by the publisher. In a timely manner. (Pssst. Let’s talk about that semiannual royalty schedule that further delays payment for four months after that.)

  3. So according to this CEO author pay of only 40-45%? So overhead and profits of the publishers is 60-65%???? That’s some money they pay on marketing, editing, and cover design!!!

    • Don’t forget the rent on their glass tower offices.
      I don’t think many tradpubs work out of suburban industrial parks.
      Not any the establishment media cares aboyt, anyway.

    • Yes. Profit margins for companies are far below that figure. For a long time Apple was a leader at 28%, but the were an outlier. 4% to 7% is far more common. The grocery business is typically around 2.5% of revenue, and that includes the retail grocery giants.

      I’m not sure why so many authors think publishers wildly outperform everyone else. The highest margins today are earned by the independent authors at the top of their genres.

  4. I was choosing to focus on the author, that’s what your paying for. But yeah we know they must have a bloated overhead if they require 60% of revenue (this was assuming no upfront cost to the author too!) to cover just such minimal services they offer. But I guess if people are willing to sign on the line and fork out that share of lifetime earnings…. you’d be an idiot to NOT be in that business.

    Heck casinos are jealous, they have to continual suck their customers in and offer them exciting services in exchance for a much much smaller proportion of cash spent staying in their hands. Yet a publisher just has to do minimal work for a few hours and then hit print once (maybe hit print 2-3 times if the book sales surprise them).

    • But I guess if people are willing to sign on the line and fork out that share of lifetime earnings…. you’d be an idiot to NOT be in that business.

      Seems there are lots of idiots running around. Many of them are very good business people, and find lots of opportunities far more lucrative than publishing.

  5. The only area where I think a traditional publisher is useful is with regards to marketing…when they choose to do it. Often they do it only for established names, making it difficult for newbies, even talented newbies, to break in.

    Everything else can be done independently. I have a great cover artist I collaborate with, use a friend(I pay) who is a college level English professor to edit my work, and Amazon and Ingram Spark handle distribution. In short, everything the old-timey publishers see as their biggest benefits.

  6. I’ve published via “traditional” publishers, I’ve “indie” published. If you’re willing to trade money for less hands-on work, go for it. What you’ll find nowadays is more of the “mid-level” authors choosing the independent route.

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