L'Ombre de l'Olivier

The Shadow of the Olive Tree

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28 April 2009 Blog Home : April 2009 : Permalink

Glasnost for the Book Trade

Twenty some years ago President Gorbachev introduced "Glasnost" to the hitherto secretive Soviet Union. As well as being secretive the Soviet Union was also, gradually, collapsing. Today Russia can be accused of many things but collapse isn't one of them.

I believe that the book trade could use a similar dose of Glasnost. So much of what seeps out of the various author and publisher blogs, trade press etc. etc. is rumor and gossip. Numbers, when they get mentioned, are frequently misleading, out of date, applicable only to very specific circumstances or combinations of the above. Take the much debated price of an ebook (or a paper one for that matter). When I make posts estimating costs, revenues and so on I'm guessing. I have no idea whether a particular ebook sells 100 copies or 100,000. I can guess as advances and royalty rates but I don't know for sure. I can guess at publishing costs and printing costs. I can guess what the marketing budget might be. But I don't know. This means that when I read a post like this (or some of its predecessors) or one like this it is hard for me to grasp the precise implications to the author.

There are a couple of posts where we get more clue - this one about a NY Bestseller royalty statement and this one talking about how little of the cover price of a book ends up in the author's pocket:

Of that new author's paperback... of the cover price _94.9%_ goes to someone else. But like the cotton-pickers we're wholly dependent on the plantation owners. There are lots more desperate cotton pickers out there. Dis the plantation owner, the shipper, or manufacturer, or the retailer and you're going to be jobless (of course each step up the chain has the same problem with the next). The problem is that the public have little sympathy for the parts of the chain claiming 94.9% of the income. But they often like and want to support the writer. So: therefore it has become de riguer to claim that the 'pirate' is robbing the little bloke getting his 54 cents from that paperback. As the little bloke is an entirely dependent "client" of the blokes getting the the other 94.9% he has very little choice about being a front-man, even if his sympathy lies on the other side of the fence - so we end with a sore crotch and... losing that liking.

And there are, from time to time, other posts and articles wherein authors point out how little money they get for their labours. This is a problem because it isn't clear to many people where the money goes.

So here is a long post - based on a few authorial hints - that shows where the money goes (and does not go) and so on.

Analysis of Author's Income

Starting with the NY Bestseller royalty statement and the income it reports:

To give you a condensed version of what all those figures mean, for the sale period of July through November 30, 2008. my publisher reports sales of 64,925 books, for which my royalties were $40,484.00. I didn’t get credit for all those sales, as 21,140 book credits were held back as a reserve against possible future returns, for which they subtracted $13,512.69 (these are not lost sales; I’m simply not given credit for them until the publisher decides to release them, which takes anywhere from one to three years.)

This is for a book which ...

debuted on the Times mm list at #19.

It had

an initial print run of 88.5K, and an initial ship of 69K. [...] Another 4K was shipped out two to four weeks after the lay-down date, for a total of 73K, which means there were 15.5K held in reserve in the warehouse in July 2008.

So the book sold 65,000 out of a possible 73,000 which gives a sell through rate of almost 90% which is incredibly good and explains the bestsellerdom. However despite all these wonderful things

My net earnings on this statement was $27,721.31, which was deducted from my advance. My actual earnings from this statement was $0.

My advance for Twilight Fall was $50,000.00, a third of which I did not get paid until the book physically hit the shelf — this is now a common practice by publishers, to withhold a portion of the advance until date of publication. Of that $50K, my agent received $7,500.00 as her 15% (which she earns, believe me) the goverment received roughly $15,000.00, and $1594.27 went to cover my expenses (office supplies, blog giveaways, shipping, promotion, etc.) After expenses and everyone else was paid, I netted about $26K of my $50K advance for this book, which is believe it or not very good — most authors are lucky if they can make 10% profit on any book. This should also shut up everyone who says all bestselling authors make millions — most of us don’t.

So in fact, the whole books sold thing is academic at present because the book hasn't earned out its advance - something that is true, so I am told, for the majority of books. The author received $42,500 and once various expenses. taxes etc. have been met ends up with some $26,000 as money to spend on food, clothing, housing and so on. Moreover, and going back to the earns out thing, she is unlikely to receive anymore. In order for the book to earn out, a total of 80,000 copies or so will have to be sold, which would mean that, in addition to selling 100% of what is already in the channel with no returns, the entire warehoused stock would need to have been shipped and half of it sold and not returned. Since book sales tend (though there are exceptions) to tail off into dribs and drabs after the initial release, if she does earn additional royalties they are probably going to be small and a few years from now. If the entire printing sells she'll get about $4500 in additional gross income once the agent has taken her 15%.

Her current, here and now, income is thus $26,000 for this book. For the average author, who can write one (publishable) book a year, this means she's got to live on an annual post tax income of $26k if she has no other employment. If (for example) the author has $1500/month mortgage payment or rent payment - which is entirely reasonable - then this leaves the author about $650 for food, clothing, utility bills, health insurance etc. each month. That's a hair over $20/day. One thing is for sure, if that's all the income she gets the NYT Best-selling author is not going to be drinking champagne and dining on caviar if the budget is $20/day. Not for nothing does John Scalzi recommend authors not quit the day job and have a working spouse. Of course if you do have a regular other income, spouse etc. then that $26k is a very nice addition to the family budget but in no way does it count as wealth that we all aspire to.

So what did the other parts of the chain get?

The agent got $7500 (gross), If an agent can sell a book a month for a $50k advance then he/she will have a nice living. Unfortunately not every book gets a $50k advance. In fact if the agent sells a book for a first time author the total advance is likely to be about $7500, meaning the agent gets $1125. For advances of $20-35k (where the agent gets $3000-$5000), the agent is going to need to sell 2-3 books a month to get a reasonable income after taxes and expenses. So agents aren't exactly coining it either since there are lots of agents and not that many titles published each month.

OK but the book sells for $7.99 retail so in theory the buyers forked over $7.99*64,925 =$518,750.75 or roughly 20 times what the author received. Now there were probably retailer discounts and so on but there would also have been sales tax a lot of times so it seems unlikely that the total money spent by readers isn't much off that number. And hence as Dave Free noted in the first quote above, the author gets about 5% of the total cash.

Put it this way: if sales tax was 5% and the total money paid (including sales taxes) were $520,000 then just the sales tax raised the same amount of money as the author received post tax!

In fact given that the government took $15,000 in authorial income taxes, if it took more than $11,000 in sales taxes then the government got more from the book than the author did. It is very likely that the government takes considerably more than 5% in sales taxes on average so quite probably the governmental take is 10% or more,

One is also I think entitled to wonder where the *&%# the other 85-90% of the money goes.

Actually we know - kind of.

The publisher's cut

Firstly we know that the average reseller is sold the book for around 50% of list - actually ISTR that once various funny money marketing coops and other things are included the publisher tends to receive between 40% and 45% of list. To keep it simple assume that publisher gets $3.50 per copy (44% of list). With 64,925 books sold the publisher gets about $227,000 (again a slight rounding to make it simple). Has the publisher made money on the sale?

Here's some sums for a book sold in 2002/3. If we take those numbers, modify for the book in question and round up a bit for inflation we'll probably get reasonable 2008 numbers.
Item Publisher Cost
Proof/Copy/Edit (336 pages @ $4/page) $1,344
Typesetting (336 pages @ $5/page) $1,680
Cover Art
Printing and Binding (88,500 books @ $0.50/book)
note: embossing would increase this by c.$0.07/book,
or $6000. I'm not sure if this book is embossed
Separations/Promo Covers $3,000
Warehousing ($0.0565 per book) $5,000
Shipping ($0.0565 per book) $5,000
Overhead (15% of gross income i.e. $227,000)
Profit (gross)

So the publisher is making roughly a 30% pre tax profit on sales of this book - even though the advance hasn't earned out yet. Now I suspect that there are some details here that are wrong but basically the publisher earns a profit of $77,676/64,925 = $1.20 per book. And note that the marginal profits will be about $3.00 for any adidtional books sold out of the original print run since all the costs are currently accounted for apart from overhead.

However I do not think it is worth complaining too much about the publisher's profit on this book. The publisher, like the agent, will have a few best sellers like this and a lot of dross. The original 2003/3 book is a good example of one that barely breaks even despite an advance of just over $12000 with its sell through of 52%. A book run where sell through is significantly below 50% will almost certainly make a loss. Still it is worth pointing out that the publisher does make some nice money on this book even, since it doesn't earn out, it may look like a fail at first glance.

But that still leaves a big chunk of change for...

The Retail Chain

What about the remaining $290,000 or so that goes to the sales chain and the tax man (who also of course gets his hands on his share of publisher profits, printer profits etc.). When we add up business taxes, sales taxes and so on I suspect the taxman takes a minimum of 10% of the total gross - i.e. at least $52,000 and quite possibly significantly more - leaving at most $238,000 for the retailer chain. That seems like a lot - after all it is more than the publisher gets - but retailers have a lot of other overheads apart from taxes (salaries, rents ...) and some have a distribution tier to pay as well. Furthermore they probably discounted some sales of the book (e.g. a 3 for 2 promotion) and not all may get that 44% of list price that is the average so while the gross figure looks good there is likely to be a lot of costs to cut into the profit margin.

However we don't really have any visibility into that space, and even less into the costs of Amazon and co (on a book by book basis that is) so it is hard to defend what they spend their 50% of the cake on.

The bottom line

Authors get bugger all - 5% of the proceeds seems like a decent estimate.
Publishers get some, but after you account for costs their profit margins are variable at best and not wonderful.
The taxman is almost certainly a greater beneficiary than the author and the only one with a guaranteed "profit"
Retailers account for about 50% of the cost of a book. There is limited visibility into what they do to earn that money.

Sales of an individual title are poor. If 65,000 copies is enough to put a book on the NYT best seller list then clearly many many books sell no more than 30,000 - hard covers in particular are going to sell a lot less. This statistic needs to be made clear as does the average authorial income.

Question for the future: How do ebooks change this equation?