The Authors Guild on E-book Royalties

On June 17, we posted a statement by The Authors Guild about their new Fair Contract Initiative, in which they would be clarifying the issues in the typical book contract that are unfair to authors. Today The Authors Guild issued  their first analysis having to do with e-book royalties, which are substantially lower than the royalties on hardbacks, even though the costs of production and distribution of e-books is substantially lower. It’s worth reading. Here is the text in its entirety.

We announced our Fair Contract Initiative earlier this summer. Now our first detailed analysis tackles today’s inadequate e-book royalties. At the heart of our concern with the unfair industry-standard e-book royalty rate is its failure to treat authors as full partners in the publishing enterprise. This will be a resounding theme in our initiative; it’s what’s wrong with many of the one-sided “standard” clauses we’ll be examining in future installments.

Traditionally, the author-publisher partnership was an equal one. Authors earned around 50% of their books’ profits. That equal split is reflected in the traditional hardcover royalty of 15% of list (cover price, that is, not the much lower wholesale price), and in the 50-50 split of publishers’ earnings from selling paperback, book club, or reprint rights. Authors generally received an even larger share than the publisher for non-print rights (such as stage and screen rights) and foreign rights.

But today’s standard contracts give authors just 25% of the publisher’s “net receipts” (more or less what the publisher collects from a book sale) for e-book royalties. That doesn’t look like a partnership to us.

We maintain that a 50-50 split in e-book profits is fair because the traditional author-publisher relationship is essentially a joint venture. The author writes the book, and by any fair measure the author’s efforts represent most of the labor invested and most of the resulting value. The publisher, like a venture capitalist, invests in the author’s work by paying an advance so the author can make ends meet while the book gets finished. Generally, the publisher also provides editing, marketing, packaging, and distribution services. In return for fronting the financial risk and providing these services, the publisher gets to share in the book’s profits. Not a bad deal. This worked well enough throughout much of the twentieth century: publishers prospered and authors had a decent shot at earning a living.

How the e-book rate evolved

From the mid-1990s, when e-book provisions regularly began appearing in contracts, until around 2004, e-royalties varied wildly. Many of the e-rates at major publishing houses were shockingly low—less than 10% of net receipts—and some were at 50%. Some standard contracts left them open to negotiation. As the years passed, and especially between 2000 and 2004, many publishers paid authors 50% of their net receipts from e-book sales, in keeping with the idea that authors and publishers were equal partners in the book business.

In 2004, we saw a hint of things to come. Random House, which had previously paid 50% of its revenues for e-book sales, anticipated the coming boom in e-book sales and cut its e-rates significantly. Other publishers followed, and gradually e-royalties began to coalesce around 25%. By 2010 it was clear that publishers had successfully tipped the scales on the longstanding partnership between author and publisher to achieve a 75-25 balance in their favor.
   

The lowball e-royalty was inequitable, but initially it didn’t have much effect on authors’ bottom lines. As late as 2009, e-books accounted for a paltry 3–5% of book sales. Authors and agents ought to have pushed back, but with e-book sales so low it didn’t make much sense to risk the chance of any individual book deal falling apart over e-royalties. We called the 25% rate a “low-water mark.” We said, “Once the digital market gets large enough, authors with strong sales records won’t put up with this: they’ll go where they’ll once again be paid as full partners in the exploitation of their creative work.”

E-books now represent 25–30% of all adult trade book sales, but for the vast majority of authors the rate remains unchanged. If anything, publishers have dug in their heels. Why? There’s a contractual roadblock, for one: major book publishers have agreed to include “most favored nation” clauses in thousands of existing contracts. These clauses require automatic adjustment or renegotiation of e-book royalties if the publisher changes its standard royalty rate, giving publishers a strong incentive to maintain the status quo. And the increasing consolidation of the book industry has drastically reduced competition among publishers, allowing them more than ever to hand authors “take it or leave it” deals in the expectation that the author won’t find a better offer.

The elephant in the room

And then there’s the elephant in the room: Amazon, which has used its e-book dominance to demand steep discounts from publishers and drive down the price of frontlist e-books, even selling them at a loss. As a result, there’s simply not as much e-book revenue to split as there was in 2011when we reported on the e-book royalty math. At that time, publishers made a killing on frontlist e-book sales as compared to frontlist hardcover sales—at the author’s expense—because, as compared to today, the price of e-books was relatively high.

When we analyzed e-royalties for three books in the 2011 post, “E-Book Royalty Math: The House Always Wins,” we found that every time an e-book was sold in place of a hardcover, the author’s take decreased substantially, while the publisher’s take increased.

Since 2011, we have found that publishers’ e-gains have diminished. But the author’s share has fallen even farther. Amazon has squeezed the publishers, to be sure. The publishers have helped recoup their losses by passing them on to their authors.

These were our calculations for several books in 2011. The trend was obvious. Compared with hardcovers, each e-book sold brought big gains to the publisher and sizable losses to the author when the author’s royalties are compared to the publisher’s gross profit (income per copy minus expenses per copy), calculated using industry-standard contract terms:

Author’s Royalty vs. Publisher’s Profit, 2011

The Help, by Kathryn Stockett

Author’s Standard Royalty: $3.75 hardcover; $2.28 e-book.

Author’s E-Loss = -39%

Publisher’s Margin: $4.75 hardcover; $6.32 e-book.

Publisher’s E-Gain = +33%

Hell’s Corner, by David Baldacci

Author’s Standard Royalty: $4.20 hardcover; $2.63 e-book.

Author’s E-Loss = -37%

Publisher’s Margin: $5.80 hardcover; $7.37 e-book.

Publisher’s E-Gain = +27%

Unbroken, by Laura Hillenbrand

Author’s Standard Royalty: $4.05 hardcover; $3.38 e-book.

Author’s E-Loss = -17%

Publisher’s Margin: $5.45 hardcover; $9.62 e-book.

Publisher’s E-Gain = +77%

What’s happening now? We ran the numbers again using the following recent bestsellers. Because of lower e-book prices, the publishers don’t do as well as they used to, though they still come out ahead when consumers choose e-books over hardcovers. But authors fare worse than ever:

Author’s Royalty vs. Publisher’s Profit, 2015

All the Light We Cannot See, by Anthony Doer

Author’s Standard Royalty: $4.04 hardcover; $2.09 e-book.

Author’s E-Loss= -48%

Publisher’s Margin: $5.44 hardcover; $5.80 e-book.

Publisher’s E-Gain: +7%

Being Mortal, by Atul Gawande

Author’s Standard Royalty: $3.90 hardcover; $1.92 e-book.

Author’s E-Loss= -51%

Publisher’s Margin: $5.10 hardcover; $5.27 e-book.

Publisher’s E-Gain: +3.5%

A Spool of Blue Thread, by Anne Tyler

Author’s Standard Royalty: $3.89; $1.92 e-book.

Author’s E-Loss: -51%

Publisher’s Margin: $5.09 hardcover; $5.27 e-book.

Publisher’s E-Gain: +3.5%[1]

Exceptions to the rule

It’s time for a change. If the publishers won’t correct this imbalance on their own, it will take a critical mass of authors and agents willing to fight for a fair 50% e-book royalty. We hope that established authors and, particularly, bestselling authors will start to push back and stand up to publishers on the royalty rate—on behalf of all authors, as well as themselves.

There have been cracks in some publishers’ façades. Some bestselling authors have managed to obtain a 50% e-book split, though they’re asked to sign non-disclosure agreements to keep these terms secret. We’ve also heard of authors with strong sales histories negotiating 50-50 royalty splits in exchange for foregoing an advance or getting a lower advance; or where the 50% rate kicks in only after a certain threshold level of sales. For instance, a major romance publishing house has offered 50% royalties, but only after the first 10,000 electronic copies—a high bar to clear in the current digital climate. But overall, publishers’ apparent inflexibility on their standard e-book royalty demonstrates their unwillingness to change it.

We know and respect the fact that publishers—especially in this era of media consolidation—need to meet their bottom lines. But if professional authors are going to continue to produce the sort of work publishing houses are willing to stake their reputations on, those authors need a fair share of the profits from their art and labor. In a time when electronic books provide an increasing share of revenues at significantly lower production and distribution costs, publishers’ e-book royalty practices need to change.

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[1] In calculating these numbers and percentages for hardcover editions, we made the following assumptions: (1) the publisher sells at an average 50% discount to the wholesaler or retailer, (2) the royalty rate is 15% of list price (as it is for most hardcover books, after 10,000 units are sold), (3) the average marginal cost to manufacture the book and get it to the store is $3, and (4) the return rate is 25% (a handy number—if one of four books produced is returned, then the $3 marginal cost of producing the book is spread over three other books, giving us a return cost of $1 per book). We also rounded up retail list price a few pennies to give us easy figures to work with.

Likewise, in calculating these numbers and percentages for the 2015 set of e-books, we are assuming that under the agency model—which is reportedly the new standard in the Big Five’s agreements with Amazon—the online bookseller pays 70% of the retail list price of the e-book to the publisher. The bookseller, acting as the publisher’s agent, sells the e-book at the price established by the publisher. The unit costs to the publisher are simply the author’s royalty and the encryption and transmission fees, for which we deduct a generous 50 cents per unit.   

 

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Is Your Local Bookstore an Amazon Showroom?

Today’s uproar de jour in book publishing is the news story that Amazon.com is giving a $5.00 discount on items that a customer scans using the Amazon “Price Check for iPhone App” in a brick and mortar store . The promotion is only good for 1 day and it doesn’t include books.  But people in publishing , particularly booksellers, are understandably upset about this promotion and  this app.   I knew the app was in existence but I hadn’t checked it out. I tried it earlier today. I’ll give you a demonstration.

So here’s a picture of the app icon as it appears on my new and cool iPad.  You can get it for free at the Apple App Store and download it in about 15 seconds.

 

 

 

 

I touch the app and this screen pops up. Note the announcement about the promotion on December 10 for selected categories. Also note that you are uploading information to Amazon including the geographical coordinates of your price check. You are, in effect, an Amazon secret shopper (although they aren’t paying you the  customary sub-minimum wage for the marketing service you are providing).

As you can see there are 3 ways to identify the product:  scanning, talking, and photographing. On my iPad (and on iPhones), you can do all or any of these quite easily.

 

 

 

Here is the book I’m testing. The Dog Who Couldn’t Stop Loving.  It is a title by my client, Jeffrey Moussaieff Masson. It’s a wonderful book on the 40,000 year romance between humans and dogs. It’s a good Christmas present for your dog loving friends. And – Jeff gets a royalty on every book you buy (with some exceptions we’ll discuss below) and I get a commission on all of Jeff’s royalties for this book. So you should buy it and everyone will be happy.

Getting back to the app, first I tried the “say it” button. A microphone logo appeared and I – well – said it. Sophisticated voice recognition software translated and digitized my words and sent it on to Amazon.  Within seconds, an Amazon page for The Dog Who Couldn’t Stop Loving popped up. I did the same with the “snap it” button. My iPad and all iPhones have cameras. Same page popped up.

 

 

 

Here is a photograph of me using the scanning function. I just centered the iPad on the bar code and without hitting any button, the Amazon page for the title came up again.

 

 

 

The Amazon title page  looks like this. Voila! Hit a button and you have bought the book. You can even do this in the independent book shop where you are  browsing, even right in front of the cash wrap where the owner is standing and glaring at you with fire in her eyes. I don’t recommend that. You should probably take the book into that dark corner over there.  Try to ignore the fact that people are looking at you funny like you are some kind of a pervert and that  the owner is still staring  hawklike at you because she thinks you are stuffing the book into your knickers.

This apps’ pretty cool, huh? And internet savvy consumers are really going to town on this.

There is something creepy about it though and troubling for me. This is the point where I have to make my obligatory statement that I am not a Luddite. And truthfully raging against technology is a fool’s errand. And Amazon is not the only company making price check scanning apps either.

Book publishers are pretty upset about the horrible troubles of  brick and mortar stores. Internet geeks say that this is just the price for progress. But it is really a little more complicated than this. We have spoken before in this blog  about the concept of “discoverability”. That is the arrangement of products that allows the consumer to find something unexpected. Amazon.com is not a good place for impulse buys.  There was a recent survey that indicated that 20% of books purchased online were on impulse while 40% at brick and mortar stores were. For some categories, children’s books come to mind, as much as 80% of all purchases are impulse.

A bookstore is a little like a showroom. Publishers know that and value that. Amazon seems to know it too and are exploiting that. Paradoxically the scanning apps which drive lots of business to Amazon are doing their part to insure that these showrooms will not survive. And there goes your “discoverability”.

Most of the people who read this blog are writers or book lovers. And many of you writers might simply think that this doesn’t matter. If customers want to buy online, hey, it’s still a sale. But wait. Go back up and take a look at Jeff’s Amazon book page. The page that pops up tells the customer that he can buy it used for as little as a penny. The  other featured books  are used copies as well. Who the hell wouldn’t rather have a book for a penny?

We  have spoken frequently  about the value of intellectual work in an internet culture that believes “information wants to be free”. Maybe I’m naïve or just venal, but it seems to me that writers deserve to get paid for their work. And price checking apps that drive consumers to buy books for a penny undermine that principle.

And mark this well.  It is also undermining the very stores who create those showrooms that give book lovers that ineffable experience of discovering an unexpected miracle.

As I said, there is something a little creepy about this.

E-book Wars, Episode 10: Revenge of the Killer Librarians

Your local librarian

Book publishers, take cover. The librarians are at the gate. The issue is, like almost everything else in publishing right now, e-books.

 If you go to your library website, chances are that you will see that it has a new program where you can check out e-books. Cool! Right? Hey, I’ve done it.  It’s free. All you have to do is select the book you want, hit the button, download the book, and voila!

 And you  can avoid the usual inconveniences that detract from the library experience. You  don’t have to go into one of those shabby old buildings , filled up with shabby old people,  and try to find one of those shabby old books. (Who knows what person may have been picking his nose while reading it last?) Furthermore the library rarely has a copy of the book you really want anyway, right?  Sure, if you are looking for  The Muncie Indiana Junior League Cookbook of 1954, you are likely to find one – or more than one. Maybe an old broken spine volume of Funk and Wagnall’s Desk Encyclopedia.  But if you are looking for  Freedom by Jonathan Franzen,  get  in line. You’re number 205 on the waiting list. And when you lose the book,  or maybe your kid cuts it up and makes paper airplanes out of it,  or when you just  bring it back late (which you almost always do), ka-ching!

The new e-book checkout program gets around all that. You do it all  from your home or maybe from the beach in Hawaii with your slick new  iPad2 with 3G .  Hit the button. Read the book. And  if you forget about it, the book automatically gets checked back in after 14 days. No muss, no fuss. No lost books.  No late fees.

 I went to the e-book check out site for the Oakland Library.  It wasn’t perfect. It is, after all, still a library. There were some of the usual library annoyances. The selection wasn’t great and half the titles available were in Chinese. And the books I really wanted were all on hold. But the list is growing, and it’s going to be pretty nifty.

Publishers have been concerned about this and with good reason. These  new library e-book lending  programs, which are all managed by a wholesaler called “Overdrive“,  are so easy that it really is the same experience  as buying one from a bookseller.  It’s just like going to Amazon.com – except no charge.

This week, HarperCollins decided to put the brakes on this. They implemented a new policy where instead of just selling the library  an e-book like they do to bookstores, they will only sell libraries a license to download the book 26 times. That is the estimated number of times that an ink-on-paper  book would be checked out in a year. After that, the library would have to buy another copy. Harper would also impose rules that the libraries could only provide this service to members located in the communities they serve.

The librarians are pissed. They and their knuckle dragging goons are already planning  to punish HarperCollins. They’ve even launched a boycott.  Check out the website. Josh Marwell, Harper’s president for sales pointed out that with the millions of e-reading devices expected to be purchased by consumers in the coming year, HarperCollins decided that the terms of sale of e-books to libraries “if left unchanged, would undermine the emerging e-book ecosystem, hurt the growing e-book channel, place additional pressure on physical bookstores, and in the end lead to a decrease in book sales and royalties paid to authors.”

Look, I don’t want to say anything bad about libraries. Just like I don’t want to say anything bad about puppy shelters.  But dammit!  I’m tired of all these people who think that authors shouldn’t get paid for their work. “Ask the Agent” has previously written about the noxious idea that “information wants to be free.” It is a view espoused in books by Internet gurus who get paid quite well for promoting this idea.

The United Kingdom has a curious notion that authors should – well — get paid. In 1979 parliament passed the Public Lending Rights Act   that mandated that authors receive a royalty every time their book is checked out of a public library.  The royalty  amount is 12 cents per check out with a yearly maximum of  about $10,000 US. Other countries that offer some form of compensation to writers for library check outs are: Germany, Netherlands, Israel, Canada, Australia, and Denmark. Civilized societies who honor intellectual labor. And what countries do not pay royalties for library check outs? Libya, Yemen, North Korea, and The United States of America.

Librarians, listen up! It is written. “He who troubleth his own house shall inherit the wind.”

How E-book Royalties are Cheating Authors

Yesterday The Authors Guild posted a very interesting analyis about the dynamics of competition between Apple, Amazon, and Barnes and Noble as they jockey for the e-book market. The analysis came down very hard on Amazon.

Today The Authors Guild has published an equally fascinating analysis of how  the prevailing formula for author royalties on e-books  unfairly diminishes authors’ income even as publishers earn more for each e-book sold.  Below is the  text of this analysis.

E-Book Royalty Math: The Big Tilt

 

To mark the one-year anniversary of the Great Blackout, Amazon’s weeklong shut down of e-commerce for nearly all of Macmillan’s titles, we’re sending out a series of alerts this week and next on the state of e-books, authorship, and publishing. The first installment (“How Apple Saved Barnes & Noble. Probably.”) discussed the outcome, one year later, of that battle. Today, we look at the e-royalty debate, which has been simmering for a while, but is likely to soon heat up as the e-book market grows. 

 

E-book royalty rates for major trade publishers have coalesced, for the moment, at 25% of the publisher’s receipts. As we’ve pointed out previously, this is contrary to longstanding tradition in trade book publishing, in which authors and publishers effectively split the net proceeds of book sales (that’s how the industry arrived at the standard hardcover royalty rate of 15% of  list price). Among the ills of this radical pay cut is the distorting effect it has on publishers’ incentives: publishers generally do significantly better on e-book sales than they do on hardcover sales. Authors, on the other hand, always do worse.

 

How much better for the publisher and how much worse for the author? Here are examples of author’s royalties compared to publisher’s gross profit (income per copy minus expenses per copy), calculated using industry-standard contract terms:  

 

“The Help,” by Kathryn Stockett  

Author’s Standard Royalty: $3.75 hardcover; $2.28 e-book. Author’s E-Loss = -39% 

Publisher’s Margin: $4.75 hardcover; $6.32 e-book. Publisher’s E-Gain = +33%

 

“Hell’s Corner,” by David Baldacci 

Author’s Standard Royalty: $4.20 hardcover; $2.63 e-book. Author’s E-Loss = -37% 

Publisher’s Margin: $5.80 hardcover; $7.37 e-book. Publisher’s E-Gain = +27%

 

“Unbroken,” by Laura Hillenbrand 

Author’s Standard Royalty: $4.05 hardcover; $3.38 e-book. Author’s E-Loss = -17% 

Publisher’s Margin: $5.45 hardcover; $9.62 e-book. Publisher’s E-Gain = +77%

 

So, everything else being equal, publishers will naturally have a strong bias toward e-book sales. It certainly does wonders for cash flow: not only does the publisher net more, but the reduced royalty means that every time an e-book purchase displaces a hardcover purchase, the odds that the author’s advance will earn out — and the publisher will have to cut a check for royalties — diminishes. In more ways than one, the author’s e-loss is the publisher’s e-gain.

 

Inertia, unfortunately, is embedded in the contractual landscape. If the publisher were to offer more equitable e-royalties in new contracts, it would ripple through much of the publisher’s catalog: most major trade publishers have thousands of contracts that require an automatic adjustment or renegotiation of e-book royalties if the publisher starts offering better terms. (Some publishers finesse this issue when they amend older contracts, many of which allow e-royalty rates to quickly escalate to 40% of the publisher’s receipts. Amending old contracts to grant the publisher digital rights doesn’t trigger the automatic adjustment, in the publisher’s view.) Given these substantial collateral costs, publishers will continue to strongly resist changes to their e-book royalties for new books.

 

Resistance, in the long run, will be futile. As the e-book market continues to grow, competitive pressures will almost certainly force publishers to share e-book proceeds fairly. Authors with clout simply won’t put up with junior partner status in an increasingly important market. New publishers are already willing to share fairly. Once one of those publishers has the capital to pay even a handful of authors meaningful advances, or a major trade publisher decides to take the plunge, the tipping point will likely be at hand.

 

In the meantime, what’s to be done? We’ll address that in our next installment in this series, on Monday.

 

Our assumptions and calculations for the figures above follow.

 

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Doing the Numbers: Hardcover

 

To keep things as simple as possible, we assumed that for hardcovers: (1) the publisher sells at an average 50% discount to the wholesaler or retailer (2) the royalty rate is 15% of list price (as it is for most hardcover books, after 10,000 units are sold), (3) the average marginal cost to manufacture the book and get it to the store is $3, and (4) the return rate is 25% (a handy number — if one of four books produced is returned, then the $3 marginal cost of producing the book is spread over three other books, giving us a return cost of $1 per book). We also rounded up retail list price a few pennies to give us easy figures to work with.

 

“The Help,” by Kathryn Stockett has a hardcover retail list price of $25. The standard royalty (15% of list) would be $3.75. The publisher grosses $12.50 per book at a 50% discount. Subtract from that the author’s royalty ($3.75), cost of production ($3), and cost of returns ($1), and the publisher nets $4.75 on the sale of a hardcover book.

 

“Hell’s Corner” by David Baldacci, has a retail list price is $28. The standard royalty is $4.20; the publisher’s gross is $14. Subtract royalties ($4.20), production and return costs ($4), and the publisher nets $5.80.

 

“Unbroken,” by Laura Hillenbrand has a hardcover list price of $27. Standard royalties are $4.05. The publisher’s gross is $13.50. Subtract royalties of $4.05 and production and return costs of $4, and the publisher nets $5.45.

 

Doing the Numbers: E-Book

 

E-book royalty rates are uniform among the major trade publishers, but pricing and discounting formulas fall into two camps: the reseller model favored by Amazon (Random House is the only large trade publisher using this model) and the agency model introduced by Apple a year ago. (See yesterday’s alert for more information on these models.)

 

Under the reseller model, the online bookseller pays 50% of the retail list price of the book to the publisher and sells the book at whatever price the bookseller chooses (for bestsellers, Amazon typically sells Random House e-books at a significant loss). Random House frequently prices the e-book at the same price as the hardcover until a paperback edition is available.

 

Under the agency model, the online bookseller pays 70% of the retail list price of the e-book to the publisher. The bookseller, acting as the publisher’s agent, sells the e-book at the price established by the publisher, but the publisher is constrained by agreement with Apple and others to set a price significantly below that for the hardcover version.

 

The unit costs to the publisher, under either model, are simply the author’s royalty and the encryption fee, for which we’ll use a generous 50 cents per unit.

 

Here’s the math:

 

“The Help” has an e-book list price of $13 and is sold under the agency model. Publisher grosses 70% of retail price, or $9.10. Author’s royalty is 25% of publisher receipts, or $2.28. Publisher nets $6.32. ($9.10 minus $2.28 royalties and $0.50 encryption fee.)

 

“Hell’s Corner” is also sold under the agency model at a retail list price of $15 list price. Publisher grosses 70% of retail price, $10.50. Author’s royalty is 25% of publisher receipts, or $2.63. Publisher nets $7.37. ($10.50 minus $2.63 royalties and $0.50 encryption fee.) 

 

“Unbroken” is sold by Random House under the reseller model at a retail list price of $27. Publisher grosses $13.50 on the sale. Author’s royalty, at 25%, is $3.38. Random House nets $9.62. ($13.50 minus $3.38 royalties and $0.50 encryption fee.)

Books into Movies: Everything You Need to Know Part 2

Today we are continuing our interview with John Marlow, author of Make Your Story a Movie: Adapting Your Book or Idea for Hollywood. We are discussing the mechanics of the Hollywood dealmaking process as it applies to book adaptions.  If you want even more information about this subject, I highly recommend John’s Self-editing blog.

 Andy:  What is an “option,” and what are the steps that get taken before a decision is made to make a film or tv show?

  John: In the case of a book or manuscript or screenplay for that matter, an option is just that—an “option” to secure all film-related rights to the work, for an agreed-upon price, at a later time. Let’s say you have a story that I want to option as a producer. I pay you—or provide some valuable service to you—in exchange for exclusive permission to buy the film rights to your story at a later time, typically within 1-3 years.

 The option payment itself is relatively small, but if the option is “exercised”—that is, if the film rights are actually purchased before the option expires—you get paid a lot more.

 Why is it done this way? Let’s say you’ve written something like Nano, my own first novel. That might cost in the neighborhood of $100 million to film, which means it’s not going to be a tv series; it has to be a movie. As a producer, I don’t have that kind of money, so I’m going to have to take a hard look at this book, and figure out how to adapt it in a way that appeals to multiple buyers who do have that kind of money.

 I may want to approach other producers, directors, or actors to get them interested in the project, because if they’ll “attach” or commit to being involved—and if I’ve chosen them well—that makes the project more attractive to potential buyers.

 I might want to involve a manager or agent to help “package” (attach desirable people to), pitch or sell the project. I might hire a screenwriter and work with them to develop the story and adapt it into a screenplay, so I have something solid to show to the people I want to involve. Because unless the underlying property—the book, in this case—is already very well known and very successful, I’m unlikely to sell the project without having a screenplay.

 If I’m looking at independent financing, it’s almost impossible to approach investors without a screenplay—because what are they investing in? My notion that this book would make a cool movie? Amateurville.

 Doing all of this takes time and money. Having an exclusive option allows me to invest the time and money required to make things happen, because I know that if I can pull it all together before the option expires, I can sell the project, get my name on the screen as producer, and maybe make some money in the bargain.

 Andy: So let’s go through the steps between the option and the decision to produce.

 John: Again, let’s assume I’m the producer. When everything goes right, what happens is this I secure the option up front, do the producer thing, and find a buyer. That buyer then pays me a producer’s fee and exercises the option by paying you the full purchase price. Then they make the movie. The process is much the same for tv series.

 Books are almost always optioned, not bought—because as you can see, there’s a lot of work to be done downstream. Screenplays are often optioned as well, but you also have the opportunity to sell the script outright—which almost never happens with adaptation rights to books, unless the book is already huge.

 Andy: What are the typical deal points in an option contract, and what is a good negotiating strategy?

 John: Real Hollywood “long-form” option contracts run about 20 pages, with far too many deal points to cover here. What it boils down to is this: the eventual buyer (the one who exercises the option) wants to acquire all rights, except those specifically exempted or “reserved” to the author by the terms of the agreement.

 You typically get to keep book rights; live stage and radio rights; sequel, prequel, and character rights in book and ebook format; and so on. Everything else (movies, tv, merchandising, soundtrack, etc.) belongs to the studio. You might get to keep additional rights if you’re already massively successful, or wind up dealing with a very small or very independent company. But when it comes to the studios–to whom many of the small indies sell their movies–it’s their way or the highway.

 Andy: This is a little bit of a problem if you have a published book. Typically a book contract will grant to the publisher all print and electronic verbatim book rights but also a bundle of subsidiary rights: abridgements, serial rights, sometimes merchandise, non-verbatim multimedia rights (being used in “enhanced e-books or aps), and audio for verbatim. Which of these rights should the author try to reserve if they are seeking a movie deal?

John: It’s only a problem when you don’t know any better, which many new writers don’t. As you know from experience, publishers are almost always willing to back off on things they ask for in the first contract they send out. Things like—for example—film and merchandising rights A good agent will know which of these rights can and should be reserved for the author.

 Short version: the studios want everything that moves; they are not, for the most part, interested in any format that consists primarily of words and letters—unless it’s a screenplay, or a novelization or other adaptation based on the script or the movie itself. So whatever you want to do with your book is fine—print, ebooks, serializations, audiobooks, sequels and prequels, live stage, musicals for the most part, non-dramatic adaptations and so forth.

 Whether dealing with New York or Hollywood, it’s always a good idea to involve an attorney familiar with the field; in most cases, an “entertainment attorney” is what you want, and they’ll be very familiar with Hollywood’s requirements. Non-entertainment attorneys will be clueless, because it’s a very specialized field of law. If you can’t afford their hourly rates, many—including some of the best—will work for a 5% commission if you already have a deal on the table. They should save or make you more than that.

 Andy: What does a production company need in order to make an option offer? Do they need a manuscript?

John: That depends on the production company or the individual producer. Some will option books without scripts, some won’t. Hollywood is very heavy into adaptations right now, which is good for authors. At the same time, it’s important to realize that there is a vast difference between the amount of money you will be paid for film rights to a manuscript or book, and the amount you will be paid for a screenplay.

 Rights to unpublished manuscripts generally fetch the least, unless the manuscript just sold for a bundle. Film rights for an unknown or modestly successful book may—and may not—fetch $50,000 if the option is exercised and the movie is made, which takes years. The average price for a first-sale screenplay, on the other hand, hovers between $300,000 and $600,000, with some going well north of $1 million. And you get quite a big chunk of that—typically a third or more—up front. That’s yours to keep, even if the movie is never made.

 Andy: Can you describe the process that a writer should take in order to convert his or her novel into a film script?

 John: There are three basic approaches: do it yourself, hire a consultant, outsource. The basic differences are time, money, and quality. Doing it yourself costs nothing but time—and it will take an enormous amount of time. Very few writers are capable of doing both books and screenplays well. This is why so few famous novelists adapt their own books, and also why virtually no screenwriters pen novels.

 The formats are almost mutually exclusive, and demand opposing skills. Authors must expand upon things, provide rich detail, and delve into the minds of their characters over hundreds of pages; screenwriters must compress a story into 120 pages or less, guide the director but avoid stepping on his toes, avoid minute detail, make everything visual, create compelling characters while externalizing thoughts and portraying them through actions—all while showing deference to the actors and being ever-mindful of budget.

 The hardest transition of all is going from novelist to screenwriter, because most of the things that make for a good novelist make for a lousy screenwriter. This can be overcome, but—like learning to write novels—often takes years. If you have that kind of time, read good, recently-sold scripts and lots of adaptations, and give it your best shot.

 The second option—hiring a consultant to guide your adaptation—will speed your learning curve, and might just save you years of work. He or she can evaluate your book, help develop an outline for the adaptation, and act as a coach along the way. While it’s possible to do this with a pure screenwriter, you’re likely to get better results with someone who writes both books and screenplays. Ideally, you find someone who’s done that and also specializes in adaptations—an “adaptation specialist.”

 If you can do that, you’ll have someone on your team who not only knows where you’re going, but also where you’re coming from—and how to get from there to where you need to be. This doesn’t mean your job will be easy, but it will be easierThe consultant approach will cost you a bit of money, but save you a lot of time.

 The third option is to outsource the writing entirely—find a screenwriter or, preferably, an author-screenwriter adaptation specialist. Work with them to develop a detailed adaptive outline you’re happy with—so you know where things are going before the writing begins—and turn them loose. Let them write the script for you, checking in every 30 pages or so just to make sure everything’s on course. After a few months—viola!—you have a finished script in your hands. Which is where most successful Hollywood stories begin.

Doing it this way is also a fast-forward learning experience, because there’s nothing quite like seeing general principles and specific techniques applied to your own work by someone who really knows their stuff. This is of course the most costly option in terms of money, but the least costly in terms of time.

 Andy: Can you talk a bit about your work as a developmental editor and adaptation specialist, and specifically what’s involved in the process of turning a book into a screenplay?

 John: I do a lot of development and editing work on books and screenplays, and I write both. I’ve done adaptations going both ways—book-to-screen and screenplay-to-book. The first one I did was my own, adapting the Nano novel into a screenplay. I was fortunate enough to get some recognition for that from the Academy’s Nicholl Fellowships Program, which got me and my script mentioned in Variety, The Hollywood Reporter and the Los Angeles Times, and led to a development deal with Jan de Bont, who directed/produced Speed, Twister, Minority Report and other films.

 That interest helped sell the book to Macmillan. And it taught me that there can be a kind of synergy between New York and Hollywood, where interest on one coast can be used to bump up interest on the other. Which is why it’s best to have both a book and a screenplay to sell.

 When it comes to helping others with adaptations, I do a number of things. The most basic service is an adaptation evaluation; I look at what the author has—let’s say it’s a book or manuscript—and give them my take on the work’s adaptability:

 Does this look like it would make a good movie? If yes, how can we make it a great movie? If no, could it be a good or great movie—and what kinds of changes would we need to implement to make that happen? How can we make those changes while remaining true to the heart of the story or—if it’s nonfiction—the actual events? When you’re talking about taking a 300+ page book and turning into a 120-page screenplay, even a book that’s cinematic to begin with is going to undergo a significant transformation. Books that are not obvious movies will require bigger changes.

 I often consult with my significant other at this point, because she’s worked as story editor for a major producer, and also worked for Nielsen, which does most of the film marketing research for the studios. And she wrote and produced a number of tv documentaries. She provides a female perspective, as well as added story savvy.

 Then I generally get on the phone with the author and bat things around. If they want to go forward with the adaptation, and want me to consult/coach or adapt it for them, then we’ll work together to lay out the structure and “beats” or significant events of the existing story. We do this with what I call a digital outline or “beatline,” which is a lot easier to work with than a standard outline. For more on this, see my recent post The Digital Outline: Creating a Beatline for Your Story.

 Starting with that, the author and I will develop a working outline and a 7-point story structure. My recent post Story Structure: Laying Down the Bones goes into great detail on this.

 After that, we put our heads together, brainstorm and create an adaptive outline or beatline of what the script story should look like. Working in this format, where each significant event is a simple bullet-point, allows us to move quickly and change, rearrange, add or delete things on the fly. It also enables us to take in the whole story in a few minutes, instead of repeatedly plowing through 300 or 500 pages to see how many things any given change is going to affect.

 I’ll often bring my story editor in on this as well, so it’s a bit of a two-for-one deal for the client. We work ten feet away from each other, so it’s no big deal.

 If the author wants me to write the script, I go off and do that—and we check in every 30 pages or so to make sure everyone’s happy. In either event, we’ll put together a final logline and pitch sheet, do a final polish—and the author is ready to rock.

 Andy: John, thanks so much. There is so much in this interview. I hope readers will take the time to read your Self Editing Blog to go into this more deeply. Now if you will excuse me, I have Spielberg on the other line and have to give him my pitch pack.

 John: Tell him to wait.

 

 

You can learn more about adapting your book to a movie by reading John’s new book: Make Your Story a Movie. St. Martin’s Press, 2012

Purchase from: Amazon.com    Indiebound   Barnes and Noble   iTunes

Books into Movies: Everything You Need to Know (Almost). Part 1

 

 

A lot of writers I speak with  think of  their book as a story  that would make a good movie. It’s nice to think that Stephen Spielberg is waiting in the wings to scoop up your book, but it really doesn’t happen all that often. The movie business is like the book business, only with fewer movies than books. There are a fair number of “option” deals going around, but the real money most often comes with production, not with option.

 Today I am going to interview John Robert Marlow. John is the author of  Make Your Story a Movie: Adapting Your Book or Idea for Hollywood.   He is also the author of Nano, a technothriller  that he adapted for film. The script  has been honored by the same Academy that hands out the Academy Awards. The Nano script then went into development with a major Hollywood director. John optioned another script to the producer of Collateral, who wanted the script so badly that when she couldn’t reach John herself, she hired a private detective to track him down.

 John has written numerous articles about writing, self editing and adaptation, both for the Writer’s Digest Books annuals and for his wonderful Self Editing Blog.   This interview is going to be in 2 parts. Today we are going to talk about the how Hollywood deals get pitched and put together.

The next interview will be about book-screen options and how we move from a book to a screenplay.

 Andy: John, let’s say you have a novel. How do you determine whether it has any dramatic potential at all?

 John: Hollywood’s been at this game for a while now, and most of these folks are very clear about what it takes to make a book appealing on the screen. Some of the things that are important to Hollywood mean nothing at all to publishers—so the fact that a book is appealing to publishing houses doesn’t mean it will interest Hollywood. Which is one of the reasons that so few books are seriously considered by filmmakers.

 At the same time, if you know what Hollywood wants, you can incorporate those elements into your story as you write it, or make sure they’re included in any screenplay adaptation you may write or commission, so it’s never too late.

 Andy:  So what exactly are those elements?

 John: Hollywood looks for 10 things in any story, fiction or nonfiction: a cinematic concept that can be communicated in ten seconds; a hero that a large segment of the moviegoing public can relate to; strong visual potential; a three-act structure; a two-hour limit; a reasonable budget; low fat (no unnecessary scenes); franchise potential; four-quadrant (young and old, male and female) appeal; and merchandising potential.

 Seasoned vets with proven track records can sometimes skate the two-hour limit and budget points; newcomers cannot. Franchise and merchandising potential aren’t always necessary but are good to have, particularly at higher budget levels. The same goes for four-quadrant appeal; the more your movie costs, the bigger your audience needs to be to earn that money back. Avatar and Titanic are four-quadrant movies.

 I’ve covered these ten points extensively in my article,  What Hollywood Wants: 10 Things Studios Like to See in Adapted (and Original) Scripts 

Andy: What is the first step you take in getting interest from a production company?

 John: I can  pick up the phone or send an email. But for those who don’t have industry connections, it can be hard. The reason is simple: Hollywood, like New York, is full of people trying to sell things that aren’t ready to be seen. Some need a bit more work; others are train wrecks. And then you have the translation issue: some books are movies; most are not. Many could be movies, if carefully adapted—but until you see the adaptation, you don’t really know.

 There are more buyers for adapted screenplays than for book adaptation rights, so if I really want to get the attention of someone who’s got thousands of other people vying for their time, I’m going to do one of two things—and this applies equally to those with and without industry connections: approach them with a finished screenplay, or put together one hell of a good pitch pack.

 Whichever path you choose, you must have something professional to show, or there’s nothing to set you apart from the sea of amateurs with little more than an “idea” they think would make a great movie. And while some of those amateurs may be right, you can’t copyright an idea, and no one’s likely to pay you for it. Ideas are common; fabulous execution over the length of a screenplay (or novel, for that matter) is not—which is why New York buys books, Hollywood buys scripts, and no one buys “ideas” from strangers.

 Andy: Why is it best to have a screenplay?

 John: Because it’s closer to being a movie—the people looking at it can “see” the movie as they read. That’s vital, because the purpose of a screenplay is to roll a movie in the reader’s head, and to get them to take the next step.

If the screenplay is ready to go, the producer can skip a lot of costly and time-consuming development steps and go looking for attachments or buyers right now. Less trouble, fewer headaches, and a faster sale if things go well.

If you can’t write a dynamite script, or afford to hire someone else to do it for you, then you’re better off with the pitch pack—because a bad or even mediocre script is a swift path to rejection. There’s too much competition to get by with that.

 Andy: So what’s a pitch pack?

 John: The pitch pack is an attempt at a happy medium between raw idea and polished screenplay: unique enough to protect, and hopefully strong enough to generate real interest.

 It’s similar to a book proposal. It includes a pitch sheet with logline; synopsis or summary; an informal treatment or “scriptment” that’s basically a longer summary with perhaps snippets of dialogue or actual scenes; a bit of info on the major characters; box office figures for similar films already released; a “dream” cast list of the actors you’d want to see in the major roles, a few other things. And you let them know there’s a beatline available on request.

 If someone bites on that, you follow up with the beatline to demonstrate that you really do know what you’re doing; you’ve mapped out every scene in detail, nothing is vague or conflicting or unresolved. This kind of approach puts you light years ahead of the guy who bangs on Hollywood’s door and says, “Hey, I have a great idea.” It also makes it more likely that, if they do option or buy your pitch, they’ll give you first crack at writing the script—because it’s obvious you’ve worked this out in great detail.

I’ll be posting about this on my blog in the near future.

Andy: Okay. So you have your script or pitch pack Then what?

 John: If I didn’t have film industry connections, , I would either look for someone to team with, —someone more familiar with the territory—or go ahead and contact the producers and production companies myself.

 Keep in mind, though, that if you have a finished script, you can approach reps—meaning agents and managers. . If you find a good one to take you on, they will then approach producers and production companies on your behalf. And they’re likely to get faster, more serious reads from those people than you would, acting on your own.  So even if it takes you a while to land a rep, the total time needed to reach your target buyers could still be much shorter.

 Also, there are some very good reasons to avoid approaching producers or production companies by yourself—not the least of which is overexposure. A good rep—agent or manager—can get your script into the hands of all the right producers in a matter of days.

 Those producers will not have heard anyone talking trash about your script, because they’ll all get it at pretty much the same time, and they’ll feel pressured to get to it quickly because they know that the rep has also put it in the hands of their competitors, who may be reading it at this very moment.

 Some low-end producers also do bad things, like “shop” your script to everyone in town, hoping someone, anyone, will bite. This doesn’t help you, and can do quite a bit of damage when you later try to approach those same people with your project—particularly when you don’t know they’ve already seen it. I learned this the hard way.

 Q: How does the pitch in Hollywood differ from what is expected in book publishing?

 The Hollywood pitch happens in steps, because no one has time to listen to long pitches or read material that hasn’t been pre-screened or pre-qualified in some way. The first step is the logline, which boils your story down to a 10-second pitch. It sounds ridiculous, but it can be done, and is in fact a sort of art—one I cover in a blog post called Building the Perfect Logline.  

For example, this is how I would pitch The Fugitive: “A fugitive doctor wrongly convicted of killing his wife struggles to prove his innocence while pursued by a relentless US Marshall.” Or, to pitch a more complex adaptation with multiple protagonists: “A family struggles to escape a remote island park whose main attractions—genetically restored dinosaurs—have been set loose by a power failure.” Which is, of course, Jurassic Park.

 What you leave out of the pitch  is as important as what you put in. An agent or producer can read 700 to 1,000 loglines in the time it takes to read a single script. So, obviously, that’s what they do. If the logline grabs them, they take the next step, and ask for more info or the script itself.

 If they ask for more info, you give them a synopsis or a pitch sheet teaser, which is the equivalent of a movie trailer in words: your story in one minute. I recently wrote about pitch sheets in a blog post called The One-Minute Story: Crafting a Pitch Sheet for your Book, Screenplay, or Other Tale.  

If they like the pitch sheet, they’ll usually ask to see the script. In some cases, you can get by with a pitch pack in place of the script. In other cases, not. Without a script, for example, agents and managers have nothing to sell—unless they’re interested in selling the film rights alone, which is less profitable and therefore less attractive from their perspective. Though if you’re brand-name author, this may not apply.

To Purchase Make Your Story a Movie: Amazon.com    Barnes and Noble    Indiebound   iTunes

 

 

E-book Economics 101

 The e-book is turning the  book business upside down. No one in publishing  seems to be talking about anything else. Manufacturing costs, retail prices, competition, author royalties, the future of the physical bookstore, the future of the novel, enhanced books, book reader technology, eye strain, how to read an e-book on the beach, are commercial publishers out-dated dinosaurs; these are but a few of the subjects that are generating the most agonizing soul searching in book publishing. Nobody knows how these things will ultimately sort themselves out. The changes are just coming too fast.

  In this post I am   going to analyze the economics of publishing and compare the cost of publishing a hardback book to that of the e-book. I’m an agent, so I have an ax to grind.  It looks like the bottom line is that book publishers stand to  make more money on e-books and authors will make less.  

 For this post, I am using information that I took from an article in The New York Times. Here is the link to the article.

First let’s look at the costs of publishing a traditional hardback. The numbers  in The New York Times article  were calculated for a  hardback with a $26 suggested  retail price. (Remember that booksellers can charge any price they want. And a lot of bestsellers are discounted to the book buyer.  Here is the breakdown.

Amount paid to publisher by bookseller: $13.00

Printing, warehousing, shipping: $  3.25

Author Royalty:  $   3.90

Design, editorial, typesetting:  $      .80

 Marketing:  $  1.00

 Profit before overhead:  $4.05

I am not entirely pleased by the robustness of this analysis. It neither accounts for all of the expenses nor all of the income associated with a particular book.  But it is a good indicator of the relative costs of publishing a title.

 What is an E-book?

 If you don’t know the answer to this question, what have you been doing for the last two years? And if you are reading this on a Kindle, skip to the next section.  E-books are like iTunes. And, in fact, the  iTune division of Apple will be managing  the Apple e-book store. New technology for the e-book changes almost daily. As of (let’s see now) yesterday I believe, you can even  download e-books onto your iPhones. The largest selling e-book reader is the Kindle. But the Apple iPad is moving up fast as of this writing. There is also the Sony Reader, the Nook, the Kobo reader and new brands popping every month.  Readers are beginning to get sold at the big box stores and should be a popular item this Christmas. It is estimated that by the end of the year, there will be over 10,000,000 readers sold.

 In 2009, e-books accounted for about 4% of unit trade book sales, but sales are increasing exponentially.  E-book sales  in 2010 are up over 150% from previous year’s sales. Unit sales of  cloth and paper books have been decreasing.  Amazon.com claims that they are now selling more Kindle Editions than traditional cloth titles. Most major publishers though are showing less dramatic e-book sales. But they are reporting that 10%  or more of  bestselling new titles are e-books.

 The advent of the iPad creates a suitable platform for visual books as well. People are already experimenting with books that incorporate multimedia integration. The first “enhanced” e-book was published last July.  Perhaps soon you will be able to buy a cookbook that includes film demonstrations by the author. Or book group editions with film clips of interviews with the author.

 The e-book is a perfect fit for our gadget-obsessed world.

 And what are the costs of publishing an e-book?

 Let’s go back to The New York Times article that we discussed above on the cost of publishing a book. There are some substantial savings to the publisher on e-books. No manufacturing costs, no warehousing costs, no shipping and receiving, no returns. Sweet!

 Like all other things e-book, the economic model has been changing protean-like, and no one in publishing can predict what it will look like in a month, let alone in a year. Let’s take a look at the $26.00 hardbound book from the example above. Currently publishers are giving book lovers a break and selling e-books for about half  the price of the hardback. Sometimes Amazon is selling these books even lower and at a loss in order to gain market share. About 90% of all e-books are currently being sold by Amazon. And Amazon is hoping to keep it that way, in spite of fierce competition from Apple.  Google recently w rolled out its e-book store and is selling in a variety of formats. (Amazon only sells Kindle editions that only can be read on the Kindle reader). Independent stores have linked up with Google and are selling e-books on their sites as well.   

 There are several different systems of selling e-books, but let’s keep it simple and look at the sales for books from most major publishers. So here are the costs and the profits:

 Price to the consumer:  $12.99

Cost paid to publisher by bookseller: $ 9.09

Author royalty:  $ 2.27

Digitization, typesetting, editing :  $   .50

Marketing:  $    .78

 Profit before overhead: $   5.54

 The first and most astonishing thing you will notice is the hit that author royalties have taken on the e-book economic model. Authors will receive a royalty of $3.90 on the hardback vs. $2.27 on an e-book.  (Actually that may not be the first thing you notice, but agents and authors are understandably  concerned about this. “Livid” might be a better characterization.) Note also that even with consumer prices being half of the list price of a traditional book, publishers stand to make considerably more money on each sale, because of negligible manufacturing and distribution costs.

A lot of people think that e-books don’t cost anything so they should have a price that reflects this.  Amazon seems to be promoting this idea for their   own reasons. But remember e-books still have costs for royalties, marketing, and editorial. There are a number of Internet gurus who think that “information wants to be free”. But most writers feel that their work is worth something and they should be paid for the ten years that they toiled on their novel, for instance.

 There are some other, as yet, unquantifiable factors that would tend to make e-books an even better deal for publishers. E-books will not generate costly returns of unsold books from the bookseller. They are sold to consumers non-returnable. You can’t even give it away to a friend. And you can’t sell it to used book stores. My gadget -obsessed brother, Ken Ross, (check out his company, Expertceo.com)   now only reads books on his Kindle. He claims that he buys many more books than before, because of the ease of purchase. If he gets bored with what he is reading, he just hits the button for a new book and moves on. That is what publishers are hoping for – more readers like Ken. And if Ken’s buying patterns are anything to go by, reports of the death of the  book  and of book publishing will have been greatly exaggerated.

 

 

Authors Guild vs. John Wiley: Royalties on List or Royalties on Net. What’s at Stake?

Authors Guild vs. Wiley: Royalties on “List” vs. “Net”.

An interesting dispute has broken out between The Authors Guild  and John Wiley Publishers   over what is the best way to calculate royalties. The dispute may seem a little arcane but it is interesting in that the issues bring to light fundamental questions of how best to structure royalty rates that are in the best interest of the author.

The dispute with Wiley  involves authors who signed contracts with Bloomberg Publishers. Bloomberg closed its doors and sold the existing contracts to Wiley. Last week Wiley sent out letters to Bloomberg authors asking them to sign off on a new royalty structure that is in accord with Wiley’s existing policies. Wiley claims that the new royalties are more favorable to authors. Authors Guild claims that they aren’t and the dispute has gone back and forth.

The biggest issue and one that illuminates an important subject for author royalties is that many of the Bloomberg  contracts had royalties based on “list price”. Wiley is asking these authors to modify their contract and base the new royalties on “net”.

Let’s look at this. The distinction is fundamental. Most royalties by the large New York publishers offer rates based on the “suggested list price” of the book. That is the printed price that you see on your book at most book stores. As you know, there is a lot of discounting going on particularly on internet sites, although lots of physical stores discount best sellers as well. But this is irrelevant for calculating royalties.

Let’s say that your book has a suggested list price of $25. And let’s say you are getting a 15% royalty. The dollar amount you would receive on each book would be $25 x 15% or $3.75. This would be the case regardless of whether the book in question is being discounted by the retail bookseller or not.

Royalties based on “net” are calculated by giving the author a percentage of the net amount of revenue flowing to the publisher. A lot of small presses base their royalties on net and apparently Wiley does as well.  In an ideal situation,  “net” would be the amount the publisher charges the retailer or other customer.  Most books are sold at about 50% (more or less), but there are some important issues that we will discuss later.

This shouldn’t necessarily be a problem if, for instance, the percentage royalty based on net is double the royalty based on list. In the above example, if the author received a 30% royalty on net, it would be very close to the same as the royalty based on list.

But it gets even more complicated when you consider that all publishing contracts have a so-called “deep discounting” clause. These provisions usually reduce the author’s royalty when discounts are given in excess of a specified amount. In theory this isn’t unfair if the reductions only apply to very high discounts and if the amount of the reduction is proportionate to the deep discount. These provisions can also be minimized if the author or agent can limit the application of the reduction in author royalties to books “outside normal trade channels.”

In a lot of contracts, the deep discount provision is triggered on any discount granted at 50% or more. If the contract says that for every percent of discount in excess of  50%, author’s royalty will be reduced by ½%, this is pretty fair. But more frequently the terms are that if the discount is 50% or over, the author’s royalty will be based on net instead of list. This effectively cuts the author’s royalty by half. In this situation, you could have the publisher offer a 51% discount (a price that reduces publisher’s income  by 25 cents), but would reduce the author royalty by  $1.75). Thus, the publisher makes windfall profits on the book even with a deeper  discount, and this windfall is entirely supported by reduced author royalties.

It gets even worse when the trigger discount is reduced to something like 48% (which is the case with one of the major publishers). In this situation, all sales to Barnes and Noble and Borders warehouses, all sales to Amazon.com and BN.com, all non-returnable sales, all sales to jobbers,  and all sales to mass merchants (Wal-Mart, Target, Costco) will have royalties reduced by half. This could include the vast majority of sales on the title.

It’s a bad deal for the author. And that is the reason that The Authors Guild is upset.

Sarah Palin Book Income Update

Why is Sarah Smiling?

Publishers Weekly just came out with its list of the best selling books of 2009.

For all of you readers out there who thought that Going Rogue by Sarah Palin was a joke, the joke is on you.  Sarah’s publisher, HarperCollins is laughing all the way to the bank. And so is Sarah.  Yes. Going Rogue was the #1 non-fiction best-seller of the year. It sold 2,674,684 copies. Nobody else came close.

Ask The Agent made an educated guess that Palin received a $6,000,000 advance for the book.  Truthfully, we were blowing smoke. We have no idea what that advance really was. But for comparison, it was reported that Senator Edward Kennedy’s received  an $8,000,000 advance for his autobiography, True Compass. It was  #5 on the non-fiction best seller list selling 855,843, about a third of Palin’s sales.

Now that the sales are in, it is a lot easier to calculate how much Palin actually made on the book and how well her publisher did.

Whatever Palin’s advance was, it was an “advance” against royalties. Royalties are based on actual sales of a book. An author doesn’t receive royalties until the advance is “earned out”, i.e. royalties exceed the advance that was paid. Typically the royalty rate is 15% of the list price, which, in the case of Going Rogue, was $28.99. So Palin made $4.34 on each book or a total of $11,608,128.56. Not bad for a book she didn’t even write.   She may have paid some of this out to her hack ghost writer. We don’t know how much, but $1,000,000 would be a lot for this kind of work. And shabby work it was!

But  wait! It gets even better. The numbers we are talking about are for US sales of the hardback version only. It doesn’t include the following: world English sales, translations, e-book sales, electronic apps, movie options, audio books, condensations, serializations, and merchandise (calendars, t-shirts, mugs, video games, and posters). And let’s not forget book club sales. And the Conservative Book Club is a huge driver of sales, frequently in the seven figures. We don’t know these numbers and probably never will.

But wait! It gets even better. Those numbers are only for sales in 2009.  Going Rogue is still a best seller juggernaut. Her Amazon ranking is (as of today) #266 and her Kindle ranking is #573. Trade and Mass Market paperbacks will be rolling out sometime this year. By comparison, the best-selling non-fiction trade paperback in 2009 was Glen Beck’s Common Sense selling over a million copies.  Assume 8% royalty on a $16.00 paperback (that is conservative), Palin stands to reap another  $1,250,000 plus change on these sales.

Feel sorry for the publisher, HarperCollins, for shelling out all that dough for royalties? It’s ok. Don’t worry. Let’s look at publisher costs. Typically a publisher will receive about half of the retail price of a book which would be for this book $14.47. HarperCollins out of pocket costs would be approximately $3.00 for preproduction (editing and the like), $2.50 for manufacturing, and $2.00 for marketing. Add to this Palin’s $4.34 royalty. The publisher’s profit  should net out at $12,383,786. (This does not account for publishers fixed overhead costs). And they also stand to make lots of money on continuing sales, paperback sales and other subsidiary sales.

I wish I was Palin’s agent. Let’s see….15% of author’s net income. That’s $1,741,219 and counting.  Sweeet!

The Book Deal: Territorial Rights

The Book Deal: Territorial Rights

Most people think of book deals as just that: a author gets paid by a publisher to publish his/her book. But it is a little more complicated than that. The book deal is a  negotiation that includes, not just how much the author will get paid, but  also what “subsidiary rights” will be granted to the publisher for exploitation. There are numerous revenue generating opportunities when you write a book. They include: right to license in the English Language in the UK and other English speaking countries, translation rights, audio rights, e-book rights, sale of abridgements, magazine excerpts,  movie/tv/performance rights, merchandise spin-off rights, and many more. All book deals include negotiations of  which of these sub-rights are being granted to the publisher and what will be the revenue split between publisher and author.

Today we will talk about territory rights. These are important deal points and are always negotiated along with advances and royalties. These rights are typically the right to sell a license to a foreign publisher to publish  in another country or another language. Sometimes publishers merely export the existing book and have it distributed in foreign markets. No licensing rights are involved in this situation, but there is still an opportunity to negotiate the royalty on books for export.

In a book deal, territorial rights are always split into at least 3 categories.  These are:

  1) North American English (which includes US, Canada, and usually The Philippines). I’m not sure why the Philippines usually gets thrown in, but it almost always does.

2) English language rights in the remainder of the world, which includes UK, Commonwealth countries or former Commonwealth Countries (Australia, New Zealand, South Africa, sometimes India, etc).

3) Translation rights. Obviously all languages other than English. One of my clients has books translated into 29 languages, some of them he has never heard of.

Publishers usually try to negotiate “world rights”. This is the right to publish or license the publication of books throughout the world. Publishers will usually offer the author 50% split on the income from these rights. That is a good deal for the publisher, but not such a good deal for authors. The work involved in selling these rights is minimal. The income is substantial. If I am negotiating with the publisher, and we have determined to sell them world rights, I try to get the percentages up to 75-80% for the author.

Usually it is more advantageous to reserve as many world rights as possible for the author and have the author (or his agent)  sell them himself.  In this situation, the author gives the right to the publisher only to publish in North America. The remainder of the  rights are retained and sold by the author  throughout the world  with no split going to the US publisher.

As in all aspects of the book deal, the ability to hang on to the foreign rights is dependent on how much leverage you have in negotiation. If you have multiple suitors or are conducting an auction, you can simply make the rule that the only rights being offered are for North America. If you only have a single offer, you may not have a strong say in the matter. Also a publisher may make an offer so generous that it is worth giving them world rights in exchange. And frequently, because of the subject of the book, world rights might be insignificant, and should not play a critical factor in the book deal.

Let’s try to calculate the value of retaining the territorial rights versus selling them to a publisher. In this example, let’s say we have an offer from a UK publisher for $10,000. If your publisher controls the rights to the book, and your contract calls for 50-50 split on the revenue, here is how it breaks out:

UK advance $10,000

 Publisher’s agent commission: $1500

Less publisher’s 50% cut on the right $4250

Author’s Revenue $4250

Less commission to author’s agent $ 637

Net to author $ 3613

This isn’t such a great deal. The author ends up with 36% of the income gained from the sale of the rights. And there will also be a substantial amount withheld for taxes from the foreign government. Another disadvantage is that the income that is due the author by the US publisher will not be paid upon receipt but will be deducted from your advance. You will not see this income (if ever) until far down the road.

Now let’s look at the same situation when you retain your rights.  As an agent, when I negotiate retention of these rights, I receive a slightly higher commission of 20%. The reason for that is that I will have to split my commission with a foreign agent. Most agents do the same, although the amount varies.

.

UK advance                                           $10,000

Revenue due author                             $10,000

Less author agent commission           $2,000

Net to author                                         $8,000

Definitely a much sweeter deal for the author. Don’t forget, you still have the tax withholding to a foreign government. But these tax payments will be credits against your US taxes. So it should be a wash. The other advantage in this situation is that the money will come to you up-front and not be deducted from advances. As we said in a previous blog entry, it is always better to get money sooner rather than later.

There are some other advantages and disadvantages to these respective deals. The advantage of selling world rights to the publisher is simplicity. But also it is possible that the publisher has resources and connections that are not available to you. Perhaps you can make an effort to sell the rights yourself. If unsuccessful, you can always turn them over to the publisher.

But the opposite is also true. It is possible that a small publisher doesn’t have resources to sell the book. And won’t devote the resources that they have to aggressively sell the rights. With a large publisher that has offices world-wide, they might make an inside deal with one of their own subsidiaries with an advance below what the market would offer.

Regardless of who controls the territorial rights, this is an important part of the book deal and potentially a very lucrative source of income for the author.