Changing the Way Publishing Is Paid
The Society of Authors, an author organization in the UK, has cried that literary piracy is going to lead to the demise of literature because authors will eventually stop writing.
"For a while it will be great for readers because they will pay less and less but in the long run it's going to ruin the information. People will stop writing. There's a lot of "wait and see what the technology brings' but the trouble is if you wait and see too long then it's gone. That's what happened to the music industry.
Chevalier is right that the music industry has been trying to catch up instead of capitalizing on the market but she isn’t right that the music industry is dead or that it is dead because of piracy. There are still musicians playing long after Napster and iTunes swept the market. The truth is, though, that while the music industry profits have been shrinking, it’s hard to link that to the piracy issue. Koleman Strumpf argues that there is no empirical evidence that file sharing has harmed the music industry.
The question comes down to whether the publishing industry can change with the changing times and re-evaluate how money is made by both the house and its authors. HarperCollins is going to try out a new model that features an epublishing like business model. Essentially HarperCollins is going to pay less up front, not take returns, and pay more percentage wise to the author for each sale. Additionally, the studio is reported to be considering a free ebook / digital audio with the sale of a hardcover.
This is the epublishing model. In epublishing, you do not have returns. More importantly, there is no secondary resale market for ebooks. In epublishing there are no advances. Instead, authors agree to take on more risk in exchange for a greater reward. Instead of 6-8% of the cover price, an author might receive 35-40% of the retail price.
I’ve blogged before about how this model means that an author has to sell far less to make equal amounts of money. The problem is whether, without coop dollars spent on in store advertising (ie. front of store placement, face out, or end caps), these books from HarperCollins new model will be able to make a profit.
In August of 2007, Richard Charkin, the CEO of Macmillian, wrote a blog post advocating for the a change in the current royalty system. Right now both in the UK and the US, the negotiated royalty rate is based on the retail price. Charkin thought it might make sense and actually be more transparent to move to a system that is followed by educational and academic publishers which is the “almost universal application of royalties based on publishers’ gross income rather than retail price”. The uproar against Charkin was tremendous as several commenters claimed that royalties based on the retail price was the only transparency that is afforded an author. But Harper Collins is going to test that with its new system and also incorporate the argument made by Evan Schnittman of the Oxford University Press to do away with advances.
Schnittman followed up the Charkin post with a suggesting the elimination of advances and providing some evidentiary proof that advances could be breaking the back of the publishing industry. There are very few royalty checks that are sent out to an author. I heard once that some authors believe that this is the system that works the best: that the advances should also be higher than any earn out. This way you are never waiting for some royatly check but instead getting your money up front.
The problem, as Schnittman points out, is that because so few authors actually make money for a publisher, the costs of advances to the business of publishing could be harmful for its future. Schnittman proposes a flat fee to be paid along with a performance fee to be paid for sales of books. I.e., if the book sells more than its expected sell through, a performance fee of some amount would be paid with correlating to each incremental increase in sales.
This idea fascinates me. In the sports world, contracts are incentive laden. Make it to the playoffs? Increase in pay. Get an MVP? Get a bonus. Make it to the Pro Bowl or All Star game? Mo’ Money. In the book world, it would be making the NYT or USA Today list; maybe selling through 50% of the print run; even possibly winning an award.
It will be interesting to see what will come of HarperCollins test and what authors are willing to forego the advance in lieu of the profits. How will the profits be divvied per author? In law firms, profit sharing is a complicated (uber complicated) formula but essentially rests on how much money each partner brings in. So if an author of the HC studio brings in 40% of the revenue, would that author be entitled to 40% of the net profits? gross profits? How are advertising dollars split? Does everyone share equally with the costs or are the costs apportioned according to revenue as well?
What HarperCollins actions do signal is a willingness to test the market to see if there is a different way for authors to be paid in a traditional publishing setting. The next step will be to see how authors can be paid in a non traditional publishing setting. I’ve often felt that the high price of ebooks have a piracy tax built in. Maybe that is the direction the publishers will eventually take, a complete adoption of the epublishing model eliminating returns, the resale market, and include a built in piracy tax. Tracy Chevalier is correct. The publishing industry must evaluate the way in which publishing will need to adapt to the increasing digital world. The time to do that is now rather than ten years from now.