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HarperCollins Profit Sharing Might Not be a Better Deal for Authors

April 4th, 2008

Publishing and Business

Today, HarperCollins announced the formation of a new publishing group that will eliminate author advances in favor of profit sharing, and requires book store purchases to be on a non-returnable basis. The New York Times article seems to summarize the announcement well.

First, let me congratulate HarperCollins on hiring Robert S. Miller to run the new division, who was quoted as saying,

The idea is, ‘Let’s take all the things that we think are wrong with this business and try to change them. It really seemed to require a start-up from scratch because it will be very experimental.

I also applaud HarperCollins for all of the various experimentation they have been doing recently – it is certainly time to try new things.

One detail in the NYT piece has the potential to confuse readers:

Mr. Miller, who was most recently president of Hyperion, said he hoped to offer authors a 50-50 split of profits. Typically, authors earn royalties of 15 percent of profits after they have paid off their advances. Many authors never earn royalties.

Someone out there with more trade experience than I have should feel free to tell me I am wrong, but in my line of publishing, authors are not paid a royalty on profits – they are paid a royalty on the net dollar receipts. So to say that most authors are paid 15% of profits is misleading.

In my business, profits are calculated after expenses such as printing, paper, marketing and so forth are deducted, whereas net dollar receipts are monies received by the publisher less any discounts, taxes, bad debts, customer returns, allowances and credits and excluding any shipping costs charged separately to the customer.  In this case the customer being book sellers.

So, if an author is getting 50% of the profits on their book, the publisher is really asking them to share in all the expenses as well, and therefore an author is sharing in more risk than in the traditional publishing model. I wonder if the royalty rate isn’t really more like 15% of the net dollar receipts if we compare apples to apples.

As for their books being non-returnable, in my experience that only means deeper discounts to accounts in order for them to be placed on the shelf.

All in all, time will tell if this model works for HarperCollins.  What do you think?

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Posted on 4 April 2008

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  • The NYTIMES corrected the article and it is 15% of net dollar receipts, that is of course AFTER they earn back the advance they were given. The word NET is the key b/c with the publishing industry taking back returns at any point, you can never be sure that you have fully accounted for all the returns.

    Either way a profit share does protect the publisher from a book that does not sell well. Yes the author is sharing in the expenses. However, if the book does sell well and is a hit, both the pub and the author will benefit nicely. It really is a smart way for an unknown author to get a chance.
  • Traditionally, the advance is supposed to allow the author to take a leave of absence from his or her day job to write the book. The advance allows the author to keep the kitchen pantry stocked with plenty of ramen noodles to nourish the body while the book is being written.

    Without an advance, the author is receiving no income at all from the publisher during the 6 to 12 months required to write the book. This is intolerable.

    I think advances should go in the oppposite direction: I think publishers should pay advances to writers that are closer in dollar amounts to what a consultant might get paid -- or at least a highly qualified office temp. The publisher would then be *forced* to sell the book to prevent going broke.

    The main problem is that publishers seem to have lost the ability to sell books, so while the 50% number initially looks enticing, it's pretty meaningless if no books get sold.

    I agree with you that it'll probably turn out that the 50% (of whatever) paid to the author will undoubtedly be close in dollar amounts to 15% of net receipts. You can't magically get more money just by calculating things a little differently.
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