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Richard Curtis on
Publishing in the 21st Century
Mastering the Business of Publishing
by Richard Curtis
Originally published by E-Reads
"P & L"
ONE OF THE LEAST pleasant duties that agents are obliged to perform is explaining to their clients why their books have flopped. And there is no dearth of reasons: the editor was fired, the company was taken over by a conglomerate, the salesmen didn't understand the book, someone stuck a lousy title on it, they didn't advertise it, they didn't advertise it enough, they underprinted it, they brought it out too soon, they brought it out too late, there was an Act of God, there was an Act of Satan—an agent's files are a veritable Grand Guignol of publishing horror stories.
The one thing it does not always occur to agents to tell their clients, however, is that their books have not really flopped, at least not from the publisher's viewpoint. Maybe your book wasn't a best-seller, but that's not to say your publisher didn't make money on it. Most authors and a great many agents tend to equate the earning-out of an author's advance with the recoupment of a publisher's investment. It's an understandable misconception, for to authors, royalties are profits. If their books start earning profits, they assume the publisher has started making profits too; and conversely, they figure, if the advance doesn't earn out, the publisher must have lost money on the book.
Seldom is this equation true. Although royalties are a gauge of success or failure for an author, publishers use an entirely different system to determine how well or badly a book has done for them. In that system, authors' royalties are only one element of the profit picture, and it is entirely possible for a publisher to make a big profit on a book whose advance has not earned out, or to lose money on a book whose advance has earned out.
Because I have never worked for a publishing company, it took me a long time to grasp this distinction. But because it's a terribly important one, explaining as it does why publishers often seem to be doing everything they can to lose money on their books, I've tried to educate myself in basic publishing economics and would like to share my findings with you.
In most cases today, publishers prepare profit-and-loss projections for books that they are considering acquiring. The calculations differ widely from company to company, from type of book to type of book, and even from book to book. The database for an illustrated book is quite different from that of a hardcover novel, which in turn differs from a paperback novel; and even within the genus paperback novel are such species as lead novel, category novel, movie tie-in, etc.
Many staff members may be involved in producing these estimates: editors, production people, sales managers, sub-rights directors, advertising and promotion personnel, the company comptroller, art director, and so on. Each tries to factor into the profit-and-loss worksheet the best-case and worst-case numbers that will help their firm formulate as accurate a picture of a book's potential as is possible in our unpredictable business. The worksheets are really a tool, and their data may be manipulated and negotiated so that costs trimmed from one area may be applied to another in the hopes that enthusiasm for the book will not be dampened by discouraging figures from one or two precincts. If, however, all or most of the committee members come in with poor profit projections, it's unlikely that hearts will prevail over heads when the votes are cast at the editorial meeting.
I may be romanticizing the past, but these complex formulations don't seem to be much of an improvement over the intuitive judgments reached by the founders of such illustrious houses as Knopf, Harper, Scribner, Random House, and Simon and Schuster. Be that as it may, publishing decisions today are reached by computers, consensus, and committee, and we may consider ourselves lucky if someone remembers the love factor when the bottom line is being examined.
Love aside, what are the elements of a profit-and-loss projection? What kind of "P & L" figures are resting at your editor's elbow when he phones you or your agent to commence negotiations on your book?
The key figure on the positive side of the ledger is revenue to be realized from sales of the book. You get this by multiplying the number of copies sold by the wholesale price of the book, that is, the actual price received by your publisher after he discounts it to the book trade. If the list price of the book is $20, and the average discount offered by your publisher to the stores is 40 percent, the actual price received by your publisher will be $12 per copy.
"Copies sold," remember, means net sales after returns, for in the publishing business books are sold on a returnable basis. So, if a publisher prints and distributes 25,000 copies of a book but 30 percent of them are returned, the actual number of copies sold (what publishers call the "sell-through") will be 17,500. Multiply that 17,500 by the $12 per copy that your publisher is getting and you get the publisher's gross sale. In this example, that comes to $210,000.
To this figure is added the publisher's anticipated share of subsidiary revenue: book club, paperback reprint, first or second serial, foreign rights, etc. Depending on how liberal or conservative the firm's fiscal policy is, these numbers range from wishful thinking on the one hand to zero if the publisher doesn't want to count on income that is not absolutely guaranteed at the time the book is acquired. More and more publishers tend to take a highly conservative position in prognosticating sub-rights income. For one thing, agents have grown tougher over the last few decades about permitting publishers to participate in that income; and for another, the collapse of the paperback reprint market early in the 1980s forced hardcover publishers to count on nothing but hardcover sales when preparing their projections. These are significant factors in the driving-out of midlist books from the hardcover marketplace.
Another source of revenue for publishers derives from the sale of remainders. If the undistributed or returned copies of a book, such as the 7,500 copies in the above example, are sold to remainder jobbers they will bring in a few thousand dollars for the publishers, and that goes into the plus side of the P & L.
Now for the minus side. From the income generated by sales of the book, remainders, and sub-rights income, your publisher subtracts his costs. These fall into several categories that are reckoned by formulas drawn from company and industry experience and the counsel of the firm's financial officers and accountants. One category is plant costs: typesetting, color separations for the cover or for color illustrations, preparation of halftones for black-and-white illustrations, and all other procedures up to the actual printing of the book.
The second category is manufacturing costs, lumped together as "PPB": printing, paper, and binding.
A third is overhead. Included here are rent or mortgage payments on the publisher's offices, electricity, salaries, telephone, office supplies, the cost of money, warehousing, sales commissions, insurance, and the many other expenses required to run a business. Because each publisher includes or excludes different items when calculating overhead, the fluctuations in overhead allocations differ widely from one publisher to the next. A safe guess is that most houses allocate between 30 and 40 percent of gross sales.
The next category is author's royalty. This figure is fixed by contract. Royalties represent a big chunk of a publisher's costs. An 8 percent royalty on a $3.95 paperback comes to about 32 cents. But remember that the publisher sells that book to the trade at a discount. If the discount is 50 percent, or $2.00 a copy, the royalty will absorb about 16 percent of that revenue.
Then there are some miscellaneous costs such as outside design, cover art, copyediting, indexing, illustrations, and the cost of free and review copies.
And, finally, there is the cost of advertising and promotion.
As I mentioned, accounting practices vary widely when it comes to allocating costs to specific books on a list. Should the publisher allocate the same share of his total costs to every book regardless of its importance, profitability, and actual share of the company's investment? Or should big books carry a proportionately larger share of the cost load than routine ones?
Because publishers don't agree on the fairest way to deal with the question, their allocation formulas vary widely, and a good example of this is advertising and promotion. Some publishers simply average out the cost of advertising and promotion for all books on their list and add some percentage points to the overhead charge on each book. For other publishers, it makes no sense to allocate to a routine book a percentage of the enormous cost of pushing a best-seller. These publishers therefore "break out" the advertising and promotional cost of each book and show it on their profit-and-loss worksheets as a separate item from overhead.
Okay, we're ready to do some calculations. Take the gross sales of your book, add remainder income and anticipated subsidiary rights revenue, and you have an income projection. From this you deduct your plant and manufacturing costs, overhead, royalties, advertising and promotion, and miscellaneous costs. What you end up with is projected profit or loss.
The final figures are educated approximations, of course, and don't take into account many factors on both the income and outgo sides of the ledgers, such as corporate taxes, inflation, damaged copies, losses due to strikes, fire, and flood, interest earned on royalties banked between semiannual royalty periods and on reserves against returns, and much, much more. Still, on the average, paperback publishers earn something like 15 to 20 percent pretax profit on routine books. And, because unit costs go down and sales volume goes up on best-sellers, the profit on major books is even higher.
What do the numbers tell us? For some of us, they only bear out our worst paranoid fantasies that publishers are battening on the lifeblood of authors. These fantasies are fueled by the facts that publishers do not share their profit-and-loss projections with authors, conceal vital sales information when reporting royalties, and, because most publishers are owned by larger corporate entities and are not, therefore, required to disclose financial information to stockholders or the public. One of my western-writer clients says writers are like mushrooms: "They're fed a lot of horseshit and kept in the dark."
Others among us may realize that publishing is a tough, unpredictable, and treacherous business, and perhaps the people who play for such high stakes deserve a handsome profit for the risks they take and the capital they invest (though it must be said in all fairness that 15 or 20 percent is not exactly a windfall profit). I don't know the answer. But I can safely say that the profit-and-loss worksheets of most authors I know are a lot more depressing than anything I've seen from publishers.
FEW EVENTS IN the life of a book are as thoroughly invested with magic and mystery as its publication date. Although the season, month, and day of publication are, as often as not, selected merely to satisfy the expediencies of a publisher's schedule, many authors and even some publishers assign cabalistic value to pub dates, and a great deal of myth and nonsense has come to surround the process. One hears such platitudes as, "January is a lousy month to bring out a book," or, "Nobody buys books in August," or "Can you believe they released my book on Friday the thirteenth?"
As some fifty thousand books are published annually, you may safely assume that a day does not go by without a book being officially launched somewhere. I know of no records correlating the success or failure of books with their pub dates, but I daresay that if someone were crazy enough to trace the fates of best-sellers back to the dates on which they were published, it would be demonstrated that successful books debut on just about every date on the calendar—including Friday the thirteenth. It would also be discovered, I'm sure, that just as many books flop as triumph whose pub dates are agonized over and deliberately selected for maximum impact.
A few words about the differences between hardcover and paperback distribution might be pertinent here. Hardcover books are for the most part shipped directly from publisher to bookstore (though the advent of powerful hardcover wholesalers and jobbers is changing this, it should be noted). Hardcovers can be, and are, shipped on any date, but traditionally they are categorized by season: spring and fall. Sometimes Christmas is designated a third "season." Hardcover publishers hold spring and fall sales conferences to introduce books scheduled for the following season, and they issue spring and fall catalogues. A hardcover published in July will probably be considered a spring book; one published in February, a fall book.
The rise of the paperback industry created a very different distribution rhythm. Until relatively recently, when the great bookstore chains made direct distribution of paperbacks a significant factor in the publishing industry, paperback books were carried only by the same distributors who stock magazines in newsstands and drugstores, and this form of distribution is still the dominant mode in the paperback industry. But because distribution of magazines follows a monthly cycle, the scheduling of paperback books became a monthly affair. Catalogues issued by mass market publishers are for the most part monthly, and, unlike their hardcover counterparts, paperback editors refer to pub dates by month, not by season. And while it is impractical to conduct a sales conference every month, paperback publishers do consult with sales staff and distributors on a monthly basis far more extensively than hardcover publishers do. The lingo of paperback distribution is closer to magazines, too: hardcover books are published, but paperbacks are released or issued.
In an earlier era when novels and general nonfiction were affordable only by a wealthier segment of society, the summer was undoubtedly a dead time for booksellers as the carriage trade fled the cities for favorite rural watering spots. A book published in July or August could very well die, and it's easy to see where the notion arose that August publication is the kiss of death. In September the affluent returned to the city, presumably hungry for good books to read and mindful of the impending Christmas holiday, when books make excellent gifts. That is why fall has always been considered the best time to launch a book, and for the most part that remains true, because a book that goes on the best-seller list in the fall has a good chance of carrying into the Christmas buying season. And if January is considered a lousy time to publish, it's because bookstore owners are preoccupied with postholiday returns, budget deficits, and winter vacations to recover from the intense business of the previous few months.
Mass market publishing and marketing have smoothed out many of the hills and valleys of bookselling, making the business a year-round enterprise. The capital required to feed a mass market maw allows for no downtime. Every month must carry its share of the annual business, and every book, whatever its publication date, must be considered a source of maximum profit potential. "People used to say things like 'July is a good month for publishing but August is bad'," Robert A. Gottlieb, former president of Alfred A. Knopf said in a New York Times article. "All those maxims are true until books come along that disprove them, then the opposite is true." Gottlieb added that Knopf published most of its books "at the first rational moment," and I would say that many of his colleagues do the same.
Some books definitely do have seasonal pertinence. Sports novels or nonfiction books come to mind, for they are often dependent on the start of playing seasons or tournaments. It makes common sense to bring a baseball book out in March and a football book in August. And sometimes there are excellent strategic reasons for publishing a book in a specific month.
The scheduling of books for publication on a specific calendar date is usually aimed more at gratifying whim or superstition—publisher's or author's—than at achieving any significant commercial advantage. It is flattering for an author to have his book published on his birthday, but from that day forward the book is on its own. It seems logical to bring out a biography of Lincoln on Lincoln's Birthday, or an account of the attack on Pearl Harbor on December 7, or a study of the John F. Kennedy assassination on November 22, for these dates possess a certain degree of promotional cachet. But that's as far as it goes.
Quite clearly, a book's publication date is nowhere nearly as important as some other factors on which publishers spend a great deal of time and energy during scheduling meetings. Possibly the key one is what the competition is doing. If, for instance, Simon & Schuster knows that Crown is going to be publishing a new novel in September by its blockbuster author, S&S might well think twice about scheduling its own fall leader around the same time. Information about the pub dates of major books is usually available from a variety of sources such as publishers' catalogues, Publishers Weekly,and the free exchange of information among friendly competitors. And occasionally, when the exchange of information is not so free, friendly competitors have been known to resort to subterfuge.
If, however, two lead books scheduled for the same time are not really competitive—a literary novel, say, versus an international thriller—the publishers might not be afraid to go head to head, because two different audiences can support both books and simultaneously boost them onto the best-seller list.
Publishers may not be so gentlemanly if they get caught up in a race to be first out with a book on a hot subject. Dramatic news events will occasion rivalries that are anything but friendly, for now the competing publishers are committing a great deal of capital to getting their books into the stores first. In some cases both books do well, but on many occasions the second book across the line suffers grievous losses.
You can see, then, that unlucky pub dates can occur on any given page of the calendar, and the circumstances attending the birth of your book are far more auspicious or inauspicious than the date. Any day is Friday the thirteenth for the author whose publisher goes bankrupt on his pub date, or the one who finds himself on pub date without a sponsoring editor because the one who originally acquired his book left six months ago to take another job, or the one whose pub date was unheralded by a single ad because the whole advertising budget for that month was allocated to a blockbuster on the same list.
All the best,