Monday, July 14, 2008

Indie Authors And Rights, Royalties And Advances

Bottom Line It For Me, Baby Version (200 Words Or Less):
I've been fielding a lot of email questions about the nuts-and-bolts aspects of self-publishing lately. Rather than answering the same questions over and over again in private messages which don't benefit the self-publishing community at large, I've decided to blog a series based on content from my how-to reference book on self-publishing, The IndieAuthor Guide. I can't just copy and paste everything from the manuscript, because the thing is 300pp long and heavily illustrated besides. But I will present topics from the book to the extent of detail possible in a blog post. Note that I'm not covering editing, designing your own book cover, creating your brand or publishing to the Kindle here, since those topics are already presented on my website in the form of free pdf guides. I’ll include links to previous posts in the series here in the Bottom Line It section.

Last week’s post was about Publishing Options. This week I’m covering Rights, Royalties and Advances.

Go On An Run Yo Mouth, I Ain’t Got Nuthin’ But Time Version (Can’t Promise It Won’t Go On Forever):

Rights, Royalties And Advances

In a traditional publishing scenario, an author grants a publisher the right to package, publish, promote and distribute his content for commercial sale for a set time period, in exchange for a percentage of the profit from those sales. The details of the exchange are laid out in a contract, which is negotiable and therefore unique for each manuscript sold.

Mainstream Rights
Publication rights are many and varied, covering all the different ways the manuscript’s content can be published for distribution to the public. Rights to publication of the entire manuscript in different formats include hardcover, softcover, trade paperback, mass market paperback, audiobook on CD or tape, audiobook digital download, and eBooks in various formats. Rights to portions of the manuscript include excerpts to be distributed for promotional purposes at no cost to consumers, reprints of entire chapters to be sold as standalone articles or short stories, reprints of art or text from the manuscript for reproduction and sale in a different product format (i.e., calendars), and reprints of excerpts to be included in subsequently published anthologies.

Other content rights include screenplay rights, broadcast rights and licensing rights. Licensing rights govern the terms under which manuscript text, artwork or character likenesses can be printed on t-shirts, mugs, or other merchandise offered for sale. Broadcast rights pertain to the terms under which the manuscript (or portions thereof) may be broadcast over television, satellite or radio waves, and usually pertain to broadcast of audiobook editions or live readings. Screenplay rights cover situations where someone wants to make a film or television show based on content from the manuscript.

Mainstream publishing contracts grant the publisher any or all of the above rights for a certain number of years. Megaconglomerate publishers may negotiate for publication, broadcast, licensing and screenplay rights simultaneously, offering a flat-fee payment or profit-sharing terms for non-publication rights in addition to the royalties offered on book sales. Smaller publishers will typically sign on only for publication rights, leaving the author free to sell the remaining rights to other parties. In that case, the author’s agent or manager may attempt to sell the remaining rights on the author’s behalf.

Indie Rights
Indies who go the vanity or subsidy route are subject to rights contracts just like mainstream authors, but the contracts are usually limited to publication rights and the author doesn’t get royalties or advances in return. Indies who go the POD route can retain all rights to their work, leaving them free to negotiate for the sale of those rights with whomever they wish, under whatever terms they wish. But beware of subsidy and vanity publishers in POD publishers’ clothing; read any contracts, ‘user agreements’, ‘terms of use’, etc. from your publisher very carefully to be sure you’re not being asked to sign over rights you’d prefer to keep. If you need further clarification on your publisher’s contracts, terms and/or agreements, print them out in hard copy and consult an attorney.

Mainstream Royalties
The “percentage of the profit from those sales” to be paid in exchange for rights is called the ‘author royalty’. Among mainstream publishers, author royalties are somewhat standard according to the type of book and publication format, but are open to negotiation before the contract is signed. Bestselling and prestige authors can demand higher royalties than other authors, and usually get them. For everyone else, royalties are usually figured either as a percentage of the book’s list price, or as a percentage of the net profit from the book. Consider a manuscript to be published as a trade paperback book with a list price of US$14. Typical royalties offered on ordinary trade paperbacks are 8-10% of the list price, or alternatively, 15-25% of ‘net’ from each sale. The list price is the suggested retail price. 8% of $14 is only $1.12 and 10% is just $1.40, which makes the 15-25% of ‘net’ option look a whole lot more attractive at first blush, but this isn’t necessarily so.

Net is calculated as list price - production costs - bookseller fee. Production costs for a typical black and white trade paperback book of average length run anywhere from $2 to $4 per copy, depending on the quantity of books in the print run (as quantity goes up, cost per copy goes down), paper and binding quality. Let’s say our book’s production cost is at the low end, $2 per copy. The standard bookseller fee is 40% of the list price, meaning that every time you buy a book in a store, whether in person or online, the seller keeps 40% of the list price as his fee. On our $14 book the bookseller fee is $5.60. This leaves a net of $14 - $2 - $5.60, or $6.40. 15% of $6.40 = 96¢, and 25% of $6.40 = $1.60. As you can see, royalties calculated from net can vary widely based on the size of the print run, due to the variance in production costs.

Royalty percentages for hardcover, mass-market paperback, eBook and audiobook formats are calculated in a similar way, though standard percentages vary for each different format. Also, it’s typical to reward the author with a higher royalty percentage on additional print runs after the first run sells out, but bestselling authors are usually the only ones in a position to collect that reward. Any way you slice it, less than $2 per copy sold is not a lot of money. At $2 per copy you’d need to sell 15,000 copies to earn $30,000, and that’s before taxes and fees for professional services (see Paying the Piper(s), below).

Royalty Advances
The contract may require the publisher to pay the author an “advance”, or up-front, lump-sum payment. The advance is not a free-and-clear payment, such as a professional athlete’s signing bonus, however. It’s actually a loan against future royalties. When an advance is paid, the publisher enters it into the author’s royalty account as a negative amount, indicating the author owes the publisher that much money. The publisher keeps track of sales, calculates the author’s royalty on each sale and deposits the funds into the author’s royalty account. No royalties are paid to the author until the advance loan is paid off.

Since it takes time for earnings to cancel out the advance, it’s not unusual for authors to wait many months after their book is published to see that first royalty check. In many, if not the majority of cases where debut books are concerned, the book doesn’t ultimately sell enough copies to pay back the advance. The publisher won’t make the author pay back the difference out of his own pocket, but the publisher will not want to publish the author again, either. The larger the advance, the bigger the author’s risk of committing career suicide.

Paying the Piper(s)
If the author has contracted with a manager, agent or attorney for services, each of them will take a percentage of the author’s advance, flat fees, profit-sharing proceeds and royalties. It’s easy to see why so few authors actually make a living on their writing, regardless of who published their books.

Indie “Royalties”
Indie authors don’t truly earn ‘royalties’, they earn net profit. However, self-publishing companies tend to refer to the author’s net profit on each book sold as a “royalty” in order to mimic the terminology of the mainstream. Indie net profits are calculated according to list price, production costs and bookseller fees, just like mainstream author royalties.

The Production Cost Problem
Production costs for indie books are usually two to three times higher than mainstream books due to economies of scale. Recall that production costs go down as quantity of books printed goes up. Big publishers order print runs in the tens of thousands. Vanity and subsidy publishers order print runs in the hundreds, or occasionally, the low thousands. POD publishers order one book at a time. This problem can be a major stumbling block for indie authors, since they may be forced to set their books’ list prices higher than comparable mainstream books to earn as much per book as a mainstream author. This situation also feeds the bias against self-published books since customers are being asked to pay more for untested, self-published books than they would for a bestseller.

The Production Cost Solution
Self-publishing companies realize the production cost problem alone can be enough to deter authors, so some now offer reduced production costs in exchange for flat fees, annual dues, or a combination of both. One example is CreateSpace™, the publisher I use for POD. Authors who opt for reduced production costs can set their books’ pricing equal to comparable mainstream books and still earn royalties three to five times higher than most mainstreamers.

Such fees range widely from publisher to publisher, so authors should do some ‘what if’ calculations for each publisher under consideration to figure out what their net profit will be at various list price points, both with and without the production cost discount, and how many books they must sell at each price point to cover the cost of the fee.

Another consideration is author copies; authors can buy copies of their self-published books for the cost of production alone, so reduced production cost means less money spent when ordering author copies. If the author intends to order 20 or more copies of his book to give to friends and family or sell personally, he may find the savings on author copies alone are enough to cover the fees. Authors who buy larger quantities of their books to sell at signings, appearances and through bookstores will almost certainly find the savings in author copies makes it worth paying for reduced production costs.

Coming Up Next Time: What’s The Deal With ISBNs?

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