Please, for the sake of my aching head, refrain from further distortions of economic principles relating to Our Gracious Host's posting until you can satisfactorily — and by "satisfactorily," I mean "earn a passing grade on an examination at LSE, Stanford, and/or Washington U" — integrate the following economic concepts into your posting:
1 the distinction between oligopoly and monopoly 2 the distinction between monopsony and monopoly 3 the distinction between an economic monopoly and a statutory monopoly 4 imperfect rivalrousness 5 transactional and translational friction 6 temporal elasticity of demand 7 the distinction between risk and variability of expected return
Humph! (and the little kangaroo in my refrigerator said "Humph!" too).
I'm actually making a serious point here. As anyone reading Mr Stross's two essays on publishing misconceptions — actually reading them, not just reacting to trigger words — would understand, it's all about context. It's not about ideology, or economic models, or preferential business structures, or the relationship between capital and labor (particularly when that hybrid "intellectual property" gets thrown in there); those are all irrelevant without understanding something about the context. I respectfully submit that the economic context will always, in any transaction or transactional system involving an exchange of intellectual property, always, always require an explicit understanding of the seven items I listed above.
]]>This is bullshit. I don't know where it's coming from, but it's just plain misleading.
Here's the point: the acquisitions editor makes a stab at guessing the likely sell-through of a manuscript before they issue the contract for it. On the basis of the sell-through and the percentage cut laid out in their standard contract they work out roughly how much they are likely to pay the author in royalties. They then arm-westle with the author or their agent over the size of an advance which will usually come within close spitting distance of equalling those anticipated royalties. Some few books will sell much better than anticipated, and "earn out", so that additional royalties must be paid. Mostly they sell slightly worse, or slightly better, than anticipated, leaving the publisher a few hundred bucks in the red or forcing them to cut a cheque for the small change. Overall, they average out. But the book does not need to earn out the advance in order for the publisher to hit break even. Publishers aren't stupid; they know about this stuff before they go into the contract negotiations, and they highball their estimates of production costs and lowball their estimates of sales.
I surmise that the advance-driven system for doling out royalties may persist because of favourable tax implications for the publishers -- I don't know for sure that there are such tax implications (I'm not a publisher's accountant), but I'd expect publishers to write off the up-front book advance as a capital outlay: if they didn't issue an advance but paid royalties they'd get clobbered with tax on their profits. Or something like that. (This is a wild-assed guess. Any tax accountants prepared to correct me?)
I think the next "Common Misconceptions about Publishing" post is going to be about Contracts and Rights, i.e. What The Author Sells. (As I'm not a lawyer, this is inevitably going to be slightly vaguer and contain more inaccuracies than the first two posts ... but given the misconceptions kicking around, it's time somebody did it.)
]]>Daryl begins his unfulfilling existence as part of Bill's author advance. At that moment, Clarisse in Accounting marks Daryl down in the corporation's ledger as an "actually paid" expense, which is nontaxable (and, in fact, is set off against actual and/or recognized income at tax time). About eight months later, Daryl — after sitting in Bill's wallet — gets plunked down on the counter at Waterstones/Borders/Barnes and Noble, consolidated, and through the magic of accounting, ends up in the publisher's hands. In the ordinary course of things, that would mean that Daryl has to be declared as gross income for that tax period. Fortunately for the publisher, Clarisse is ready to send out Annie's advance, so Daryl gets marked again as an "actually paid" expense, putting any recognition of his Mr Hyde nature as taxable gross income off into the next accounting period.
This is the magic of a period-based, rather than transaction-based, tax system... and a necessary consequence of equity-based corporate ownership, which can't exist under a transaction-based tax system, but that's a much tougher demonstration involving real math and imaginary numbers (no, not the kind of imaginary numbers that we put on our tax returns).
And as an aside, in my litigation and prelitigation experience the ordinary breakeven point for the publisher for a nonspecialty trade book (n = 144) ranges between 72% and 78% of advances negotiated at arm's length. That is, using even the accounting systems most common in publishing, the publisher is profitable for a particular book while the book is ramping up from 78% to 100% of advance, and the author is not getting paid any more. For that same sample, the median return absent a nonfinancial decision to revert was 84%... so the whingeing that the publishers aren't on average profiting from the "average" trade book is a bit off. The problem is that, in this world of judging financial returns under the same standards as the children at Lake Woebegone (they're all "above average"), that's not a good enough probability or magnitude of return... as Moneyball hasn't made its way into publishing yet (all snark and ironies fully intended).
Of course, any bank to whom you went for a mortgage based on even the documents produced in litigation would laugh you out of the building, given the creative accounting behind everything...
]]>EDIT: It's live now.
]]>Yes, but not by much. (CEPetit's observation that the break-even point is sales of 72-78% of the book advance break-even point is germane here; if you think in terms of publishers earning roughly as much in profit as the author, then this tells us that they make most of their profits on the 22-28% sales spread between hitting break-even and having to disburse more royalties. Even if half the gross value of the sales in that area is pure profit, then they're making 11-14% on top ...)
If a lot of books don't earn back their advances, in the long run the company is going out of business, and in the short run, all profits depend on blockbusters. Is that accurate?
Yes, more or less, with the proviso that, pace William Goldman, "nobody knows anything about nothing in this business". The first Harry Potter print run was something like 1200 hardcovers. Nobody knows where the next blockbuster is coming from; we can guess that the next J. K. Rowling book will sell by the container shipload, but we don't know for sure that some book by hitherto-unknown J. Random Aspirant isn't going to go gold and eat JKR's lunch the very same month.
]]>(Here's a hint: I'm one of those European mixed-economy social democrat pragmatist types. Markets are, like fire, a valuable tool but a very dangerous master ... as witness the current two-year-long banking hangover.)
If the market has failed to provide a social good that must be provided for the general commonweal, then a mechanism other the market must be employed to provide it. C'mon, if even Hayek can come out in favour of state-funded healthcare, surely you can buy into some element of interventionism too?
]]>It's not just Phil; Katja does a lot of work too, and Cheyenne Wright colours the strip. Cheyenne's recent illness shows just how important that particular contribution is! It's a regular cottage industry.
I'm going to leave Cory's "Makers" alone for now, but I'd like to comment on Subterranean Press. Subpress is a "small press" insofar as it's not part of one of the big conglomerates -- but "small" is relative; drop them into the UK market and they'd be a medium-to-large genre publisher, and they ship more bound chunks of dead tree than many majors. They rely on the various distribution channels to a different extent from a major, and they don't do the big "blockbuster" stuff -- but they're low on overheads and able to produce work by midlist and cult-following writers on a profitable basis. From their PoV, online free fiction is indeed a promotional loss-leader. But they don't have to deal with media executives in a remote boardroom handing down policy that is inappropriate to their business needs.
]]>The "free on the web" version hasn't gotten the proofreading attention that (I hope) the printed version will, so that just rolls back into the multistage model Our Gracious Host provided.
More importantly, though, keep in mind that Cory Doctorow isn't selling copies of his work to the same extent that he is consciously building brand identity for himself. In his view, those free electronic copies act as advertising for himself and for his works. And that's a perfectly valid view... from an individual, informed author engaging in strategic planning. It's not a valid view for:
Obviously this is a unidimensional data point -- as noted, we can't compare with a "control" Cory -- but it's fair to say that of the two high profile SF authors who emerged around the same time, the one who is giving stuff away for free is earning more than the one who isn't.
]]>I think this means I'm pretty out of touch with things, more than anything else.
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