Well, yes, equitable royalty rates should be based on something else than recommended retail price, which doesn't mean a lot any more.

Now, basing it on "real money" might be somewhat difficult.
Would information systems finely tuned to track sales of printed copies and report amounts due to authors easily shift to a more general view of revenue, at that level of granularity?

It would be worth investigating with companies offering specialised tools...

As a US agent and member of the AAR's royalty committee I can say that we have had a special panel devoted to auditing publishers royalty statements. An issue that came up immediately was that publishers paperwork backup for their sales was so inadequate that it was very difficult to verify the nature of individual transactions and thus to know precisely what discount was given on each title. The reason for payments being made on the retail price is that it is a concrete figure that can be applied in all cases. So I would argue that "transparency and auditability" are not in fact helped in any way by a shift to basing royalties on the net price.

There is nothing to fear other than change itself if publishers adapt their technology to suit the new approach and communicate it effectively (and unemotively) to authors and their agents.

As a US literary agent, I think your proposal comes at the problem from the wrong direction. Publishers need to stop selling books as twenty-five different discount levels. Pick a rate and stick to it, then pay authors a fair rate. Right now, "deep discounting" is so rampant and used so often—despite the fact that such sales should be to a great minority of accounts—that authors are constantly receiving lower royalties than were in the "offer" received from the publisher.

No editor should call and offer 10% of retail list price to 5,000 copies sold, 12.5% on the next 5,000 copies sold, and 15% thereafter if his or her house regularly and systematically sells at discount rates that will result in the author receiving reduced royalties at least half of the time, if not more.

Further, the multiple discounts that publishers use, publishers themselves have reported, may result in books going out at one discount and being returned using a different discount, so that some booksellers actually profit on the books they are returning.

Hence, basing royalties on the suggested retail price is fair, as it provides the easiest means by which an author can determine how much they should actually be receiving. Publishers clearly have the ability to price their books and offer discounts in a manner designed to work with the retail rate. If they want to improve the situation, they should simply be more conservative with the discounts they offer booksellers.

Or, one alternate solution may be to remove royalty percentages entirely and simply have publishers agree to pay an advance and then a flat amount per copy sold. Granted, authors would want that flat amount to be equal to or greater than that 10/12.5/15 schedule than what I’m sure publishers would want, but a flat amount per copy sold, no matter at what discount and in what market that copy is sold, would allow the same consistency and transparency that paying a percentage of a fixed retail price allows.

As a publisher I resent being asked to pay a royalty on RRP when as you rightly say the publisher has not received this amount in the first place. I offer price received on our standard contract which agents fight tooth and nail.
As an author, I prefer a royalty on RRP which my agent fights tooth and nail to get for me.
But I recognise that it is actually very unfair and Price Received will have to become standard.

As a US literary agent, I could strongly support a fully open and transparent move to a system that was based on actual amounts received by publishers.

Our approach to working with traditional publishers has always been one of partnership, and to the extent that an author’s economic interests can be more directly aligned with a publisher’s we believe that’s a good thing. As Mr. Zack points out in his comments, many publishers—particularly in the United States—have devised royalty structures that create perverse incentives to offer higher discounts to retailers. (That is, in many cases, a publisher’s bottom line net of royalties paid to authors can actually be *higher* when books are sold at higher discounts.)

And while many publishers have made good faith efforts to minimize the impact of such practices, others have not.

While offering a flat-fee per book royalty would seem to solve many of these problems, it also creates its own set of difficulties. A 59 cent royalty per hardcover copy of TO KILL A MOCKINGBIRD might have seemed perfectly reasonable in 1961, but in 2007, it would be laughable. Simply indexing royalties to inflation would create even more problems—what rate of inflation does a publisher use? How often is the escalation calculated? Given the relative level of financial sophistication among authors, publishing houses, and literary agents, in general, I believe the simpler the solution, the better. (Flat-fee royalties also would greatly complicate transactions outside the author’s home country, as currency fluctuations and disparate inflation rates would prove to be a reporting nightmare.)

I also disagree with Mr. Zack that publishers should stop selling at “25 different discount levels;” as the retail environment changes, we need to be looking for MORE places and ways to sell books, rather than fewer, and to the extent that offering different levels of discounts to different types of retailers can achieve such a goal, I’m all for it.

Publishers should also keep in mind that, as technology improves, and the level of information we have increases, a whole host of other arrangements with authors becomes possible.

If publishers really believe it’s important and in everyone’s best interests to calculate royalties based on actual cash amounts received, let’s do it—but let’s also, then, recognize that from the date that cash is received it belongs to the author, and eliminate the 10 month interest-free loans from authors to houses that are now standard operating procedure in the publishing business.

Scott Hoffman
Managing Member
Folio Literary Management, LLC
www.foliolit.com

I'm probably being completely naive here, but would paying authors a flat-rate per book be a further disincentive to deal with independent bookshops? After all, if an author receives the same royalty on a book sold through a small independent as through The Book People, I know where I'd focus my efforts (as an author).

And (conversely) would paying authors a percentage of price received therefore reward publishers and authors who make an effort with independents, because they would receive a higher royalty per book sold (albeit on much smaller units)?

This might provide powerful incentives for authors and publishers to help small independents (via events, signings, etc) sell more of their books.

Or am I missing the point here? Or are the units sold so disproportional that it wouldn't be wort publishers the size of Macmillan making the effort?

It would be interesting to know Richard...

As I am both a publisher and a licensor, I pay and receive royalties. I am often sent contracts which offer a sliding scale where royalty rates are less for copies sold at higher discounts. I remain amazed that so many authors and agents accept this principle, not least because it throws up potential anomalies whereby a publisher can on occasions be better off by offering a slightly higher discount to trigger a lower royalty (and thus in theory have an incentive to work against the author’s interests).

The whole system should work on the basis that the author trusts the publisher to maximise revenues to both their benefit, and the author receives an agreed percentage of revenues received by the publisher. This simplifies the whole process and relationship, as there can be no conflicts of interest, or gripes about levels of discount, because both parties have an absolute shared interest in revenues being maximised, and all publishers decisions are ultimately based on this aim. As a publisher, this is the model on which I offer royalties, and I believe it is only a matter of time before it becomes commonplace.

Jeff Gerecke suggests that publisher’s accounting is too unreliable to switch royalties to an amount received model. Authors and agents currently rely on publishers’ accounting for copies sold, and the same accounting systems calculate amounts received. If his tests have between unsatisfactory it must be because such accounting systems are currently only geared to internal requirements, rather than to report revenues to authors and agents. If the industry switched from volume to value-based royalties, then it should not be hard to adopt a code of good accounting practice to satisfy all involved.

I think Mr. Hoffman makes an excellent point regarding flat-rate royalties and cover price. The solution would be to treat author/publisher deals more like publisher/reprint publisher deals, i.e., have them be for a set term and not term of copyright. That way, if a book is a success and has a long life, the author can negotiate again five years later for a bigger piece of the pie. It would, in fact, make publishing much more competitive in a way, because authors of successful backlist books could reap greater benefits from a renewal or new license. Further, publishers could—don’t stone me—use this as an argument to pay LOWER advances. Thus, with more cash on hand they could—my heart be still—PUBLISH MORE BOOKS. The pattern of ONLY looking for blockbuster best-sellers might actually be broken. Granted, it might cause publishers fits to have to pay a breakout author (hello, Dan Brown) a million dollars (or ten) five years later to hold onto the rights to a best-seller, but isn’t it better to pay a million dollars for a proven best-seller than a POTENTIAL best-seller?

As for discount levels, I agree that we need more places to sell books (why there aren’t vending machines selling them on the subway I will never understand). But why does every market have to have its own discount? The problem, I feel, remains with the myriad discounts that publishers offer and their insistence that authors should get lower royalties as discounts increase. I don’t see why there needs to be a connection. Publishers created their own problem by developing a convoluted mess of discounts to deal with when reporting to authors. And since publishers control discounts, I see no reason that authors should be penalized when a publisher decides to sell at a high one to normal wholesale and retail channels.

As for Mr. Lane’s comments that, “The whole system should work on the basis that the author trusts the publisher to maximise revenues to both their benefit….,” I wonder with which publishers he is in business. I trust publishers to maximize revenues to THEIR benefit, not the author’s and not mutually. Why? Because I read their contracts every day and every one is written in such a manner. Take for example that publishers may make more money selling at a 51% discount than a 50% discount, because the author’s royalty cuts from 10% of retail at 50% to 10% of net at 51%. There is no such thing as an “author-friendly” or “mutually equitable” contract written by a publisher. And perhaps there shouldn’t be. Publishers are in business. They invest all of the “start-up” costs for each book. They, arguably, have far greater risk. And, in the end, every author has the ultimate power in every contract negotiation: Say “no” and walk away. Have the confidence that you will do better elsewhere. But if you do sign on the dotted line, your sole expectation can only be that the publisher will pay what the contract says it will pay and you should take steps to make sure it does. Get a good agent and a good accountant and put them to work.

One thing this entire conversation is ignoring, though, is the size of the publishing industry in general and the difficulties of instigating change in an entire industry. And what of those millions of contracts based on retail list price? Publishers would have to completely revise their systems and then maintain parallel systems. And, as one royalty manager once told me, in response to complaints about his house’s statement, “Royalty statements are not a profit center. We just spent $2 million dollars updating our system and we’re not spending any more on it for a long time to come.” The only way publishers will change their royalty systems and structures is if it will mean more money for publishers, not authors.

Thus, if you really want change, start a new publishing house and devise a fairer, streamlined way to report royalties. I’ll be interested to know what you’ll do the first time Target says, “Yes, we want 10,000 copies but for us to take 10,000 copies, you’ll have to increase the discount by 5%.” I suspect if you’ve been operating on one discount across the board, that will be the day you start using a second.

Andrew Zack
The Zack Company, Inc.
www.zackcompany.com

I don’t think Mr Zack read my comments accurately, because I highlighted the same anomaly as he does as an example of how royalty deals based on RRP can work against the author’s interests. He states that “there is no such thing as an “author-friendly” or “mutually equitable” contract written by a publisher”, but the reason for authors and agents’ entrenched position on RRP-based royalties. It is Mr Zack and his fellow agents who perpetuate these mutually "inequitable" contracts because they insist on RRP-based royalties and thus end up with contracts with author-unfriendly anomalies. Personally I think they do their clients a disservice by agreeing to such contracts for the very reasons Mr Zack states.

In my previous comments I said that the whole system should work on the basis that the author trusts the publisher to maximise revenues to both their benefit (with the emphasis on “should”). If authors and agents moved to contracts based on an agreed percentage of revenues received by the publisher, there would be no conflicts of interest because both parties have an absolute shared interest in revenues being maximised. This is a simple but perfectly feasible concept, and if Richard Charkin’s views are shared by other top publishers, then there can be no good reason for any interested party to favour the status quo rather than embrace the opportunity to introduce “mutually equitable” contracts.

This was posted by Grumpy Old Bookmen. I am grateful to him for all the work he's put into this issue. It's part of his September 1 posting -

http://grumpyoldbookman.blogspot.com/2007/08/pre-holiday-clearance.html:

Richard Charkin, head man at Macmillan, has, as ever, some sensible things to say about rationalising the present royalty system.

I think that his proposals (not new) are sensible, but I want to make a comment from the writer's point of view.

Big publishers -- and most small ones too -- are in the business of making money. Hence they constantly try to economise on costs. And one of their major costs is payments to authors, in the form of advances and royalties. In any reform of the royalty system, it will be a major objective of publishers to try to reduce, in total, the proportion of their income which is passed on to authors. Equally, in discussion of such reform, it will be the objective of literary agents and the Society of Authors (in the UK) to ensure that writers do not end up being paid less than they were under the old system.

So that's one good reason why writers and agents may not be too keen on the Charkin suggestion. Which at present is little more than a provocative prod into the body politic to see what happens.

For a full (very full) discussion of payments to authors, please see my discussion of Advances, published here in June 2005. It comes in three parts, which are, unsurprisingly, part one, part two, and part three. But do be aware that these are not short posts. To absorb them fully, I would guess that at least half an hour is required.

I run a small trade fiction publisher: Myrmidon. All our authors are paid royalties on net receipts. It's the fairest, simplest, most rational and most tranparent means of calculation and it reinforces the mutual interest of both publishers and authors in selling the biggest quantity of an author's books for the highest (least discounted) trade price.

It also means that we don't need an expensive army of administrators to calculate them. The reality of RRP based royalties in a discounting market is that agents and publishers have been forced to cobble together complicated systems such as the one which divides the royalty percentage into 'sixths'. One, two or more 'sixths' are withheld from authors in cases of high discounts given to Amazon or the supermarkets. The result is an accounting nightmare for publishers and royalty statements that few authors can understand and in any case demonstrates the absurdity and impracticality of RRP royalties

Also there's nothing new about receipts-based royalties. My own book, published over ten years ago by Gower has a receipts based royalty system (negotiated by an agent). The reality is that receipt based royalties are now the norm. All newer publishers like ourselves, Quercus and others favour this approach and most experienced agents now recognise their inevitability. Virtually every publisher would be pleased to replace their old RRP contracts if they could- for a simple reason that has nothing to do with robbing authors:

The reality is that the RRP is itself an aberration that's not long for this world. Within the next 5 years (I'd personally give it 2) publishers will no longer be putting prices on books. It's an abstract, empty and meaningless vestige of the Net Book Agreement when prices were regulated. In it's present form it actually has the effect of devaluing books since, whereas booksellers can and do discount down, it prevents them from pricing up- and therefore reinforces a public perception that books are overpriced. Both publishers and authors suffer the squeeze equally.
Basically, the selling price of a book in a bookshop is something over which I have no control- nor should I. It's none of my business. My concern is only the price at which I am willing to sell to the bookseller or wholesaler. Therefore to continue to pay royalties based on RRP is simply a preposterous anachronism.

Ed Handyside has forgotten one other side of the equation - dem luvverly returns.

I would hope that the booktrade will accept the principle of *firm sale* long before the cover price is removed from books - who made it "notional"....the publishers, of course, by offering a sliding scale of discounts dependent upon outlet power at the checkout.

Enjoy dem luvverly returns..."a pulping we will go....a pulping we will go". And as for the author royalties...sorry old buddy (author) but we have a slight problem you see the mega-sellers returned 95% of your book some 18 months after we gave dem 70% discount...we's in the shite and you ain't got no wages !!

Just a couple of anecdotal data-points:

My last-but-one book was written for a low-ish advance and a high royalty. I later discovered that the publisher didn't print enough copies to pay off the advance. Not 'didn't sell enough'; didn't print enough.

Back in the early 1990s I wrote a media tie-in title for a well-known publisher, assured that (again) the low advance would be balanced by royalties. Then the sales department sold the entire print-run to a book club and I got nothing.

These days I mostly design games.

Crikey, I blogged about this subject a year-and-a-half ago and called for work-for-hire contracts that allowed authors to take the money and run, rather than rely on prayer-based sales.

The big box stores like B&N, Borders and Books-a-Million squeeze the publishing companies. The publishing companies squeeze the authors through the usurious fine print in the contracts.

I met with one of the head honchos at a major NYC publishing house about two years ago and suggested forcing a change in the vendor contracts with the big chains by leveraging them. Withhold the best selling authors, I suggested. Don't go hat-in-hand to the book buyers at the big chains. "Please, Sir, could I have another cup of porridge?" Let the independent bookstores have hot authors' books first! Take back the power! But nooooooo. No one had the guts.

James Wallis's remarks have a very familiar ring. I write genre fiction for an established UK line put out by an independent publisher. I started this in 1992. The advances to authors have never increased, despite many increases in cover price brought about by inescapable cost inflation. Authors have to consider themselves immune to inflation, whatever the reality.

The contract I accept looks fair enough and includes a 10% royalty which is, and has always been, irrelevant. The royalty never cuts in because the threshold for it is higher than the ceiling imposed by the print-run.

Thus all copies of my last book, published July 31, had left the publisher's warehouse by August 17. The publisher says, "I must leave you to judge whether that is a good or a bad
thing." A reprint is apparently out of the question. Publisher again: "With everything on sale or return one just cannot assume that because a book is currently out of stock it will remain so."

Like most freelance workers, authors fear to rock the boat too much. Publishers for genre fiction are hard to find and no one wants their next book rejected simply because they have become an embarrassment or nuisance.