Why the traditional publishing model is broken

As we discussed last week, in the royalty or “traditional” publishing model, the publisher pays the author for rights to publish a book. That’s the simple explanation, but in fact there are all kinds of complications in this system.

book publishing
Photo by Aleksandra P.

The up-front payment authors receive for their book is called an advance, because it’s a payment of the royalties the book is expected to earn. The publisher estimates how many copies of the book will be sold. Say 10,000 copies, at a royalty rate of 70 cents per copy. So the author advance is $7,000.

If the book sells more than 10,000 copies, then the author receives additional royalty payments. This, it turns out, is a rarity.

Most publishers don’t release their actual numbers, but the best-guess estimate, derived by industry pros talking to one another at conferences, is that only 30 percent of books published by traditional houses “earn out” their advance. That is to say, they sell enough copies to cover what was paid to the author and then some.

So 70 percent of the time, publishers are not making enough sales to cover that advance. They are paying for sales that never happen. That’s just bad business. We have seen declines in advances in recent years, so maybe some sensible accountants have started pointing out that sales projections ought to be more in line with reality.

As the author, if you got that $7,000 advance and then your book only sold 8,000 copies ever, you would get no further royalties. If, however, you sold 6,000 copies in year one, and 4,500 copies in year two, then you would receive royalties on the 500 “extra” copies, and every copy thereafter.

Some authors have complained about declining advances, but this is absurd. If you earn out the advance and receive royalties, then you are being paid fairly, regardless of the size of the advance. If you don’t earn out, you’re being paid more than fairly, because the publisher doesn’t take back the unearned portion of the advance. If authors are going to complain, they should complain about the low royalty rate.

A business model that pays in advance for sales and then overestimates sales 70 percent of the time is one in need of a major overhaul. Small presses are beginning to do this. Some have given up on advances entirely. Royalties paid on books sold. Period.

Advance-paying publishers often pay only 12 percent of net sales. Publishers that skip the advance pay more. That’s smart planning. The higher rate benefits writers, and eliminating the advance reduces publisher risk.

Historically, the major publishers have used the cash earned by their blockbuster bestsellers to make up for the shortfall on the 70 percent of underselling books. But that doesn’t seem to be working anymore. Big publishers keep consolidating to reduce overhead, but they will never run as nimbly as a small press. Small presses and self-publishers can get books to niche markets more cost-effectively than big publishers.

For new authors, small presses offer a great opportunity. They are often easier to reach because they don’t require you to have an agent to submit. Unlike the subsidy or self-publishing model, they don’t require the author to front any cash for the endeavor. They use freelance editors and designers and print-on-demand technology to reduce overhead costs. And they have begun to repair the broken business model of traditional publishing.

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1 Comment

  1. […] I say this not only because small presses are easier for new authors to break into, but because small presses are solving—or never had—some of the problems that plague the Big Six and their multitudinous subsidiaries. Problems like overhead eating into profit margins. Problems like every decision going through eighteen committees. Problems like 70 percent of books not earning out their advance. For example, some small presses pay no advance, but offer a higher royalty. See “Why the traditional publishing model is broken.” […]

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