I want to present a new way to think about author income. Everybody knows authors receive money as an “advance against royalties” and after the advance has earned out, from the royalties themselves. But little has been said or written about the financial model that underlies the author’s right to receive money. We need this clarifying view because authors’ income is now under attack from all sides and only by understanding the concept of an entitlement will authors and their agents be prepared to secure and preserve the author’s earnings.
There are lots of ways to acquire money: as wages for labor, as profit from a business, or as interest on a loan, to name three with which every author has some experience.
Money for labor
Many authors I meet want to sell their book so they can quit their day job and “become an author.” However, virtually no one who fantasizes about supporting themselves as an author recognizes how different their new business model will be. “Don’t quit your day job,” means more than anyone thinks.
Money from a business
Successful businesses enjoy income and profits from operations. A well-run business can survive lean years or balance losses in bad seasons with profits made in better earnings periods. Increasingly, authors recognize they need to think of themselves as “a small business,” but there’s a big difference between a writer who has a writing business and an author living off royalties. I’ll cover that soon in another blog.
Interest on loans and investments
Earning interest on loans is a great way to make money if you have money to lend and large numbers of borrowers don’t default. Insert obligatory sub-prime meltdown reference here. Authors often overlook the fact that an author’s advance is simply a loan with a very high invisible interest rate. In the publisher’s accounting, the author is the borrower and the publisher collects the interest. Details soon: watch this space.
Each approach has a pro and con: risk and return.
Published authors, however, have the best model of all, the entitlement. An entitlement is an arrangement where someone, either an individual or organization, collects a sum of money over time, solely because they possess the entitlement. The author’s entitlement comes from having written the book–as an original work.
Entitlements are all around us. Governments grant themselves entitlements by their right to levy taxes. Governments also grant entitlements to people and groups. Kings used to grant entitlements along with titles. What regency romance fan is unfamiliar with the desirable bachelor possessing an estate and “a thousand a year?” Social Security is an entitlement for those who work and pay into the system, the low-wage worker and the Rockefeller alike. Utilities, such as water and gas companies all work on the entitlement model: you can change what you use, but it would be difficult, if not impossible, for you to buy services from anyone other than the provider who serves your area.
An author who writes a book can expect (subject to individual contract details) to receive a percentage of the sales price of every copy sold of that work and a percentage of the money earned by any derivative work produced. This has worked well because the author has taken on the costs of development in preparing the proposal or writing the whole book. Once the rights are licensed to the publisher, everything else: designing and manufacturing the physical books, marketing and sales, distribution and retail point of sale, are out of the author’s hands. The book has entered the business model of competitive capitalism. An entitlement based on the sales price of the book is reasonably accountable for the publisher, and understandable by the author. The publisher can plan and manage costs under the publisher’s control any way that seems viable, subject only to paying the author’s entitlement.
Here’s my point. Publishers think of themselves as competitive capitalists yet their business is organized around the author’s entitlement. Being aggressive business people, publishers have traditionally reacted to the author’s entitlement in a variety of ways which agents and savvy authors have learned to resist or accommodate.
Publishers’ financial strategies for dealing with authors’ entitlements fall into some common areas:
- Minimizing funds at risk. Reduce risk by minimizing advances and royalties while maximizing the rights they acquire. This is the most visible strategy, easily understood and most negotiable by experienced agents. Publishers want to buy things cheap. OK, an obvious goal and we can’t blame them, but authors and agents can hold out for a fair deal.
- Postponing payments for as long as possible. Payment on delivery has become payment on acceptance, but the publisher is in control of the meaning of the word “acceptance.” Delaying when the book is “accepted” can delay payment for months (savvy agents can help an author here, too). When income from sales of derivative works, for example if the publisher holds the right to sell translations, is accounted to the author’s credit is also invisible to the author. Look for a future blog on this.
- Reducing amounts due. Reducing the author’s royalty by giving greater discounts to resellers; the high-discount clause(s) can be tricky and again, savvy agents can help an author here. Look for a future blog on this; publishers are caught in the middle between aggressive booksellers and authors and are not entirely responsible.
- Operating partly on a non-entitlement basis. When possible, publishers seek to originate content so no single author has an entitlement; authors can be given “work made for hire contracts” as day labor. Copyright resides with the publisher or packager. Most licensing based publishing limits or removes the author’s entitlement. Authors who write for a fixed fee are stripped of entitlements. Authors who write in licensed series have the value of their work drastically reduced and become piece workers.
As publishing has evolved, the value of the author’s entitlement has been under various pressures, but because the fundamental publisher’s business model is one of competitive capitalism, authors, agents and publishers have been able to consistently find an economically agreeable point and strike deals. What looms on the horizon and is already at work in some areas, are changes that flip the publisher’s model upside down.
In my next blog, I’ll talk about how publishers, distributors, and booksellers are attempting to reshape their business models to create entitlements for themselves.
