Is There a Better Way to Compensate Authors?

We recently reported that the Borders bookstore chain had agreed to retail a publisher's (HarperStudio) books on a nonreturnable basis. This plan flies in the face of a century of bookselling tradition. That it is a lousy tradition and a leading cause of the current calamitous state of the publishing and bookselling industries is more than sufficient reason to celebrate the HarperStudio/Border initiative and wish the parties success.

Whether they will achieve it depends on how effective is the publisher's strategy of according a higher discount to the chain - ranging from 58% to 63% - than the current publishing industry average of 50-56%. As enthusiastically as we are rooting for it to work, however, previous attempts do not give cause for optimism. Over the last few decades, publishers have talked endlessly about selling books on a nonreturnable basis and a few have tried to break the hammerlock of tradition. Some of the bolder experiments, such as one attempted in 1980 by what was then known as Harcourt Brace Jovanovich, failed. That endeavor was by no means a debacle, but it was enough to sound a retreat that that has pretty much prevailed to this day.

Since high discounts stimulate sales in so many other kinds of business, it is perfectly logical for publishers to reason that if they can raise their discounts substantially, bookstores will feel less resistant to accepting merchandise now considered marginal, such as first novels, midlist books, experimental fiction, and slower-moving backlist books - literature that is progressively being frozen out of the marketplace by the blockbuster mentality. Unfortunately, past efforts failed for lack of cooperation among all the sectors of the publishing community.

Specifically they failed, first, because bookstores do not want to get stuck with unsalable merchandise; second, because it was thought the discounts weren't high enough to induce booksellers to create effective "remainder in place" programs in their stores; and third, because high discounts cut too deeply into publishers' profit margins.

As circumstances today are no different than those of the past (and it would not be out of line to argue they are a lot worse), how can publishers possibly consider raising their discounts higher than they already are without cutting even further into slim profit margins? With printing and paper, salaries and rents, production and warehousing and freight and other costs at all-time highs, there doesn't seem to be anything left to trim. Or has something been overlooked?

As a matter of fact, something has. It happens to be the way royalties are calculated. There may be a different way to do it. It means radically reconfiguring the way publishers compensate authors. Years ago I floated such a proposal. Actually, "float" is a misnomer, since it sank like a cast-iron anchor. But I have hauled it up from the depths of oblivion in the hope that it might stay afloat, buoyed by the current financial crisis besetting the publishing industry. Desperate times call for desperate measures.

By way of background, a story:

In the 1960s, the management of a major paperback company, Fawcett, offered an unconventional proposition to authors. They could elect to continue receiving royalties based on copies sold. Or, they could instead choose to receive a lower royalty based on copies distributed. In those days royalties on the average started at 6% on copies sold. Fawcett offered to pay 4% on copies distributed. Returns were not counted in the compensation.

For authors it was a classic bird-in-the-hand-vs.-two-in-the-bush challenge. On the surface the answer seemed logical enough: 6% was higher than 4%. But when returns were folded into the calculations, they reduced the net paid to authors to 4% anyway. When authors analyzed Fawcett's either/or, they realized that there was no difference between the royalty on books sold after returns and one on books distributed before returns.

Fawcett paid advances like everyone else and recouped them out of royalties like everyone else, too. But once the advance was recouped, authors did not have to wait for years for full settlement, or puzzle out how much their publisher had withheld in reserves: they had already been paid in full. Within thirty days of each new distribution authors would receive an accounting of the number of copies shipped multiplied by the royalty per copy, and a check accompanied the statement. Anyone wishing to verify the distribution figures could do so easily enough by requesting printing and distribution affidavits. Payments were prompt and dependable, the bookkeeping elementary and transparent.

Everyone made out well under the Fawcett scheme, and generally speaking, authors loved it. This publisher understood something very important about them: most would rather get $1,000 now, without hassle, than gamble on the hope of collecting $1,500 over four or five years with a lot of hassle.

It was a good arrangement for Fawcett, too. Royalty bookkeeping was elementary, requiring a few bookkeepers armed with pencils, paper, and adding machines. I don't know what Fawcett did with the percentage points saved, but it makes sense that they might have used the savings to offer higher discounts to induce stores not to return books.

Unfortunately, Fawcett eventually discontinued this arrangement, probably under the pressure of rising returns, which escalated from a manageable level in the 1960s to the 50-75% dumpfest of the current era.

As creative as the Fawcett scheme was, it was not adopted by the entire publishing industry. But... what if it were? Putting it in terms of today's publishing economics, here's a hypothetical example. Suppose your publisher distributes 100,000 copies of your $8 mass market paperback and your contract calls for an 10% royalty based on the list price - $.80 a copy. Under the conventional accounting system the total royalty would be $80,000 if the book sold out. But it won't sell out: 50% of the 100,000 copies shipped will be returned. You will end up receiving $40,000. And you'll end up receiving it over a period of three, four, five years or more.

Suppose instead your contract were structured so that your publisher paid you a 4% royalty instead of 8%, but paid you on the day the 100,000 copies were shipped to bookstores. You would get the same $40,000. But - you'd get it right away.

For author, publisher, bookseller and consumer here is much to recommend serious consideration of this plan:

From the author's viewpoint:

* Authors receive the same royalties that they do now, but much earlier
* Dependable royalty accounting enables authors to budget income more reliably
* Transparent royalty accounting reduces author distrust of publishers

From the publisher's viewpoint:

* Print runs are more realistic
* Distribution of books more efficient
* Royalty accounting simplified substantially, creating savings in bookkeeping personnel and supporting overhead
* Money saved on reduced returns and accounting costs raises profitability
* Savings can be applied toward increased discounts to booksellers, encouraging nonreturnability
* Antagonism between publishers and authors would be reduced greatly

From the bookseller's viewpoint:

* Because of higher discounts, cost of stock reduced
* Wasteful overordering or overshipping reduced
* More cash liberated for purchasing new stock
* Freight, labor and bookkeeping expenses connected with returning books eliminated
* Slow-moving books remain in`stores and remaindered in place
* Hostility between booksellers and publishers reduced

From the consumer's viewpoint:

* More books available at discounted prices, and more at remainder prices as well
* Good backlist books remain in stores for longer periods
* Access to heavily marked-down books gives lower-income consumers access to them, helping to raise literacy levels.

From an environmental viewpoint:

As things are structured today, the only way to sell a thousand copies of a book is to print two thousand. The unsold stock goes back to publishers' warehouses and/or is pulped. Given the destruction of our forests to feed the crazy system of overprinting that governs the publishing industry today, elimination of this horrible waste will contribute to a greener book industry.

The publishing industry must shift to a nonreturnable standard, and this royalty model offers one way to facilitate the shift without harming any member of the publishing ecosystem. I hope it will float a little longer this time than it did the last.

Richard Curtis