Ok, now you’re just coming off the rails. The books sold at Costco are not sold through the special sales department in any major publishing house. They used to be sold through a wholesaler called AMS, they now buy direct and through some other wholesalers but on the same discount as the bookstores. They can only buy them as a special sale if they’re taking them non-returnable. If you write the contracts, as you boast, you know that. Or call your sales department. They’ll tell you.

More to the point, the books at Costco are there at the same time they’re in any bookstore.

You can tell me I don’t know what I’m talking about. But you do misunderstand nearly everything about a book advance. If an author receives $100,000 for a book that sells 10,000 copies (a very common occurrence) then the effective per book royalty rate is 40% of the $25 cover price, not the 15% written in the contract.

Publishers, not “management experts,” drove the price of acquisitions up. You claim that management experts have had a negative impact. (“The book industry also suffers from self-appointed management experts who have no earthly idea what they’re doing.”) That’s just not so. Brian Murray and David Steinberger are the only management consultants running publishing firms. Carolyn Reidy, Susan Peterson Kennedy, John Sargent, Markus Dohle were never “management experts.” I don’t think David Young was ever a consultant but I may be wrong about that. And no publishing house has a management consultant making significant decisions.

Your bizarre rant that begins with “contact me posthaste” doesn’t address the issue that no advance is currently calculated based upon the needs of the author to complete the work. That may have been the origin of advances (and I’m not sure that’s really true) but it doesn’t apply to the publishing industry today. Advances are negotiated in competition or perceived competition with other publishers to establish the “value” of the book.

As a side note, Bob Miller’s response to the New Yorker gets at some of the things we’ve been arguing about here.
“The problem is with everything in between: the books which publishers spend between a hundred thousand and a million dollars to acquire, followed by hundreds of thousands of dollars in marketing and distribution. This is the dangerous middle, the place where substantial bets are made on books with lots of potential but no guarantees. As the costs of publishing in the middle have increased over the past decade while sales only increase at the top, the middle has delivered the biggest losses. And, unfortunately, most of what trade publishers currently publish is in that middle range.”

I would add that the top end has also become a no-win situation with books like The Snowball bringing down Irwyn Applebaum and The Gargoyle playing some role in Steve Rubin’s being relieved of his management responsibilities.

Bob Loomis, and many other editors worked closely with authors for many years. That has almost completely stopped in the last 3-5 years with many prominent authors who worked with their long-time editors switching in search of more upfront money. Tom Wolfe and Richard Ford are just two names off the top of my head. But the most successful books of the past few years in fiction and non-fiction were not “nurtured” by any house. Reagan Arthur bought the first Twilight book after it had been self-published. LB has a large stable of authors built up over a number of years. But their biggest, James Patterson, was bought for a huge sum for the first book. Patterson delivers and that’s one reason LB is very profitable. But even LB has begun to chase the dangerous over-advanced/under-supported books in the search for revenue.

You can’t get around the fact that, with a few exceptions, when the big advances perform, the publisher barely gets out alive. When they fail, they place a huge strain on the house.

Speaking of authors, you’re making assumptions about my viewing authors as pissants (?) You’re wrong about that. Authors have become free agents seeking the best return. That’s as it should be. My view is that authors, oddly, get the raw end of the deal the way publishing is structured now. The most successful authors–those who sell far in excess of their advances–are subsidizing all of those undeserving authors in the middle. By getting paid only 30% of the revenue from their hardcover book sales, they give up too much and get too little in return from their publishers.

That’s why Bob Miller set up his new operation. But I would suggest that his 50/50 deal isn’t attractive enough to get authors to give up the “bird in the hand” of the advance. I’ll have to make that case at length another time and not in response to your comments because you’ll only garble the thought any way.

Finally, this is biggest howler of your comments: “The bigger publishers are also able to pay more because they are better at what they do: sell books.” Big houses pay bigger advances because they have larger financial reserves than smaller houses. But in deploying those financial reserves, they’ve become exactly like the big banks. They’re always chasing size and scale but set themselves up to be caught in a cataclysmic shift in the business plan. That shift is taking place right now. It’s not the economy; book sales are meant to buck the economy. They were once viewed as a safe harbor in bad economic times.

Pressures from other media but also a substantial re-orientation of the sales channel have left publishers saddled with large advances based on very different expectations for generating revenue. In other words, they’re massively leveraged and experiencing a mammoth margin call.

I don’t know where you worked as an editor. But you haven’t read a publishing contract in while. Costco et al are not special sales at any major house. The author gets a full–not a net–royalty. You also misunderstand the nature of advances. Very few advances earn out these days. So the effective royalty on most titles has risen way, way above 15%. And if you’d worked in any major publishing company in recent years you would know that there are not many authors–fiction or non-fiction–who have been “nutured” to bestsellerdom.

No self-appointed management experts drove the industry to bid higher and higher advances on books.

Finally, if advances were based upon the idea that “books don’t write themselves” they would be calculated upon the cost of the writer’s time to produce the book. Advances are determined by an estimate of prospective sales, that’s the fairy tale publishers tell themselves. But advances are really calculated in a competition with other publishers upon the price it will take to outbid one’s competitors.

First, it may appear to a media type that celebrity books are the most important, notable, or newsworthy books to appear, and they certainly are events in and of themselves. But it would be unwise to draw conclusions on the entire industry or overlook all the other books that are sold based solely on, say, Bill Clinton’s advance.

You also misunderstand the author/agent/publisher relationship. There is a market for unpublished books, which are not unlike commodities to be bought and sold. In entering a contract, a publisher is not gambling that the author is “good for the money.” It is the author’s responsibility to deliver an acceptable manuscript, it is the publisher’s responsibility to publish it in the manner in which it will make both the publisher and the author the most money. An advance on royalties is an industry standard because books don’t write themselves, and it is unreasonable to expect that an author will have the time or finances to write a book without an advance. Without advances, publishers simply don’t get books, or enough books, or good books.

Also, publishers do anything but gamble with advances; they’re very well informed about the markets to which they sell, what kinds of books and authors sell better than others, and what are reasonable expectations for any given book. In fact, their marketing departments will often ask B&N how many copies of a specific book their buyers would be willing to buy. Sales projections from this and other sources go into P/L reports that incorporate returns (yes, actually, they’re extremely important), book production and shipping costs, as well as the advance, in effect, the whole gamut. Though I have not worked in other industries, the process seems no less risky or ill-informed than any other widget shop you could compare with book publishers.

Also, the statement “When the book publishers lever themselves up, they play Robin Hood. They steal from those rich in sales–who only receive a fraction of their book’s value–and give to the poor souls who think they’ve got something interesting to say.” is incorrect. Any money an author receives is based on royalties. If the agreed-upon royalties add up to more than the advance, a successful author gets more royalties over and above what they received for the advance. In the event of heavy sales, their royalties can also actually escalate from, say, 10% per book to 12.5% or 15% at certain sales levels. And if a successful book balances out, say, three books that didn’t earn out their advances, one could consider them R&D costs of nurturing future talent that will some day create the next blockbuster best-seller.

No, what the book publishing industry suffers from is the same as all the other industries suffer from: It’s the Economy, Stupid. People simply have less money, and their reading and entertainment habits are changing. The book industry also suffers from self-appointed management experts who have no earthly idea what they’re doing. You can contact me directly about a world class management self-immolation that I can’t really write about here.

Also, library sales are extremely important–there will be fewer of these for publishers, obviously. Costco/BJ’s/Sam’s Club and other non-bookstore venues are considered “special sales” that are, on most contracts, accounted for differently and with much less benefit to the author.

But advances are not “liar’s loans.” This is a phenomenon (and a catchy and now-overused phrase for journalists) in a different industry, in search of a new home. It’s just simply not true.

The ease with which one can obtain 2nd hand books over the internet has mitigated the stituation for the consumer, but the author and publishers receive little benefit thereby. Perhaps books on demand will change this somewhat, though so far, books on demand are not attractively produced, as yet.

Perhaps we could think about changing our tax laws in such as way to foster intellectual life instead of harming it, now that we are entering a period of reform.

My favorite is the patent area. It used to be like: investment, invention and then a well founded claim on future revenues via a patent. Now it is minor (but high number of cases) investments and then a doubious claim on future inventions/products to be done by others. The costs are carried by random victims who gets slapped with a patent suit for their own inventions and by the society which is not getting access to innovations due to fear of lawsuits.

You’re also wrong about Houghton. The freeze only applied to the trade books. Houghton essentially made a choice to eliminate the trade books because they don’t generate any cash. You’re right that the trade books division is essentially irrelevant to the education businss.

You’re wrong about almost everything else. There are numerous publishers who don’t give out much in the way of advances but they also don’t generate much in the way of sales and are not terribly profitable.

On the big books, there is no shortage of customers. The top books sell regulary into the millions of copies. Those are not numbers that anyone in the books business was accustomed to seeing until less than 10 years ago. Then every house had a title that sold like that. The problem is that publishers began to chase the massive hits with massive advances and ended up over-leveraged against sales.

Your comments about the RH, SS, HC, Penguin, Hachette, Holtzbrink not having separate numbers is wrong too. Though each of these companies is owned by a larger entity, they all of have a p/l and are expected to contribute to the larger enterprise. Advances have the biggest impact on the cash they can contribute.

Let me make something very clear. Books are not doomed. Bookstores are doomed and the big six publishers have a collapsing business model. Morgan Stanley and Goldman Sachs have seen their business model collapse too. It doesn’t mean they can’t come up with a new one. But for publishers, the new model will have to address the way rights for books are acquired and how revenues from the titles are apportioned between publishers and authors.

General Trade publishers like Random House, Simon & Schuster, & HarperCollins certainly do have some unearned advance issues, but their numbers are all subsumed under larger media conglomorates, and aren’t made public. The ‘big 6′ Trade publishers (Random, Harper, Macmillan, PenguinPutnam, Hachette, and S&S) probably account for 30% – 40% of the general trade books published in a given year. There are many, many smaller trade publishers that don’t have big name authors, and generally don’t give out big advances either.

There are many issues that are weighing down the publishing industry right now, though. The free returnability of books, especially from wholesalers and retailers who receive the books at highly discounted rates is one of those issues. If there is over leverage of cash flow in publishing, this is where you will find it.

But, the biggest issue I believe is that there are just too many books competing for the attention of readers whose time is often taken with lots of other activities, and leave less time time than in years (or generations) past for the undertaking of the long narrative form.

There is no shortage of authors, publishers, or retailers. There is a shortage of customers.

You do understand that your average Barnes and Noble is filled with books that make little or no money for the publisher because the advance was much too high or with books that generate little or no meaningful income for the author. And many of those Barnes and Nobles will be closing soon. More to the point, most of the Barnes and Noble stores simply drove independent stores out of business. So there hasn’t been much of net gain in bookstores. Mostly a net loss.

And if you think Movie theaters will be around for a while, you haven’t been paying much attention to the movie business.