This may be another one of those “duh” kinds of things, but I cannot begin this discussion without being sure we all understand that when you “sell” a book to publisher for an advance, that chunk of money they’re giving you is just that—an “advance” against future earnings. It is the publisher’s reasonable guess as to how much they think the book will earn, and they’re not going to pay you any more money until that advance has come back to them in sales one way or another (more on that below). In a way, an advance is a loan, although, happily, it is usually not a loan that you have to pay back if the book doesn’t earn as much as everyone thought it would. In fact, a large percentage of books published (I was once told as high as 90%, but I don’t know if that’s really true) never earn back their advances, so it is not something you should necessarily be planning on with regard to buying a yacht in the future or anything. Basically, the best way as a first-time writer to predict the amount of money you’re going to earn from any book you sell to a publisher is to assume that the advance is the only money you’re ever going to see from that particular contract. If you do pay it all back (what we call “earning out”), that’s awesome, but don’t plan on it.
Before we get into the nitty-gritty of all of this, let’s define some basic terms. When we’re talking about different ways your book can be produced, there are two main distinctions we need to make, contracts-wise: whether the rights granted to the publisher are exploited as what I’ll call a “direct” or “primary” right, or whether they are exercised as a subsidiary right. A direct right means that a publisher will exercise this right itself, publish the book under its own name, and distribute it within its own corporate structure. This used to comprise a pretty small group of rights—sometimes just the hardcover edition of the book—but in these days of multinational corporations, a publisher may have the ability to produce and sell a variety of editions itself, including hardcover, paperback, audio, electronic versions, and even foreign editions in both English and, in the case of a publisher like Random House, foreign languages. For the exercise of these direct rights by the publisher, you, the author, will get a royalty, or a percentage of the money earned by the publisher, for each copy of the book sold in each various edition.
Subsidiary rights (or “subrights,” to those in the know), on the other hand, mean that the publisher will contract with another company to create a specific edition of the book. A classic example of this is an audio edition of the book, in which a publisher has licensed audio rights from you, the author, but either doesn’t have an audio department in their company or doesn’t have the money/interest/whatever to produce it themselves. The publisher instead will go out and talk to other audio publishers, like Recorded Books or Audible, or even the audio divisions at other publishing houses (which often operate like separate little companies under the banner of the bigger publisher they are a part of) to see if that other audio publisher is interested in producing an audio edition of your book. If this other publisher wants to do the audio edition, your original publisher will set up a contract with this second publisher, and they’ll come to an agreement on terms. Often (although not always) there will be an advance like there is in your book contract with your original publisher, and then a royalty structure that pays back that advance with a percentage of each copy sold. It’s kinda like a book deal within a book deal. What does this mean for the author? Instead of getting paid per copy sold, the author gets a split of the money the publisher receives from that second contract, which, except in the case of a small list of special subsidiary rights, is usually split 50% to the author and 50% to the publisher.
So, with all of this in mind, let’s look at a real-world scenario to see how the basic economics of a book publishing deal plays out:
Random House offers you $30,000 for your novel, and they were granted a bunch of subsidiary rights in the deal. Once you stop jumping up and down and calling everyone you know, you realize that you still haven’t QUITE earned enough to quit your day job, since they’re going to pay you $10,000 of it when you sign the contract 3 months from now, the next $10,000 once you’ve finished the manuscript by your delivery date next spring, and the last $10,000 when they publish it in 2015. But you finish your book and it publishes, and people really like it, and you get your first royalty statement and try to figure out what the heck all of the numbers mean.
The statement tells you that you sold 1,000 copies in hardcover, and your royalty on those is 10% of the cover price (let’s say $20), which means you’ve earned $2,000 in hardcover sales.
You also sold 2,000 copies of the electronic book that the publisher produced, which pays you 25% of the amount the publisher receives on each copy (let’s say $7), which means you’ve earned $3,500 in electronic sales.
So far, you’ve earned $5,500 in direct sales.
Random House is also working to sell subsidiary rights, and they’ve managed to get you a couple of nice deals for other editions.
There was a sale to Audible for an audio edition for $5,000, and since the split on audio is 50/50, you earned $2,500 for that.
There was also a German-language sale for $10,000, because you’re going to be huge in Germany, and since the split on translation sales is actually 75% to you and 25% to the publisher, you earn $7,500 for that, too.
So, you’ve earned $10,000 ($2,500 for audio and $7,500 German-language) for subrights sales.
When we put that all together, your book has earned you a total of $15,500 during this royalty period, which is pretty darn good! But remember, Random House fronted you $30,000 for your advance, so way down at the bottom of your statement you’re going to see a negative number of -$14,500, which is the amount you still owe them. And that’s the number they’ll start with on the next royalty statement, when this whole calculation starts all over again.
The upside of all of this is that there are a lot of ways to make money under a book contract, and the more rights you grant to your publisher, the more opportunities there will be to earn out and start seeing royalty payments over and above your initial advance. However, while granting more rights to a publisher may help you to earn out your advance sooner, it won’t always mean the most money for you, the author, at the end of the day—which is why as agents we often fight to hold back certain rights in order to sell them ourselves. Check out “Contracts 101: Which Rights to Fight For (and Why)” on the WLS blog, which discusses the pros and cons of withholding certain rights.
Finally, remember that being a book writer is a marathon, not a sprint, and rare is the author who can retire off of their first book. Once you get a few in the queue, and the sales keep adding up over time, you too can quit your job at the insurance company and write books in your PJs for a living.
Disclaimer: The above is intended for informational purposes only and should not be construed as legal and/or financial advice in any way. For advice specific to your own legal, financial, or other professional matters, please contact a licensed professional in those areas. In other words: “I ain’t your lawyer, so don’t sue me.”