Shared Royalties vs. Fee for Service as Risk- and Benefit-Sharing Strategies

Canadian publishers are under pressure to rethink all strategies from the ground up in order to survive and succeed. “From a micro-economic perspective,” says Rowland Lorimer (315), “the operational and market realities of book publishing do not work well at all. They fail to generate a reasonable profit for authors or publishers for about 80 percent of published titles” (315). The pressure is coming from all sides, from an overabundance of titles to the high cost of visibility in bookseller venues to downward pressure from US price points. To address this situation, publishing professionals are exploring innovative, non-traditional strategies for all of their operations, from staffing to acquisition to distribution. This includes fresh strategies for sharing royalties with authors—or not. In this paper I argue that comparing the risks taken by authors to those taken by publishers is a false comparison that results in arbitrary determinations for author advances and royalties. I also argue that, like other systems that must place profit before everything else, the shared royalty system has a limiting effect on title diversity.

In Part I, I briefly explain the traditional system of sharing risks and benefits by splitting royalties, and two of that system’s limitations. In Part II, I use Page Two Strategies as a case study to explore a fee-for-service alternative. In Part III I consider and respond to two rebuttals to my argument, and in Part IV I conclude that for certain types of small publishers, a fee-for-service model offering stability over risk-based profits is a sensible alternative.

 

I. Royalty sharing models and title diversity

Publishing a book always involves risk and sometimes involves benefits. Traditionally, publishers and authors share both. The publisher assesses the author’s work and offers an advance against expected royalties; once paid, the advance is the author’s to keep, whether the book sells or not. If it does well, some 10% to 15% of net receipts also goes to the author, with this percentage usually escalating with sales as the risk pays off—or doesn’t—for the publisher. The publisher pays their in-house or freelance professionals out of the rest, and keeps the difference. On both this model and the fee-for-service model, editors, designers, accountants, etc. are paid on salary or contract, not with royalties, because they do not take the same risk as the publisher and author.

Canadian publishers care about the cultural value of their books, and about diversity in the publishing industry; but they must always balance these against profitability. In fact, Lorimer warns that risk management strategies can be undermined by, among other things, a focus on “human creativity and cultural value” (317) that can hold publishers back “corporate concentration” (316). On this view, cultural value seems pitted against certain strategies of risk management.

The shared royalties strategy, unsurprisingly, ties a publisher’s success with a given title to its projected sales, based on data about titles that have already sold. In this way, publishers may inadvertently contribute to the limitation of diversity of titles, and therefore to the cultural value overall of the body of Canadian literature produced. Not only that, market-driven approaches for title selection risk reproducing ideas that reinforce systemic inequalities. The limiting effect can and is mitigated by, among other things, grants from the Department of Canadian Heritage and Canada Council of the Arts; but these institutions are themselves a product of the cultural status quo. The effect can be diminished, but it never reaches zero. 

This is not to say publishers should instead invest recklessly in risky titles and hope that cultural diversity will result. For one thing, this limiting effect manifests variously in all (capitalist) models of publishing. To respond to this concern, I turn to a case study of Page Two Strategies to illustrate the differences between royalty-sharing and an alternative capitalist model.

 

II. Page Two trades rights and royalties for stability and innovation

Page Two Strategies’ origin story is an example, first, of the need for an alternative strategy for reducing risk. When Canada’s then-largest independent publisher, Douglas & McIntyre, went bankrupt in 2012, Jesse Finklestein and Trena White were Chief Operating Officer and Publisher, respectively (“Life,” para 2). Finding themselves laid off, the duo formed Page Two shortly after. They came up with the term “publishing agency” (Finklestein n.p.) to describe their new model, which provides some of the services of a literary agency and some of those of a publishing house. Page Two “help[s] people and organizations publish strategically in ways that suit them” (Finklestein n.p.).

For their literary agent services, they work on commission. On the other side of the model, they work on a fee-for-service basis to create books in collaboration with authors and their unique needs (Finklestein n.p.) The author keeps all the profits from sales and retains rights; they retain creative control while benefiting from input from Page Two (Finklestein n.p.). If the author retains Page Two for sales, distribution, and inventory management, a commission is worked out according to deliverables (Finklestein n.p.).

One of their strategies to reduce risk involves working with authors with built-in audiences, such as public speakers who already have a following and sell their books almost exclusively at their speaking events (Finklestein n.p.). These authors know that their books don’t “live or die on the bookstore shelf” (Finklestein n.p.) and view them more as a marketing cost of their main business. When working with this type of author, Page Two is freed from the traditional bookselling formula, which requires adhering to strict seasonal print and marketing schedules and navigating increasing costs of bookselling in stores (both brick and mortar and online). This allows them to offer a faster turnaround time than a traditional publisher, and in general, to focus on the unique needs of each author or content creator. For a public speaker this may include, for example, a “solid fulfillment program to get their books to their events and Amazon” (Finklestein n.p.)

While they do advise some authors to seek traditional publishing houses instead, Page Two also serves authors who understand that their small projects are not expected to make a profit. These titles are driven by passion or dedication, not the market, and might never be considered under a traditional model. Since Page Two leaves the copyright with the author, if the book succeeds, the author is free to pursue a traditional publishing path with someone else. And if the author simply wants a beautiful book published for their grandparents’ anniversary, Page Two can help with that too. The fee and/or commission model is working for Page Two, which is a healthy and growing business (Finklestein, n.p.)

When Page Two selects a title, it is an example of an alternative to market-driven title selection and risk-based royalty sharing. Each book’s strategy is driven largely by the client/author’s goals and needs. The benefit for Page Two is a solid, stable commission-based income. The benefit for the public is a diversity of titles that make it to print, and occasionally to mainstream market success. In contrast, royalty-sharing publishers select only those titles that they have excellent reason to think will sell very well for the same reasons that fee-for-service publishers do: to serve their authors, to build a reputation, etc. But they are even more bound to market-driven selection because of the particular, additional need to maximize their share of the royalties as much as possible.

Finally, the fee-for-service publisher leaves all the royalties with the sole bearer of risk: the author. It is ultimately the author’s choice, informed by Page Two’s extensive experience, how much they want to tie their decisions to likelihood of sales. 

An additional benefit is that the fee-for-service system avoids the arbitrary system of working out royalty percentages. Barbara Doyen says that “a high advance means that the publisher is taking more risk than the author” (Doyen, para 8). This suggests that there is some measure by which we can compare the risk taken by the publisher when she pays money to produce the book, to the risk taken by the author when she researches and creates the text. We measure the publisher’s risk in dollars against predicted returns and there is quantifiable data to support these predictions. But by what measure can we predict or measure the risk taken by the author? Some spend years or decades on their work, without payment. They often pay fees to editors and literary agents, only to be paid a small advance and see no royalties anyway. Additionally, in the royalty-sharing system the author does share in the risks and benefits, but the amount they are paid is a subjective assessment by the publisher; and trusting the publisher’s assessment entails an additional risk.

It may be that this is the only way for book authors to be paid by a publisher. Unless they are being paid a salary to write like a researcher or journalist, there is no other way for an author to spend time writing a book than for free, at least at first. The risk of performing unpaid labour with the hope of having your book published is inherent to the task of writing. Luckily, some argue that it is also “inherently satisfying” (Lorimer 316). Whether it is worth it or not for the author, the time and labour they invest are not quantifiable in the same way as the risk the publisher takes by investing money with the hope of seeing profit. The two types of risk cannot be traded one-to-one as Doyer suggests.

Even if the two can be compared more easily than I expect, the almost universal standard of 10% to 15% introduces another level of arbitrariness. Why these percentages? Not because publishers make a careful assessment of each title’s cultural value, time spent by the author, etc; but because they have determined, through much hard work and experience, that this is the arrangement that allows publishing to continue as is. Not only is this approach market-driven; it is driven by the need to maintain the publishing status quo. Royalty-sharing, period, especially according to a static system of 10% to 15% to an author is an arbitrary way of measuring and sharing risks and benefits.

This, along with the constraint on diversity of titles in a market-driven approach, should motivate us to consider new systems of managing and sharing risk and benefit, such as Page Two and others.

 

III. Little or no appeal for traditional publishers?

One problem with the fee-for-service model is that publishers invest too much money in creating a book to be expected to give up their share of the profits when the book succeeds. Charging a fee for service rather than buying the rights in a royalties system cuts out the publisher’s share of the benefits. For a publisher who is comfortable shouldering the costs and risks of publishing a given title, there is no incentive to give up the possibility of huge royalties on the occasional bestseller by switching to fee for service. Still, a select few traditional publishers may prefer a switch to fee-for-service to, for instance, bankruptcy. However, it is not the case that all royalty-sharing systems must be abandoned, although their limitations should be understood and mitigated.

On the other hand, for a smaller professional who does not have the capital or resources (or interest) to acquire or publish risky titles, a fee-for-service model is more attractive. It provides stability. For these professionals, the choice may not be royalty sharing vs. fee-for-service in the first place, but fee-for-service (and some autonomy) vs. a salaried position in a traditional firm, trying to stay afloat, fulfilling someone else’s mandate. Not only that, in-house professionals in today’s high-pressure publishing environment are increasingly required to be multitaskers anyway—not just editors but also salespeople, not just designers but also marketers and accountants. For a freelancer with multiple skills, it may be an attractive upgrade to create, or join, a “publishing agency” charging a fee-for-service. 

 

IV. Conclusion

The promise of stability may be very appealing for the small publisher or the entrepreneurial professional looking for a satisfying career doing the part of publishing that they love. Choosing stability over risk involves walking away from the chance of huge profits, but if the growth of Page Two is any indication, there is plenty of room for commission- and fee-based success. The fee-for-service model has the side benefit of potentially supporting a diversity of titles, and represents a principled approach to author payment that honours their labour of love by leaving the rights with the creator.

 

 

Works Cited

Doyen, Barbara. “How Book Authors Are Paid.” BarbaraDoyen.com, 2007, www.barbaradoyen.com/author-business/how-book-authors-are-paid

Finklestein, Jesse. Guest lecture, PUB 800 Management and Marketing, Simon Fraser University, 20 October 2017.

No Author. “Life After (Traditional) Book Publishing.” BCBusiness.com, 2 July 2015, Canada Wide Media Ltd., www.bcbusiness.ca/life-after-traditional-book-publishing

Lorimer, Rowland. Ultra Libris, ECW Press and Canadian Centre for Studies in Publishing, 2012.

 

 

One Response to Shared Royalties vs. Fee for Service as Risk- and Benefit-Sharing Strategies

  1. tmcgrath says:

    Rachel,
    I can definitely see the appeal of trying to mitigate risk in independent publishing, especially as I come from a country wherein book publishers do not receive grants to sustain themselves as they do in Canada. The crushing capitalistic model that keeps independent publishers from thriving needs to be addressed.

    Page Two has done really well for themselves in their four years of existence. As a case study, they are worth looking at. However, I don’t think that the success of Page Two carries enough weight to be seen as a viable solution for the publishing industry’s problems. For one, as you stated, Page Two tries to limit their projects to public speakers whose books already come with a built in audience. That seems to be a big factor in their success; if they hadn’t had several books like The Coaching Habit (https://boxofcrayons.com/the-coaching-habit-book/) that proved to the industry that Page Two knew what they were doing, then it would have been a lot harder to get off the ground. If publishers who wish to mitigate risk only focus on authors with audiences already built around them, then that limits the diversity of viable titles even moreso than is already done. Page Two also only deals in non-fiction, which – while less likely to have Harry Potter potential of fame – is often seen as less risky. Page Two also mitigates their own risk by not simply being a publishing firm but by offering their services as a literary agency, et cetera. To compare Page Two to other independent Canadian presses would be like comparing apples to oranges.

    I also worry that it puts an unfair amount of the risk on the author. You addressed this above and pointed out that author labor is not as objectively quantifiable as publisher risk is. I agree; however, the author’s labor is still substantial and significant. As future potential publishers we may be biased in our perspective that authors have the upperhand in the publishing process, but any author would disagree. Objectively, a system in which a royalty advance isn’t paid to an author is a system that favors only authors that have the time and resources to write a book and not be paid for it. Page Two’s model certainly ensures that; if the author doesn’t have the capital to invest in the book, then the book does not get published. This limits diversity again by reinforcing the classism and elitism already somewhat inherent in the publishing industry.

    Another concern I have is that the fee-for-service model would perpetuate the already-growing trend in the publishing industry of trading all of your non-essential in-house employees for freelance contracted workers. For the publishers themselves, this is a benefit, but for the publishing industry and those who seek to make a living in it? This is bad news. Page Two has a few non-freelance employees, but their entire premise is built on other publishers and people using them as an out-of-house service. With that standard set, every part of the publishing process now has the potential to be outsourced, and designers, editors, marketers, and everyone in between now has a harder time finding a career that gives them job security and reliable benefits.

    Lastly, I believe that a lot of your argument comes back to the fact that you want publishing to become more diverse while ensuring solvency, which is a respectable goal. I believe, however, that the arguments you make about the position of the author would persuade more authors to turn to self-publishing than fee-for-service publishing. If all of the onus is already on the author to succeed, then why not cut out the middleman?

    I think we as the publishing industry need to invest more time in proving the worth of in-house employees specifically and independent publishers in general. Some independent publishers like Talonbooks, which proudly publishes titles they know aren’t going to sell well, are doing a good job of that already. We should concentrate more on amplifying and proving the significance of these independent publishers to Canadian culture and find ways to diversify literature without outsourcing the industry.

    P.S. I’m sorry that I accidentally wrote a novel in response to your essay.

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