P&Ls and how books make (or don't) money

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Profit & Loss/Profitability & Liability: How Books Make (or Don't Make!) Money

A basic outline of what happens when an editor buys a book and wants to publish it. This is very much a basic look at publishing and publishing finance, with some explanation of terms commonly used by the marketing and sales departments.

Comments

small advances

[(Anonymous)]

I'm an author with an independent publisher... I get a very low advance (usually $1-2000), but am offered a slightly higher royalty than bigger publishers. It means that i have very little to sustain me at the beginning of the process (so i have a day job), but start getting royalty cheques in the first six months. I personally much prefer this system, as getting an advance is a bit scary, because you're getting paid for something you haven't done yet! Getting paid in royalties instead makes me feel like I really earned it.

It also means that my publisher has more money at the beginning to spend on the design of my book, which makes more people pick it up and buy it...

Re: small advances

[(Anonymous)]

Indie music companies work much in this way: very small advance and higher royalites.

As Cool Indie Records, I might like The Hip Kids' sound and live show and the album they self-funded. So, I give them $1500 to $5000 to buy the rights to that album for specific terms and maybe I'll buy them a cheap van to tour in (which is like marketing: playing to new audiences who will hopefully buy the record).

The royalty split is generally around 60/40, 50/50 or 40/60, depending on the size of the company and their personal philosophies around the royalty split (artist run companies tend to give the most favourable royalties) (note - expenses, such as the cost of stamps and envelopes, long distance fees, % of in-house and/or independant publicist's salaries and expenses... are recouped at a pre-determined percentage - generally in favour of the label - from the artist's royalties.)

The Hip Kids have technically already earned their "advance" which isn't really an advance at all. As the creators of the music, they've already done the job of creating and recording the music, I, as Cool Indie Records am paying them for that job. It's no different for the writer: s/he's already sat down and written the book (the main labour of writing) and the publisher is paying the author for that job. It's a calculated risk whether the book/cd will sell and recoup the outlay.

I don't see it as very different from any other job. Most of us get paid to do something which generates profits for other people, but those people may not see the money from our labours for a long time. We are labouring and paid in advance of generating cash in hand for the bosses.

At the end of the day, The Hip Kids will likley break even with their cd. They will receive residuals in perpetuity in amounts that vary from $50 per quarter to $500 per quarter or more, based on sales and radio play. The bands will split the royalties portion between band members (according to their own percentages: maybe lead singer and lead guitatrist get a larger percentage than bass and drums, most likely they split it out evenly) and the publishing royalties, which are paid directly to the songwriters will be sent directly to those songwriters.

Back catalogues are important to indie companies. If Cool Indie Records releases 4 cds by The Hip Kids and that fourth cd starts generating airplay in the US and therefore record sales, the back catalogue will start generating lots of income. Cds and vinyl are warehoused a long time and stores send their overstock back for direct refund. I know of a Canadian artist who was a huge name in the "grunge"/"indie" heyday of the early 90's who is the largest grossing artist for one company who hasn't put out a cd for the artist for a decade. The first few releases on their label always sell at a slow trickle with little change in volume.