UPDATE thanks to comments from Diana Peterfreund and Justine Larbalestier (both brilliant): I am not imagining here a world that exists. I am imagining a world that I think might exist, and I think experience better and more consistent growth, if authors and editors and agents collectively decided to make it so. Also, I am radically oversimplifying the way that advances get paid out, although I don't think it affects the overall argument.

I'm going to argue today that big book advances are almost always bad for both authors and publishers. I'll try to stay active in comments (if anyone's interested) and edit the post as needed. First, some background:

1. Authors are usually paid an advance against royalties; i.e., when they sign a contract, some money will be paid to them in advance of the book's publication. Then they'll earn 10% (ish) of the hardcover price for each book sold. So if a book sells for $20, the author gets $2 per book. To "earn out" a $10,000 advance and start getting royalties, you'd have to sell 5,000 copies. After 5,000 copies, the author starts to make royalties at $2 a book, which are paid to the author in a lump sum twice a year. (For a variety of reasons, including discount stores, the actual math is much more complicated.)

2. The definition of "big advance" changes if you have a proven sales record. But we'll just say to make the math easier that a $100,000 advance is "big." (Which, I mean, it is.)

3. In all this, it's important to remember that the publishing business has become very blockbuster-focused, because it's a better way to generate short-term revenue. So they're chasing blockbusters right now.

Let us imagine a book called The Unicornians about a secret race of unicorn-people. A young writer with a job and a family has been working on The Unicornians for years in her limited free time, and she is finally pleased with it, having polished the love triangle between a Unicornian boy, a Werewolvian boy, and a human (but special!) girl. So the author sends The Unicornians off to agents, and some hotshot agent picks it up.

The agent is really high on The Unicornians. She thinks it's the next Twilight. So she submits it to several editors at once. Editor 1 comes back offering $300,000 for three books. Editor 2 offers $30,000 for three books but with a significantly better hardcover royalty. (Say, 20% instead of 10%.)

Putting aside the (very important) questions of which editor would be a better fit and which publisher is doing a better job with Unicornian-esque books, I would argue that the author of The Unicornians is always better off signing with Editor 2.

Let's say that The Unicornians is not a tremendous success. The first book in the trilogy sells 8,000 copies in hardcover; the second two sell 6,000*. With Editor 1, the author gets her $300,000^^, but The Unicornians comes up $240,000 short^^^ of earning out. With Editor 2, the author only makes $80,000 on the series, but $50,000 of that is royalty, and the publisher has also made a (modest) profit. The publisher will likely ask the author for another series, perhaps something focused in on the werewolf dude.

Some people would rather have money, but I suspect what most authors want is longevity. (e.g., I assume that everyone would rather make $300,000 in a career that contains 30 books than $300,000 in a career that contains three books.^)

Okay, so now let's say The Unicornians IS successful. Let's say the first book sells 250,000 copies in hardcover**, because they make a movie, and teens squeal about how hot the unicornian boy's horn looks. The second and third books also sell 250,000.*** With Editor 1's deal, the author earns back her advance and makes $1.2 million, for a total of 1.5 million dollars. With Editor 2's deal, the author earns out and makes $2.7 million in royalties, for a total of $3 million.****

So that's why it's better for authors, but why is it better for publishers?

Currently, publishers pay for all their bad bets with their good bets--blockbusters like Twilight pays for a lot of $300,000 advances on books that don't sell well. But shifting the incentive away from advances and toward bigger royalty splits would lead to steadier growth across the board instead of surges of growth followed by excessive correction. Better splits would also incentivize authors to do more to get their work to readers, which would help growth.

It seems to me that the publishing business has a lot in common with the mortgage industry: A publisher loans you some money, which they expect you to pay back. And if you don't pay it back, you get a black mark on your reputation and the publisher has to eat a lot of the loss. And we've seen in the mortgage industry that both lenders and borrowers do a lot better when homeowners have an equity stake, and when they've been loaned an amount they can reasonably expect to repay. And I'm increasingly convinced that publishing would be healthier if we moved in that direction.



* A lot of people will say that publishers are more motivated to spend money on marketing a book if they spend a lot of money on the advance. This is true, but only up to a point. In the end, publishers want to make money, and they don't really care how they make it. If they think your book will sell, it doesn't matter if they paid $10,000 for it or $300,000. (I am, to a minor extent, living proof of this.)

Related: These same people might argue that a publisher would be less inclined to support a book if the author were getting a higher percentage of the book's cover price, since they'll make less money on that book. That seems totally plausible to me, but what I'm proposing is that more or less all of us come together and more or less say, "Advances are unreasonably high, but a 20% hardcover split makes more sense than 10%." (Which it does.)


** I am completely ignoring paperback sales only because they make the math more complicated. I don't think they affect the validity of my argument.


*** Real breakout books (like Twilight) in fact sell much more than this, which is why publishers are so gaga over them. Like, imagine a company that publishes Laurie Halse Anderson, Sarah Dessen, M. T. Anderson, Walter Dean Myers, E. Lockhart, Maureen Johnson, Coe Booth, anyone else you can think of other than J.K. Rowling, and me. The combined 2009 sales of that publishing company would be a fraction of the sales of a company that publishes just the Twilight series.


**** Although even in this massively oversimplified example, these numbers still do not tell the entire story, because royalties are only paid out twice a year, and they are paid three months late. So with the current system, one of the big financial advantages to getting paid an advance is that with an advance, the money sits in your bank, but if you earn royalties, the money spends many months in the publisher's bank, where it is not generating interest--or, to be more precise, it is not generating interest for you. But anyway, even putting aside the fact that royalties should be paid more frequently and should include interest, according to my numbers, big advances still don't earn as much in the long run.


^ UPDATE: Sara Zarr points out that the 3 books v. 30 books is not about number of books, exactly--as she says, she'd rather be Harper Lee than James Patterson. And I suppose if one feels that a bigger advance will get this one great book that's in them out into the world in a deeper and more lasting way, then fair enough--although for the record I don't think Ms. Lee was not paid much in advance for TKaM.

^^ UPDATE: Diana Peterfreund, Abby, and others have pointed out that one benefit to the advance is that you have money to quit your job and then work on the next two books in your Unicornian trilogy. True enough.

^^^ UPDATE: In comments, Mary Pearson makes the very astute observation that the risk is a two-way street; the author is giving the publisher exclusive right to publish stuff, and an advance is a way of lessening the author's risk that the publisher totally screw everything up (which of course publishers do sometimes). That's a really compelling argument for advances, I think. (I still feel that excessive advances are bad for both sides of the seesaw, though.)