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For the last fifty years, the driving economic force of the book business has been the advance against royalties.
Virtually all books aimed a mass audience earn precisely the same royalty per book. Stephen King, the unknown first time author and I get paid exactly the same royalty per book by Penguin.
What changes is the advance. This is a non-refundable earnest payment the publisher puts up to entice the author (and her agent) to sign on, to choose them. When everything else is equal (and it often is), the advance is the thing that gets looked for and reported on.
As you can imagine, this affects the rest of the process. The royalties earn out against the advance and in fact are rarely paid at all (if the advance is bigger than the royalties, the author gets no new money). Most publishers don’t associate an advance paid four years ago with a royalty statement that comes in today. (And if they do pay attention, they’re likely to make a non-economic decision– “let’s promote this book even though it’s not selling, because we have a big advance at stake.”)
If there are two publishers, one with a great marketing and publishing program, and the other with an advance that’s three times as big, guess who wins the author? A publisher with a big checkbook is able to land famous authors, which excites the salesforce, which gets more shelf space in the store which, perhaps, leads to a self-fulfilling prophecy.
Of course, for the last half century, in a static publishing environment, all of this was very good news for authors. Not only did it remove risk for a profession that could ill afford to take risk, but big advances focused the attention of the publisher. You were getting paid a lot and it bought you a better publishing experience at the same time…
(Dr. Seuss rejected this and refused to take an advance from his publisher. He wanted his publisher to have the same incentives he did.)
The advance makes it very clear who’s in charge. The publisher pays, so the publisher calls the shots. The author has a scarce asset, and sells it to the publisher, who exploits it. The friction comes when the author/tribe leader/impresario believes that risks and new technologies can help get her work into the world, and the publisher demurs.
As the underpinnings of traditional publishing start to shift, the pressure to change the culture of the advance are sure to mount. Of course, as long as there are two publishers willing to spend freely, advances will stick around.
Having been paid advances for years, I’m not arguing they should be abolished even if they could be. For those curious about the future of the book business, though, it’s impossible to talk about [digital, the long tail, free editions, sub rights] without acknowledging that they drive the decisions in the heart of the industry.