Sunday, May 8, 2011

Creative Accounting

Excellent article by J. Daniel Sawyer on how authors (and other creative types) are often cheated out of their share of project's profit through creative accounting. Fascinating stuff. (Thanks to Rebecca M. Senese for bringing it to my attention.)

It is important not to let such articles make us too paranoid, however. The examples from the movie industry do not apply nearly so much to the book publishing industry; and unless you're Stephen King, chances are your books aren't making enough money to make it worthwhile for anyone to go to the trouble of cooking the books to cheat you. Most publishers are pretty conscientious about paying you your 10%, because fudging the books to shave a few thousand dollars off an author's returns would be more trouble than it's worth.

The structure of (traditional) book publishing was such that as long as a few of a publisher's books were hits, they could afford to have others break even and the occasional loser. Recently, for example, a romance writer worked out that her NYTimes hit romance novel earned her about $50,000 and made $250,000 for the publisher (though one has to subtract paper, printing, distributions costs from that, so not sure what the actual net profit would be here). The revenues from all books published are put against all the costs incurred, and the publisher hopes that comes out in the black. In contrast, each movie or TV series is set up as a separate company/project, with it's own debits and credits -- so in that scenario, putting the costs/losses of movie A against the profits of movie B looks like cheating to people who signed contracts based on net profit from movie B. But in the book industry, its just 10% of cover price of your particular title, and everything is just one company, so that is a lot more straight forward.

Or to put it another way, authors recognize that its okay for 90% of the cover price to go to publisher, to cover the costs of printing, paper, distribution, sales people -- but also acquisition editors, copy editors, book designers, cover artists, etc. -- AND the money lost on books on which the publisher took a risk. Because, you know, at some point they took a risk on you....

In my experience, the people who suspect the (legacy) publisher is ripping them off are more likely paranoid than justified. The number of cases where legitimate publishers were ripping off authors are vanishingly small; though of course the vanity press industry is a different matter entirely.

What makes the article about creative accounting relevant to writers today, is that the publishing model is rapidly changing as emergent technologies open all sorts of opportunities. Some of the proposed models look a lot more like movie contracts and are therefore similarly suspect. The fight between Amazon and publishers over the pricing of eformats was a distance abstraction to most authors, but it was precisely a struggle over these sorts of issues -- an attempt to blur the lines between publisher and distributor, with Amazon and Smashwords and the rest trying to grab off a higher % of the net profits by defining themselves as the publisher rather than just a distributor-- that was at the heart of the struggle. This matters to authors in the long run, because, as Sawyer's article cited above points out, it's the 'net' profits that allows space for creative accounting.

Similarly, the proliferation of small press publishers raises the possibility of a greater range of accounting practices -- either through inexperience, or deviousness. It's possible that some of these publishers are less ethical than others. But again, in my experience, most are scrupulously honest and in fact often putting their own finances at risk to ensure authors get paid what they are owed and on time. The few cases where the publisher/editor is of questionable reliability, there are usually plenty of warnings on various blogs, such as Writer Beware. Although authors should adopt a 'buyer beware' attitude towards new presses and do a little research, if a publisher has a stable of happy authors, one should start from the assumption that they haven't decided to rip you (and only you) off.

I have come across a few authors who are sure they are not getting their due, loudly decrying this or that publisher for ripping them off. But whenever I have asked how they know, they say something like, "Well, they say I only sold 320 books last year. I know that many copies sold to people in just my local circle of friends, so they must be lying! I bet I've sold thousands of copies just this week alone!" And so on. Okay, I suppose that's possible -- but is it maybe possible one only sold copies to people in one's circle of friends? Because the average self-published and small press title sells less than 200 copies. One can't really blame the publisher's royalty statements every time one's sales are slower than one might hope.

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