Outside the Beltway

ECONOMICS OF PUBLISHING

James Joyner · Thursday, June 5, 2003 · 5 comments

John Lemon is holding a “contest” of his own:

How many people think that Hillary’s new book will sell the copies necessary to break even financially, which would include the $8 million advance plus production and marketing costs?

I’ve only been in the publishing business a few months and work for a medium-sized house; things might work differently at a huge New York publisher. Still, I feel comfortable in stating that there’s virtually no chance of this breaking even. I’m honestly baffled by these celebrity deals. Typically, authors get royalties of 10-12% on hardcovers. Hillary’s book has a cover price of $28 but is currently selling for $19.60 on Amazon. Publishers discount books in the range of 48-52% to wholesalers and other distributors, meaning, Simon & Schuster is getting roughly $14 a book. Production costs are negligible on a book like this, since economies of scale kick in. The books probably cost under $2 apiece to make and, presumably, marketing costs aren’t particularly high since S&S is getting all manner of free publicity from the mass media.

So, let’s say the print run is 50,000 copies and that the per unit marketing and production cost for the book is $2. This is an intentionally low estimate, since I don’t have the actual figures available. And that’s ignoring all fixed costs (salaries, plant, warehousing, etc.), shipping, taxes, and all the rest, of course. Regardless, 50,000 copies at $2 each is only $100,000. At $14 gross per book, they only have to sell 7143 books to break even. That’s not considering author royalties, either, but they don’t actually have to “pay” royalties until they exceed the advance (that’s what an “advance” is–an up front “advance on royalties”). To make up the $8,000,000 they need to sell an additional 571,429 units or a total of 578,572 books. The Harry Potter books sell that well; autobiographies don’t.

The above figures also presume that everyone who wants to read the book will buy their own copy in hardcover. If they are willing to wait until the paperback comes out, probably at $14 or so, then the publisher is only getting $7 a unit and would have to sell many more units to recoup the advance.

I’m not being partisan here, either. I said the same about the $1 [million] advance HarperCollins paid Clarence Thomas for his book. Indeed, several publishers passed on the Thomas book because they thought there was no way they’d generate enough sales to justify the advance. I’ve talked to several of my colleagues about this phenomenon and the only thing anyone can figure is that the big houses think that having these celebrity books on their list will somehow add to it cachet and help draw other authors or increase attention on other books.

Update: Donald Sensing also has some analysis of this today, as well as a link to a post from April 29.

One thing that Don’s friend forgets to note–and I didn’t mention in my original post–is that unlike just about any other business, publishing works on a quirky business model where huge early sales to distributors and retailers doesn’t necessarily mean huge profits. S&S could “sell” half a million copies of the book only to have to eat 400,000 of them a few weeks later when they are returned unsold.