A tale of two publishing models

Sunday , 16, February 2014 Leave a comment

There has been considerable discussion over the advantages and disadvantages of the traditional publishing model versus the new “shared risk/revenue” model utilized by many independent publishers, including Castalia House. With the intention of shedding light on the situation, rather than obscurant sound and fury, we have constructed a comparative analysis of Robert Heinlein’s landmark SF novel, Stranger in a Strange Land, based in part upon the actual information released by the Heinlein estate.

In December 1990, Kurt Vonnegut wrote an article entitled “Heinlein Gets the Last Word“, in which he claimed that the famous novel had sold “100,000 copies in hard cover and nearly five million in paper since its debut in 1961.” We were able to identify only 3,080,565 copies sold from the Putnam Group records, but that should be sufficient for the purposes of this comparison.

The original contracts offered a $3,000 advance from Putnam as well as a $900.00 guaranteed royalty payment on a near-simultaneous release by the Science Fiction Book Club.(1)  Heinlein was to receive the following royalties on the RETAIL PRICE of the novel, which was $4.50 on first publication in 1961:

  • $0.45 (10%) on first 5,000
  • $0.5625 (12.5%) on next 5,000
  • $0.675 (15%) thereafter
  • $0.06 (5.5%) on Science Fiction Book Club sales

In a 1990 royalty statment, the highest royalty shown over the period of 1987 through 1989, which applied to the final 168,245 copies sold of the 3,080,565 total, was 12.00%. The average royalty nominally paid during that time was 11.695%.

Since Heinlein’s gross earnings on the 3.1 million copies sold were $475,863.46, we can reasonably and conservatively estimate what the publisher’s earnings were based on his royalties… or we can work it out from the total units reported sold and estimate his total earnings as 1.623x his known earnings.  The discrepancy between these two methods will be informative because if everything is on the up-and-up, they should be similar. One must also keep in mind that Heinlein owed 15 percent to his agent which has to be subtracted from his net earnings, thus leaving him with a theoretical net average per-unit royalty of 9.941 percent on the retail price. We will assume that the publisher received average revenue of 50 percent of the retail price and we acknowledge this is NOT corrected for inflation. However, as will soon be seen, this works to the advantage of the traditional model.

  • Total copies sold: 5,000,000 (estimated)
  • Retail price: 1961: $4.50
  • Total retail sales: $22,500,000 (at 1961 price)
  • Total revenues: $11,250,000
    • Net revenue, Author: $656,509.34 (1.62x reported total earnings of $475,863.46 less agent’s fee)
    • Net revenue, Agent: $115,854.59
    • Net revenue, Publisher: $10,477,636.07

That doesn’t look quite right, does it. Even in the most conservative analysis that is highly favorable to the publisher’s perspective, (which ignores the fact that by 1981, the retail price of Stranger in a Strange Land was $11.95), Robert Heinlein received only 5.84 percent of the total revenues derived from the book. We will eventually break the numbers down more precisely, but based on the initial print run of only 120,000 units at the $4.50 price, it should be apparent that the actual percentage of total revenues received was more like 4 percent. A basic analysis of the numbers makes it appear very much as if the publisher did not provide Heinlein with about two-thirds the royalties he was expecting to receive. This is not hard proof of shenanigans, but it does, at the very least, raise a few questions.

Now let’s look at how Heinlein would have done under the no advance, shared-risk model:

  • Total copies sold: 5,000,000
  • Retail price: 1961: $4.50
  • Total retail sales: $22,500,000
  • Total revenues: $15,750,000
    • Net revenue, Author: $7,875,000
    • Net revenue, Publisher: $7,875,000

$7.2 million is a tremendous amount to sacrifice in order to receive the security of a $3,000.00 advance. Now, can a major publisher push more books than a small independent publisher? At this point, yes, although not necessarily more than a small independent publisher that can reach several language markets simultaneously. But that’s not the important question. The important question is if the major publisher can guarantee to sell at least 12.5 times more than the independent publisher, because that is the practical break-even point for the traditional model vs the shared risk/revenue model.

However, this raises the question of whether the traditional publishers can be trusted. At 9.941 percent net average royalty on retail sales, Heinlein should have received 1,378,075.35 on the 3,080,565 copies sold, even if all 3.1 million books sold for only $4.50.  Instead, he received less than half that much. So, where did the missing $902,212 go?

It’s too late for Robert Heinlein. But it’s not too late for you.

(1) This was apparently done in violation of the publishing contract, which required one year to pass before the book was made available to the book club. Heinlein even complained that it made no sense to be selling books at $4.50 and $1.10 at the same time, since he received 39 cents less per book from the book club sales.