Publishers' profits

Some months ago, a correspondent who used the pseudonym Jeremy Snippet wrote a lengthy comment about publishers' profits. His essay appeared in response to my first article, in a series of three, on authors' advances.

Mr Snippet will long since have abandoned all hope that I was ever going to respond to what he had to say, but I never quite forgot his point, and periodically, while shaving or whatever, I have been mulling things over.

Basically, Jeremy was arguing that writers are underpaid by comparison with publishers, and that publishers make really quite hefty profits.

Jeremy presented a lengthy example of the sales of a hypothetical novelist, one Geoffrey Gloom, and the royalties resulting. He went on to suggest that, from total sales income (customers' money handed over the counter) of £108,000, the publisher would end up with a net profit of £24,000. The author, by contrast, might get £11,000, less agent's commission, less expenses.

Actually, Jeremy's figures (if I understand them correctly) are not quite correct in terms of their own arithmetic, because he forgot to deduct the author's royalty from the publisher's profit, so the £24,000 becomes £13,000. But, having noted that point, let us summarise Jeremy's estimates, as seen from the publisher's perspective, and consider how the £108,000 which is handed over the counter actually gets distributed. In rounded percentage terms, the figures work out as follows:

Booksellers' share: 54%
Manufacturing costs: 15%
Overheads: 4%
Distribution and marketing: 5%
Royalties: 10%
Publisher's profit: 12%

The next question is, do these figures correspond with reality? In other words, how typical are they of the year-in, year-out figures produced by the average major trade publisher in the UK?

Now that's a difficult question to answer, for a variety of reasons. Here are some of those reasons.

To know how well a particular company is doing, you need access to that company's accounts. Very few people have such access. True, you can apply to Company House for the publicly available information, but few of us do that. Even if we did, we aren't able to make much sense of the figures unless we are experienced accountants.

Christopher Gasson is a man who knows as much about the accounts of publishers as any man breathing. If you want to gain some insight into that arcane art, find a copy of Gasson's Who Owns Whom, 2002, Bookseller Publications, ISBN 0 85021 330. (Amazon link.)

In his section on business ratios, at the back of this book, Gasson points out that published accounts 'are not wholly reliable.... Publishers have 'considerable scope for creative accountancy.' This is particularly true of those firms which are part of big international conglomerates.

What this means is that, even if the bosses of the company are born-again Christians, and are determined to obey every law and principle of good accounting practice known to man, there are perfectly legal and sensible variations in the way in which accounts can be drawn up. Many publishers, for example, 'write off against the first year's sales the plant costs of a book and any author's advance that has not been earned out in royalties.' On the other hand, 'Element Books famously wrote its plant costs off over five years... with the result that the company was able to declare a double-digit operating profit not long before it went into receivership.'

And, of course, not all company bosses are born-again Christians. Think Robert Maxwell, Enron, WorldCom.

Another problem is that the pattern of income and expenditure will vary considerably as between different types of publisher. A publisher of academic books, for example, will typically give a much smaller discount to retailers and will also pay his authors less. But he will not necessarily make a much bigger profit, because it is, on the whole, harder to sell a book on the economics of maize production in Malawi than it is to sell the latest scandalous autobiography by a celebrity.

My guess is that, at any given time, there may be as many as two people in any major firm who have a pretty good feel for how things actually are. One is the overall chief executive, and the other is the chief financial officer. Whether either of these people will ever tell you the truth about the real position is a matter of opinion, and will doubtless vary according to the personalities involved.

Having said all that, there are occasionally glimpses of something approaching a true picture, glimpses obtained through the general smoke-screen generated by commercial confidentiality and deliberate obfuscation. Who Owns Whom provides one such glimpse, as does British Book Publishing as a Business since the 1960s, by Eric de Bellaigue. There were a number of earlier published reports on the financial state of British publishing, and some of those are referred to in my first article on advances, mentioned above. None of these books or reports suggest to me that publishing is a highly profitable business. Quite the reverse.

And, finally, the Society of Authors magazine The Author published in 1998 an article by Tim Hely Hutchinson (CEO of Hodder Headline) in which he analysed the pie chart of publisher's income along similar lines to those suggested by Jeremy Snippet. Here is the Hely Hutchinson breakdown of how the customer's pound was distributed, as seen by a major trade publisher in 1998:

Booksellers' share: 55%
Manufacturing costs: 15%
Overheads: 9%
Distribution and marketing: 8%
Royalties: 8%
Publisher's profit: 5%

In his article, Hely Hutchinson compared these figures with those that he had drawn up in a similar article ten years earlier. The bookseller's discount was up 5% (and will, I guess, have risen further still by now). Manufacturing costs had been pared from 17% to 15%; overheads were down from 10% to 9%; distribution and marketing remained the same, as did publishers' profits; but the authors' share of the cake, unsurprisingly, was down from 10% to 8%.

I think that's probably as good a picture as we're ever going to get. What it means is that trade publishers are struggling, and by and large failing, to maintain their share of the customer's pound, in the face of ever-increasing demands for more discount from the bookselling chains and the supermarkets. And they are tending to make up for (some of) what they've lost by hammering the authors.

Publishers are not making vast profits. And quite a lot of them aren't making any profit at all.

Publishers, particularly the ones which can make you a star, are big, strong, and (relatively) knowledgeable. Writers, even with the aid of a good agent, are small, weak, and often don't know nuffink. Who'd be one?