More on HarperCollins Move Away from Advances

Last week I mentioned that a new division of HarperCollins was looking to move to profit-sharing rather than book advances and to change the crippling practice of liberal return policies for bookstores. I've read some additional reporting by Jeffrey Trachtenberg in the Wall Street Journal (requires paid subscription):

To be headed by veteran publishing executive Robert S. Miller, the imprint also likely won't pay for more desirable display space in the front of bookstores, a common practice. Instead, the as-yet-unnamed unit will share its profit with writers and focus much of its sales efforts on the Internet, where a growing portion of book sales are shifting.

There's been some discussion in the writing community about whether the huge advances to a few end up causing the problem - and they may trigger it. But most publishers try to gauge advances by expected sales in the first year or two and the attending royalty payments to authors. If a book doesn't earn out its advance - and most don't - then perhaps it's not even selling enough to pay for the advance. Assuming that, then is splitting profits going to be better for authors? ON reflection, I just don't see it. This is part of a cost-savings measure designed to lower risk, so why would the publisher do this if it were going to pay out more money on the average? I suspect that most authors would end up with even less than usual under the arrangement.

Now consider that the publisher is going to focus on Internet sales, and not sales from stores. Oh? As in, let's depend on all our sales from Amazon, B&N, and Borders online? Sure, it's an important channel, but, alone, not enough. Amd then they'd also be changing the return policy to those resellers as well, so figure that they might have the same reluctance to do business that way.

Trachtenberg also points out that Harcourt Brace Jovanovich tried eliminating returns in 1980, offering higher discounts instead: "Orders fell off, however, and the publisher reversed itself." Then again, he notes that B&N CEO Steve Riggio said several years ago that he'd rather be able to mark down books than return them - whatever that means. Retaiers in other industries do that, like clothing, but they also get much higher discounts on products and, so, have more room to discount without an absolute loss.

All this will depend on the economic market in the book industry, and where that comes out isn't completely clear, even though the Journal article tried to paint an overall negative picture. On one hand, Borders has put itself up for sale, and the WSJ noted that Hyperion's operating income (pre-tax profits) is down a bit. B&N saw a 9 percent drop in its earnings in its fourth quarter in comparison with the previous year, but that's only half the story, as it earned more and paid out more dividends to investors than analysts expected and also said that its first quarter this year would be profitable, rather than the loss that analysts had predicted. Then again, many on Wall Street are ambivalent on Amazon. In short, there is too much going on that could be written off to a shaky general economy, I think, to get resellers to embrace big change in the way they operate, which means that the new Hyperion group could find that sales will be largely limited to the Internet. In short, even if dropping an open return policy could cut by 30 to 40 percent the number of book copies they have to print, I'm betting that the overall hit on sales would more than make up for that, meaning that the prospects for authors just don't seem that hot.