The Shatzkin Files

Some things that were true about publishing for decades aren’t true anymore

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Back when my father, Leonard Shatzkin, was active with significant publishers — the quarter century following World War II — he observed that very few books actually took in less cash than they required. That is not to say that publishers saw most books as “profitable”. Indeed, they didn’t. They placed an overhead charge of 25% or 30% or more on each book so most looked unprofitable. But that didn’t change the fact that the cash expended to publish just about every book was less than the cash it brought back in.

The exceptions were usually attributable to a large commercial error, most commonly paying too much of an advance to the author or printing far more copies than were needed. But, absent that kind of mistake, just about every book brought back somewhat more revenue than it required to publish it.

This led Len to the conclusion that the best strategy for a publisher was to issue as many titles as the organizational structure would allow. That was a lesson he passed along to the next generation of publishing leadership that came under his influence. And the leading proponent of that business philosophy was Tom McCormack, who worked for Len at Doubleday in the late 1950s, then went on to Harper & Row before he ascended to the presidency of then-tiny St. Martin’s Press in 1969. Tom often credited the insight that publishing more books was the path to commercial success as a key component of the enormous growth he piloted at St. Martin’s over three decades.

(I checked in with Tom, who is long-retired as a publishing executive but a very active playwright, about how many books didn’t claw back the cash expended. He told me that his “non-confirmable recollection” is that the percentage that did at least get their money back ranged from 85% to 92%. He recalls “incredulity” from his counterparts in other houses, whom he believes simply couldn’t “wrap their minds around the meaning of the statistic: revenues minus disbursements.” He went on to tell me that this number “seemed effectively irrelevant to them. They had an overriding and deeply flawed notion of something they called title-profitability. They thought they were analyzing the profitability of a title with their ‘p&l’.”)

Despite the apparent immutability of the fact at the time that most titles brought in incremental margin, many publishers who were losing money would come to the opposite conclusion. They would decide they should cut their lists, pay more attention to the titles they published, and create more profits that way. I remember discussing the futility of that approach in the 1980s with my friend and client, Dick McCullough, who was at that time the head of sales at Wiley. When I observed that the publishing graveyard was littered with the bones of publishers who pursued cutting their lists as the path to profits, Dick said of their efforts to cut “yes, and very successfully too”.

I got another lesson about this reality in the late 1980s when a company I consulted to (Proteus Books) sued its distributor (Cherry Lane Music) for a failure of “due skill and competence” in the sales efforts for Proteus Books. One of Proteus’s expert witnesses was Arthur Stiles, who had been Sales Director at several companies, including Doubleday, Lippincott, and Harper & Row. Stiles confirmed that big and competent publishers routinely put out thousands of copies of titles in advance of publication, with extremely few failures in terms of getting the initial placements. He was testifying in a time that was still like what my father experienced: the industry’s title counts were growing, but so were the the number of bookstores in which they could be placed.

Those days are over. And, coupled with the ebook revolution, the implications of that are profound.

A few things happened to change the environment so that it became no longer true that even big publishers could get all the distribution they needed on every title to assure a positive return of cash.

1. The title output of the industry has grown enormously. In the 1960s, the total output of the industry was in the neighborhood of 10,000 titles a year. Now it is something more than 30 times that number published traditionally, with a multiple of that number being self-published. Each new book is competing against more new titles every two weeks than a book fifty years ago would have competed against in a year!

2. Nothing published ever dies. Fifty years ago, stores were smaller and, while there’s no easy way for me to measure this, I’d guess that the active backlist across publishers was probably no more than 25,000 titles. Superstore growth in the 1980s, the efficiency of Ingram as a national wholesaler, and computer systems that helped stores track their inventory and sales fueled backlist expansion. Even in the early 1990s, the total of truly competitive titles was probably in the low six figures. But then came Amazon’s unlimited shelf space and Ingram’s Lightning Print to deliver one copy at a time, and, even before ebooks, the competitive set of available titles had probably jumped to seven figures.

3. Bookstore shelf space is declining. Nobody who has been reading this blog needs much elaboration on that point.

What that means is that a list-cutting therapy that McCullough and I saw in the 1980s as suicidal and which McCormack explained repeatedly was folly is no longer crazy. (Oh, how I wish my dear departed Dad was around to discuss this with!) And the new conjecture in this blogpost is that the day might come when a publisher with an extensive backlist might decide that the most profitable path would be to hardly publish any new titles at all!

The portfolio of any longstanding publisher today contains a lot of backlist which is pure profitable gold in the ebook era. Contracts often give publishers the rights to a book for the life of copyright if they continue to sell it. (I’ll confess here that there is a caveat to this point coming up in an italicized postscript below.) So a major publisher doing $600 million and up (of which there are six), almost certainly has triple-digit millions of sales in its backlist, which is increasingly shifting to digital. Even the most sober industry observers are seeing revenues exceeding 50% from ebooks in the next two or three years, which would mean that substantially more than half the units of these books are selling electronically.

So, let’s say you’ve got a company doing a billion dollars in annual revenue and barely eeking out a profit or perhaps even losing money. With a strategy of continuing to publish what you own as ebooks, you can see digital backlist revenue of $150 million, decaying by 10% a year, with gross margins giving you $100 million or more in cash flow. Offloading all the print operations for which you own rights to a distributor or competitor will provide incremental revenue as well. (You only need help for the offline print sales. Getting the online sales requires no operational capability.) You’d then need a minimal organization to do some marketing (not a lot), sign up and put out some additional titles that would be chosen for being risk-free (not a lot), and to handle the administration and royalty processing for your thousands of contracts. Five or ten million ought to cover those costs very handily.

Of course, the other thing you could do is sell your rights to that backlist. But I think it would require somebody to overpay in relation to your net discounted cash flow to make that attractive because the costs of keeping it all for yourself would be so minimal.

One hopes that today’s publishers are looking at the simple statistic Len and Tom authored: revenues minus disbursements by title. No doubt today’s biggest publishers are looking carefully at the performance of their copyrights in a way that sorts the new titles from the backlist. But doing so is only useful if they’re apportioning their costs properly across the title base. If they are, what is described in this post will be evident if and when it is true. In the meantime, careful focus on new title acquisitions and accepting that the healthiest way to manage for the future might be to reduce the commitment to new title development will have to replace the clear truths that guided smart publishing strategy for previous generations.

The history and analysis are all valid, but there is one big monkey wrench in this scenario I’ve sketched. There is a provision in the 1978 copyright law that allows authors to reclaim rights to their books after 35 years. Titles published in 1978 become eligible for reversion, called “recapture” apparently, starting in 2013. (With logic that is ironically typical of what Congress does when it touches copyright law, older titles are on a slower track for liberation.) Agents are planning for this; publishers will have to deal with it. I am given to understand that publishers can only retain these books for life of copyright by, in effect, reacquiring them. (Should be lots of fun!)

So, in fact, the backlist attrition might be faster than 10% (but it might not, because ebooks may create more readers for backlist than we had before as well.)

It is also true that many publishers have already been moving in the direction I suggest: pruning their new title counts and being particularly cautious with midlist. Of course, there was a conviction by many that list-pruning was a good strategy even before it actually was a good strategy, but the execution of it has been much more rigorous over the past decade.

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  • Gee, Mike, I just wonder how you make a buck or two as a consultant when you write analyses like this for free…. On the other hand, I guess publishers do need to be told things several times before it sinks in.

    • Selling consulting is exactly like selling drugs. You give it away until people can’t live without it; then you can charge for it.


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  • One hopes that today’s publishers are looking at the simple statistic
    Len and Tom authored: revenues minus disbursements by title.

    Mike, could you explain what you mean by disbursements, please?

    • Disbursements are expenditures specifically related to the sale of that book: the printing, binding, shipping of it. The point is not to in general expenses, like rent or salaries in making the computation.


      • Thanks, Mike. So you’re talking about true variable costs to arrive at contribution. Excluding returns and specific marketing costs for a title, I guess? I’ve read that “90% of titles fail to cover advances”. Is that at variable cost, or including some arbitrary allocation of overheads?

      • I suspect most of the time people don’t mean the revenue didn’t “cover” the advances; they mean the sales didn’t “earn out” the advances, which is quite different. On many, if not most, titles on which the advances don’t “earn out” the publisher still earned positive margin. In fact, all big author deals have advances negotiated that are never intended to earn out, but the publisher certainly still intends to make money. Unrecovered advances certainly have the effect of driving up the effective author royalty, but they don’t necessarily have the effect of making a title a financial loser.


      • Forgive my ignorance, but could you explain in a little more depth the difference between “covering the advance” and “earning out the advance”?  I’ve never worked on the editorial side in publishing, and this is starting to sound like Hollywood, where, as I understand it, no movie makes money and only fools ask for “net points” as opposed to “gross points”.

      • “Earning out” is a term of art with an industry meeting. It means that the royalties that you’d calculate using the contract terms exceed the amount of the advance-against-royalties paid by the publisher. “Covering” is an informal term, and what I mean by that is that the revenue the publisher got “covered” the money they paid for the advance and their other direct costs and left them with margin on the book’s performance to apply against overhead (and toward profit), even though the author may not have earned back the advance.

        I hope that makes it clear. If it doesn’t, ask again.


      • Thanks, Mike.  To clarify a bit more: it sounds like “earning out the advance” looks at things from the author’s point of view — the book earned back the advance and the author was paid actual royalties (or does “earning out the advance” mean specifically the author earned a royalty sum at least equivalent to the advance?), while “covering the advance” simply means the book at a minimum broke even for the publisher, irrespective of whether the author earned royalties.  Is that right?

      • You got it. But remember that “earning out” is a term everybody knows and understands and “covering” is not. But you got precisely what I meant.

      • Mike – I was wondering the same thing that Robert was. Seemed to me that revenues minus disbursements was the same thing as a profit/loss column. But I can see how it could be quite different. I think you left a word out of your reply to Robert. You might have meant to say something like “factor,” as in “The point is not to factor in general expenses.” Anyway, I agree… and I think it is misleading to expect each title to carry a share of the company overhead and other carrying costs PRIOR to deciding if the title generates a positive cash flow or not. First decide if the title earns back its direct costs. Then decide how the company’s operations are stacking up on the whole. So my question is, am I seeing this the way you meant it? Thanks for a great and hugely insightful article. I found it when someone shared it via… Facebook or Twitter or one of those platforms.  Regards… Jesse Mullins

      • Jesse, maybe the short way to make the point is to say it this way:

        Books don’t make profits or losses. Books either generate margin or cost margin.

        Companies make profits or losses based on the cumulative margin generated by the individual books and the aggregate costs of running the company that can’t reasonably be charged to an individual book.


  • Bob Wyatt

    Oh, I wish everybody in book publishing read this–and that it had been published twenty years ago. 

    • The version that was published THIRTY years ago was in my Dad’s book, “In Cold Type”.


  • William Ockham

    This post gets at something that has been bugging me for a while. As best I can tell, publishers are sitting on a huge pile of free money. And now that I know about the copyright reversion issue, it would be appear to be a depreciating asset. Here’s what I mean. From any publishers backlist, select the titles that fit the following description: belongs to what Shatzkin calls the “immersive reading” category, the manuscript already exists in electronic form, and the publisher has a clear right to publish in e-book format. These titles could be published in e-book format at a cost indistinguishable from free. By that I mean that the upfront cost would be so low that a publisher would recover them within a month. There are millions of titles that fit this description, but very few of them are being published (and those almost always at ridiculously inflated prices, well above the price that would maximize the publishers income). They could be made available in print via POD for a couple of bucks over the e-book price, with a few exceptions.

    In most cases, Amazon (at least) knows who to sell these titles to, so the publishers wouldn’t necessarily have to spend any money on marketing and promotion. From a pure economic perspective, the behavior of the industry makes no sense, at least to me. Why are the big publishers slow walking the conversion of their backlist?

    • Popnfresh100

      Why hurry? 

      People don’t buy multiple copies of the same ebook, so on the digital end you can either sell your backlist now and have fewer digital sales in the future or wait a bit and sell it later.

      Paper books, on the other hand, may be a dwindling window of opportunity.  Thus, they get the focus.

      • William Ockham

        They should hurry because they will start losing the rights to their backlist. Also, I don’t agree with the idea that there is  fixed number of sales in the backlist. When a Sherlock Holmes movie comes out, your Doyle pastiches will get a bump in sales. That will happen over and over. Harry Potter increases the sales of similar fiction. Surely there is stuff in the backlist that hits the Twilight market better than the dreck that is selling today. Nobody really knows what will be hot next year. But there is a really good chance that people will buy something from your backlist based on the trends.

        Not to mention that readers die off every day and new ones are born. You really have to take a long view of things. There have been about 130 million books published total (according to some work Google did). Nobody knows how many of those could be sold as e-books if they were available, but Amazon can hook you up with a whole bunch of possibilities.

        And, of course, there is always the net present value of money. A dollar in my pocket today is worth more than a dollar in my pocket a year from now, even if it is only a little.

      • All agreed…

        But on the other side is inertia. There is a lot of backlist that doesn’t have an alert agent and on which there will be no attempt to pull back the rights.


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  • So Mike, where does this lead?  If commercial enterprises follow profit like moths to a flame, then the most profitable strategy is for publishers to stop releasing new titles, slash expenses and instead focus on tilling the soil of their catalogs.  Hunting to farming.  Sounds lucrative, but not a formula for growth, and not a model that provides good jobs for publishing professionals.

    • I think your take is right. I’m not suggesting that all big publishers will go this way. I’m saying maybe one will. There is certainly some room for profitable new title publishing. I’m just not sure that we’ll be able to support six mega-companies trying to do it in general trade when (and if) Amazon starts taking some of the big authors off the table.

      I won’t quarrel with your summation that this leads to fewer jobs at big publishers, not more.


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  • Na

    I “read” a lot of publishing blogs. I learn from this one. Thanks Mike.

  • Na

    I “read” a lot of publishing blogs. I learn from this one. Thanks Mike.

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