Backlist to the Future
Here are three facts about publishing that you may or may not know. I think it’s worth considering each on its own, but then also how they relate to one another and how they connect back to the point I raised in my recent blog post “Power…and Money,” namely that American authors have seen their writing income decline by 42% over the past decade.
Fact #1: For the large publishing houses, profits from their backlist cover their day-to-day operating costs.
“Most new books are only about a third as profitable as backlist titles. The big publishers can gear their businesses in such a way that the cost of all their operations are covered by the profits from the backlist, allowing them to run their new books programme more like a spread bet.” [1]
Think of that: backlist titles (those are your books, however small your royalty checks may be) are three times as profitable as most new books. How can that be? Well, remember there’s an active culling process, because plenty of books never make it to the backlist; they go out of print within the first eighteen months of their pub date. So any book that is on the backlist is, by its very existence, still selling to some profitable degree. It might not be selling a record amount, but it’s still selling enough to justify the house keeping it in print. (It also might be generating sublicensing revenue.) All this, after every expense (except warehousing) has been recouped. So, if you have a book that’s more than a year-and-a-half old and it’s still in print, take a bow. It’s not an exaggeration to say that you’re holding up the whole publishing ecosystem. Sort of like bugs. So small and easy to overlook, but without them, we’d all be dead. [2]
So, it’s the backlist that keeps the publishing houses in business. Not the big, new, splashy titles that everyone’s talking about (or all the other new-but-not-splashy titles that not enough people are talking about).
And because operating costs are covered by the backlist, publishing houses are free to gamble with the frontlist. To swing for the fence. To go on a quest for the Holy Grail, which is the next bestseller. “Everyone in publishing is always looking for the next bestseller.” [3]
Arthur Levine gave a tongue-in-cheek talk at the national SCBWI conference more than a decade ago entitled something like, “How to Write a Bestseller.” He pointed out (in fact, he even showed a very funny bar graph to illustrate the point) that he currently had a book on his frontlist that had sold fewer than 2,000 copies and one that had sold something like ten million copies.
The point he was making (bar graph and all) is that he had had no way to predict the bestsellerdom of the first Harry Potter book when he acquired those rights at auction for an astonishing $105,000 (which was more than ten times the average amount paid for such rights). He was placing a bet. A big bet. And it paid off. This time. But usually it doesn’t. Usually, publishing houses swing for the fence and miss. Levine might have had hopes and faith and a gambler’s instinct, but he couldn’t know the return on investment he would generate for his publishing house. Because no one knows how to spot the next bestseller. That was the point of his talk.
It’s a gamble.
At the time of the announcement of the mind-boggling advance that Michelle Obama (and her husband, Barack Obama, in a joint deal) would receive from Penguin Random House for the rights to publish her as-yet unwritten book, Publisher’s Weekly wrote confidently, “Michelle Obama’s book is more of a gamble [than Barack Obama’s]. Many insiders said that, despite her popularity as first lady and the notoriety she achieved in the just-closed presidential election, it’s harder to make an educated guess about how well her book could sell, out of the gate or in backlist.” [4]
It was a gamble. Penguin Random House was essentially placing a bet when it offered an advance of $65 million for a (debut!) author’s book. No one knew her book would become the book of the year.
But it isn’t just the big books with mega-advances that are a gamble. The New York Times reports that “…7 out of 10 titles do not earn back their advance…,” [5] which is not the same as saying that publishers don’t earn money on those titles. It’s possible for a house to recoup all of its upfront investment on a book that hasn’t technically “earned out.” In fact, more than one insider has told me that houses almost always earn back their money before any royalty checks flow to the author. A highly experienced literary lawyer told me that publishing houses begin to earn money on a title when an author has earned back somewhere between 50–75% of the original advance.
Remember this: it’s the backlist that keeps the publishing houses in business.
It’s the backlist that keeps the lights on. It’s the backlist that pays the rent. It’s the backlist that provides salaries for the staff. It’s the backlist that pays the outsized and unbalanced marketing budgets for the handful of select books that are the “buzz” books of each season. It’s the backlist that covers any loss from the 7 out of 10 books that don’t earn out. And it’s the backlist that generates the $65 million that went to Michelle Obama. Or at least part of it. And now her book will become part of the backlist for Penguin Random House and will keep the lights on in their Midtown offices for years to come. (Like about 52,000 years.)
Do you have a backlist book? Or two? Or three or four? If so, you are crucial to the operation of the publishing industry. It doesn’t matter how small your royalty checks are. In the aggregate, you are essential.
Fact #2: The big publishing houses had a very good 2018. And the first quarter of 2019 is looking strong, too.
I don’t know if you noticed back in April and May, but one by one the publishing houses announced their first quarter earnings in the trade publications, and everybody seemed to be doing really well. [6]
HarperCollins led the pack with earnings before interest, taxes, depreciation, and amortization (EBITDA) up 29.3% over the same period a year ago. Revenue increased 5.8% to $421 million. Overall, 63% of revenue in the quarter came from the company’s backlist. And digital sales rose 5% worldwide, pushed higher by a remarkable 32% gain in downloadable audio.
Revenue at Hachette Book Group rose 3.3% in the first quarter, compared to the same period in 2018. Where was the growth? The company said a mix of frontlist and backlist titles resulted in the gain, along with strong sales at Little, Brown Books for Young Readers. And of course, the continued growth in downloadable audio sales played its part in a very strong quarter.
Sales at Simon & Schuster rose 2.5% in the first quarter over the same period in 2018. The sales gains were led by print books (particularly in the children’s publishing group) and digital audio. Also, a number of the company’s best-performing titles in the quarter were backlist from 2018.
Newly renamed Houghton Mifflin Harcourt Books & Media had the biggest revenue gain in the quarter, with sales up over 11%, driven in part by higher licensing income. Also, the company announced the formation of HMH Audio, a new division that is expected to produce about 75 audiobooks each year. [7]
And over at Penguin Random House, revenue rose 1.9% in 2018 over 2017 and earnings increased 1.3%. EBITDA rose to €528 million ($595 million). Remember, PRH is the house that released Obama’s Becoming in November. Clearly, that helped drive growth, but the company also cited digital audio downloads.
In addition, global PRH CEO Markus Dohle wrote a letter stating his ongoing goal: “to grow above the market averages—organically and through acquisitions—particularly in categories that are expanding, such as audio and children’s books—and of course benefit from great frontlist publishing and the growth of our rich backlist—in both fiction and non-fiction.” [8]
Are you noticing the repeated themes in all these earnings announcements? First, they’re all showing an increase in revenue. Second, the growth sectors are children’s publishing and downloadable audio. Third, backlist matters.
Fact #3: Even as the publishing houses post profits, quarter over quarter, midlist writers, once the backbone (and arguably still the backbone) of the publishing industry, are having a really hard time.
“There was a time when writers of serious books not destined to become bestsellers could expect to get contracts from publishers that included decent terms and large enough advances to survive until the next book. Today such expectations are rarely met ... While publishers lavish large sums of money and lots of attention on a few high-profile authors, conditions have grown increasingly bad for those writers known as midlist authors.”[9]
That was written in 1998, more than twenty years ago, and things haven’t improved for midlist writers. In fact, as the Author’s Guild survey shows, writing income for American writers (and similar surveys in the UK and Australia show the same decline) has decreased dramatically over this period.
So, connecting the dots: Any publisher’s backlist is made up of a whole lot of titles from midlist authors, along with some backlist bestsellers. (Michelle Obama and Dr. Seuss will always help keep the lights on at PRH.) And it’s the backlist that keeps the publishing houses operating and allows them to gamble on acquiring what they hope will be bestsellers. Sometimes they win, sometimes they lose, because no one knows how to spot the next bestseller. Publishing houses are making a lot of money. Midlist authors are not. In fact, midlist authors have sunk below the poverty line in terms of income from their writing.
That’s all. Just three facts about publishing you might not have been aware of. All thoughts and comments welcome in the Comments section below.
[1] Toby Mundy, former chief executive at UK publisher Atlantic Books, now a literary agent. “Retail: How Bookshops Survived the Amazon Onslaught, Financial Times, June 11, 2019.
[2] “Without Bugs, We Might All be Dead,” Simon Worrall, National Geographic, August 6, 2017.
[3] Jody Archer, former acquiring editor who wrote her PhD at Stanford on bestsellers. The Guardian, Sept, 23, 2017.
[4] “The Obamas’ Book Deals Spark $65 Million Mystery,” Jim Milliot and Rachel Deahl, Publishers Weekly, March 3, 2017.
[5] “About That Book Advance…”, Michael Meyer, New York Times, April 10, 2009.
[6] “Big Trade Houses Start 2019 Strong,” Jim Milliot, Publishers Weekly, May 10, 2019.
[7] “Trade Sales, Earnings Up in Q1 at HMH,” Jim Milliot, Publishers Weekly, May 9, 2019.
[8] “Sales, Earnings Rose at PRH in 2018,” Jim Milliot, Publishers Weekly, March 26, 2019.
[9] “Crisis of the Midlist Author in American Book Publishing,” Phil Mattera, vice president, National Writers Union, Revue Française d’Études Américaines, October, 1998.