Subsidiary Rights: Selling to Book Clubs

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The AAUP Business Handbook >> Part Four: Interdepartmental Aspects of Financial Management

Selling book club rights can be either lucrative or costly for a press and can involve straightforward, standard arrangements or more complicated, unusual deals. In a standard deal, book clubs request exclusive rights in a specified territory for a defined period of time, usually five to ten years. When considering a book club's offer, or weighing competing offers, the publisher should take into account all the variables. Factors include a royalty advance and payment terms (all or a portion of the advance may be payable on signing, on publication, or after publication), royalty rates (list or net royalties), annual or semiannual reporting, and remaindering provisions (which allow or restrict remaindering to bookstores). Book clubs generally borrow the publisher's film and coordinate their own jacket/cover and text production. Financially speaking, this is usually the preferred book club arrangement. The press splits the royalty income with the author according to the publisher/author contract. The costs involved can be significant, particularly the up-front staff time. The staff person (usually someone in marketing) responsible for selling book club rights may visit the book club buyers at least twice each year with no guarantee of closing any deals. In addition, galleys or copies of manuscripts, copies of illustrations, and possibly permissions may be required, which can be costly. This is all part of a standard book club transaction.

Of course, not all book club deals are straight forward or simple. Smaller book clubs or start-ups, for example, may express interest in buying finished books in small quantities of, say, 250 to 1,000 copies. The publisher may be asked to provide unit cost quotes, both royalty inclusive and exclusive, on various quantities. The publisher/ author contract should be checked since it may stipulate a royalty rate for finished books sold to book clubs, and this rate should be factored into a royalty-inclusive unit cost quote. If the books have not yet been printed, a run on unit cost can be quoted that may lower the unit cost to the publisher. Accounting for this can be done either (1) as a sale with a very high cost of goods sold (not recommended) or (2) by booking the publisher's share of royalty income to the profit and loss statement (P&L) and netting the book club's manufacturing costs against the publisher's manufacturing costs, thereby lowering the unit cost on the publisher's copies (the preferred method). See the example below:

If no book club sale, let's assume:

1,000 copies at $1.00/book $1,000 investment

However, if a book club buys 500 copies @ $1.20/book, royalty exclusive, then:

In a standard deal, book clubs request exclusive rights in a sp

1,500 copies at $0.95/book $1,425
less the book club billing (500 @ $1.20) $600
equals cost of 1,000 copies to publisher $825 investment

... or $0.825/copy versus $1.00/copy with no book club.

The 20% markup helps defray the plant costs and staff time involved. Book clubs will always make the case that they should be quoted paper, printing, and binding (PP&B) only, without any plant costs factored in, but the publisher should try to recover a bit of the plant costs through a markup.

If, however, the books have been printed, the decision is more complicated. Let's say, for example, that books have already arrived in the warehouse, the back orders have been released, and 700 copies remain in stock. A book club then expresses interest in buying 500 copies. Should the quoted unit cost be based on a marked up actual unit cost (with or without plant costs?) or at a high discount off the list price?

Once a book has been printed, price is not the only point to consider in deciding whether or not to sell book club rights. Assuming it is too early to reprint, is it wise to sell the remaining copies at such a low margin (cost-plus or a high discount) and risk being out of stock so soon after publication? How will the market for the book be affected if the title is unavailable right after the publication date? Will the author be pleased to have a book club sale but displeased when the publisher has no additional copies to sell? (Of course, if wholesalers have stock, the book is readily available and not really out of stock.) The value of author relations and the increased visibility of both book and publisher should be considered in a book club deal such as this along with the financial impact of such a transaction.

The editorial, marketing/sales, and business perspectives may differ in a case such as this, and there are no easy answers. An editor may claim a book club sale enhances author relations even if it is a small book club sale with little financial return. The marketing and sales staff may suggest it's good (and free) advertising to be listed in book club brochures, and, in fact, such exposure may boost trade sales. And those concerned with financial matters may imply that since a reprint of a small quantity is unlikely so soon after an initial release, the remaining copies should be held for potential trade sales, which will generate greater revenues. All are valid arguments, making this decision a difficult one. But while the intangible returns are impossible to measure, the author goodwill and the visibility the book (and the press) can derive from a book club sale are often worth the effort and cost.

The AAUP Business Handbook >> Part Four: Interdepartmental Aspects of Financial Management

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