The discount trap

The discount trap

The demand from Blackwell’s for an additional seven per cent rebate has been received rather less than enthusiastically by publishers. That is hardly surprising. 

Blackwell’s desire/need to improve its margins by charging its suppliers more is not surprising either. But it is debatable whether its approach of an identikit letter telling suppliers that it will deduct the additional discount without discussion is the right negotiating tactic. If it does so, I can imagine that this might well cause accounting bedlam as publishers’ credit control departments treat the additional discount as an overdue payment, resulting, ultimately, in stopped accounts. Perhaps Blackwell’s is simply taking a leaf out of the Trump manual of negotiation: start with an outrageously aggressive and inflexible demand, and then gradually back away from it as reality seeps in. We shall see.

But this latest round of potentially increased retailer discounts got me thinking once again of the absurdity of basing authors’ royalties on a percentage of recommended retail price (r.r.p.). I really don’t know how many books are sold at full published price. For starters, a very high proportion of British-published books are sold overseas in a local currency. And how many books are sold through Amazon at full retail price? Even Waterstones, which is trying to shed its previous three-for-two image, still discounts major titles. Putting aside this absurdity, there is another more practical and commercial reality.

In order to be able to trade on the (in my view) ridiculously high discounts granted to the likes of Waterstones. W H Smith Travel, Amazon and wholesalers, general book publishers with traditional author contracts have been forced to implement “high discount” clauses. These clauses vary, of course, but typically for those authors on a royalty of 10%, four-fifths is paid on sales made at more than 55% discount, and three-fifths when the discount level exceeds 60%. The norm used to be discounts of 35%–45%, which made the high discount clause a rarity, coming into play only where a bulk deal or similar was negotiated. High discounts are now the new norm, resulting in the author’s royalty being reduced on nearly every sale, even when ordered in single copies. 

In academic publishing, for decades royalties have been calculated not on r.r.p., but on the publisher’s net receipts. This is clearly a more realistic system, more transparent, administratively simpler, and more like a partnership with the author. Such a system has been resisted by literary agents. I have heard numerous explanations for this resistance, none of which make any sense to me. The main one is that royalties based on net receipts would enable publishers to grant ever greater discounts at the author’s expense. If this were true, it clearly hasn’t worked. In fact, the opposite is the case. 

A royal mess
When Waterstones was struggling and battered publishers into granting hugely higher discounts, some publishers calculated that once the discount was in excess of 60%, they could move the royalty rate down to three-fifths, thus effectively moving the burden to the author. A £10 book on a 10% royalty on “normal” terms would generate £1 for the author. At 55.1%, 80p. At 60.1%, 60p. Just about every general book sold through Waterstone’s generates the lowest royalty. The equivalent net receipts royalty would be 20%. At a 50% discount the author’s royalty would be the same, £1. At 55.1%, 89p. At 60.1%, 79p. The author’s reduction is far less steep; it’s understandable, and fair. In addition, publishers would be even more determined to keep discounts as low as possible as every additional pound given to the retailers costs the publisher 80p rather than costing the author 20p—four times more.

It is great to see British bookshop chains are recovering so well, but this has come to a large extent from stripping money from authors. That cannot be right. And it cannot be right that publishers are better off granting discounts above 60% than below. Might I propose that literary agents begin demanding net receipts royalties from publishers rather than obstructing?

A final aside. These inflationary discounts began after the abolition of retail price maintenance in the UK. Publishers were no longer able to enforce a retail price on bookshops, as competition between retailers was encouraged. This free market applies to nearly all  products, with one or two exceptions. 

How is it that I have never ever seen a discounted newspaper (apart from totally free in some supermarkets and airports)? You would have thought that, from time to time, come the afternoon, a corner shop might be willing to sell a newspaper below r.r.p. rather than return it for credit to the publisher? How do newspaper publishers achieve this without breaking the law?

Richard Charkin is the founder of Mensch Publishing.