Cross-collateralizing Royalties

There’s a fascinating and informative discussion going on (as usual) at Joe Konrath’s blog. Today my friend is talking about basketing or "cross-collateralization" deals, which he had on his first three books.

My royalty statements confirm this. As of my statement of June 2006, both Whiskey Sour and Bloody Mary have earned out their advances. They did this on the paperback releases.

Unfortunately,
I won’t see any royalties until next year, because of basketing.
Basketing is a form of joint accounting. When books are basketed in a
contract, the publisher doesn’t pay out royalties until all of the
books have earned out. So the earnings from Whiskey and Bloody are
paying the advance for Rusty Nail. Which is fine. By next year, I should be in a royalty situation. This is a good thing.

Author PJ Parrish left a comment, noting in part:

This cross-collateral accounting is, I am told, simply an easy way for
a publisher to withhold money due to a writer while spreading its risk
over several books.

For example, you might have two books with
$10,000 advances, but if one does great and the second poorly, you
still won’t see any royalty money until the entire $20,000 advance
earns out. Why shouldn’t each book stand on its own merits? Why should
an author be penalized for the success of one and not another when so
many factors that go into that success are out of the author’s hands?
I’m sorry, but I don’t buy it and I don’t think any author should.

I’m with her on this.  My DIAGNOSIS MURDER books are cross-collateralized and so are my MONKS.
It’s standard in multiple book tie-in deals and not something I had the
leverage to exclude from my contract. I wish I could.  It benefits the
publisher and screws the writer. Which brings me to nit-picking one of
Joe’s comments:

I’ve said, from the very beginning of my career, that my goal is to make money for my publisher.  For my first two books, I’m doing just that. It will be interesting to see where it takes me."

My
goal is to make money for me. Obviously, that means making money for
my publisher, too. But enriching my publisher and enriching myself
should go hand-in-hand. That doesn’t happen in cross-collateralization
deals or when you spend your advances…and then some…on promotion.
It might pay-off in the long run, but if you want to make a living as a
writer, it’s a delicate balance.  Joe made another comment that I don’t entirely agree with:

Royalties are like found money. You’re earning on work you did years
ago. Your publisher also likes royalties. They no longer have to spend
marketing dollars on your backlist, but it keeps generating income.
Earning out an advance is a good indicator that the book made a profit,
and the longer it stays in print, the more profitable it becomes.

I disagree with his first line but I agree with everything else. Royalties are not found money, it’s money you’ve earned, it’s how you make a living. And in cross-collateralization deals, the publisher is keeping your money from you.

Royalties are where the real money for an author is over the long run. Yes, you have to promote your books to sell enough to generate royalties, but again…it’s a balance. 

If you’re making a living as
a writer, advances and royalties (or script fees and residuals in TV)
are how you pay the bills. If you spend your advance on promotion, and
your royalties are caught up in cross collaterization, you are
succeeding in making money for the publisher…and screwing yourself.

I
am not saying this is the case with Joe, and I certainly think
self-promotion is important (just look at me at what I do), but I think it’s a mistake for newbie
writers to necessarily follow Joe’s example unless they have a
lucrative day job.

26 thoughts on “Cross-collateralizing Royalties”

  1. Filthy lucrative day job… This is good advice, as I was thinking about a series. But newbies have no leverage, unless their agents can stir up some huge interest, as with an auction, right?

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  2. I’ve weighed in a couple times on Joe’s post, and I find I agree with you nearly 100%. I found this to be the dinger for me, when you said:
    “…but if you want to make a living as a writer, it’s a delicate balance.”
    It really is. Because I’m a fulltime writer, but not all of my income comes from the novels. And if the money is getting held up for some reason, then the time spent on the novels is time taken away from other paying gigs that don’t pay a year or two AFTER the writing is actually done. I’m currently wrapping up a booklength business report for a sizable five figures and the first 50% was paid on signing the contract and the remainder will be paid probably within 30 days of invoicing it after completion.
    It’s a slightly different situation than a novel except that for my novels I’m paid some upfront against the PROBABILITY of a certain number of sales, and then when we earn that out and make MORE, I should get paid in a timely fashion. Except in the case of cross-collateralization, joint accounting or basketing (they’re all the same thing), the money gets held up to pay for other things.
    It makes me think of someone making cars for General Motors being told, we not only won’t pay you for making them, we won’t pay you until they sell, and frankly, if we don’t make money on next year’s models, we won’t pay you until we do.
    Best,
    Mark Terry
    http://www.markterrybooks.com

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  3. Hmmm… does Mr. Konrath not have an agent? Any decent agent would have struck this right out of the contract. I’ve published with both Kensington and with the Penguin Group (both Berkley & soon NAL/Signet), and I’ve never had joint accounting on any of contracts. That’s one of the reasons my agent earns her percentage.
    Dean James

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  4. I have a friend who had a 3-book deal with a major NY publisher. The first 2 books did well, earned out, won a couple of awards. But the 3 books were basketed so he didn’t see any royalties yet.
    After book 2 came out and before book 3 was published, his editor left the house. The publisher then decided not to continue the series. Since book 3 was now an orphan, the publisher dumped it, did zero promotion, and the book sold poorly.
    Result — no royalties on any of the books.

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  5. I’m not in the publishing world, but I agree with Dean James, as do the three published authors I asked. All have hc deals at publishers on the level of Joe’s, and all of them said they and their agents would never allow the joint accounting into their contracts.

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  6. The higher the advances, the more likely it is that publishers will want to basket them. A few years ago I did a series with NAL that had high advances, and was basketed. It involved a daring concept: three novels dealing with ethical and moral courage in the early West. The novels did not do well, and in toto returned only a third of the handsome advances. (The covers were insipid, which didn’t help sales.)
    But one of these novels won a Spur Award, and the other two were finalists. I apologized to my editor, Dan Slater, about the market failure, and he graciously responded that I had done all an author could do; all that the company could expect, and that they were pleased with my novels.
    I cite this because it suggests that publishers still look for more than profit, and are pleased to be publishing books of literary merit. I believe that there are goals among publishers that extend far beyond Joe Konrath’s pure economism.

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  7. As long as authors agree to these terms, they’ll continue happening.
    I’m not suggesting everybody take a stand and alienate publishers. But authors–especially new ones–will take whatever they’re offered, just to get into print, because they think getting into print is the goal. That’s never going to stop happening. Somebody’s always hungry enough, desperate enough, or green enough to say yes to bad terms.
    It’s not in the interest of the writing community, whatever that is, but the decisions of new writers never are.

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  8. Okay, let’s play.
    If you earn out your advance, it doesn’t matter if the books were basketed or not.
    If you don’t earn out your advance, your advance was too big. Your publisher losing money on your book(s) isn’t good for them, or for you.
    Publishing is no longer the gentelmen’s profession it was only 20 years ago. I have nothing but respect for Richard Wheeler, but to honestly believe that a publisher is pleased to have produced something that flops–no matter its subjective literary merit–doesn’t really mesh with the modern realities of the biz.
    The ‘get as much money as you can and let the publisher shoulder the financial burden’ mentality is just as responsible for the screwed up state of publishing as the points that have been mentioned in this thread.
    It isn’t the publisher’s responsibilty to make sure you earn a decent living. It’s the publisher’s responsibilty to make a profit. Because if they don’t, then they’re no longer in business, and can’t publish anything… of literary merit or otherwise.

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  9. Joe wrote this on Mark Terry’s blog:
    “I understand that writers need to earn a living. I don’t believe that they should earn a living at the expense of their publishers.”
    What do you think, Lee?

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  10. ‘to honestly believe that a publisher is pleased to have produced something that flops–no matter its subjective literary merit–doesn’t really mesh with the modern realities of the biz”
    Why is it that whenever a relative newcomer has a strong opinion about what might make him successful some day, he claims to understand life better than those who have come before him?
    Joe… you may be a great writer, and you may be a great self-promoter, but I think you often mistake your personal take on the world for some sort of objective reality. (And mistake your singular personality for an inarguable map of everyone’s true path, if only they’d just listen.) Publishers and editors can be pleased with a novel, and pleased to have given it a readership, while still being disappointed in sales. It apparently happened to Mr. Wheeler; it’s certainly happened to me. (And “pleased to have produced something that flops” is a mischaracterization of what anybody’s claimed.)
    Your approach may work for you, and may validate your opinions, and it makes for a great self-promotional soapbox. But this doesn’t invalidate other approaches and opinions; and it certainly doesn’t follow that the Konrath Plan will work for people without that unique Konrath Personality. If you want to treat your books as though you’re in the business of selling Japanese 9/16″ hex bolts, I don’t have any argument with it, and I sincerely wish you success.
    But it ain’t the only path to that success.

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  11. “Publishers and editors can be pleased with a novel, and pleased to have given it a readership, while still being disappointed in sales.”
    And they can be pleased all the way to bankruptcy.
    Are editors proud of books they’ve acquired, no matter their sales history? What else do you seriously expect them to say?
    Every time an editor fights to get a book published, they put their reputation on the line. Of course they have to justify their losses. If it was a shitty book destined to lose money, why did they publish it?
    It disturbs me that writers are so quick to justify their losses. They blame their publishers for poor sales, but don’t do very much on their own to sell their books. Then they scratch their heads, wondering why they haven’t earned out their advance, or why they aren’t getting another deal.
    Is it okay if your publisher takes a bath on your book? That’s the vibe I’m getting from this thread.

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  12. Virtually every book publisher I’ve dealt with is in the business for larger reasons than profit. If profit were the main criterion, publishers would get out of publishing and put their capital into more lucrative fields. Publishers and editors continue to hope their profitable books will allow them to publish books of merit that won’t earn much but have literary and social value. That is the underlying and powerful value system among commercial publishers that continues to this day. Mr. Konrath’s understanding that publishers want and need to make a profit is true, as far as it goes. But his perception of what New York publishers and editors are doing and what they dream of doing is gravely flawed and narrow. It also simply is unreal.

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  13. “Publishers and editors continue to hope their profitable books will allow them to publish books of merit that won’t earn much but have literary and social value.”
    So publishers pay out big advances and plan on losing money with certain titles?
    I’d love to sit in the acquisitions meeting when one of those books is pitched to the sales reps.
    “We paid waaaay to much money for this, and we’ll never make a profit, but it sure has a lot of literary and social value.”
    Or perhaps they acquire good books with the sincere hope that they will make a profit? And perhaps they might have a better chance of making a profit if the advance is reasonable, and the books are basketed?

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  14. “So publishers pay out big advances and plan on losing money with certain titles?”
    I think this is definitely true with certain titles, like celebrity bios or political memoirs, books that will likely never earn out their large advances, but that get the company tons of free publicity. They function as loss leaders, like selling large packages of toilet paper for less than cost.
    Of course, I don’t think that publishing is particularly well run as an industry, so I certainly don’t believe that they always make smart economic decisions. I think Joe gives them a little too much credit.
    Also I wonder, if basketing is such a good thing, why did Joe have them remove it from his second contract?

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  15. Publishers must love JA Konrath. He bends over to them and gleefully says “yes, please, give it to me up-the-butt, and let me pay you for it.” And then he advocates that all other writers do the same thing. There are even some idiot newbies who follow his inane, laughably naive advice. He’s praising publishers for unconscionable practices like screwing writers out of royalties and expecting writers to use their advances to promote their books instead of publishers doing it. In JA Konrath’s world, the publishers shouldn’t have to pay a dime to writers and if they do, that dime should be spent on making the publisher money. Someone said this on Lee’s blog before, JA Konrath is like a puppet for the publishing companies in their efforts to undercut writers. They keep his crappy books in print just so he can continue to promulgate his pro-publisher, anti-writer message. He’s almost as bad as the vanity presses and other writing scams Lee Goldberg rails against. If authors start following JA Konrath’s inane advice, the publishers win and writers lose. Next thing you know, JA Konrath will start advocating that publishers should be able to keep a book in print forever (using pod) whether the author likes it or not, that publishers should retain movie and TV rights, and that authors should assign their copyrights to the publishers as well. I can’t believe Lee Goldberg considers this idiot his friend.

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  16. “Is it okay if your publisher takes a bath on your book? That’s the vibe I’m getting from this thread.”
    Then you’ve got vibe comprehension deficit disorder.
    And after several drafts of the rest of this comment, I realized you’re not listening anyway. If you want clarification, all it will take is reading this whole thread again with the intent to learn, not argue.
    If you don’t want clarification, then you’re doing fine.

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  17. “If authors start following JA Konrath’s inane advice, the publishers win and writers lose.”
    Exactly. The writers lose by selling more books, you moron.
    Sign your name to your post next time, so the world knows who to avoid.
    “And after several drafts of the rest of this comment, I realized you’re not listening anyway.”
    No, Keith. I always listen, and often change my mind. Apparently you don’t read my blog. Your ‘throw in the towel’ response is disappointing.
    The previous moron aside, I’m finding this to be a intelligent discussion without flaming or condescention. While I’ve seen dissenting opinion, I’ve yet to see anyone address:
    1. Is it okay for a publisher to lose money on your book? (and a publisher can make a profit on books even if the author never earns out his advance. Happens all the time with celebrity authors and bestsellers.)
    2. If you earn out your advance, does it matter if your books were basketed or not?
    3. How do you expect an editor to talk about a book that flopped? Do you expect them to badmouth it, when they were the one that acquired it? Or does it make more sense for them to say, “It was a wonderful book that just didn’t find its audience?”
    4. Do publishers acquire books sincerely hoping they’ll make a profit? And might they have a better chance making a profit if the contract is basketed and the advance is lower?
    5. I understand that writers need to earn a living. I don’t believe that they should earn a living at the expense of their publishers. True or false?
    No one seems to like basketing because it prevents the author from making money while the publisher is (potentially) losing money.
    Personally, I’d be mortified if my publisher lost money on one of my books. Perhaps the discussion here is more about justification than ideals.
    That asshole JA Konrath actually wants his books to make a profit, and that attitude may force other authors to make an effort in their own promotion so they can be profitable too. He wants me to work harder, and take some responsibilty for my failures.
    “Also I wonder, if basketing is such a good thing, why did Joe have them remove it from his second contract?”
    Good question. If you’re a proven commodity, basketing is moot.

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  18. Joe,
    If we’re talking mid-list advances, then you can safely assume the publisher is making money on a book that doesn’t earn out for you. They win, you lose.
    If publishing is the partnership you envision it to be, then basketing shouldn’t exist because it’s grossly unfair to the writer.
    Let’s use a typical mid-list, three book deal as an example. I’m assuming, under this scenario, we’re talking about one book a year.
    Book # 1 does really well. You and the publisher should enjoy the fruits of that success and you should get royalties. But under basketing, you don’t get anything. The royalties stay in the publisher’s account for the length of the deal. For YEARS. But let’s continue.
    A year later, book #2 comes out. It does poorly…well, at least not as well as book #1. In a non-basketing scenario, you don’t get royalties and they don’t make as much as they’d hoped for. It could have done poorly for all kinds of reasons beyond the quality of the book, including a lousy cover and a complete absense of publisher promotional support. But under your scenario, that’s moot. Okay, let’s continue.
    Another year goes by, book #1 is still selling, but no money has come your way yet. Book #3 comes out. Book #3 does well, but not quite as well as Book #1. But it makes money. You and the publisher should both benefit. But under basketing, the proceeds of book #1 and book #3 are used to offset the losses of book #2, so you may not receive anything…or a small percentage of the royalties you would have received if each book was tallied individually.
    And all of this accounting happens a year or so after book #3 has been released. So, under basketing, your income from book #1 is delayed FOR YEARS until the final accounting on book #3 comes in. And during those years, the publishing company has been making money on your work and interest on your royalties…and you have been spending your advance on promotion.
    How is a writer supposed to make a living under this scenario? How is this a partnership? How does this benefit the writer? It’s slanted entirely toward the publisher at the writer’s expense.
    And if writers are expected to spend their advances on promotion (absolving the publisher of doing their part), then the practice is even more abhorrent.
    You wrote:
    “I understand that writers need to earn a living. I don’t believe that they should earn a living at the expense of their publishers.”
    What about the reverse? Should publishers make money at the expense of authors? Isn’t that the case with basketing? Isn’t that the case when publishers come to expect writers to spend their advance on promotion?
    I am curious about your take on something the anonymous jerk said:
    “Next thing you know, JA Konrath will start advocating that publishers should be able to keep a book in print forever (using pod) whether the author likes it or not, that publishers should retain movie and TV rights, and that authors should assign their copyrights to the publishers as well”
    Why are we denying the publisher more of this potential income?
    Lee

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  19. The only reason I haven’t deleted the anonymous post about Joe is because it raises some points worthy of discussion. That said, I am not going to allow personal attacks to ruin this discussion. I will delete any messages that I consider to be personal attacks against Joe or any other commentor. Attack the opinions, not the person.
    Lee

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  20. “If we’re talking mid-list advances, then you can safely assume the publisher is making money on a book that doesn’t earn out for you. They win, you lose.”
    It depends on many factors–size of advance, size of print run, sell through percentage, length of time a book is in print, etc.
    If your book never earns out but makes the publisher a lot of money, it’s likely you had an advance out of proportion to your sales in your favor.
    If your book stays in print, you’ll eventually earn out your advance. You don’t lose in either case.
    If your book doesn’t earn out and goes out of print, but the publisher still made a profit, I’m doubting the profit is astronomical. If books sell enough to make an astronomical amount of money, they’ll eventually be earning royalties, or the won’t go out of print, or both (unless they’re celebrity bios, which I wouldn’t classify as mid-list.)
    How much profit do you think a publisher makes per book? After they pay for printing, shipping, cover art, returns, typesetting, editing, the author’s advance, the distributor cut, the bookstore cut, and overhead such as rent and salary? Depending on how big the print run is, I’ve heard that the publisher earns what you earn per book—60 cents a paperback, 3 bucks a hardcover.
    “Next thing you know, JA Konrath will start advocating that publishers should be able to keep a book in print forever (using pod) whether the author likes it or not, that publishers should retain movie and TV rights, and that authors should assign their copyrights to the publishers as well”
    I did a blog entry a while back about POD and potentially keeping books in print forever. The scenario: rather than use offset printing, publishers use POD.
    On the plus side, warehousing would become a thing of the past. No distributors means no middle man, which means books cost less or the writer potentially makes bigger royalties or both.
    It would also mean no returns. We (hopefully) all know the tremendous waste of money returns are, and this cost is factored into the high price of books. Also, holding reserves against returns is something that can be (and sometimes is) abused by the publisher. POD would eliminate this.
    On the minus side, if rights never reverted, a trickle of income from POD could conceivably replace a new, fresh reprint which might generate more money.
    But is a trickle of income coming in from POD better than no income from people buying the books used because it’s the only way to get the book?
    I’d be curious to see some sort of data on books that have gone OOP, then came back into print and make big bucks. I can’t think of any, off the top of my head. Does anyone have any examples of this happening?
    I also could forsee a clause in the contract stating something along the lines of “if a books sells less than 300 copies a year, rights revert back to the author.” This would make it easier to get your rights back, compared to the current hoop-jumping required with registered letters and 60 day waiting periods.
    As for signing copyrights over to the publisher, isn’t that what tie-in authors have to do?
    As for giving movie and TV rights to publishers, I’d do it if they kicked in more money. My publisher kept world rights for my novels. They’ve sold them to nine countries, and I get a percentage of that. I also got a larger advance because they bought world. TV and movie would be the same thing.
    “And during those years, the publishing company has been making money on your work and interest on your royalties…and you have been spending your advance on promotion.”
    Lee, don’t think I don’t I understand your scenario, and your points. I do. But I’d still feel crummy about book #2 doing poorly, and wouldn’t have a problem with it being basketed so its losses are made up for with books #1 and #3.
    There’s a local newspaper in Chicago called The Daily Herald. It’s family run. When times are tough, no one gets laid off–everyone takes a pay cut.
    Compare this to other companies where people are fired and the executives give themselves a raise.
    I don’t consider basketing as my publisher making money at my expense. I consider it a way to shoulder the blame for failure.
    In your scenario, if book #2 really flopped, it likely cost the publisher a lot more than the cost of the advance. They can (and do) lose tens or hundreds of thousands of dollars on books that flop.
    Which makes me ask again, is it okay for your book to lose money?
    There’s a great article at http://sfwa.org/bulletin/articles/profit-motive.html which details the cost of publishing and how books make a profit. All writers should read it, and apply the equations to their own books. It’s sobering.
    “Should publishers make money at the expense of authors? Isn’t that the case with basketing?”
    I believe that writers should always be compensated for their efforts. I think that the DVD business screws writers big time. I think that keeping reserves against returns is wrong.
    If you crunch the numbers, it is possible in some (not all) cases that basketing allows the publisher to make money at the expense of the author. I’d love to see the hard data on how it breaks down in several real-life cases, and who actually got screwed out of what, bacause I doubt it would amount to more than a few grand. Any more than a few grand means the contract would earn out, and the writer would be earning royalties.
    Is it wrong the writer got screwed out of a few grand? Consider how much the publisher lost on a book that flopped—it’s a lot more than that few grand.
    “Isn’t that the case when publishers come to expect writers to spend their advance on promotion?”
    Have publishers begun to expect this? Mine pays for my tours and for a great deal of my promotion.
    I spend a lot on promotion as well. Think there’s a connection?
    I consider myself the CEO of my own business, and any CEO knows you have to spend money to make money. I could cry in my beer about this sad state of the publishing world (it’s called ‘capitalism’) but I’d rather spend the time trying to establish a brand, enlarge my fanbase, and foster name-recognition.
    Complaining that you have to spend time and money to further your own career is pretty silly.

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  21. What sort of advance are we talking about here? It seems to me if you spend more of your own money rying to advance your career than you can afford, and the publisher won’t spend anything we’re walking the promotion line vanity press people do. Or something one step up from it. i.e. the advance as colateral.

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  22. I respect Joe’s opinions, even if I don’t agree with all of them, but I do find it a bit hypocritical that he keeps advocating basketing as a good thing, yet he bragged on his blog that he forced his publisher to remove it from his second contract.
    That seems a little disingenous to me. Following the reasoning he has set forth in the comments above, he should have insisted the publisher basket his books. But he didn’t.
    Actions speak louder than words.

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  23. In spite of Mr. Konrath’s derision, I stand firmly on my belief that publishers continue to publish many books of literary or social merit, knowing full well that those books won’t earn a profit for them. I have sat in on such editorial meetings, listening to editors argue for their projects on merit grounds alone. Over the years since then I have remained in touch with editors, and am occasionally apprised of editorial board meetings in which projects are discussed and decided upon in terms of their merits or social value, not their profitability. I thnk that if Mr. Konrath could sit in on editorial decision-making in New York for a few months, he would find his perception of publishing as pure economism to be hopelessly inadequate. What I am talking about lies at the heart of publishing.

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  24. I wish they’d make that decison with my last book. I’m getting trounced on potential, small market and like even though it’s a famous national historical event. Apparently not when I write about it.

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  25. I want to add a single example to buttress my previous post: if profitability were the sole criterion in publishing, no new authors would be published. No first novels would be published. Virtually all of them lose money. But editors and publishers are constantly discovering great ability, promise, and power in new authors, and publish them knowing they will take a bath financially doing so. If only Mr. Konrath could see the real world of publishing, what editors dream of and ache to buy, his own writing might be transformed from pure commerce to art.

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