No one buys books

Everything we learned about the publishing industry from Penguin vs. DOJ.

Apr 22, 2024

In 2022, Penguin Random House wanted to buy Simon & Schuster. The two publishing houses made up 37 percent and 11 percent of the market share, according to the filing, and combined they would have condensed the Big Five publishing houses into the Big Four. But the government intervened and brought an antitrust case against Penguin to determine whether that would create a monopoly.

The judge ultimately ruled that the merger would create a monopoly and blocked the $2.2 billion purchase. But during the trial, the head of every major publishing house and literary agency got up on the stand to speak about the publishing industry and give numbers, giving us an eye-opening account of the industry from the inside. All of the transcripts from the trial were compiled into a book called The Trial. It took me a year to read, but I’ve finally summarized my findings and pulled out all the compelling highlights.

I think I can sum up what I’ve learned like this: The Big Five publishing houses spend most of their money on book advances for big celebrities like Britney Spears and franchise authors like James Patterson and this is the bulk of their business. They also sell a lot of Bibles, repeat best sellers like Lord of the Rings, and children’s books like The Very Hungry Caterpillar. These two market categories (celebrity books and repeat bestsellers from the backlist) make up the entirety of the publishing industry and even fund their vanity project: publishing all the rest of the books we think about when we think about book publishing (which make no money at all and typically sell less than 1,000 copies).

But let’s dig into everything they said in detail.

Bestsellers are rare

In my essay “Writing books isn’t a good idea” I wrote that, in 2020, only 268 titles sold more than 100,000 copies, and 96 percent of books sold less than 1,000 copies. That’s still the vibe.

Q. Do you know approximately how many authors there are across the industry with 500,000 units or more during this four-year period?
A. My understanding is that it was about 50.
Q. 50 authors across the publishing industry who during this four-year period sold more than 500,000 units in a single year?
A. Yes.
—
Madeline Mcintosh
, CEO, Penguin Random House US

The DOJ’s lawyer collected data on 58,000 titles published in a year and discovered that 90 percent of them sold fewer than 2,000 copies and 50 percent sold less than a dozen copies.

In my essay “No one will read your book,” I said that publishing houses work more like venture capitalists. They invest small sums in lots of books in hopes that one of them breaks out and becomes a unicorn, making enough money to fund all the rest.

Turns out, they agree!

Every year, in thousands of ideas and dreams, only a few make it to the top. So I call it the Silicon Valley of media. We are angel investors of our authors and their dreams, their stories. That’s how I call my editors and publishers: angels… It’s rather this idea of Silicon Valley, you see 35 percent are profitable; 50 on a contribution basis. So every book has that same likelihood of succeeding.
— Markus Dohle, CEO, Penguin Random House

Those unicorns happen every five to 10 years or so.

We’re very hit driven. When a book is successful, it can be wildly successful. There are books that sell millions and millions of copies, and those are financial gushes for the publishers of that book, sometimes for years to come… A gusher is once in a decade or something. For instance, I don’t know if you know the Twilight series of books? Hachette published the Twilight series of books, and those made hundreds of millions of dollars over the course of time.
Right now the novels of Colleen Hoover are topping the bestseller lists in really, really huge numbers and the publishers of those books are making a lot of money. You probably remember The Girl With the Dragon Tattoo… Or the Fifty Shades of Grey series. So once every five years, ten years, those come along for the whole industry and become the industry driver that’s drawing people into bookstores because there is such a commotion about them.
— Michael Pietsch, CEO, Hachette

Big advances go to celebrities

They spent a lot of the trial talking about books that made an advance of more than $250,000—they called these “anticipated top-sellers.” According to Nicholas Hill, a partner at Bates White Economic Consulting, 2 percent of all titles earn an advance over $250,000.

Publisher’s Marketplace says it’s even lower.

Top-selling authors were defined as those receiving advances (i.e., guaranteed money) in excess of $250,000. Far fewer than 1 percent of authors receive advances over that mark; Publishers Marketplace, which tracks these things, recorded 233 such deals in all of 2022.
—
ken whyte
, Publisher at Sutherland House

Hill says titles that earn advances over $250,000 account for 70 percent of advance spending by publishing houses. At Penguin Random House, it’s even more. The bulk of their advance spending goes to deals worth $1 million or more, and there are about 200 of those deals a year. Of the roughly $370 million they say PRH accounts for, $200 million of that goes to advance deals worth $1 million or more.

This chart shows that as advances go up, more of them come from Penguin Random House which has the deepest pockets.

Most of those are deals with celebrities. And Penguin gets most of them.

Books by the Obamas sold so many copies they had to be removed from the charts as statistical anomalies.

There are giant celebrities Michelle Obama where you know it’s going to be a top seller.
— Jennifer Rudolph Walsh, Literary Agent

Because they are so lucrative, Gallery Books Group focuses its efforts on trying to get celebrities to write books.

75 percent [of our] acquisitions come from approaching celebrities, politicians, athletes, the “celebrity adjacent,” etc. That way, we can control the content…. We are approaching authors and celebrities and politicians and athletes for ideas. So it’s really we are on the look out. We are scouts in a lot of ways…
— Jennifer Bergstrom, SVP, Gallery Books Group

Bergstrom said her biggest celebrity sale was Amy Schumer who received millions of dollars for her advance.

We’ve had a lot of success publishing musicians, I mentioned Bruce Springsteen. We’ve also published Bob Dylan and Linda Ronstadt, a lot of entertainers through the years… There was a political writer, Ben Shapiro, who has a very popular podcast and a large following. We also competed with HarperCollins for that.
— Jonathan Karp, CEO, Simon & Schuster

Penguin Random House US has guidelines for who gets what advance:

Category 1: Lead titles with a sales goal of 75,000 units and up
- Advance: $500,000 and up
Category 2: Titles with a sales goal of 25,000-75,000 units
- Advance: $150,000-$500,000
Category 3: Titles with a sales goal of 10,000-25,000 units
- Advance: $50,000- $150,000
Category 4: Titles with a sales goal of 5,000 to 10,000 units
- Advance: $50,000 or less

Is anyone else alarmed that the top tier is book sales of 75,000 units and up? One post on Substack could get more views than that…..

Franchise authors are the other big category

Franchise authors are the other big category. Walsch says James Patterson and John Grisham get advances in the “many millions.” Putnam makes most of its money from repeat authors like John Sandford, Clive Cussler, Tom Clancy, Lisa Scottoline, and others.

Q. Putnam typically publishes about 60 books a year. Correct?
A. 60, 65, sort of on naverage… I will say of those 65, though, a good portion of those are repeat authors… franchise authors that we regularly publish every year, sometimes twice a year.
— Sally Kim, SVP and Publisher, Putnam

Publishing houses want a built-in audience

The advantage of publishing celebrity books is that they have a built-in audience.

In some of the cases, the reason they are paying big money is because the person has a big platform. And if that platform is there for the advertising, then the spend might be lower.
— Jennifer Rudolph Walsh, former Agent

Macmillan agrees.

Q. Would you agree that those type of authors, meaning the ones with the built-in audience, are also authors who would command a high advance if they went to a traditional publisher like Macmillan or PRH?
A. That’s a broad brush. But, yes…
Q. And you’re willing to pay more if they have a significant following?
A. Yes.
— Donald Weisberg, CEO, Macmillan Publishers

They give some examples:

The Butcher and the Wren… this particular author has a big following, and with a single post on Instagram, she presold over 40,000 books. So, I mean, that’s just staggering from a per copy perspective, and it pretty much guarantees a number one spot on the New York [Times] best seller list when it’s published in September.
— Jennifer Rudolph Walsh, former Agent

A big audience means publishing houses don’t have to spend money on marketing

These big advances, the authors have quite a bit of their own infrastructure with them. They have their own publicists. They have their own social media people. They have their own newsletters. So they actually are able—we are able to offload a good amount of the work, not all the time, but that is actually a factor in why we sometimes pay these big advances, because the authors are actually capable of helping us a lot.
— Jonathan Karp, CEO, Simon & Schuster

For example:

Q. Who is the best selling Simon & Schuster author currently?
A. Right now it’s Colleen Hoover.
Q. Does she have the highest marketing budget that Simon & Schuster pays?
A. No.
Q. Why is that?
A. She’s the queen of TikTok, and so she has a huge following on TikTok.
— Jonathan Karp, CEO, Simon & Schuster

[One author wrote] paranormal, so it’s sexy vampires. This book was probably her 21st book. So she’s what I would call a franchise author. She’s very established. Though we spent $1.2 million on the book, we spent about $62,000 on the marketing and publicity because she had such an established fan base…
[Another author is] a celebrity-adjacent author, but also her platform was on social media. So we paid $450,000 for her book, and we spent $36,000 on the marketing and publicity. We didn’t need to spend more than that because she already booked at that point on Good Morning America, The Today Show. So publicity drove that, and that didn’t cost us.
— Jennifer Bergstrom, SVP, Gallery Books Group

Just goes to show that the main thing an author gets from a publishing house is an advance!

Publishing houses pay for Amazon placement

Every second book in America, ballpark, is being sold via e-commerce…Amazon.com has 50 million books available. A bookstore, a good independent bookstore, has around 50,000 different books available… an algorithm decides what is being presented and made visible and discoverable for an end consumer online. It makes a huge difference.
— Markus Dohle, CEO, Penguin Random House

Publishing houses try to game the algorithm and even pay to get ahead of it.

Q. Penguin Random House has hired data scientists to try and figure out these algorithms so that its books get better presented on Amazon than its competitors’ books?
A. One of the many efforts that we pursue, correct.
Q. And Penguin Random House pays Amazon to improve its search results?
A. There is something that is available to our publishers, it’s called Amazon Marketing Services, AMS, and all publishers can spend money and give it to Amazon to have hopefully better search results.
— Markus Dohle, CEO, Penguin Random House

But even celebrity books don’t sell…

Ayesha Pande

, president of Ayesha Pande Literary, says that 20 percent of her authors earn out their advance—if she’s being generous.

The single most important contract term is the advance…Because in a large number of cases, it may be the only compensation that the author will receive for their work.
— Ayesha Pande, President, Ayesha Pande Literary

Even celebrity books flop.

There are plenty of books that we spend $1 million on the advance and published them last year and they did not even make the top 1,000 on BookScan… Less than 45 percent of those books [that we spend a million dollars on] end up on that thousand best seller list.
— Madeline Mcintosh, CEO, Penguin Random House US

Just because the publisher pays $250,000 or $500,000 or $1 million for a book does not guarantee that a single person is going to buy it. A lot of what we do is unknowable and based on inspiration and optimism.”
— Michael Pietsch, CEO, Hachette

Even celebrities, though sometimes you think it’s going to be a big best seller, it flops. It happens… I mean, Andrew Cuomo’s book was sold at the height of his being America’s governor during the COVID crisis. I mean, that book was sold for $5 million, I believe. I don’t know for a fact. But by the time it came out, the nursing home scandal had happened, the Me Too issues, and the book didn’t do any business.
Sometimes it’s just a timing issue, like Marie Kondo. She did a book about Joy at Work, about making your office sparked with joy because it’s not cluttered. It published in March of 2020.
— Jennifer Rudolph Walsh, Literary Agent

Having a lot of social media followers or fame doesn’t guarantee it will sell. The singer Billie Eilish, despite her 97 million Instagram followers and 6 million Twitter followers, sold only 64,000 copies within eight months of publishing her book. The singer Justin Timberlake sold only 100,000 copies in the three years after he published his book. Snoop Dog’s cookbook saw a boost during the pandemic, but he still only sold 205,000 copies in 2020.

Here’s a few more:

Representative Ilhan Omar, a Democrat from Minnesota, is no global pop star, but she has a significant social-media presence, with 3 million Twitter followers and another 1.3 million on Instagram. Yet her book, This Is What America Looks Like: My Journey from Refugee to Congresswoman, which was published in May 2020, has sold just 26,000 copies across print, audio and e-book formats, according to her publisher.
Tamika D. Mallory, a social activist with over a million Instagram followers, was paid over $1 million for a two-book deal. But her first book, State of Emergency, has sold just 26,000 print copies since it was published in May, according to BookScan.
The journalist and media personality Piers Morgan had a weaker showing in the United States. Despite his followers on Twitter (8 million) and Instagram (1.8 million), Wake Up: Why the World Has Gone Nuts has sold just 5,650 U.S. print copies since it was published a year ago, according to BookScan.
—The New York Times

It’s pretty common.

The worst day of a life of an agent and an author is when they’ve gotten a large advance and you go on BookScan and you see their first few months’ of sales and it says 4,000 copies or something like that. It happens. It happens more than any of us would like.
— Gail Ross, Literary Agent

Books don’t make money

If I look at the top 10 percent of books… that 10 percent level gets you to about 300,000 copies sold in that year. And if you told me I’m definitely going to sell 300,000 copies in a year, I would spend many millions of dollars to get that book.
— Madeline Mcintosh, CEO, Penguin Random House US

Publishing houses pay millions of dollars for a book that sells only 300,000 copies??? Well, because books don’t sell a lot of copies, they don’t make a lot of money.

Very, very frequently, the winning bid in our calculation is a money loser.
— Michael Pietsch, CEO, Hachette

Markus Dohle, CEO, Penguin Random House, says the top 4 percent of titles drive 60 percent of the profitability. That goes for the rest of them too:

It would be just a couple of books in every hundred are driving that degree of profit… twoish books account for the lion’s share of profitability.
— Madeline Mcintosh, CEO, Penguin Random House US

Around half the books we publish make a profit of some kind.
— Michael Pietsch, CEO, Hachette

About half of the books we publish make money, and a much lower percentage of them earn back the advance we pay.
— Jonathan Karp, CEO, Simon & Schuster

According to Hill, 85 percent of the books with advances of $250,000 and up never earn out their advance. (Meaning the royalties earned never covered the cost of the advance.) Many publishers have realized that maybe those big advances aren’t worth it.

We have a report that we colloquially call ‘The Ones That Got Away.’ And it’s a report on the books where we bid $500,000 or more as an advance and did not succeed in acquiring the book… this report stands as a kind of caution against the high risk of big advances because the lesson we take away again and again is: Thank goodness we stopped bidding when we did because even at the advance we offered, we would have lost money… Very frequently, the winning bid in our calculation is a money loser.
— Michael Pietsch, CEO, Hachette

It’s all about the backlist

If new books typically don’t sell well, well that’s why publishing houses make their revenue from their backlist.

I would actually expect a book that is selling 300,000 units in a year is probably going to sell at least 400,000 or 500,000 over its life once you get backlist in there too.
Our backlist brings in about a third of our annual revenues, so $300 million a year roughly, a little less.
— Michael Pietsch, CEO, Hachette

The backlist includes all of the books that have ever come out. Brian Murray, CEO of HarperCollins, points out that their backlist includes bibles (an $80 million business), coloring books, dictionaries, encyclopedias, magic trick books, calendars, puzzles, and SAT study guides. It also includes perennial bestsellers like Don Quijote, Steven King’s Carrie, and Tolkien’s Lord of the Rings—these books continue to sell year after year.

Popular children’s books are cash cows selling huge amounts of copies year after year and generation after generation.

Sometimes children’s books will be three generations, people have been buying them over and over again, and so that backlist catalog is really, really important to pay for the overhead of your publishing teams and then also to take the risks on the new books. So without a backlist I think it’s very hard to compete with these big books.
— Brian Murray, CEO, HarperCollins

For instance, Penguin Random House owns Eric Carle’s Very Hungry Caterpillar intellectual property. The book has been on Publisher Weekly’s bestseller list every week for 19 years.

Children’s books comprised 27 percent of PRH’s sales in 2021. That’s about $725 million—so roughly double the size of Scholastic’s trade division, and more or less equal on its own to all of Macmillan or HBG. Christian books accounted for 2 percent.
—The Trial

Backlist titles like The Bible and Very Hungry Caterpillar and Lord of the Rings make up a disproportionately large percentage of the publishing industry.

Amazon is the biggest threat to the industry

Q. Are you concerned that Amazon will favor Penguin Random House Simon & Schuster in terms of promotion and distribution and discoverability?
A. Yes.
— Donald Weisberg, CEO, Macmillan Publishers

With Amazon’s data, they could immediately beat out all the publishing houses if they wanted to.

I think Amazon as a publisher of books is underestimated. They have about 50 editors… Obviously, given the number of people searching on Amazon for products, that gives them a huge advantage because when people go onto Amazon, they—if the book isn’t there for what they are searching for, they could create that book. That’s one theory I have. But even if that doesn’t happen, they know what people are buying and they have access to that data. Their bestseller list, in my view, is more important than The New York Times best seller list because it’s in realtime. It’s hourly. And I look at that Amazon best seller list regularly, every day.
— Jonathan Karp, CEO, Simon & Schuster

A “Netflix of Books” would put publishing houses out of business

Wouldn’t it be great if you could pay $9.99 a month and read all of the books you want? Just like you get all the movies you want from Netflix? Or all the music you want from Spotify?

Technically, it does exist. Kindle Unlimited is the largest, followed by Scribd. Audible isn’t quite all-access, but then Spotify got into audiobooks and made them so. But none of these players have quite taken off the way Netflix or Spotify has. That’s for one reason: The Big Five publishing houses refuse to let their authors participate.

Q. No books are found on Kindle Unlimited? Because you think that’ll be had for the industry?”
A. We think it’s going to destroy the publishing industry.
— Markus Dohle, CEO, Penguin Publishing House

He’s right. No one would purchase a book again.

We all know about Netflix, we all know about Spotify and other media categories, and we also know what it has done to some industries… The music industry has lost, in the digital transformation, approximately 50 percent of its overall revenue pool.
— Markus Dohle, CEO, Penguin Publishing House

There’s one reason.

Around 20 to 25 percent of the readers, the heavy readers, account for 80 percent of the revenue pool of the industry of what consumers spend on books. It’s the really dedicated readers. If they got all-access, the revenue pool of the industry is going to be very small. Physical retail will be gone—see music—within two to three years. And we will be dependent on a few Silicon Valley or Swedish internet companies that will actually provide all-access.
— Markus Dohle, CEO, Penguin Publishing House

The publishing industry would die, that’s for sure. But I’d be willing to bet writers would get their books read way more.

And I think it’s on its way. Spotify has already started publishing audiobooks, and my money is on Substack for eventually publishing written books!

Authors are getting more independent

If publishing houses make minimal investment in marketing their authors and focus largely on celebrity books and their backlist, authors who can’t snag a large advance might have better luck building their own audience and publishing elsewhere.

I think really from the advent of online—really, once the internet became popular, you know, we heard the phrase disintermediation. And I don’t understand why that wouldn’t be a possible prospect for any best selling author, to just disintermediate, to go straight to the internet and sell directly if you have a following… Colleen Hoover has published with both Amazon and Simon & Schuster. And her Amazon book was on the independent book sellers’ best seller list. So what that says to me is that a Rubicon has been crossed.
— Jonathan Karp, CEO, Simon & Schuster

The romance category has already gone independent.

Many of those heavy readers of romance novels at that time switched to self-published stories. A very different price point. 99 cents, $1.99, away from what we call mass-market trade paperbacks… The mass-market trade paperback is the sort of small-format mass-market book, like it is a trade paperback, but a smaller format. It has been declining for the last 25 years. But we had a step change around ’14, ‘15, with this trend that so many consumers went away from mass-market books into electronic ebooks in particular and self-published books.”
— Markus Dohle, CEO, Penguin Random House

Gallery author
Anna Todd
moved to self-publishing (though Todd began her career writing on Wattpad, and recently returned to set up an imprint at Wattpad Books).
— Jennifer Bergstrom, SVP, Gallery Books Group

And of course, we have to talk about Kickstarter MVP Brandon Sanderson.

There is a New York Times best selling author in the science fiction and fantasy category. His name is Brandon Sanderson. I believe he’s published by both Macmillan and Penguin Random House. He went onto Kickstarter and announced that he would be offering four of his novels to anybody who wanted them if they wanted to donate to Kickstarter. And he raised over $42 million…
I have subsequently become aware of Good Night Stories for Rebel Girls, which is a series of books. It’s now actually become a whole company. And these are stories to give young girls confidence. And it’s been very successful, and it’s actually resulted in an entire company.
— Jonathan Karp, CEO, Simon & Schuster

Another publishing house bites the dust

After the Judge denied the merger, Penguin went through a massive round of layoffs and Simon & Schuster was sold to a private equity company instead.

Private equity tends to have one game plan: buy a company, load it with debt, wring out costs to improve its financials, sell at a profit. Dealing Simon & Schuster to private equity, The New Republic warned at the time with some slight hyperbole of its own, would mean “absolute devastation and wholesale job loss.”
—
ken whyte

The publishing houses may live to see another day, but I don’t think their model is long for this world. Unless you are a celebrity or franchise author, the publishing model won’t provide a whole lot more than a tiny advance and a dozen readers. If you are a celebrity, you’ll still have a much bigger reach on Instagram than you will with your book!

Personally, I could not be more grateful to skip the publishing houses altogether and write directly for my readers here, being supported by those who read this newsletter rather than by a publishing advance that won’t ultimately translate to people reading my work.

But I’d love to know your thoughts 👇🏻