Uber-twitterer and oenephile of the Proletariat Gary Vaynerchuck has just signed a million dollar deal with Harper Studio who will publish 10 (!) books by the hitherto unpublished, self-proclaimed non-reader.  As reported here (bowlerbow: EatMeDaily), this represents an experiment in the terms of book contracts by the fledgling division of Harper Collins which was built on the premise that contracts delivering massive advances to the author and retaining sales revenue for the publisher are no longer part of a viable business model.

Publishing contracts must solve a thorny bilateral incentive problem which arises as a result of the timing of investment by author and publisher.  The author commits effort up front writing the book and then the publisher is expected to commit resources editing and marketing the completed manuscript.  The problem is to provide incentives for one party without dampening the incentives for the other.  The traditional advance/residuals contract solves this problem because the residuals give the publisher incentive to market the book and maximize sales leaving the advance as the compensation for the author.  The accompanying shift of risk from author to publisher is efficient because the publisher handles many books simultaneously, effectively creating a diversified portfolio.

The book market has famously weakened and it is becoming rarer and rarer for sales to justify the large advances that were hallmarks of existing contracts.  This means that a larger fraction of the author’s compensation must come directly out of book royalties, undermining the incentive and risk-shifting benefits of the old structure.  To adapt, publishers are seeking authors who already have an established “platform” such as a blog or other online community.  Such authors are less averse to residuals because their ready-made audience makes the prospect less risky. Vaynerchuck would appear to fit the bill perfectly.  His video blog, winelibrarytv attracts more than 80,000 viewers per day and as of today he has 177,000 followers on Twitter.

But when authors receive a large share of sales revenue, how can publishers be motivated to do the footwork of marketing the book to generate those sales?  To some extent an author with a platform can do his own marketing but if word of mouth were all that was required to turn a book into a hit, there would be no reason for the publisher in the first place.  Here is where the second novelty in the Vaynerchuck deal comes in: the long-term relationship.  The contract marries Vaynerchuck and HarperStudio for 10 books.  If HarperStudio can make his first book into a hit, it makes Gary into a star and it stands to reap the benefits on not just the first book but the 9 more to come.

“On the back end” as Gary would put it.