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9-908-050
REV: AUGUST 18, 2017

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DEEPAK MALHOTRA

MAX H. BAZERMAN

The Book Deal:

Confidential Instructions for the PUBLISHER

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You are Dana Harper, a senior editor for Taylor & James, one of the leading publishing firms in
the world. Your personal reputation has been built on signing authors who write intellectually
stimulating non-fiction that is accessible to a broad audience. Among editors in your profession, you
are quite famous for publishing well-respected academics. On the other hand, you have yet to sign
an eventual bestseller in the trade (i.e., mass) market for books. In addition to your obvious financial
interests, you are motivated by a desire to help disseminate important ideas to a large audience.
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Over a month ago, you received a proposal from Pat Midler, a well respected literary agent. The
proposal was for a book by Robyn Slovsky, one of the foremost experts in behavioral finance. The
proposal introduced you to Slovsky’s work. She is well-known in the emerging field of behavioral
decision research (BDR), an area made famous when the 2002 Nobel Prize in Economics went to one
of the founders of BDR, Daniel Kahneman of Princeton University. Kahneman is famous for
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identifying the systematic ways in which human judgment departs from rationality. You did not
know much about this new area of study, but the proposal suggested that this work has already
influenced the fields of marketing, negotiation, law, and medicine, among others. The proposal went
on to argue that the hottest application of BDR is in the area of finance. Experts in behavioral finance
claim that understanding the psychological aspects of investing will revolutionize the field. While
most of the work in behavioral finance is quite technical, Slovsky’s book proposes to bring the core
insight to a far broader audience.
No

Based on the proposal, you were curious enough to want to meet with Midler and Slovsky. When
you did, you were quite impressed. It was clear that Slovsky had a mission in life – to educate
investors. All authors want to make money, but you felt that Slovsky was extremely motivated by
the prospect of attracting media attention to the area of behavioral finance. You also intuited that
Slovsky would be great on television and her interest in speaking to the media would be great for
launching the book. It also seemed that Slovsky was impressed by your pitch: Taylor & James would
be best positioned to market this book and reach the large audience Slovsky desired. At one point,
Midler had to reign in Slovsky’s enthusiasm for Taylor & James, lest it weakens their position in
future negotiations. You could hardly blame Midler – that’s what an agent is supposed to do.
Do

________________________________________________________________________________________________________________

Professors Deepak Malhotra and Max H. Bazerman prepared this exercise as the basis for class discussion rather than to illustrate either effective
or ineffective handling of an administrative situation.

Copyright © 2008, 2017 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-
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copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 908-050 The Book Deal: Confidential Instructions for the PUBLISHER

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You called Midler following your meeting and expressed your enthusiasm and interest. You also
made a pitch for direct, exclusive negotiations with Midler and Slovsky. This would clearly be better
for Taylor & James than a typical auction process. You believe, like many others in your industry,
that while auctions are a good way to squeeze money out of publishers, they are not the best way to
develop a strong relationship between the author and the editor/publisher. In addition, auctions
become too price focused (i.e., all about the advance on royalties) and don’t encourage authors to

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think carefully about the other benefits a strong editor and a powerful publisher bring to the table.

Despite your pitch, three weeks ago, you received a letter from Midler indicating that multiple
publishers were interested in the project, and that Midler would be conducting an auction for the
book, starting at 10:00 AM, one week from today. Midler also made a point to mention the name of
“Arbitrary House” as “one of the other bidders”, apparently to underscore the point that everyone in
the auction was a big player. Midler clarified that the auction process would be as follows: (1) all

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interested publishers would submit initial offers; (2) Midler would then call the least attractive offeror
with an opportunity to either beat the best offer on the table or to drop out of the auction; (3) this
would continue until only one publisher was left.

You remained interested in the project. At Taylor & James, the process you follow entails sending
copies of an internal prospectus for the book (created by you) and the author’s proposal to the other
senior editors, to the publisher, and to the associate publisher. All of the parties, with the typical
exception of the publisher, then meet to discuss Taylor & James’ strategy for signing potential
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projects. This meeting occurred one week ago, and everyone (including the publisher) attended.
Everyone liked the prospectus, and the publisher was particularly excited. As it turns out, the
publisher had attended a seminar by Slovsky and thought that she was great. The discussion
concluded with the following decisions: (1) Taylor and James would submit an initial bid with
normal conditions and royalty rates (typically ~10% of list price) and offer a $100,000 advance, and
(2) raise the bid to as high as $350,000 in the auction if necessary. Everyone in the meeting agreed
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that the initial offer was quite high, but that the presence of bidders like Arbitrary House made it
necessary. Most attendees thought that bidding might reach as high as $250,000 or $300,000—all very
high figures for a first-time author—but that Taylor & James would eventually prevail.

Still one week before the auction, this morning, you received a telephone call from Midler. Midler
mentioned that you had earlier suggested direct negotiations instead of an auction, and that Slovsky
had stated to him that she preferred a deal with Taylor & James over other publishers. If you were
still interested, Midler would be willing to stop by your office for direct negotiations. You said that
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you would be delighted to meet under this alternative structure, but that the meeting needed to be
immediate. You were preparing to leave town for a publisher’s meeting in California but could meet
for a short while before taking off to the airport. Midler agreed to meet. The meeting is coming up.

You quickly checked in with the publisher, who was delighted to hear about the upcoming
negotiation. She said that you were still authorized to go as high as $350,000, but that it would
obviously be great if you could pay less. Personally, you would be delighted to pay far less than the
$350,000 to demonstrate your negotiation skills to the publisher, who is clearly watching this project
closely. On the other hand, not signing the project would obviously disappoint the publisher.
Do

NOTE: The only issue you will be negotiating today is the advance on royalties. For the vast
majority of books (even successful ones), this advance is the only payment the publisher has to
make to an author – therefore it is important for you to minimize the advance to the extent
possible. It is understood by all parties that if you can come to agreement on this issue, then the
other issues will be easy to resolve. It is also understood that if you do not reach an agreement
today, both parties will pursue other options and not continue to pursue this deal.

This document is authorized for educator review use only by MARITHZA VELEZ, Universidad San Francisco de Quito - USFQ until Oct 2023. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860