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WALL STREET JOURNAL

By Jeffrey A. Trachtenberg

When literary agent Sarah Yake shopped around Kirsten Kaschock’s debut novel “Sleight” this year, she thought it would be a shoo-in with New York’s top publishers.

“Her project was one of the most exemplary in the last decade or so,” said Jed Rasula, who has taught in the English department at the University of Georgia since 2001. “I certainly thought she’d find a New York publisher.”

But the major New York publishers passed on “Sleight,” a novel about two sisters trained in a fictional art form. Coffee House Press in Minneapolis, a small independent publisher, now plans to publish the book, offering Ms. Kaschock an advance of about $3,500—a small fraction of the typical advances once paid by the major publishing houses.

It has always been tough for literary fiction writers to get their work published by the top publishing houses. But the digital revolution that is disrupting the economic model of the book industry is having an outsize impact on the careers of literary writers.

Priced much lower than hardcovers, many e-books generate less income for publishers. And big retailers are buying fewer titles. As a result, the publishers who nurtured generations of America’s top literary-fiction writers are approving fewer book deals and signing fewer new writers. Most of those getting published are receiving smaller advances.

“Advances are down, and there aren’t as many debuts as before,” says Ira Silverberg, a well-known literary agent. “We’re all trying to figure out what the business is as it goes through this digital disruption.”

Much as cheap digital-music downloads have meant that fewer bands can earn a living from record-company deals, fewer literary authors will be able to support themselves as e-books win acceptance, publishers and agents say. “In terms of making a living as a writer, you better have another source of income,” says Nan Talese, whose Nan A. Talese/Doubleday imprint publishes Ian McEwan, Margaret Atwood and John Pipkin.

In some cases, independent publishers are picking up the slack by signing promising literary-fiction writers. But they offer, on average, $1,000 to $5,000 for advances, a fraction of the $50,000 to $100,000 advances that established publishers typically paid in the past for debut literary fiction.

The new economics of the e-book make the author’s quandary painfully clear: A new $28 hardcover book returns half, or $14, to the publisher, and 15%, or $4.20, to the author. Under many e-book deals currently, a digital book sells for $12.99, returning 70%, or $9.09, to the publisher and typically 25% of that, or $2.27, to the author.

The upshot: From an e-book sale, an author makes a little more than half what he or she makes from a hardcover sale.

The lower revenue from e-books comes amidst a decline in book sales that was already under way. The seemingly endless entertainment choices created by the Web have eaten into the time people spend reading books. The weak economy also is contributing to the slide.

“We aren’t seeing a generation of readers coming along that supports writers today the way that young people supported J. D. Salinger and Philip Roth when they were starting out,” says Ms. Talese, who is married to the author Gay Talese.

Sales of consumer books peaked in 2008 at 1.63 billion units and are expected to decline to 1.47 billion this year and to 1.43 billion by 2012, says Albert Greco, a book-industry market researcher.

E-books sales are exploding. Currently, e-books account for an estimated 8% of total book revenue, up from 3% to 5% a year ago. Mike Shatzkin, a publishing consultant, estimates e-books could be 20% to 25% of total unit sales by the end of 2012. “Eventually, digital books will overtake physical books,” Mr. Greco predicts.

Some book-industry experts say that lower e-book prices could increase overall unit sales eventually. Whether they will make up for the loss of hardcover income remains to be seen.

Although e-books are still in their infancy, publishers say that average advances on literary fiction are already shrinking. To secure the rights to publish and distribute a book, publishers pay authors advances against future book sales. After the book is published, the author earns a royalty that is initially applied to the advance. Once the author recoups the advance, he earns a percentage of every book sale.

There will always be the lucky new author whose first novel ignites a hot auction. But more often today, many debut novels that would have won lucrative advances five years ago today are getting $15,000 or less, says Adam Chromy, a New York literary agent. Mr. Chromy was recently disappointed with the immediate response from editors for a debut novel he thought was exceptionally good.

“The bar is higher,” says Jamie Raab, publisher of Lagardere SCA’s Grand Central Publishing, which is buying less debut fiction than in prior years. Although launching debut titles is one of the most rewarding aspects of publishing, Ms. Raab says, “publishers are buying more selectively, agents are being more selective with choosing clients, and retailers are taking fewer titles.”

The e-book is good news for some. Big-name authors and novels that are considered commercial are increasingly in demand as e-book readers gravitate toward best sellers with big plots. Unlike traditional bookstores, where a browsing customer might discover an unknown book set out on a table, e-bookstores generally aren’t set up to allow readers to discover unknown authors, agents say. Brand-name authors with big marketing budgets behind them are having the greatest success thus far in the digital marketplace.

In July, Amazon.com Inc. said the late Swedish writer Stieg Larsson, whose novel “The Girl with the Dragon Tattoo” is part of a trilogy of top-selling crime books, was the first writer to sell more than 1 million Kindle books.

Celebrated author Jonathan Franzen, who has already built his reputation as one of America’s premier literary-fiction writers, is seeing significant e-book sales of his new novel, “Freedom,” having sold well over 35,000 in the first two weeks after going on sale Aug. 31.

“Monster best sellers are still the major drivers of profits for publishers and their authors—and these are precisely the books that are being snapped up by e-book buyers,” says Laurence Kirshbaum, a New York literary agent.

It’s a different story for debut fiction writers and those with less commercial potential, who might have print runs of 10,000 copies or less. Mr. Kirshbaum says he’s found it difficult to sell a debut novel about small-town life because many editors are no longer committing to new writers with the expectation that their story-telling skills will evolve with the second, third and fourth books. In the past, many literary authors were able to build careers because of such patience, Mr. Kirshbaum says.

“Writers like Anne Tyler and Elmore Leonard have to simmer quite a bit before they are going to boil. Publishers no longer have the patience to work through multiple modest successes,” Mr. Kirshbaum says. “There is a real danger that these people could be lost today.”

John Pipkin’s 2009′s debut novel, “Woodsburner,” won several literary prizes, including the 2009 Center for Fiction First Novel Prize. Despite the acclaim and print sales of more than 10,000, “Woodsburner” has only sold 359 digital copies.

Mr. Pipkin says the business model of e-books worries him. “I embrace anything that makes it possible for people to read what I’ve written, especially if it’s somebody who might not have read the physical book,” Mr. Pipkin says. “But the sales price of e-books is lower than the price of physical books, so writers stand to earn less. It’s a concern moving forward, especially as e-books make up a larger percentage of sales.”

Mr. Pipkin, who has Ph.D in English literature, says he cobbles together an income based in part on grants, fellowships and a partial advance he has received for his second book. “I’ve had to rethink my plans in terms of supporting my family full time as a writer,” he says.

His wife, a tenured professor, provides health benefits for his family. Mr. Pipkin, who teaches an undergraduate creative-writing class at Southwestern University in Georgetown, Texas, receives no benefits. Although he has an IRA, he doesn’t receive employer contributions. Mr. Pipkin, 43, says his goal is to find a full-time teaching position with benefits.

“Unless you’re a best-selling author, I don’t see how it’s possible for an author to get together enough income to pay for health insurance, retirement and other things,” he says.

Only a few years back, previously unknown writer Diane Setterfield scored a seven-figure advance for her debut novel, “The Thirteenth Tale,” while Jed Rubenfeld was paid $800,000 for his debut, “The Interpretation of Murder.”

The Authors Guild and some literary agents are urging publishers to raise the author’s share of e-books to as high as 50%, arguing that there is less overhead for a digital book. Thus far, publishers are resisting.

Not everyone believes that the shift to digital publishing is necessarily bad for writers. Novelist E.L. Doctorow, who has taught creative writing for 23 years at the NYU Creative Writing Program, says the industry may be transforming away from big corporate-owned publishers back to a cottage industry like it was many years ago. The shakeout could help prune an overcrowded market.

“Writers come up from nowhere, from the ground up, and nobody is looking for them or asking for them, but there they are,” says Mr. Doctorow. “If there is a weeding out that’s going to occur because of such difficulties, it may be all to the good.”

As e-book sales accelerate, their impact on physical book sales will grow. Publishers worry that $12.99 digital books that typically go on sale the same date as physical books will cut into their hardcover sales and their $14.99 paperback sales down the line, a key revenue producer for literary titles.

Amazon, which controls the majority of digital-book sales with its Kindle reading device, says its Kindle e-book sales already are outpacing hardcover sales. Kindle e-books could outsell paperbacks in nine to 12 months, Amazon has said.

Also under pressure are big chains such as Barnes & Noble and Borders Group Inc., which continue to close stores because of the digital shift and the woeful economy. The stores have played a critical role in focusing attention on new voices through meet-and-greet readings and other promotions.

Meanwhile, small independent publishers are becoming more popular options for new writers. Leslie Daniels, a literary agent for the past 20 years, was thrilled to sell Creston Lea’s recently published debut short-story collection, “Wild Punch,” to Turtle Point Press.

But the author received only a $1,000 advance, typical of the advances paid by small independents. “I can’t make a living as a writer, but it feels great to have these stories out in the world,” says Mr. Lea. The author, who lives in Vermont, builds electric guitars and writes on the side. Jonathan Rabinowitz, publisher of Turtle Point Press, says “Wild Punch” has sold about 1,500 copies, including 150 e-books. He described the performance as “encouraging.”

The smaller advance has a ripple effect. Ms. Daniels, who earns a 15% commission, used to make $11,250 on a big publisher advance of $75,000 or so. Her cut on Mr. Lea’s $1,000: $150.

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