During Slush Week this question came up and I wanted to provide a brief description of how a publishing negotiation generally works. Undoubtedly, this will raise other questions which I would be happy to address.
When a publisher makes an offer, he or she does it either on the phone or by e-mail. I prefer the latter initially so that I can see all of the terms of the offer spelled out: advance, payout, royalties (including electronic royalties now), territory covered, rights splits and any special terms.
Once I have all offers in from publishers (hopefully there will be more than one), I take them to my client, explain what they are and which I think is best and why. We come to a decision on which publisher(s) to continue to negotiate with and I then go back to the publisher(s) by phone or by e-mail and ask for changes or additional terms. Often I will ask for a different, higher advance, a more favorable payout, different royalty splits, things like that. Sometimes I suggest that different rights be in play.
Most often, we come to an agreement in a very short time--usually a matter of a day, but sometimes, depending on what the project is, these do go on over a longer period.
If we arrive at a stalemate--that is, a point that we and our client will not accept and the publisher won’t budge on--we make that very clear. We call this a “deal breaker” and if we say something is a deal breaker we have to mean it. (Between you and me, most of the time these things can be worked out before we get to that point.)
Once this basic negotiation is completed, a deal memo is done--we send one to the publisher and often they send one back just to make sure we are all on the same page in terms of the basic terms of the deal.
We then go on to the contract where additional negotiation is done on boilerplate terms.
Negotiating a deal is one of my favorite parts of agenting; the process encourages creativity on all sides and often breaks new ground.