New feature! Recently, a few people have been contacting me with questions about various aspects of publishing or writing craft. I'm well aware that there is no shortage of websites devoted to answering publishing questions (most of them written by people far smarter and more qualified than myself). Still, I thought it might be worth adding my drop into the bucket from time to time.
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As to your entry fee question, I'd say it depends. Reading and sorting thousands of entries is a huge endeavor, and I don't begrudge the organizers for wanting to fund the operation. The problems start when the exchange is less cut-and-dry. I know a lot of fiction contests offer some kind publication as a prize. In general I would say avoid contests that come with contractual obligation. To my thinking, if you're paying $30-$50 bucks to enter then the prize should be cash (and recognition) ... otherwise it feels dangerously close to you paying a publisher to publish your book. Still, I know fiction is a tough racket to break into, and taking a lowball publishing deal might be worth if for you if it means getting your foot through the door.
Screenwriter John August has a number of valuable posts on the subject of screenwriting contests. On the fiction side, Nathan Bransford does a good job summing up the issue. Poets & Writers magazine has a nice database of competitions and grants, and, of course, always check out Writer Beware's section on contests before sending anyone money. Hope that helps!