From: chuq@Apple.COM (Chuq Von Rospach)
Newsgroups: misc.writing
Subject: Re: Yes, you want to be a writer, but can you use interest tables?
Date: 15 Apr 92 19:25:08 GMT
Article-I.D.: apple.65485
Organization: I is a writur

eliz@ai.mit.edu (Elizabeth Willey) writes:
>Graham Higgins inquires:
>   
>   > Chuq:
>   > why sell a novel for a $5K advance when it could have been sold for $10 if
>   > you knew how (and/or who) to ask for it? 

>   Being a naif, I have yet to figure out the economics of advances. Given the
>   fact that a book will earn $x for the people involved in manufacturing and
>   selling the product and that an author gets a pre-negotiated slice of the
>   revenue (not profit, *revenue*), what's the point of getting a larger part of
>   it early? Is it a case of grabbing the money and running? If so, why? 

>1.  This is *all the money* you are going to see until the book is
>    published, and indeed
>2.  the book may not be published for anywhere from a few months to a
>    couple of years, reinforcing the fundamental financial principle that

Definitely. If you sell a finished manuscript, it'll be at least a year and
probably 18 months before it shows up on a shelf. Depending on the contract,
the publisher can hold it for as long as three years (24 months is typical)
between acceptance of the manuscript and publication.

Then there's the delay between publication and the beginning of royalties.
Royalties are paid (late, mostly) quarterly. Royalties are based on
(roughly) number of copies shipped minus number of copies reserved minus a
reserve against future returns (of which more later). Those numbers trail
reality, so assuming an advance of zero, the earliest you'll see a royalty
check is the second quarter after publication. You've written a book that
took you a year, maybe 18 months, and you've just chosen to wait over two
years for payment -- and then you're allowing the publisher to pay you for
it on the installment plan over two or three years.

How many businesses (at least, ones that haven't gone broke) do you know
that operate that way?

Let me mention "reserves against returns" for a minute, too (but not in any
great detail. I don't want folks running screaming into the street).
Paperbacks are returnable -- fully returnable -- until the publisher puts
the book out of print. That means at any time in the future, a bookstore can
send it back to the publisher and get their money back.

Because of this, just because a book has been sent to a bookstore doesn't
mean it's been sold. It hasn't officially been sold until the publisher
decides it's not coming back. Since they can't pay you until they're sure of
this, they have an accounting feature called "reserves against returns",
wehre they know (statistically) about how many books will be kept around so
long by the bookstores. Generally about 18 months to two years, FWIW. What
this means is that if Really Hot Publishers print 50,000 copies of Hot &
Spicy Lemming Stories and ship 35,000 of those to bookstores, you haven't
sold 35,000 copies, because the publishers know, in general, that 50% of
those books will get returned for credit. 

So the publisher holds back most of the royalty as reserves against returns.
As they get better numbers on actual returns against projected, the reserve
is adjusted and more us released as actual sales. So they printed 50,000,
shipped 35,000, but you might only get paid for the first 3,000 or so in the
first quarter (about $1000), reserving 90% against returns. Next quarter,
that gets adjusted to 85% (maybe), raising your numbers sold to a whole
5200 books, for a royalty of $1575 (assuming 6% of $4.95), minus the $1000
already paid, or a check of $575. 

And so on for a couple of years. Much better to get it at once when you can
do something useful, like pay rent and buy food while you write the next
book.

>3.  the value of $5000 you receive now is greater than the value of
>    the same $5000 received in the future.  Inflation and
>    interest work together to make this so.

Yeah. Find a CPA or someone who knows how to run a spreadsheet and have them
do a Net Present Value of $5000 paid today and $5000 paid to you in eight or
ten equal payments over the next two or two and a half years. an interesting
exercise.

there's also (6): the reality that the higher the advance, the more pressure
on the publishing house to make sure that the advance pays out. A $5000 book
will mostly live or die on its own -- it's a risk, but a small one. A
$50,000 advance is going to have the editor pushing publicity and sales to
make sure they sell enough books to make the book profitable, because if it
doesn't, the editor gets yelled at. So the larger the advance, the higher
the profile. The higher the profile, the more people pushing to make it
succeed. The more it gets pushed, the more likely you'll make money. 

Sad but true.

>   Could the publisher cough up an advance and then decide against publishing the
>   book? Is that the problem? If so, my question is --- with what frequency does
>   this occur?

Not terribly often. If they reject your manuscript, though, you owe them the
advance back, anyway. That's a point of contention (is an advance a business
investment or is it an interest free loan?) between authors and publishers,
but that's a different discussion.

>This is a lovely philosophy, to look on the publisher as a partner.

It IS a partnership. But it's also a business partnership, so you shouldn't
start it off by giving the publisher charity (see above on the "no payments
for two years, interest free and pay it off in three years" financing plan
above).


-- 
            Chuq "IMHO" Von Rospach, Enterprise Products Support
            chuq@apple.com | GEnie:CHUQ & MAC.BIGOT | ALink:CHUQ
               Book Reviewer, Amazing Stories =+= Member, SFWA
           Editor, OtherRealms =+= #include <standard/disclaimer.h>

And lo, though I travel through the valley of the archetypes, I shall fear
no evil, for I know that the author can't kill me off for at least another
150 pages, no matter how stupid or trite I become, or he ruins the book.