Sorry.

An author gets a $20,000 advance for a mass market original. The pub does a good job and the buyers order in decent numbers and the first printing is 100,000 (we’ll just assume all those shipped.)

After one year, the author sold 50,000 copies. These are actual, known sales. There are 30,000 copies returned. That means there are 20,000 copies no one knows anything about–they could have been sold, they could still be on the shelves, they could have been stolen. These copies will likely trickle in over a couple years in both the sold and stripped columns.

But the author SOLD 50,000 copies. On a $6.99 PBO, that’s .56 per copy, or $28,000. This means that the author should receive a royalty check for $8,000–no matter what’s going on with those 20,000 outstanding copies.

The “reserve against returns” is, essentially, holding a reserve against those 20,000 unknown copies. That means that the publisher isn’t going to pay royalties on those books yet. Those are held usually a year (though I’ve heard some publishers hold them longer) then most are released based on whatever formula the publisher is using, most likely a historical analysis of returns by that author and/or those type of books.

I have heard of one publisher who holds reserves against future returns on books sold even when the author has earned out her advance. I don’t understand that, but I’m not an accountant.

If I’m wrong, maybe someone else can correct me, but I believe this is the way it generally works.

Right now advances are in the range of 7.5% for paperbacks and on a sliding scale for hardcover: 10% for the first 5,000 copies sold, 12.5% up to 10,000 copies sold, and 15% on all copies sold after that.

If, as Friday’s Publishers Lunch said, Miller is talking about a 50/50 split, I might be willing to take that risk–provided I was comfortable that we had nailed down the accounting method for calculating profits and IF–a big “if”–my efforts at publicity and marketing also went into the expense side of the ledger so that I was reimbursed for my out-of-pocket expenses.

Like the people who wrote you, I am VERY interested in this. I think it is just the start of the new publishing models we’ll see floating around over the next few years.

I think this is a “wait and see” thing personally. I don’t love the sound of it but I don’t hate it either–it’s too soon to tell. It’s possible royalty payouts will come on a much faster schedule under this system, for example.

It’s only one experimental new line, 25 books–and if memory serves Penguin tried something similar a few years back and it failed–so I don’t think the uproar is really justified yet.