Over the course of these royalty season posts, I have spoken a lot about the reserve against returns, and this entire post will deal with this.
The idea of the reserve is rooted in reality. The books the publisher sends out can be returned for full credit by booksellers. The publisher has to ave some protection against paying royalties on copies that might be returned.
But the reality of the reserve is that it is the publisher's cookie jar, a source of abuse, and like many things in the publishing industry a relic of a past age that doesn't want to come kicking and screaming into modernity.
Once upon a time, the fate of a book really was a mystery. It isn't any more. With Bookscan and other direct ties between major retail accounts and major publishers, the big publishers know the fate of a book. Maybe not by June 30 for a book that came out in May, and I can understand a bit if the reserve against returns on that first royalty report is high. Yet, I will occasionally see publishers taking such large reserves that they pay royalties for fewer copies than Bookscan reports as sold through the end of the royalty period -- and way fewer than we know are sold by the time I am getting the royalty statement. In those instances, on general principle, I complain to the publisher even about very small numbers of copies. Paying my client a royalty for 2536 copies when we know the book sold 2682 -- that's not a reasonable reserve against returns.
I mentioned how DAW used to hand-write "too early to tell" for the rest report on every royalty statement. Now, their default is to take a 100% reserve on print sales on the first royalty report, whether a book has been on sale for six weeks or six months. This used to matter less because the books would often not earn royalties on the very first statement even if the reserve was closer to 50% it becomes more likely that the client could get a small royalty check even from known activity on a short period of time.
25 years ago, retail distribution for books was hugely inefficient. It could take months for information to flow from the corner drugstore to a small independent distributor to the publisher's warehouse. Shipping fully returnable books into distribution channels that ranged from highly inefficient to somewhat inefficient with long lag time on information reporting -- you could understand why reserves had to be high in the early going. Now, Amazon has a low return rate, and channels with higher returns like Costco and Walmart have pretty good IT and can provide Point of Sale information on copies sold to publishers very quickly. But reserves are often still held as if average return rates are still what they were 40 years ago.
The purpose of a reserve against returns was to keep the publisher from being on the hook for paid royalties on copies subsequently returned. But even though the typical novel is now published in multiple formats, including audio and ebook formats sold as digital downloads with few returns, reserves are held on each print edition as if the others don't exist. If you know a book is being published hard-soft, can't the reserve on the hardcover be moderated in anticipation of paperback royalties? Many of our authors now sell over half their copies in ebook, so why take a print reserve at all when there will always be ebook royalties to make up the difference?
I don't expect publishers to do away with reserves entirely, but I sure think they should be held with a lighter touch in 2015 than in 1985.
We try in current contracts to specify that reserves not be held on digital products or after the first few royalty periods, or at least be justified upon request. But I feel like we need to get more aggressive in evaluating reserves held with a broader perspective with regard to the range of editions published.
But book by book, do you or your agent look at all your reserves against returns every period? Do you check them against Bookscan? Do you check the size of the reserve against actual returns? Do you peek inside the publisher's cookie jar to see if there are cookies? In many instances, even if the reserve is reduced you may still have a negative royalty balance or be due so little money is isn't worth the fuss to complain rather than waiting for the reserve to be reduced on the next report. But sometimes you can get decent money in your hands months earlier if you just take the time to look in the cookie jar.
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