What, Exactly, Is A Sale, Anyway?

February 19th, 2007 · 1 Comment
by Kassia Krozser

Tell us, dear friends, are you as amused as we are by the coverage of the Clive Cussler versus Philip Anschutz debacle? You know the one — Mr. Anschutz is accusing Mr. Cussler of, gasp!, overstating his sales in order to receive a bigger paycheck. Somehow (and this has never really been made clear), this egregious (alleged) falsehood led to the failure of the fine motion picture picture Sahara to ignite at the box office.

The question of what constitutes “books in print” or “books sold” or even “books shipped” is a bit fuzzy.

That’s neither here nor there — we all have our own theories on why the movie failed, and rest assured that it had nothing to do with the number of books Cussler has sold over the course his career. What continues to fascinate us, long into this three-day weekend, is the lack of clarity surrounding the squishy concept of “sales” when it comes to the publishing industry. It is almost as if the press expects the same guidelines applied to the sales of McDonald’s hamburgers to translate to the book business.

Accounting practices in the publishing industry make accounting practices in the motion picture industry seem downright transparent. There are valid reasons for this. Lots of books are printed and shipped and sent to various places around the continent/world. Then they are put on shelves where consumers pick them up, read the cover copy, and then, if the fates are willing, buy them. Those books not sold to consumers are eventually returned to the publisher. It’s a cycle, not an end game.

(Side note: a recent Los Angeles Times article suggested that the above scenario is unique to the publishing industry. It is only unique in the sense that the home entertainment business, music business, and, we believe, many other businesses apply the same principles.)

What authors see on their, sigh, semi-annual royalty statements, said statements issued an unaccountably long time after the close of the accounting period, is generally a calculation based on number of units “sold”, or, more likely, shipped to customers with the hopes of being sold. Then there’s a lovely reserve for returns, liquidated, presumably, once every generation. Other deductions are factored into the mix as necessary.

In your basic unit-based accounting, the author would know the number of units used to calculate the royalty for sales. It is trickier, naturally, to determine the actual number of units associated with the returns provision. Trickier, but not impossible. You’ll need a calculator. As actual returns happen — and, sadly, this is a very long process we’re talking about, not an overnight turnaround — those individual units are easily counted. Sure, there’s potential for shrinkage throughout the chain, but modern systems can provide fairly accurate inventory numbers.

Now this is where things can get fuzzy. Some books are published and returned and are never seen again. Other books are locked in the perpetual publishing cycle. They go out, they come back, they go out again, there are multiple printings, the whole shebang. The Los Angeles Times suggests that there is even confusion over formats — all of that moving between hardcover and trade paperback and mass market paperback. No, darlings, there is no confusion on the side of the publishing houses.

Publishers don’t like to share numbers with the general public because, well, it would reveal that there is indeed a man behind the curtain. To do so would make the New York Times “bestseller” list (among others) a joke. It is near-impossible to say that a book that sold only 5,000 copies is a bestseller; this scenario only becomes workable when the definition of bestseller is unique and proprietary and not necessarily based on comparing actual units moved across the entire book population.

But publishers know these numbers and they are bound contractually to accurately report these numbers to authors. Publishers, after all, only license these books from the authors; they do not, as a rule, own them outright. The question of what constitutes “books in print” or “books sold” or even “books shipped” is a bit fuzzy. It is easy enough to print a million copies of a book. If you accept that 30 to 40 percent of those books are returned, then you, conceivably, have between 600,000 and 700,000 books sold. Authors also know these numbers, though many decide that accounting is hard and willfully refuse to understand their statements.

Back to the notion of sales. For the sake of argument, let us suggest that a publisher takes out a New York Times advertisement on behalf of a famous author. The ad copy states that said author has 5,000,000 books in print. Perfectly possible. How many of those books translated to cold, hard sales is another question. For example, when is a book sold? When it transfers from the publisher to the distributor? From the distributor to the bookstore? From the bookstore to the consumer? These are all sales, with different caveats attached, which might go a long way in explaining the so-called disparity between two sets of sales numbers cited by different sources.

Any time sales are touted in trade publications, you can bet the figures are designed to assuage an ego or two. You have heard of truth in advertising? Well, there is truth and then there is truth.

(Another note: the LAT suggests that motion picture industry types are surprised by how publishers do their accounting; these are the same industry types who regularly over-inflate their DVD “sales” in trade publications and advertisements…they know exactly how the game is played.)

All of this is our kind, gentle way of saying that Philip Anschutz either didn’t do proper due diligence before handing over $10 million or he didn’t understand the numbers he was seeing. Detailed analysis of Clive Cussler’s royalty statements would have provided a number that, while not perfectly, exactly, precisely reflective of actual “sales”, would provide something close enough for government work. Or rights negotiations. Anschutz could have, if he considered the $10 million a great sum, even demanded that Cussler perform an audit of his publisher’s books to verify the numbers on the statements, or at least the auditable numbers.

We don’t have much sympathy for the Anschutz argument here. While there are many facets to this case, this aspect feels like buyer’s remorse. On the other hand, it gave us a chance to discuss one of our favorite topics!

[tags]books, publishing, Philip Anschutz, Clive Cussler, accounting, royalty statements[/tags]

File Under: The Business of Publishing

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