01 November 2005

Return of the Returns

Authors (and, for that matter, other creative people paid on a royalty basis) should be scared of two kinds of returns. Returns of unsold books (and CDs, and DVDs, and videotapes, etc.) are the dirty not-so-secret of the royalty-based segment of the entertainment industry. Even Harry Potter can't avoid this problem—the returns look like they're going to kill Scholastic's earnings this year. Two and a half million returns? Against a typical trade book's first-edition casebound print run of 10,000 or less?

In years when it publishes a new Potter, the book accounts for around 9 per cent of Scholastic's annual $2bn in sales. But far from guaranteeing high profitability, Scholastic's performance since the first Potter in 1998 has been woeful, even though it has netted $600m in revenue from the franchise.

"Harry Potter and the Half-Baked Print Run," Independent (01 Nov 2005). One must ask just what kind of genius it takes to have difficulty making a profit from $600 million in revenues on a property that originally cost $100,000 or so in rights fees.1

The other kind of returns in question are tax returns. If an author lives and works in, say, Florida—a state with no income tax—and licenses a book to a publisher based in New York, does the author need to pay income tax to New York state on the (almost certainly) paltry income he/she will garner from the New York-based publisher? Maybe. The New York Court of Appeals2 ruled that a telecommuter in Nashville must pay New York income tax on every dime earned from his New York-based employer, because living in Tennessee was only for the convenience of the telecommuter. Of course, this should matter only for employees, right? Hint: Does the phrase "work made for hire" have anything to do with employment status? At present, New York's law concerns "telecommuters." Since very few authors do their work in a publisher's editorial offices in Manhattan… none of which is to defend New York's practice, which (despite the refusal to grant certiorari) is of dubious constitutionality—Quill (a wrongly decided case) notwithstanding.

  1. The obvious answer is "somebody in Hollywood." Is that a cause, though, or merely a symptom?
  2. It's rather strange that almost every other state calls its highest court of general jurisdiction the "Supreme Court," but that's actually the lowest court of general jurisdiction in New York. Further, a "court of appeals" is an intermediate court almost everywhere else. The exception? Texas.