Understanding Foreign Rights Sales, and Author's Advance
(First posted to Facebook, November 27, 2009 in order to answer questions about what an advance was, and what different types of rights meant.)
1) Rights: When a publisher purchases a manuscript, they contract for specific publishing rights to that manuscript. The rights can be narrow or grand, and the author's advance is typically commensurate to the scope of the rights the publisher purchases. Whatever rights the publisher doesn't take are still available to be sold to other entities.
In the case of THE INFORMATIONIST, the publisher bought world rights. This entitles them to turn around and sub-right those that they don't intend to use.--No matter how excited a U.S. based publisher may be about a title, chances are slim that they will translate and then publish that book in, say, Croatian. By making these sub-rights available to--for example--Croatian publishers, they have the possibility of reaching the Croatian market should they find a buyer. They also have the possibility of recouping from foreign sales a portion of their own investment in the book.
When a publisher purchases world rights, the proceeds of any sub-rights are explicitly spelled out in the publishing contract. Although the intricacies are many, for the sake of keeping it simple, industry standard has most foreign sub-rights split at 25% to the publisher and 75% to the author.
2) Author's advance: The money that the publisher pays to an author for their book is called an advance, and what this really means is "in advance of royalties." When making an offer, the publisher sits down, does some math and figures about how many copies of the book they believe they can sell. Sometimes they underestimate, sometimes they overestimate, but based on this figure, they make an offer on the book rights they wish to buy.
This advance is the author's to keep whether the book sells zero copies or a million copies. If the book doesn't sell, the publisher takes a loss. If the book sells well, then everyone is happy.
If the book doesn't sell, obviously, the author won't be getting any more money for that piece of work. However, even if the book sells well, the author won't receive anything more until the advance has been earned out--meaning, enough copies have been sold for the publisher to recoup the money it has already paid.
How much of each sold book is applied to earning out the advance is also written into the publishing contract and the percentages are more-or-less standard based on type of book (hardback, trade, mass market, etc.) and quantity sold. This percentage is called a "royalty." Larger advances require many more books to be sold to earn out the advance and thus receive royalties.
Since the author has already been paid for the work, and that money is his/hers to keep regardless of how the book actually sells to the public, why should he/she care if enough books sell to earn out the advance?
Most authors hope to be able to sell more than one book. If a publisher has overpaid for the last book, or if the book didn't sell well, they may be hesitant to take on another book by this author--or if they do, they're going to offer far less money for it.
Enter the beauty of foreign sales. With 75% of each foreign sale being applied toward the author's advance, the number of books that must be sold nationally in order to reach that magical "break even point" is lessened considerably. It is even possible with a large enough foreign sale (or enough small ones) to earn out the advance before the book goes to print.