Deferred Revenue and Other Publishing... Log Out | Topics | Search
Moderators | Register | Edit Profile

HOME | CATALOG | DOWNLOADS | LINKS | EDITORIALS | DISCUSSION | CONTACT

Topics | Last Day | Last Week | Tree View | Search | User List | Help/Instructions | Log Out | Edit Profile | Register
Night Shade Message Boards » Electric Velocipede » Deferred Revenue and Other Publishing Questions « Previous Next »

Author Message
Top of pagePrevious messageNext messageBottom of page Link to this message

John Klima
Posted on Tuesday, September 28, 2004 - 08:57 am:   

OK, I've moved the deferred revenue talk from F&SF's board to here, since it was not entirely pertinent to the discussion at hand. Plus, if people have other publishing questions, I can do my best to answer them.

Here's the text if you missed it:

*************************************************
I think it's a very simple issue. When I pay for a subscription to a magazine that advertises itself as a monthly, bimonthly or quarterly magazine I expect to receive the 'zine on that timetable. And if there is a problem I expect the publisher to communicate what that is.

I received a mailing hawking DNA subscriptions just a few months ago. If I had sent in a check for Absolute Magnitude and it had been CASHED and then I was hung out to dry, like Jill, I would be mondo pissed.

IF YOU SPEND PEOPLE'S MONEY YOU HAVE TO DELIVER!!!

**********************************************
By John Klima on Tuesday, September 28, 2004 - 07:49 am:

But with magazine publishing, the publisher cannot realize the money in their accounts until they supply you with product. So, if DNA takes your check for $16 for four issues (I'm simplifying the math for myself) they can legally realize $4 of your check for every issue they send you. Until they send you product, they cannot touch that money. It's called deferred revenue, and any company that publishes subscriptionable product has to work this way; one so that they can't be sued for using money for product the customer hasn't received, and two, so that they don't have to pay taxes on all the money that's come in.

Having said that, I do not know what/how DNA handles deferred revenue in regards to magazine publishing.

JK

************************************************
By des on Tuesday, September 28, 2004 - 08:14 am:

JK says: So, if DNA takes your check for $16 for four issues (I'm simplifying the math for myself) they can legally realize $4 of your check for every issue they send you. Until they send you product, they cannot touch that money.
***********

I find that very interesting. I didn't know that was the legal case. And maybe it isn't in the UK where I am.

I decided, from the beginning of Nemonymous, that I would not offer subscriptions. I have always thought, in fact, that no Small Press magazines should offer subscriptions unless they can afford a 'company' accountant. And I make this opinion with no reference to the current specifics above or elsewhere. Just a gut feeling.

**********************************************
By John Klima on Tuesday, September 28, 2004 - 08:30 am:

Well Des, I can only speak of how things work for companies like Time Warner, or Aspen Publishers (whom I currently work for) that bring in major amounts of $$$ from subscriptions. Something the size of Nemonymous and Electric Velocipede probably couldn't afford to defer revenue, and there's just not enough coming in to make it worthwhile. My costs are bigger than my income for the zine, so deferring revenue only makes that more evident.

However, someone the size of DNA should be using some sort of deferred revenue scheme. I think it all comes down to whether you make your livelihood on the endeavour or not.

I also know that the tax issue is probably the biggest reason for why this is done. If you have 100,000 subscriptions at $12 apiece for 12 issues of your magazine, and your subs run from this year into next, you wouldn't want to have pay taxes on $1.2 million if you didn't have to. So you defer the revenue until the customer gets each issue and then you only get taxed on the $ value of the product supplied. Then it becomes something like $600,000 instead of $1.2 million, which makes a significant difference.

JK

***********************************************
By Patrick Samphire on Tuesday, September 28, 2004 - 08:34 am:

John, I'm sure you're right about the legal position regarding cashing checks for subscriptions, but I do have to say that every single magazine I've ever subscribed to has cashed the check right at the beginning of the subscription. In fact, I'd be pissed off if they didn't. I hate it when people hang on to checks forever then cash them unexpectedly. Furthermore, don't checks cease to be valid after a certain period?

It's not a great situation, but *many* magazines fail to keep to publication schedules. It's a given in this field, much as we'd hate it to be otherwise. ET pointed out Black Gate as an example. Interzone has recently been unpredicatable (luckily with the new publisher this is likely to be fixed). Truth is, most magazines are run by people who are basically volunteers: almost no magazines make money.

None of that justifies Mr Lapine failing to refund money, if that is what he has done, when subscriptions are not honoured, but if you enter this game expecting a perfect publication schedule, you're destined to be disappointed.

************************************************
By John Klima on Tuesday, September 28, 2004 - 08:45 am:

The magazine will have cashed your check, but they cannot use the money. Thankfully, you're not their only subscriber. They have existing subscribers, who they have supplied products to, and that money is available for them. The money you sent them is not available for use until they supply you with product.

This is why you'll often start getting issues with your bill or before you receive a bill. That way, when you pay, they've already supplied you with at least one issue's worth of product, so they can realize this much money immediately out of your check. For a place like People, who proably adds several hundred subscribers a day (and you check, bill me later...so they do, and send an issue), this can add up to several hundred if not several thousands of dollars every day that they can realize once the checks come in, since they've probably sent you at least one issue already.

Now, if you are doing deferred revenue, this means that if someone wants a refund, that money is technically available. The publisher hasn't used it for anything, and should be able to provide it relatively easily. It may not be speedy, but it should happen.

As I said in my previous post, or at least meant to, deferred revenue typically doesn't apply to small press. It doesn't benefit anyone.

And for the record, I also hate it when someone holds on to a check for a long time.

JK

***********************************************
By des on Tuesday, September 28, 2004 - 08:48 am:

if you enter this game expecting a perfect publication schedule, you're destined to be disappointed.
*****************

I agree with that completely - and certain tolerance levels should be given to 'labours of love' like the Small Press.
However, regarding the point about cashing subscription cheques immediately, I guess the answer is that part of that money should be put in a 'deferred account' (in accordance with JK's point) and not touched till the various future issues come out. Which, to my simple mind, seems to defeat the object of having subscriptions in the first place (other than perhaps the interest being earned on the deferred account?). des

************************************************
By John Klima on Tuesday, September 28, 2004 - 08:50 am:

Deferred revenue only works when you're talking about $100,000s or $1,000,000s. Then you've got enough money on hand from supplied issues to cover costs (plus the $1,000,000s of advertising money) that you can afford to defer revenue. Otherwise it's self-defeating.

JK


Further questions?
Top of pagePrevious messageNext messageBottom of page Link to this message

des
Posted on Tuesday, September 28, 2004 - 09:00 am:   

From Des:

In which case, John, if you have a subscription system, are you legally obliged to have deferred revenue? If so, my point that Small Press mags should not offer subscriptions at all unless they can afford a proper accountancy procedure for it seems to hold weight (which is a view I've held instinctively for the 20 odd years I've watched and been involved in the Small Press).
des
Top of pagePrevious messageNext messageBottom of page Link to this message

John Klima
Posted on Tuesday, September 28, 2004 - 09:05 am:   

No you are not. You are only obligated to use deferred revenue if you want to avoid paying taxes on all the money in your bank account. You do deferred revenue so you can tell the government "Please don't tax me on the $6 million I have in my bank account, only tax me on $2 million, and here's why."

I keep track of what people have paid for and what I have supplied them with. Should someone want a refund, I will provide them with a refund, minus the value of the product I supplied to them. Now, should someone be totally unhappy with the product they got, I would probably give them a full refund. If a subscriber appears in an issue as a contributor, their subscription gets extended an issue.

I don't defer revenue because there is not enough revenue to make it worth deferring. There is not enough revenue to even cover the costs.

JK
Top of pagePrevious messageNext messageBottom of page Link to this message

John Klima
Posted on Tuesday, September 28, 2004 - 09:10 am:   

If you don't defer revenue, and need to provide refunds, it can be difficult to come up with the money. Unfortunately, a lot of small press endeavours that fall by the wayside (or go incognito for years) don't worry about such things. There are some subscriptions that I've bought over the years that I never received any issues for and the magazine has since disappeared. Not that I like it, but I can let $10 or $15 go. They probably didn't have a big subscriber base. I would hope should something disastrous happen to me that people would be understanding about either waiting for issues or whatever. I would like to think that I would contact people and let them know what's happening. It can be frustrating to hear nothing.

JK
Top of pagePrevious messageNext messageBottom of page Link to this message

des
Posted on Tuesday, September 28, 2004 - 09:20 am:   

Over the years, I've seen literally hundreds of magazines fold (ones that started very enthusiastically - but then life crises (usually marriage!) intervene, loss of interest in the project etc) --- whatever - and subscriptions are often not repaid. Time and time again it has happened. That's why I would be very wary about offering subscriptions - and it makes sense to pay for the first issue from the capital one should have saved up for the project, then sell them. Repeating the procedure for issue two. Seems cleaner and more logical. The drawback is that you have to keep renewing your customers every year instead of every four years!
des
Top of pagePrevious messageNext messageBottom of page Link to this message

John Klima
Posted on Tuesday, September 28, 2004 - 09:27 am:   

Yeah des, it's not easy. Your plan is more akin to book publishing than to magazines, but the principles are the same. It would be great if each issue of EV provided enough $ to either pay for itself or for the next issue.

I'll keep working at it until it happens.

JK
Top of pagePrevious messageNext messageBottom of page Link to this message

Jetse
Posted on Tuesday, September 28, 2004 - 10:27 am:   

Des--

Chris Reed of BBR-distributions offers a so-called "standing order" for his customers: http://www.bbr-online.com/catalogue/Help/StandingOrders.shtml .

Or, to quote:

Key features of the BBR Distribution Standing Order service:

1. You receive the latest issues of your favourite magazines as soon as they're published.
2. You get a discount on the regular catalogue price.
3. You don't have to tie up your money in multiple subscriptions.
4. The publisher is still guaranteed sales of forthcoming issues.
5. The balance of your money is protected if a magazine closes down.
6. There's no minimum period that you're committed to taking a particular title.

I have lost subscription money to several magazines that folded (Spectrum SF, 3SF, The Edge [UK]), and while I accept this as a sad part of life (I rather wish they survived), it does nag a little bit.

This "standing order" is some sort of solution to that problem. I always try to support the magazines that interest me (which are quite a few), and do subscribe to most.
But in some cases I have taken a "standing order" with Chris Reed--namely, for Aurealis, Albedo One, Midnight Street, On Spec, and Talebones--and find that this works quite well.

Only disadvantage is that the issues arrive somewhat later then when they were shipped directly by the publisher, but it does reduce the risk for the subscriber, and might ease the mind of a conscientious publisher.

Maybe you could make Nemonymous available for a "standing order" with Chris Reed?

Just a thought.
Top of pagePrevious messageNext messageBottom of page Link to this message

John Klima
Posted on Tuesday, September 28, 2004 - 11:03 am:   

Jetse:

That's a great option. It's something small press could potentially do themselves. Again, it's something we do at my job. You order the 2004 edition of some book, and you get added to a standing-order base. Then, when a new edition comes out, or a supplement to the main edition, as part of the standing-order base you get the new edition/supplement. And an invoice.

Note sure how that would have to be modified for the small press model...would people want a subscription they paid for as issues came out? Maybe, for the small press.

JK
Top of pagePrevious messageNext messageBottom of page Link to this message

Clarkesworld Books
Posted on Friday, October 01, 2004 - 11:01 am:   

I really like that standing order idea. I'm going to see if I can work that into my store.

-Neil
Top of pagePrevious messageNext messageBottom of page Link to this message

John Klima
Posted on Friday, October 01, 2004 - 11:27 am:   

It's a great idea for a store like yours Neil, since you carry quite a few magazines. When I was really into collecting comic books, there were stores that you could set up a list of all the titles you wanted and they would set them aside for you. I'm sure they still do that today, I just don't buy as many comics as I used to.

JK
Top of pagePrevious messageNext messageBottom of page Link to this message

Jonathan Laden
Posted on Wednesday, July 06, 2005 - 07:30 pm:   

John, I don't agree that companies who defer revenue aren't touching the loot.

I am an MBA, though - and I stress this - not someone who has ever done large business accounting.

My understanding from the courses that I've taken (and all the business pages that I've read) is that just because company A "defers" revenue that doesn't mean company A doesn't spend the cash.

Companies keep two sets of books, one for cashflow and one for accrual accounting (offsetting revenues against the period in which the matching expenses occur).

[In my biz school accounting class, we discussed companies reporting increasing losses for tax purposes and increasing profits to their shareholders in the same fiscal quarter. The "reality" is doubtless a third thing altogether.
When the Enron scandal broke, my only big surprise was that anyone would be surprised...]


When a magazine goes out of business, the publisher sometimes sells the right to fulfil the remainder of their subscription obligations to a competitor. Any unspent money, deferred or not, would go to creditors first, not refunds of the unfilled portion of subscriptions.



Top of pagePrevious messageNext messageBottom of page Link to this message

John Klima
Posted on Thursday, July 07, 2005 - 09:48 am:   

Well, I can't argue with that. They shouldn't be touching the loot, but whether that's the truth....

Having grown up the child of an auditer, sometimes I have a pie-in-the-sky mentality over how businesses run. Sort of a, "this is the law and no one would break it because it's a law" concept.

From my personal experience (at least what accounting tells me; and that's only enough to do some programming and send the money to the right places) our deferred revenue is reported to the general ledger as a debit, thereby reducing the total value of what's in the ledger. But, that's the extent of my accounting knowledge.

None of this argues against your points, BTW. Our general ledger could be viewed as accrual accounting with a separate ledger someone else that holds different information. I don't know.

JK
Top of pagePrevious messageNext messageBottom of page Link to this message

Jonathan Laden
Posted on Thursday, July 07, 2005 - 10:49 am:   

I don't think any laws are being broken, sadly. (In a similar vein, banks are only required to have a small fraction of the money they are supposedly holding in our savings accounts. AND our entire currency is propped up by only the good faith of the US Government. The entire world economy is a ponzi scheme, when squinted at in the right light.)


I do share your frustration that businesses, large and small, don't treat their commitments with the gravity they deserve.

Add Your Message Here
Post:
Username: Posting Information:
This is a private posting area. Only registered users and moderators may post messages here.
Password:
Options: Enable HTML code in message
Automatically activate URLs in message
Action:

Topics | Last Day | Last Week | Tree View | Search | User List | Help/Instructions | Log Out | Edit Profile | Register