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Net Sales > Net Sales - Pg. 186

The Publishing Contract Note 186 NOTE Where the publisher will be sublicensing game production to another publisher (in another territory, forinstance), most of the deductions listedhere will already be taken out of theroyalty received by the publisher andshould not be deducted again from thepublisher's receipts. (See Sidebar: It'sNot Such a Small World, After All.) · Credits. Refunds issued by the publisher to the distributor. · Return reserve allowance of 10 to 20 percent (liquidated after two periods or 180 days, whichever is shorter). When a publisher sells product to a distributor, some of the product usually comes back if it doesn't sell through in retail. However, a publisher does not know what portion will come back until some time later, usually a few months. To protect against paying a royalty to you for items that are later returned, the publisher will maintain a return reserve allowance . Essentially, the publisher will set aside 20 percent of the revenue from a given period and not pay royalties on it until enough time has elapsed that the publisher is comfortable that any returns from that period have come back. Example: A publisher who maintains a 20 percent return reserve al- lowance for 120 days sells 100 games to the distributor in January. It will pay you royalties on 80 games. Four months later, the publisher will look to see how many of the games sold in January have been returned. If only five games were returned, the publisher will liquidate the January reserve and pay you royalties on the allowance less actual returns (20-5=15). · Returns. If, on the other hand, the number of returns exceeds the allowance, the publisher will want to deduct those units from any royalties it may owe. · A commercially reasonable number of promotional units/rebates. Publishers will send out a cer- tain number of free copies of the game--to the press, to retailers and distribu-tors, anyone it wants to sell the game--to help market the game. Sometimes a rebate will be offered on sales of the game. A developer will want some kind of a cap on the number of promotional units a publisher can give away. · Lost and damaged goods and write-offs. A publisher may want to add on other deductions for · Cooperative advertising and MDF funds. Cooperative advertising is funded by several groups in an industry to advertise together. MDF is short for market development funds, which is money paid to retailers to secure shelf space, end caps (the high-visibility displays at the ends of aisles), and advertising (in circulars, for example). · Cost of goods sold. All costs that the publisher puts into the finished product, from manufacturing to packaging and license fees. · Manufacturer's platform royalties. The publisher must pay a royalty to the owner of proprietary platforms (like Sony for the PS2 or Nintendo for the GameBoy) for every game sold. This is how console manufacturers earn their profits--they generally lose money on the R&D and manu- facture of the consoles, but make money through the royalties publishers pay to create games for the platform. · Price of name talent in association with a licensed property. If your company is doing a licensed game for a movie, for example, and the publisher insists that you use the voices of the film's actors, the publisher will want that to be considered a development cost. · Sales taxes and VAT. VAT is value-added tax , a tax imposed by many countries on all finished goods. Some people think it's how Canada prevents more Americans from moving there. · Shipping charges. If these are included, a developer will at least want to limit the deduction to charges actually paid to unaffiliated third parties (alternatively, limit shipping and handling not to exceed $ X ).