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An author-publisher agreement is a legally binding contract between an author and a publisher. In this arrangement, the author provides their written material, while the publisher pays royalties for exclusive publication rights. Royalties are typically calculated as a percentage, usually between 7.5% to 8% of the printed cover price for paperback and hardcover editions. More experienced or bestselling authors may negotiate higher royalty rates. The video discusses the nuances of royalty payments and highlights the issue of publishers potentially misleading authors with incomplete or inaccurate information regarding these payments.