Friday, June 18, 2010

And Another Thing About Digital Comics...

So I'm reading Brian Hibbs' latest "Tilting at Windmills" and, as always, he provides one of the more well-reasoned responses/thoughts from the comic retailing side of the industry. And it prompted a number of thoughts.

1)
I've done some numbering crunching of my own -- based on the decidedly limited and very rough financial data I have -- and came to a similar conclusion that any Marvel/DC comic would need to sell about twice as many copies digitally as a print version to make the same amount of profit. However, my take on that is more positive because that means the latest issue of Daredevil would only need to sell around 70,000 digital copies to earn the same profits it's earning now. Hibbs is certainly right to note (in the comments over there) that we absolutely do not yet have a model to say whether or not that's likely, but that's exactly the point of this experiment they're doing with Iron Man Annual. To get at least some sense of what those numbers might look like.

Personally, I think 100,000 downloads of a comic like that is totally realistic and possibly even quite conservative over the long term. But that's mostly just a guess on my part.

2) I want to emphasize my over the long term comment. One aspect that Hibbs did not bring up is that digital comics, by the nature of their not requiring any actual shelf space or the need to be reprinted ever, have a decidedly longer shelf life. Right now, Marvel doesn't make any money if you hunt through a slew of long boxes and buy a printed copy of Marvel Two-in-One #21. They made their money on that comic back in 1976, and they don't earn anything else on its current re-sale. But a digital version of the same issue, even 20 year from now, will be that much additional profit.

(Yes, I realize that that particular issue would have a bunch of legal rights tied to that make reprinting in any form unlikely.)

The shelf life of a new comic now in a comic shop is 30 days with most of the sales happening in the first 7. A digital comic extends that, effectively, into infinity with no extra work on the part of anyone. We're not talking initially impressive sales numbers, I'm sure, but rather we're talking about a long tail model.

Again, I'm not saying that guarantees anyone could sell 100,000 digital copies of any given comic. I'm just saying that the sales model will likely be very different, and not one that can be realistically calculated in even a few months.

3)
Let's assume for a moment the worst case scenario for retailers: Marvel and DC do same day releases on their digital comics at the same price or lower. Further, let's assume that every single current reader switches to digital immediately. Obviously, this would have a HUGE impact on the current retailers and they would almost all close within a month. Let's even assume that they don't pick up a single additional customer via digital channels.

What we've just created is a situation in which the current distribution model is gone entirely. No brick and mortar retailers. No Diamond. And because of that, as noted in point one, Marvel and DC would effectively halve their publishing income. For the major publishers, printed comics earn more money than digital ones if we're comparing equal volumes.

Got that?

You know what that means for Marvel? That means that, in a three month period, their operating income (for our purposes here, that's effectively what they have left after paying all their employees and rent and whatever) goes from $37 million to $32 million. (Numbers here based on their earnings statement from Q3 2009.)

Think about that.

If the entire comic distribution collapsed right now, Marvel would still have monthly earnings -- not sales, mind you, earnings -- of $10 million. Ten million dollars. Every month. Without a single sale at a single comic book shop anywhere.

Now, I'm not about to suggest that Marvel is going to do that. $5 million is a fair bit more than a drop in the bucket! Nothing to sneeze at, and not money to throw away idly. But my point is that Marvel (and presumably DC, but I don't have anything close to current financials for them to check) make a good chunk of their money from things OTHER than comic books. Yes, they will absolutely take a financial hit if there was a sudden and dramatic sea change like that, but it also should be noted that comic books are NOT critical to their business. Comic books, for them, are self-funded research and development. An immediate and comprehensive switch to digital would mean that they're not as well funded and they would probably have to cut their lower-selling titles, but they will carry on without any comic shop retailers.

That situation is highly unlikely to play out. No industry collapses THAT completely THAT quickly. But the moral here is that Marvel and DC inherently have a VERY different perspective on digital comics than retailers. Whatever they're telling retailers, no matter how sincerely individuals at those companies want the direct market to continue, they do not have their livelihoods on the line and will make business decisions accordingly. Publishers are not retailers. Publishers don't need the direct market the same way retailers do. They are two VERY different animals and there is absolutely NO REASON to expect that publishers will act in retailers' best interests.

This isn't meant as a critique of Hibbs' thoughts. I don't think anything here really contradicts what he said at all. I just think that these are some aspects of this digital push that have not really been discussed, and think they should be.

3 comments:

Brian Hibbs said...

"However, my take on that is more positive because that means the latest issue of Daredevil would only need to sell around 70,000 digital copies to earn the same profits it's earning now. "

I have a bit of a hard time believing that there are sustainably 70k people who *would* be buying Daredevil, but can't/won't currently. Only time will tell who is correct, however...

"One aspect that Hibbs did not bring up is that digital comics, by the nature of their not requiring any actual shelf space or the need to be reprinted ever, have a decidedly longer shelf life."

I tend to suspect that the Long Tail of random, not-beloved old comics (note: "old" can mean "last month", even) will be measured in annual sales in the hundreds, not thousands.

Now, in the aggregate, that could still mean hundreds and thousands of dollars of monthly revenue that's essentially "found money", but I'd be truly flabbergasted if old random issues of Marvel Two-in-One had monthly downloads that hit triple digit numbers -- certainly the annual sales figures for ESSENTIAL reprints (which end up priced fairly close to what Digital readers say they WANT to pay) via BookScan are under 300 copies for both volumes, and I suspect DM sales aren't really all that bigger. Obviously an ESSENTIAL isn't the same as a digital release, but I'm going to guess your sense of scale is off.

"The shelf life of a new comic now in a comic shop is 30 days with most of the sales happening in the first 7"

A shitty comic, yes.

However, I can find you a dozen periodicals or more that I'm still actively restocking a year or more after release because they still have strong velocity -- and that's not even counting certain "alternative" comics (Dirty Plotte, Hate annuals, Johnny the Homicidal Maniac, etc) that I'm still stocking A DECADE OR MORE after release.

But, yeah, they've got 4 weeks or less to sell this week's "Age of Heroes #2", for instance.

"That means that, in a three month period, their operating income (for our purposes here, that's effectively what they have left after paying all their employees and rent and whatever) goes from $37 million to $32 million."

That's logical (after a fashion) in the aggregate, but I think the thing you're ignoring there is that that would mean that "most" of the comics they produce wouldn't be earning back their creative costs... and thus "most" of their books would end up canceled, lowering their gross profits further...

-B

Sean Kleefeld said...

Thanks for stopping by and responding, Brian.

Like I said in the original post, I really am just guessing on long-term digital sales here. I've got absolutely zip to back that up beyond some vague hunch. Call it "digital proponent optimism" if you like. :) But by the same token, I do get the sense that you're thinking more pessimistically about it because, if a digital program from Marvel and DC were a big success, that could have a huge negative impact on your livelihood. I don't mean that as a slight. I've seen a few people that are very dismissive of your digital arguments, claiming that, "Well, he's just a whiney retailer because it'll disrupt his business." Let me be clear that I don't think that. I think you do have some very valid points. But I also think your retailer perspective could be skewing your view a little more pessimistically here. I certainly don't begrudge you for that, I just want to offer up another opinion.

I am surprised to hear that you've got books with a longer shelf life than a month. The retailers I've talked with on this (which, admittedly, only totals three) have all reiterated the 30 day life expectancy, and their stores are designed accordingly with only the latest issues really accessible. I wonder if that's mostly a difference in buying practices and/or clientèle...? They could well be assuming that ALL comics have a short life span and don't really consider what might be exceptions. I appreciate your insight here.

Finally, you do have a good point about Marvel losing out on more than $5 million in my worst case scenario. But my larger point -- that Marvel (and likely DC) do a decent amount business outside of selling comics and would still be a profitable company without them -- remains. I don't think that's a point you're unaware of, but it's one that I haven't seen brought up by anyone in the recent discussion of their digital experiments. Yeah, if whatever future experiments they have with digital go south in a big way, that will certainly hurt them as a company financially and the shareholders will get really pissed. But where I'm going with this is that they can withstand dramatic shake-ups in the comic industry, whereas retailers (I was about to add "like yourself" but you're more the exception than the rule in this regard, Brian) can experience huge upheavals at an individual level that might be only caused by small market tremors.

I'm just saying, for the people who might not be as versed on the business side of things, that the retailer and publisher perspectives here are going to be inherently different.

In the end, I think our only real point of divergence here is in how well digital comics will sell. As you pointed out in your TaW, that's just something we do not have a model for yet. I'm sure we'll all be interested to see the numbers with the Iron Man Annual experiment (not that we're actually likely to).

What's that old Chinese curse? "May you live in interesting times." :)

Brian Hibbs said...

I have less than no doubt that something will eventually selling "a million copies" -- if Spidey Meets Obama was on an iPad, I bet they could have sold a million of those for 99 cents, no doubt.

I just have a harder time believing that xx,000 people are going to be interested in buying {whichever specific book] digitally, month-in, month-out.

I may well be very very very wrong, but as I've watched my own market, the broader DM, the bookstore market, and so on, I just don't see some of the numbers that people are suggesting... not in a sustainable fashion.

Marvel and DC don't strictly NEED comics, no, but I really do believe that if either one of them gave up that business, within a decade or so after that they'd fall apart due to abandoning their core.

That's not to say the DM, itself, is the most important aspect of their business -- but that comics is the root of what they do, even if it isn't where most of thier revenue comes from.

-B