Tilting at Windmills

Thu, June 17th, 2010 at 11:58pm PDT

Comic Books
Brian Hibbs, Staff Writer

MORE ON DAY-AND-DATE

I had kind of hoped I was done talking about digital, for at least a little while, but I think there are still bits that people are confused enough about that staying on the topic for another month might make some sense.

My trigger this month was a blog entry by Scott Kurtz of PVP fame. Reacting to retailer reactions of the news that Marvel's first "Day and Date" comic (Invincible Iron Man Annual #1, a $4.99 comic book) would be split into three chapters, each selling for $1.99 as a digital download (or $5.97 total), Kurtz said

"The only problem with that thinking is that Marvel Comics isn't in the business of keeping retailers solvent. Marvel Comics is in the business of producing and distributing comic books to as many readers as possible. At least it SHOULD be. And if digital distribution has a chance of being more profitable than brick-and-mortar store distribution then Marvel owes it to it's readers, creators and stock holders to pursue that business without having to worry about someone else's business for nostalgia's sake."

The problem is that Marvel really isn't in the business of "producing and distributing comic books to as many readers as possible" – it is actually in the business of both keeping itself solvent, as well as making as much money as it possibly can from the sale of its products.

Now, glowing rhetoric that the Direct Market is Marvel's most important customer aside, I think it is reasonably safe to say that, for any publisher, if they thought they could make more money selling digital downloads than selling print copies, they'd embrace it in a shot. That's just business, and anyone who thinks otherwise is probably fairly foolish.

But why don't we look at some numbers?

Let's take the month of April, 2010 for example.

John Jackson Miller estimates that total sales for the Top 300 comics and Top 300 TPs were $24.86 million in April of 2010. Marvel has a 44.87% share of those dollars, or what would be $11.16 million.

Eleven million dollars – that's not a small bucket of money – especially for a single month. That is from, roughly, 2.67 million comic books sold, plus whatever the TP sales were (JJ doesn't provide enough detail for me to whip that figure up...and I'm too lazy to go through with a calculator)

There are costs associated with the delivery of physical comic books, certainly. There is the retailer discounts, a (small!) cut for Diamond to distribute them, and, of course, the cost to print and ship the physical items. While a few of those numbers are probably a little murky (Marvel [along with DC] technically sell directly to retailers, with Diamond only acting as a sales agent – so, when they sell to Billy Bob's Comics Hole, they're selling it for a very different price than they're selling it to John's Big Regional Chain Stores), I suspect it is fairly likely that the cut to every other partner combined is pretty close to, in aggregate, of 65% of the total cover price.

Which would leave $3.9 million dollars in April, 2010.

So let's try and run some numbers on the digital side.

The "preferred price" for a digital download from a number of commenters would seem to be 99 cents. That seems at least a little rational – you don't have a physical object to keep, and that's roughly in line with what a single song download is (though most new music is $1.29, at least).

The thing is, there are also costs to distribute digitally. Anything that goes through Apple's App Store means that Apple is taking 30% of the retail price. Further, I have to assume that Comixology, which is facilitating the Apps, isn't doing it for free (that would be...mental), though who knows how much of a cut they're actually taking. Lowballing it, I'll go ahead and guess that the cost to digitally distribute a work is in the range of 33% of the retail price, which would mean that a 99 cent download yields them 66 cents of revenue.

(Sidebar: this also ignores the impact of advertising in the print comics. This may not be a vast revenue stream, but it is a revenue stream that you lose through digital...)

So, to make the same $3.9 million revenue that they do from print comics, at 66 cents per digital download, they'd need to sell 5.9 million copies, or more than twice as many print comics as they currently do!

Well, what about at a $1.99 retail price? That gives them $1.33 per unit, or "only" 2.9 million downloads – but that's still greater than the 2.67 million physical comic books sold to gross the same amount.

"Bah!" you snarl, "that's not a fair argument whatsoever! The idea for digital comics is to go to new readers!"

Well...sure. And I'm on record for absolutely supporting the idea of digital readers as being "the new newsstand". But I have to ask you, with all sincerity, why does a new reader need to have comics with day-and-date release? For a new reader, "Batman" #690 is just as new as "Batman" #700. Hell, so is "Batman" #600.

I totally get pundits like Augie De Blieck Jr. Augie is getting older, he has a family and more responsibilities and it is harder and harder for him to get himself to the comic book store every week – hell, he doesn't even want to go to the comic book store for print comics any longer. They cost too much, they take up too much room, and so on. I get it. He wants to stay current with his favorite hobby, I get it, but he no longer wants the physical object, or to pay the full price for them. The theory is that there are a lot of people out there like Augie – people who, in theory at least, represent "found money," money that the publishers won't be capturing without digital.

I don't even really object to this theory too much – clearly, there must be thousands, perhaps even tens or hundreds of thousands of people out there just like Augie who either can't get to the comics shop, or don't want to, or, maybe even, live outside the US, who could be tempted to buy comics again if only they were available digitally. Why can't we serve those customers today right now in the same way we serve print customers?

Because we don't want to capsize the entire distribution model for comics.

Here's the thing: if comics are Day-and-Date and they cost anywhere between 25 to 66% of the print comics you're going to see some amount of channel migration – that is, customers moving from print to digital. How much? Who knows? But even a relatively small percentage loss could cause stores to go out of business in droves. Comic book stores are small businesses – and most small businesses are perpetually on the edge, almost certainly with average pre-tax profits of under 10%. Lose too many customers in channel migration, and those businesses are going to fail. If those businesses fail, then so does Marvel comics.

Unless you can guarantee them they'll see at least the same revenue from the digital distribution.

The thing about digital, however, is that no one, not me, not Marvel and most certainly not you, have any idea how the bulk of "new" digital customers will behave.

By this I mean: we have a fairly good modeling analysis of how DM customers behave – once you've established your baseline of a title's sales, you know that most of your audience will stick around month-after-month. Look at the sales charts analyses that get created each month: books with stable creative teams that are well regarded on established characters tend to drop by a fairly fixed percentage every month (1-1.5%, on average), and there is a dependability to the audience.

We don't know how this new digital audience will react, however. If they buy Batman #700, how many of them will still be buying "Batman" #701? #710? #725? This is essential and key to the long-term success of digital day-and-date releases: will digital customers behave in the same "gotta have them all" fashion as print buyers?

(Me, I think that for the first year or two of any day-and-date experiments that digital buyers will probably do nothing but increase month-to-month – going from "zero-to-something" will almost always have that behavior, but I'd want to be looking very very closely at retention reports to try and discern long-term behaviors and how they're different in the digital space)

But, come on, even the most pro-digital, rah-rah guy has got to understand that for a company like Marvel or DC, you're talking about millions of dollars of revenue every month, and that making any kind of sudden or unthoughtful line-wide day-and-date movement would be extremely irrational, until you see what the results would be for your overall sales.

I think a lot of digital boosters believe that the size of the untapped Marvel audience - that is people who would buy a 3-10 current releases each and every week, "forever," but either can't or won't for whatever reason – is many multiples of the current audience. I have some pretty severe doubts that this is the case.

There's absolutely no doubt that for certain specific works there's a multiple-times audience that print isn't going to capture, but I strongly suspect for the majority of the bread-and-butter Top-100 monthly, continuity-driven superhero titles that drive most of the comics revenues of Marvel and DC, that won't be the case.

At the end of the day, when you have a market that is dependably churning out $3 million in post-distribution gross, and, more importantly for the interconnected nature of the Marvel and DC "universes," can be forecasted fairly accurately, then making sure you don't dismantle your existing infrastructure in the pursuit of what should be new dollars is incredibly prudent.

Let me be clear: I'm all for digital, and I know that it is absolutely inevitable that all comics will eventually be for sale digitally. I also believe that digital and print can coexist peacefully, but that how we negotiate getting from one place to the other is going to have to be a relatively slow and delicate dance. If you suddenly open the floodgates without carefully planning the transition, the existing infrastructure will collapse, and pro-digital punditry aside, for the kind of material that makes the bulk of the sales for Marvel and DC, you can't be sure that those dollars are 1:1 replaceable.

Ironically, if you are Augie, it's really in your best interests if this experiment of Marvel's works, and works well. If it can be established that digital readers will show retention over a story (that is if part 3 sells about as well as part 1), and if print sales aren't badly affected, then you're a giant step forward in proving out the concept.

There's one other note about Day-and-Date that may be worth making: as things are currently structured, it may in fact be possible for a lot of books to hit those marks.

At issue is that I've been told that it takes three weeks from submittal of an app to approval for publication. The problem is that many books aren't being finished up until their drop-deadest deadline...and for many books, especially the "top books" that make everyone the most money, that drop-deadest deadline is under three weeks.

Obviously, that doesn't mean structures and deadlines couldn't be adjusted going forward, but the "star system" we have in superhero comics has made that somewhat problematic.

At the end of the day, Day-and-Date is coming, but for Marvel and DC it will be cautious in the coming – it has to be for economic reasons; there's too much money at stake to lose, and while the promise of the digital market is potentially great, whether the success for an interdependent superhero universe will happen in that space is entirely a different question altogether.

Brian Hibbs has owned and operated Comix Experience in San Francisco since 1989, and is a founding member of the Board of Directors of ComicsPRO, the Comics Professional Retailer Organization. Feel free to e-mail him with any comments. You can purchase a collection of the first one hundred Tilting at Windmills (originally serialized in Comics Retailer magazine) from IDW Publishing. An Index of v2 of Tilting at Windmills may be found here. (but you have to insert "classic." before all of the resulting links)

TAGS:  tilting at windmills, digital comics

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