Edit: To Clarify: No research was done, this was just my way of mostly trying to point out money went to a lot of places other than printing. >.> Sorry for the confusion…it’s been a long week.
Thoughts on Business Costs
The following are thoughts based on my personal experiences & through my own understanding. I’m not completely discounting current outcries over how much digital comics cost right now, but I’m also against cutting the price so much that the people distributing the comics can no longer function.
The Issue
There’s been a lot of discussion lately on the cost of digital comics & their distribution services like Comixology.
The argument that has me at ends for the moment, is the one that comics should cost significantly less digitally since there should be significantly less distribution/print costs involved. At first, this sounds accurate, but the more I think about it, the less true that seems. There are still plenty of costs involved with the distribution – probably more so.
Overhead?
I think part of the problem is this mindset that the money from the comic should be split between royalties/the artists & printing/distribution costs.
It gives me this feeling that people forget mainstream comics are businesses that have overhead costs in addition to the Team of people putting the comic together. We’ll cover overhead in just a little bit…
Distribution
Back to that argument about lowering digital prices because there is supposedly no distribution (printing & mailing it to stores) costs. For starters, I’m not sure where people get the idea distribution is a large part of the costs of comic production – but it’s apparently there. Printing & Shipping seem to me like they’d be on the lower end of the cost scale well after salaries & creator pay.
How does this apply to a Digital Distribution service like Comixology?
Businesses, as a whole, cost money to run & maintain – I’m sure folks understand that. What I don’t think they realize is that Digital Distribution platforms are businesses, too, with the same costs and overhead they have to pay to distribute and maintain your product as any other business. Comics distribution is just a tiny part of that process.
When you keep that in mind, the amount of money they charge makes more sense – most of the money isn’t going to the printing of the comic.
Just an Example
I work a 9-5 in a small business. As such, I see a lot of the finance side & do a lot of the supply orders (aka everything overhead covers). Plus, I have to keep track of what I work on because my pay comes out of jobs we complete (so if we’re not working on a specific contracted job, my pay comes out of overhead – which is usually a bad thing).
The following is just a basic run-through of costs minus the actually dollar amounts. Even without the figures, I’m sure you can picture how costs can add up quickly. Even more so when you consider the price of that one comic has to keep both the Comics Publisher & The Digital Distributer in business (they both have these same costs).
Businesses usually have the following costs to consider (yes, even digital distribution services) to run smoothly every month:
Overhead : This is the one I think people forget about the most. These are costs that aren’t directly related to the product but are essential for the business to stay running. Some of the most popular overhead items include:
- Building Rent/Mortgage
- Administrative Assistant(s) (The most underpaid person on the planet – I don’t think we appreciate them enough for the crap they put up with. *gets off soap box*)
- Managers/Bosses
- Copiers/Printers/Ink (Just a note on this one, I re-order ink for one of our laser printer upstairs – $100 a cartridge. And there are 4 cartridges, the black one needing replaced about once a month & the other three about once every six months. About 10 people use this machine. Just to give you a tiny idea of how this stuff ads up quick.)
- Packing Tape
- Mailing Supplies/Stamps
- Paper
- Pens/Pencils
- All other office supplies.
- Computers/Work Stations
- Severs/Maintenance of said Servers
- Software
- Vacation & Sick Pay
- Insurance (Health, Dental, Life, Etc.)
- 401K Matching and/or Retirement (If you’re lucky.)
- Taxes <–Yes, businesses have to pay these, too.
Employees : The bulk of any business cost usually goes to the employee’s paycheck. In the case of an online business you probably get to pay one or more of the following kind folks trying to earn a living (I’ll admit, these are guesses – I’m sure there’s a few I’m forgetting):
- Customer Support
- IT
- Inventory/Product Management
- Quality Control
- Web Designer (This could be contracted out or on staff.)
- Programmer
- Development & Testing
- Etc.
Conclusion
It costs a hell of a lot to run and maintain a business – even an online one. When you think about that (assuming Digital Distributers & the Comics Publisher split the cost of the comic 50/50) – that $0.49 per comic issue doesn’t go as far as you think it should and you start seeing why they want $1/comic.
Digital distribution is a service and a business – and that costs money.
Do I hope we find that happy medium where enough people buy digital comics to lower that price down? Yes. Is it there right now? No, I don’t think so.
So until then, I’ll pay my $1.99 per comic & help support the industry grow in the right direction.
According to my parents, they pay almost as much for just the health insurance for the employees as they do for employee pay. So the #1 expenditure is payroll, closely followed by insurance, and whatever number three happens to be that month is typically far below insurance.
I just read a great article that is somewhat along these lines, too. It was written by a girl who makes and sells custom clothing and it addressed why the clothes cost so much. I think she did an excellent job of breaking down all of these expenses and sometimes I wish other business/universities would so similar things (although, I’m sure there is some privacy issue there). Here is a link to the article, if you’re interested: http://whatthecraft.com/overpriced-cant-afford-handmade-pricing/
Now, what do you think about companies like Amazon who charge $20 for a movie you download? (Personally, if I’m going to spend $20 on a movie, I’ll buy an actual DVD with pretty, shiny case, DVD with extras, etc.)
*nod* Yeah, I know sometimes you try and smuggle overhead costs into the bill. XD
But yeah, I think people forget that overhead & employee salary/benefits are the bulk of the pay. >.>
Is your claim, that the majority of a publisher’s costs are incurred in running their core business, based on any research, or just assumptions based on your personal experience in a different industry?
Generally, the retail price of a paper book is held to break down as such (all percentages are approximations):
40-45% of the purchase price goes to retailing – this goes to profit, but also to warehousing, rent and staff. Rent and staff make up a much greater portion of costs for brick-and-mortar retailers, thus the deep discounts offered by Amazon, by Barnes & Noble’s online mail-order pricing, etc.
10% goes to distribution. In the case of online retailers, this is probably absorbed by the same company doing the retailing.
10% goes to printing.
10-15% goes to author royalties.
20-25% goes to other publication costs – the publisher’s overhead in terms of staff and maintaining their business, the marketing campaign, and the publisher’s profit.
As you can see, the bulk of the costs are involved in distribution and retailing – two things that do not exist with ebooks. Even if you scale back the numbers some, giving consideration to the online retailer’s offices and staff, it seems that digital releases should be discounted at LEAST 40%, if not 50%+, from the prices of paper equivalents. It’s obvious that digital releases which are NOT significantly discounted are factoring in costs from the publisher’s print business (or accounting for decreases in print sales expected if digital sales increase).
Here’s the one post I found with hard numbers on a single book title:
http://journal.bookfinder.com/2009/03/breakdown-of-book-costs.html
Though the percentages I quote above seem to be pretty generally accepted by journalists and editorial-writers covering the book publishing industry, based on a quick overview of other articles discussing publication costs.
And here’s an excellent older article from Salon, on the way that the publishing industry incurs costs, and where the money you pay for books goes.
http://dir.salon.com/story/books/feature/2002/12/03/prices/index.html
Nope, no research, just thoughts & assumptions. *shrug* I mostly wanted to make the point that the money goes to other places than printing (which is mostly what I was talking about – not retail/advertising/etc.)
Though I’m pretty sure that the digital distribution itself would fall under the category of ‘retailing’ considering they’re selling the books.
Thanks for the reply. :)
Edit: I took a second look and agree more with my statement. If 40% is retail – than the digital would definitely take up a similar amount. They operate with the same expenses as a brick & mortar, just online.
Obviously an online retailer does not have the same expenses as a brick-and-mortar, since they don’t pay rent and perform maintenance on stores, or hire store managers and staff. Even if we accept that these costs are somehow not obvious, it’s easy to infer from readily available evidence that online retailers do NOT have the same overhead as brick-and-mortar retailers.
For instance, Amazon.com discounts the majority of their stock at least 30% off cover price. (most books, DVDs, and other media items, which make up most of their sales) This is not loss leaders or overstock items – this is the bulk of their business. This alone tells us that it costs significantly less to run Amazon than it does a bookstore chain, to the tune of that 30% of lost potential revenue which Amazon is able to absorb. Amazon has obtained a greater share of the market through discounting, but their continued discounting over many years makes it clear that this was not merely a growth strategy but a fundamental component of their business.
From this, we can infer that Amazon’s profit margin and all their costs (staff, offices, warehousing, and Free Super Saver Shipping) all reside in the bottom 70% of the cover price of a new book. If costs and profit weren’t covered by the discounted prices, they wouldn’t be able to discount in such a profligate fashion. And make no mistake, Amazon has been profitable (on paper, at least) for almost a decade now.
If brick & mortar retailers could compete with Amazon on price, they would be doing so. Barnes & Noble runs a pay-to-join membership program that offers a slim 10% off in-store purchases; Borders formerly offered a roughly identical program. Aside from discounts on new releases (which are complicated) and periodic coupons (the marketing function of which is “get ’em in the store”, not “undercut the competition”), their stock is otherwise sold at cover price.
Borders is out of business. Barnes & Noble is surviving on the Nook, which is also sold in stores but drives their ebook business. Sales of actual paper books are falling precipitously, and online retail of books has been beating brick-and-mortar for years. If physical bookstores could match online prices, they’d do so – they’d need to, to survive. If the retail chains didn’t have higher costs than online retailers, they would be competing on price.
I’m fairly certain to run a service like Amazon or Comixology those services have offices with staff and people working them around the clock 24/hours. Amazon in particular probably has a huge operation. >.> I don’t know exact numbers, but I’m pretty sure their overhead is comparable.
Comparable to what? If you think it costs as much to run Amazon.com, per unit sold, as it costs to run a comparable bookstore chain, what do you think allows Amazon to discount so heavily?
What exactly does Comixology do that requires a large amount of staff? They’re a software business. I would be shocked if their software development and web presence was maintained by more than a couple hundred people altogether.
Customer Support comes to mind. >.> But honestly I’m done with the back and forth. It’s getting down to the argument neither side backs down stage and I’m not in the mood to get into one of those. XD