Saturday, January 31, 2009

Price increase in a down economy (part 2)

Diamond has recently raised their purchase order benchmark from $1,500 to $2,500. For those unfamiliar with this benchmark, this means the publisher has to be selling enough copies of their title to merit Diamond paying them at least $2,500 to buy said copies (and Diamond is buying them at a discounted level --- as mentioned in part one of this post, that discount is close to 60% for some publishers, so $2,500 is the equivalent of approximately $6,250 at full cover price). If a title doesn’t receive enough orders to reach the $2,500 benchmark, Diamond will not place the order. And if Diamond believes a title isn’t going to generate enough orders to reach the benchmark, they won’t even list the title in Previews to begin with. This also appears to include relists, so if a title can’t achieve the benchmark when listed a second or third time (or any subsequent times), then no purchase order will be generated and comics shops won’t be receiving additional copies.
What does this mean to you, the end purchaser and reader. Well, first it means there are going to be some publishers who will either be going out of business or will have to find another means to distribute their titles. It means there will be some titles that will no longer be available through the usual channels. It means if you don’t buy a comic the first time it is listed, you may not be able to get it on second or third printings because those print runs may not occur. Obviously this affects the smaller publishers the most, but all publishers are likely to feel some impact when it comes to relisted titles.
Of course, having a higher cover price makes it a little easier to reach the benchmark. A publisher would have to have orders for over 2,090 copies at a $2.99 cover price while they would only need to have orders for over 1,566 copies at a $3.99 cover price. For a number of publishers, there is room for price increases. Marvel is obviously moving to $3.99 very soon. DC will likely follow. I expect Dark Horse will do the same. Image already has some titles at $3.50 so an increase on those wouldn’t be as significant as those from Marvel, DC, etc. But then you have publishers such as Boom! Studios and IDW who already have a $3.99 cover price. Should we expect them to bump to $4.50 so they can meet the benchmark? Or $4.99?
That begs the question – how much is too much? I know I’ve already passed over some Boom! Studios and IDW titles I would have liked to have tried because I didn’t want to pay $3.99 for them. Of course, I have paid $3.99 (begrudgingly) for a couple of titles so I can’t say as an absolute that I would never pay that much for a comic. Even so, I can’t really say I’ve felt like there was four dollars worth of entertainment in those particular comics. When you compare a comic versus a movie or a tv or animated series on DVD, it doesn’t hold up. The average comic probably takes about 20 minutes to read (some even less). That breaks down to about $12 an hour on average. A movie ticket costs less than $12 and that is good for anywhere from 75-120 minutes worth of entertainment. A movie on DVD may run about $25. For a two hour movie that is about the same average cost as a comic. A season of a television series on DVD probably runs in the neighborhood of $50-$90. That is for anywhere from 13 to 22 episodes at about 20 minutes per episode. $50 divided by 13 episodes comes in around $3.84 per episode. $90 divided by 22 episodes comes in just over $4 per episode. An animated series runs between $20-$30 for 4 or 5 episodes. That comes out to somewhere around $6 per episode (some discs have more episodes and some series can be had for a much better price – for example you can buy the most recent edition of the Gunslinger Girls collection, 13 episodes in all, for a suggested retail price of $39.95, which works out to just over $3 per episode). Most DVDs also have extras on them these days, so you’re getting additional value as well.
That isn’t really the key thing I want to touch on in this discussion however. What I really want to introduce is the fact that Diamond is shooting themselves by eliminating publishers. Sure, in the short term it will help them cut costs and be more efficient. In the long term, they are pushing out the very business that is going to help them to remain an ongoing entity once Marvel fully engages with their digital initiative.
Digital initiative? How exactly did we jump from benchmarks and price comparisons to digital initiatives? It really isn’t a great leap. If you haven’t heard, Marvel is investing $10 million in digital media with an expectation of receiving a profit from said investment beginning in 2011. A company doesn’t make that kind of investment unless they are expecting significant returns. Currently they are offering some digital content for a monthly fee (part of their library is online, but they are not making any current issues available there). Marvel is raising the prices of their comics 33% for what I expect to be a couple of reasons. First, costs have certainly gone up. I know paper has become much more expensive in the past few years. Second, they are obviously trying to maximize profits. Third, I believe they are setting the stage for a transition to digital media.
Consider if you will --- if they are selling their comics to Diamond at a 60% discount (or in the neighborhood), that means they are receiving $1.20 for each comic with a $2.99 cover price. That would grow to $1.60 at a $3.99 cover price. I don’t know what the printing/materials costs are per comic. Perhaps $0.20 per comic? $0.25? Less? I just have no idea. If we assume $0.20 per comic, that means Marvel is down to $1.00 per comic at the $2.99 cover price (and this is before they pay the creators and whatever other production expenses they have) or $1.40 at the $3.99 cover price. If Marvel were able to deliver their comics strictly as digital media, that would eliminate the printing expenses. More importantly, it would eliminate the need to use Diamond to distribute their comics. Currently we see (based on my assumption of discounts and printing costs – which obviously are just made up numbers because I don’t know what the actual numbers are --- hopefully the numbers I am using are at least in the neighborhood) Marvel getting $1.00 per comic and likely to get $1.40 per comic once they raise the price. So if that is what they are generating now, then wouldn’t it stand to reason they could offer their comics in a digital format for the same price (or somewhere close to that price)? And now let’s really take a leap. If they are selling 50,000 copies of a given title right now at $2.99 a pop --- imagine how many copies they might sell if they were offering them digitally for only $1.00 per issue? Currently a comic fan can buy 10 comics a month for about $30 (plus tax). If a publisher is delivering their content digitally for $1.00 an issue, a comic fan can get 30 comics for that $30. The comic fan is already spending the $30, now they get more comics out of it. Even if the comics were $1.50 an issue, they are still getting twice as many comics as they were before. And once the price goes to $3.99 an issue (printed), a comic fan will only be getting 7 comics a month (and have $2 left over). So you have 7 comics a month at $28 (plus tax) vs. 20 comics a month for $30 (plus tax). Which do you think is going to appeal to comics fans?
Also consider that with digital delivery, Marvel is going to have the ability to reach an even larger audience. Currently there are only so many comic shops in the direct market. People who do not have a shop locally have to buy their comics from an online retailer, if they buy them at all. Those who do buy from online retailers are likely going to stick with the major known titles and be hesitant to try an unknown title or limited series (unlike fans who can purchase comics from a local shop, they can’t thumb through something new to decide if they might like it or not). If a comic is only going to cost $1.00 or $1.50, a fan will be more willing to try something unknown. But guess what, it won’t exactly be unknown. Since the comic is available digitally, Marvel could easily provide several pages of a title to be ‘thumbed through’ online so a reader wouldn’t have to buy it completely sight unseen. We already see preview pages of comics released online through comics news sites such as Newsarama and Comic Book Resources. Well now Marvel can host those pages themselves for virtually everything they are selling. Guess what else. The title is never really out of print. Since it is digital, it doesn’t have to be printed and sit in a warehouse until someone orders it. It can be ordered and delivered at any time. So when a fan suddenly discovers a title, they can buy all the back issues they want and have them available immediately. Those comics will continue to sell year after year after year (even if it is only 50 or 100 copies in a given year).
Getting back to the larger audience, I’m not just talking about the current comics audience. Marvel already sells to fans who have a local comic shop and to those who buy via online retailers. With digital delivery, they are going to be able to sell to people who don’t currently buy comics. Because they can offer digital comics at such a lower price point, it is going to be easier to get people to try their product. So going back to the numbers, we have a title currently selling 50,000 printed copies. At a price point of $1.00 or $1.50, with readers now able to buy more comics, people who previously may have wanted to read a title but were already spending their comic allocation on other books will now be able to buy it. Toss in non-comics readers who are enticed to try it because of the price point and availability, and is it unreasonable to expect the comic that was moving 50,000 printed copies to more than double or triple that in digital distribution? So now Marvel is making significantly more money on the title even though the book is selling for much cheaper.
What part of this equation isn’t more appealing to a publisher? They cut costs, they don’t have to deal with the middle man (Diamond), they increase distribution, and they sell far more ‘copies’, thus increasing revenue.
This is the future. Marvel is putting down the groundwork. It may not be five years, it may not even be ten years, but I fully expect that sometime in the 2020s (if not before), Marvel will not be printing monthly comics any longer and will be delivering those titles strictly as digital media (I still expect there will be printed trade collections that will move through booksellers and the like). DC won’t be far behind (especially when they see Marvel starting to make major inroads with their digital delivery system) and Dark Horse and Image will certainly follow.
So where does that leave Diamond? In a lot of trouble. Especially since the small publishers who would be the last to make the transition to digital delivery are being forced to find another distributor or actually make the digital transition RIGHT NOW. Hey, how about that. Diamond’s move may actually be benefiting some of these publishers (the ones that survive at least) because it is forcing them to make the leap that is the future of the comics industry right now.
Let’s not forget retailers. They are in the same boat as Diamond. Once Marvel pulls their monthly titles out of the print market, a lot of retailers will be going out of business. And when DC follows, the remaining retailers will be shuttering their doors as well. Unless they find some other stream of income for their shops (beyond gaming merchandise) their businesses will not be sustainable. I hope retailers are either currently seeking other revenue streams for their shops or have a really good plan B in mind.

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