Letterer Jim Campbell takes a run at the problem with digital comics at his blog, and he comes to the conclusion that distributors (such as comiXology, iVerse, and Graphicly) are taking too big a cut.
First, he calculates the cost of labor to produce a single comic, then he looks at the way the various partners take their cut, as described by Mark Millar earlier this year:
1/ Apple take 30% right off the bat.
2/ In the case of Wanted, Comixology then splits 50/50 with the publisher.
3/ Then the publisher pays the agent and creative team out of the remaining cash depending on their deal.
If the comic is priced at 99 cents, then Apple gets 30 cents, the digital distributor takes 35 cents, and the publisher is left with 35 cents (yeah, there’s an extra penny there—I’m rounding, OK?). Under this scenario, the publisher would have to sell over 17,000 copies, Campbell reckons, just to pay their talent—forget the editors, marketers, accountants, and all the other necessities a publisher has, as well as any notion of profit. Looked at from that point of view, it’s pretty hopeless.
Campbell’s great insight is that this process is reversing the traditional model.
With print comics, the publisher sells the comic to a wholesaler (Diamond) for about 50% of cover price and the distributor sells to the retailer for 75% of cover price, so for a 99-cent comic, the publisher makes 50 cents, the distributor makes 25 cents, and the retailer makes 25 cents. (These numbers are approximations.) With digital, Apple is the retailer and the digital app (he calls it GenericComicApp) is the distributor, but the burden of both retail and distributor markups is put on the publisher. Or, to simplify the whole problem, the distributor is taking too big a cut. Campbell figures that the digital distributor should buy the comic for 50 cents, then pay Apple 30 cents and take a profit of 20 cents. (One could argue that Apple is taking too big a cut, but right now it’s very hard to sell digital comics without them.) Anyway, a publisher would only have to sell over 12,000 digital copies to break even under this scenario.
One thing that struck me when looking at these numbers is that publishers that are selling a lot of comics in the direct market have no incentive to let their customers shift from paper to digital, as they get a bigger cut of print comics sales. Their protectionist attitude toward the direct market looks less like sentimentality and more like a hard-nosed business decision in this case.
As is always the case with statistics, the validity of these numbers is based on the underlying assumptions. I see two additional factors at work here. One is price. Campbell thinks $2.99 is too much for a single issue with no added features, and many buyers would agree, but there are always people who are willing to pay a premium for freshness. So you could charge $2.99 the first week a comic is out, $1.99 for six months after that, and 99 cents for the rest of eternity, and the combination of the initial rush and the long tail could be the formula for maximizing profit.
The other thing Campbell doesn’t take into consideration is that most publishers have a stock of comics that have already been paid for. Marvel, DC, and Archie comics have over 50 years worth of comics whose costs were paid off decades ago. The creators should continue to get royalties, of course, but aside from that, every cent a publisher makes on those comics is pure profit, which should offset the costs of the newer comics. And if you look at comments on digital comics, these are the comics people hate to pay more than 99 cents for. My sense is that people don’t mind paying $1.99 for a newer comic, especially one with creators they like and want to support. Resentment kicks in when that extra buck goes to a faceless publisher. (I’m not saying that attitude is right—I used to be a book editor, so I know how much value a publisher adds—I’m just saying that’s what people think.) Eric Burns made a good argument for this from the reader’s point of view at Websnark a few weeks ago.
Ultimately, the solution may emerge from the market itself: A digital distributor that takes less of a cut. It could be Diamond waking up and smelling the digital coffee, or it could be the publishers banding together to freeze the others out, or it could be an audacious startup piggybacking on the accomplishments of others. Or maybe, having covered their startup costs, the existing distributors will eventually ease back a bit. A cut-rate distributor with a slick interface could offer publishers a slightly bigger cut, and readers a slightly cheaper comic, and still turn a handy profit if the lower price induces people to buy more comics. And that would be a win for everyone.