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The Economics of Digital Comics: Journalist And Educator Todd Allen On His Important New Book [Interview]

Digital comics sales are a huge area of growth for the American comic book industry, rising faster than even ebook sales for traditional publishing. Digital accounted for $90 million dollars worth of sales in 2013 and as an increasingly  accessible distribution platform for comics creators, is sure to become more and more integrated into the business of making comics.

Journalist, educator and digital media expert Todd Allen is currently running a Kickstarter for his ebook The Economics of Digital Comics, which helps explain the intricacies of the digital comics landscape for fans and creators alike. Also the author of The Economics of Webcomics, Allen’s already well exceeded his modest funding goal. ComicsAlliance sat down with Allen to discuss his work and the digital business of comics.

 

 

ComicsAlliance: The book you’re working on talks about the economics of different kinds of comics including print and digital. Is this meant for self-publishers, or does your book get into the economics at existing comics publishing companies?

Todd Allen: Both. You need to understand how the whole market works to know how a particular format fits in. Self-publishing has really gone towards digital in the era of Diamond exclusives [Diamond is the company through which almost all comic books are distributed to comics shops], but it’s important to weigh the pros and cons of print projects when looking at publishing options. While you really only tend to see Jeff Smith, Terry Moore and Jim Balent/Broadsword self-publishing in print these days (all dating back before the segregation of the Diamond catalog), that doesn’t mean it should be ignored.  It also is good to have a sense for what the economics of a traditional publisher are.

Besides, you do see the digital-first and webcomics popping up in the direct market [comic book stores]. Oglaf, not the most obvious candidate, is one of the better selling paperbacks at Comix Experience in San Francisco, and Girl Genius has been solicited through Diamond.

CA: How has Kickstarter and other crowdfunding platforms changed the economic realities of producing comics without the support of a publisher? 

TA: It depends a little on what your profile is and how good a person is at promoting themselves, but it can take the publisher out of the commissioning stage. There’s a more comic book print industry-centric model where the project is funded through crowdfunding and then eventually released into the direct market with a publisher. Sometimes the deal is in place ahead of time and the crowdfunding is the advance or page rate that allows the creators time to work on the book. Art takes time and isn’t something that most people can just dash off in the evenings. I think there’s going to be a trend with this model to space out the Kickstarter release and the eventual commercial release, but it’s still early and there’s the matter of minimum print runs when you’re dealing with color work.

The webcomic-centric version of this is to make sure you have enough revenue from your crowdfunding to do an extended print run, getting the total run over the 2000-copy barrier where the per-copy price starts to be more manageable, and then selling the remaining inventory from your own webstore, at conventions and, in some cases, on Amazon.  Spike over at http://ironcircus.com/ is doing big business with anthologies and Kickstarter.

The piece that’s almost ready that will further shift this dynamic is color print-on-demand.  Lightning Source has it, but the pricing isn’t necessarily where everyone wants it yet, particularly with the better quality paper. It will improve and when it does, you’ll be able to set up your graphic novel for POD fulfillment in the bookstore world without having to ship anything yourself. Createspace is playing catch up with Lightning Source, but this absolutely will be integrated with ComiXology within a year or two. It’s not necessarily a direct market solution, but it is wide distribution. There’s also more you can do with this if you’re selling direct to consumer and not needing to offer wholesale discounts.

CA: How does the increase of digital distribution in comics compare to the shift to digital in other media like news and music?

TA: Right now we seem to be where music was before they settled on MP3 and no [digital rights management]. DRM was holding everything back and it took Apple putting its metaphorical foot down to change that and get the MP3 sales up. Right now, we have multiple file formats — some ePub, Comixology, Marvel’s in-house format at Marvel Unlimited, Dark Horse’s in-house format, iVerse, and Image is offering [DRM-free] .CBR/.CBZ. If you look to to music as a model for digital sales, getting a standard format and letting people own the files should do a lot to help sales.

There are some problems with this. A lot of comics come out of Hollywood. DC is Warner Bros. and Marvel is Disney. Many of the best selling non-Image independents are licensed from Hollywood properties. Hollywood companies want DRM. In most cases, it’s in the licensing agreement. Pragmatically speaking, you need to have a breakout hit without DRM in order to bring a business case to Hollywood and show them how the increased revenue trumps piracy concerns. The deck is stacked against that happening because the major platforms are all implementing DRM. Now, to their credit, Image is offering DRM-free files on their in-house webstore.

The consumer benefit of Amazon absorbing Comixology is that there’s a certain amount of confidence that, although you don’t own the files, Amazon isn’t going anywhere and neither are your purchases. That’s in the plus column, but Amazon’s digital model is heavily invested in locking consumers into their proprietary file formats and reading software/devices. Comixology is an excellent fit for them in this regard.

ePub will eventually get to the point it’s completely usable with comics. ePub3 is more than halfway there. It’s perfectly fine for full-sized tablets, and Apple has been adding some hooks for iBooks.

These things take time, but DRM continues to be an impediment to progress.

There’s also a question of whether a consumer who hasn’t been indoctrinated in the direct market world of comics is going to be quite as enthused about paying full cover price for digital, but I haven’t really seen a study on that.

CA: That’s a big question. Since a great deal of the cost of print books and comics is in the printing, binding, and shipping, and that accordingly most regular books are significantly cheaper in digital formats, readers often wonder why digital comics sold through distributors like Comixology are priced similarly to print. What are your thoughts on the reasons behind that?

TA: Two reasons: publishers are scared to death of further alienating direct market retailers and the consumers are shelling at cover price for digital files.

A bit less glibly, the larger publishers like DC in Marvel don’t have  that much in the printing, due to the sheer volume of their operations. Maybe 13-20-cents/copy. You make up some ground by giving a lower discount to the digital outlets. Figure on 60% to Diamond for a small publisher and maybe 57-58% in the brokered relationship version.  You’re looking at 30% for Apple/iBooks and Google Play. Amazon, I’ve heard anywhere from 30%-50%, and there seems to be some negotiation. Most of the comics-specific apps try for 50%… after processing fees, which means the publisher/creator is left with 35% of list price if it’s sold through iTune and the split comes after Apple gets its 30% off the top. Everybody wants a clause in the contract that they can’t be undersold, so you have to price it for the worst discount. Obviously, everyone makes out like a bandit if they’re getting 70% of list price and the smaller publishers with lower print runs make out better. If you’re only getting 35% of list price, you could be making out worse than print unless you’ve got a really small print run.

There’s also a secondary concern that if you have too many people jump to cheaper digital comics that the direct market will collapse. Digital is not strong enough to replace the direct market at this point, so you’ve got some caution. The last couple years have seen both the DM and the digital scene grow, so that seems an unlikely occurrence, but publishers are cautious about that. Mind you, once Amazon gets comfortable with monthly comics, you know they’re going to want to offer discounts. And to be fair, I know an awful lot of comic shops that give a discount, be it unilaterally or for a pull-box. Right now, the shops can discount the monthlies and digital can’t, for the most part.

CA: Given the economies of producing and distributing comics, which format is easier to see profit from, digital or print? And why?

TA: I like to say it’s harder to lose money at digital than it is in print. With color printing, you need to sell a few thousand to see a profit and its pretty easy to lose money just getting your material in print. There are minimal costs to putting your work online. Webhosting if you’re doing the webcomics route and initially looking for eyeballs. Potentially no cost if you’re opting for the eBook system through Comixolgy and the comics apps.

On a per unit revenue basis, digital downloads will beat print every time for low circulations. It evens out as you scale up the circulation and you may or may not make more off print depending on your effective discount. With trade paperbacks and hardcover collections, the price cap issue raises its head. This is at the heart of the current Amazon/Hachette dispute. Amazon would like to cap eBooks at $9.99 (not all that different from Apple trying to hold the line at $0.99 for music MP3s). Nook has a similar policy for their royalty structure in the self-serve program. At decent volume, you will make more off print, if you’re not charging full price for digital. Obviously there’s some give and take with digital list price discounting, but that can be a more complicated question in comics.

It’s all about volume and discounts.

The webcomics, which come out of the newspaper strip tradition more than the comic book, have a very different model. More merchandising and occasionally advertising and play a longer game. Then again, its easier to get someone to go to a website and try something new for free, than to get them to buy something from new creators.

CA: So it’s better for publishers or self-publishers to distribute their comics in multiple ways? 

TA: Absolutely. It’s called distribution of risk. What happens if your vendor goes away or drastically changes their terms of service? Ask Hachette about that one.

Let’s say Comixology was losing money (they didn’t seem to be wildly profitable) and Amazon didn’t buy them. Do they run out of money and go out of business? Is there a service interruption for a bankruptcy auction or while a last minute sale of assets is arranged? (We’ve seen at least one digital manga site go out of business and the consumers lost their files.)  Best to have an alternate vendor to point your readers to if a problem arises.

If we’re honest, we’ll admit that Diamond was looking a little bit shaky a few years back, prior to the sales rebound that followed DC’s New 52 re-launch. What happens to comics if Diamond had collapsed? Oh, there were other outlets for the graphic novels, but for monthly comics, that’s what’s called a “single point of failure” in the business world. You don’t want to have single points of failure. You want redundancy. That’s why the Amazon/Comixology acquisition is making publishers nervous. It puts a very high percentage of sales in one place. Perhaps not as drastically as in print, but close enough for antacid tablets.

CA: How do you recommend comic creators and publishers allocate the costs of making comics if they do various formats? Is there a particular way of managing the economics that eases the financial burden of creating comics?  

TA: The beauty of the direct market system is you have a pretty good idea whether you’re going to be profitable or not when you get your order from Diamond. The absence of returns makes it a very efficient system and you can work up the numbers and see what you need to break even or buy a new car. The path of least resistance is to start building your audience with digital, branch out into print with crowdfunding or POD (minimize your potential losses) and then think about the direct market when you have a better feel for what you can expect to sell in.

The caveats here are the direct market audience and the digital audience aren’t necessarily the same (particularly for the wider genre varieties of webcomics) and you have different discoverability issues with the direct market and the Diamond catalog. Whether the direct market audience overlaps with the crowdfunding audience is a different question entirely, too. I’ve heard differing opinions on that one.

And, of course, if the creator is already established, its easier to do just about anything with an existing fanbase.

Todd Allen’s The Economics of Digital Comics can be pre-ordered now in digital and print editions in the form of Kickstarter pledges, which can be made for three more days. The book goes on sale in September of this year.

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