Digital Delivery Drilldown
I’m going to do my best to hold back my TD;DR instincts as much as I can. My hope is it can serve as a quick reference to the set of assumptions I (and many) make when discussing digital delivery. They may be bad assumptions. They may be improvable assumptions. But it should make life easier when talking about them.
- It is cheap to set up digital delivery system, DRM free, in terms of the technical end of it. It’s about shedding the mortal shell of brick and mortar.
- Corollary: it is cheap to do so with DRM, but DRM adds cost. Cost is calculated not only in $, but in customer dissatisfaction, uptake, and whatever. It’s well-assumed people like not having DRM over having DRM given exactly the same service otherwise. The question remains what the difference is. Not going into detail with that here.
- Retailers don’t make a lot of margin dollar for media per item sold, as a rule of thumb. It’s often used as a loss leader to bring customers into the store/website/whatever, and retailers rack up otherwise with other kinds of deals and incentives along with the conventional loss leader strategy. B&M retailers absorb the cost of B&M retailing by getting back from distributors and publishers via other means (eg., advertising, negotiated deals). Some items may have large margins, but these items tend to have reciprocally appropriate lower volume of transactions.
- Overall, digital delivery doesn’t make creators much money. If we think of the sales price of a good as the total size of the pie, or the total revenue (the amount advertisers pay into viewers of an episode on Hulu, for example; or simply the amount of money paid for a DTO item), then the amount any one person getting a cut of that revenue (or slice of the pie) depends on
- the size of the pie;
- the number of other persons getting a cut of the same pie, and
- how big % of a piece every such person gets.
- In a digital delivery reality today, the size of the pie is usually much smaller. As mentioned before, retailers never made much money to begin with, so shrinking their grab by ditching more expensive B&M retailers for internet distros is unlikely to increase the actual size of the pie, even if %-wise it is a larger piece for almost every party involved. In other words, #1 is much smaller, #2 is slightly fewer and #3 is larger.
- The consequences of these assumptions can be several:
- Digital delivery at the present is not particularly profitable compared to traditional channels. Where’s the incentive for pro-consumer behavior for publishers?
- Lower cost of entry:
- Enticing for certain publishers and creators, eg., Studio Rikka?
- Digital delivery is still relatively cheap, so it lends itself as a part of more elaborate marketing campaigns (ie., advertisement). Possible examples include Funimation’s streaming initiative with select titles; Xam’d.
- Concerns for cannibalization:
- Fansubs versus traditional retail venues? Capitalizing on lost revenue may be scrapping the bottom of the barrel at the expense of weakening traditional sales models. If the assumption is that people are downloading anime and not buying, what makes legit downloads any more desirable for companies than non-legit downloads, especially if legit downloads/streaming may be easier to access and guilt-free?
- Asking the same question from the reverse: Jumping the technological sophistication barrier? Perhaps what bittorrent is doing for video is what Napster was for music in the late 90s. What and how did all interested parties learn from their last bout? How is ease of access leads to organic market growth, and how does that translate to revenue growth?
Without trying, this has turned into a presentation of sorts. I guess if I turn some of the bullets into slides, that’s what this would be.
I’m going to spin out a little on the last question–how has all interested parties learned from the late 90s?
I think here is where I’m going to give Crunchyroll a lot of credit. It’s exploiting what people commonly would call a “legal loophole” by playing up the worst-nightmare scenario that Hollywood didn’t quite fear as much as they would have if we rewind back to 1996. The DMCA safe harbor provision has shifted the liability off the ISP. It is rather dangerous to make your business ideas on top of a legal loophole, needless to say. But I think these notions are better taken by Google’s legal team as Youtube is a much bigger time bomb than CR is. After all, the only difference between the two is that CR offers an additional DTO option, and it doesn’t really make their case any worse in front of a judge than pure advertising-only money. Will Viacom win? I think that’s the question everyone who cares with digital distribution has to ask themselves.
And no quantity of moral posturing and ego wanking amounts to anything tangible when it comes to CR. I don’t really care if the guys running the outfit uploads fansubs to their own site while getting a footjob from a mysterious swordgirl, humming to Rick Astley, chewing on cats, and flaming people on the internet–all at the same time. If they can continue to hook up Japanese distributors with the American market in ways to adopt to the digital revolution, they are doing a good thing. Probably way better of a thing most of us fans can do. I recognize and I believe that there is some kind of legitimate, hurt feeling, somewhere, by what CR has done in their earlier days, but a lot of it is magnified by the common sort of ignorance you see everywhere on the web and not a rational view of the situation. It’s too bad.
On the retail thing, most traditional retailers of single media - especially music - have died. The ones that are still around have had to diversify into being media retailers, eg selling DVDs, Music, Games, even hi-fi equipment and consumer electronics in some cases.
If you consider games to be media (I don’t see why you wouldn’t) then you’ll find that the margins there aren’t too good either. They bolster their bottom lines by double or even triple-dipping on a single sale. First they sell it for a reasonable price, then they encourage you to bring it back in for store credit - usually substantially less than the wholesale price for the software if it was new - and re-sell that game for a substantial markup. So say that they sell you a game for $60, and its wholesale price is $30. You bring it back, they give you $15 trade-in for it. Then they put it back on the shelf for $45. They’ve then made $30 off the initial sale then $30 from the second sale. It’s a pretty lucrative model and it’s the chief reason why the games industry has been very resistant to the idea of digital distribution.
Also, I was under the impression that the digital distribution initiatives that Gonzo had done recently actually had made them a fair wad of cash? Essentially, digital distribution is advertising for a full-on release. People who pay to access that are paying for you to advertise your products to them.
My personal opinion is that the ideal anime portal would stream episodes, with quick ads inserted - before the OP, between the eyecatches, and before the next episode preview - 10-15 seconds, maybe 30 seconds in the eyecatch stuff. Want it without ads? Buy it for $2-3 and download a higher quality copy to your own PC or watch an ad-free stream. There’s a fair amount of profit potential there, I would think, assuming you get some decent advertisers on board. Even better if the inserted advertising could be dynamic and adjust to the user. I’d be surprised if google didn’t have people researching how to do that for youtube already.
I disagree that there’s that much profit in DTO at that kind of prices. Using Hulu for example, the ad revenue from that is very small. An extra $3 is nothing considering the margins content holders make. With the numbers available I think it comes to something like the total cost of ad-supported revenue from 26 episodes of some half-hour anime is about the same as 1 volume of DVD sold at retail. Once you make it DTO w/o DRM, you’ve not only sold out for cheap, that ownership status is going to eat into your legit DVD sales, in essence a self-defeating act.
I haven’t seen any numbers relating Gonzo’s success with their online distribution with anything. Only thing I’ve read is Strike Witches is selling well, but that’s more attributed to its content than how it was marketed I would think.
But the production costs on a single DVD volume are much higher than an all digital, sub-only release. For one thing, they generally spend a fair whack on dubbing.
As I said, it’s advertising for a full release. And while the profit potential may be smaller, it’s essentially extra profit on the top of DVD sales - just because you have DTO offerings doesn’t mean you’re not going to do as well with DVD sales. In fact, it could also be an invaluable market research tool for deciding how much effort to actually put into producing and marketing your DVD/Blu-ray release. Not to mention the potential for engaging with a wider market than your usual DVD-buying crowd.
Also, the reason I said $2-3 is that personally I could never see myself paying more than $3 for a subtitled DTO release, unless it was in HD and sans DRM, which I’m pretty sure we can agree isn’t going to happen any time soon.
Yea, not going to happen. Either the price has to be much higher or, as I see it, no DTO.
Production costs on a single DVD is much higher than some digital subs for release, you are right, but they still make a lot more money on a per-episode basis per unit. So once they sell over a certain number of units, it’s a much more profitable way to do things. I hope you understand this fact because it is a major point in my post.
You say about advertising, but I think they can advertise just fine with streaming only and no DTO. As for market research, streaming numbers can very well reflect how well a title sells, too. DTO can cannibalize DVD sales, if fansubs could do the same.
That’s something not a lot of people have mentioned, but when you put it like that it starts to seem obvious why it’s not provided more often. Maybe that’s an unspoken reason why providers are more likely to give us pseudo-ownership through DRM’ed files — sure it “fights piracy” or whatever, but all other things being equal (DRM’ed files could be the same quality etc.) you’ll never own them the way you can a DVD and that will keep people coming back to buy the higher-margin plastic discs.
this is the reason why DRM-free DTO is not available for pretty much anything you can watch streamed, for free, with a local release available or on the horizon. The only exception to this are the BOSTTVs out there–small brand, low budget, niche productions.
Let’s just take a look. BOSTTV releases DRM-free titles DTO. How many of them have been licensed in the US? 1? If you look at the number very hard you can see that this is something that’s really important but nobody realizes the correlation between, actually, DRM-free releases versus desirability for proliferation. They are actually in the inverse once you put into consideration that a title doesn’t get out there unless it has the marketing, and a company isn’t going to market a title that they can’t sell, and to sell they need to screw up the freebies to give buyers an incentive to buy.