Populist movements don't build themselves ...

... It doesn't matter what the "horse race" outcome of the campaign is, if we fight the campaign. Fighting it, we learn how to fight. Learning how to fight political battles, we become citizens again. Becoming citizens again, we reclaim the Republic that lies dormant beneath the bread and circuses of modern American society.

Friday, October 9, 2009

Can the Hero Model Save the Publishing Industry?

Burning the Midnight Oil for Breaking the Silicon Cage

Some time ago, I asked the question, What Can Newspaper Reporting Learn from Yuricon?. Now I turn the question on its head to ask what Yuricon can learn from Yuricon.

This is set up by Erica Friedman (@Yuricon on Twitter), posing a hypothetical at the Yuricon blog ... would they pay upfront:
  • $50 for 5 issues of a 200 page per issue manga (graphic novel)
  • $60 for 4 issues of a 300 page per issue manga
  • $75 for 3 issues of a 450 page per issue manga

For several days, until I put ChrisCook and Erica's "5 things Niche Companies Do Right", I was in this "modern meaning of the term 'subscription'" mode of thinking. But then I made a wisecrack, and it got me thinking of an older meaning of the term "subscription", and what might be termed a "Hero Model of Publishing".

The Hero Concept

From "5 Things Niche Companies Do Right:

Reward engagement

Everyone wants to be a hero. I claim my own Okazu blog as best of breed in this. I love the fact that you, my readers, are so engaged. I started the Wish List as a result of your emails and comments, asking if you could help support Okazu. And I know that people want to be heros. Well - you are my heros. And so I created the "Okazu Hero" roll and sent you badges to let you and anyone who drops by this blog, that I consider you all my heros.

The result? I can't keep items on my freaking wishlist! You all are so crazy generous, I have 4 piles of things to read and watch and review here, and 5th building. I didn't give you a free car - but I let you know you are my heros. And honestly, that's all anyone ever wants

To understand the relevance of the YouTube clip to the quote, see Earn of Copy of Yuri Monogatari 6 Through Project Engage

Anyone who has seen the movie (either version) or play "The Producers" knows, there is a "hero" concept that is relied on heavily in theater - selling shares to the production, where the people providing the bankroll are not mere "shareholders" - they are "Angels". Or, another way to put it, they are Heros.

Units and Peer-to-Peer finance

This brought to mind the Unit peer-to-peer financing concept that ChrisCook popularizes - I run across it at the European Tribune, but I gather he popularizes it far more widely than that one site:

Introducing the Open Corporate
On 6 April 2001 a new UK legal entity, the Limited Liability Partnership (LLP), came into effect in order to protect professional partnerships. Confusingly, an LLP is not legally a partnership. It is, however - like a Corporation - a corporate body with a continuing legal existence independent of its members. Also, as with a limited liability company, you cannot lose more than you invest in an LLP.

The `LLP agreement' between members is totally flexible and need not even be in writing, since simple provisions based upon partnership law apply by way of default. The LLP may truly be thought of as an "Open" Corporate, and it is being used for purposes never envisaged.

In particular, it is being used as a framework for investment in productive assets of all kinds. LLP's are routinely in use in the public sector, and the City of Glasgow currently has three municipal LLP joint ventures, albeit conventionally financed.

The Hilton Group first demonstrated the potential of an LLP framework for development and long term financing in a > £1bn plus Capital Partnership.

The Capital Partnership allows risk and reward to be shared equitably in proportional shares of production or revenues : in a good year, Hilton and Investors have a good year; and in a bad year, they share the pain.

This model has universal application, and any enterprise; whether Public or Private; commercial, social or even charitable in aims; whatever the legal form; may opt to share production or revenues in this way.

Within a Capital Partnership framework it is possible to create:

(a) Equity Shares - proportional shares which are not redeemable (there must always be 100%) but may be transferable.

(b) Units - redeemable in "money's worth" such as Kilo Watt Hours;

and these enable entirely new mechanisms for the financing of assets of all kinds.

Note that ChrisCook is writing from the UK - in the US, these are "Limited Liability Companies", or LLC's.

Units of Publication

So, what would be a unit of publication?

Well, there are three things required to publish something: first, the legal right to reproduce it, second, some group of one or more people preparing the copy, putting in the order to the publishers, and getting the publication to the operation that performs the logistics. And third, somebody has to sign the check for the publisher and the logistics.

Note that this is the publication requirements, not the commercial requirements - this is the core operation that a commercial operation either exists to take care of, or exists to live off of (depending upon the market that exists for the publication).

Now, suppose that the person or people performing the work of putting together the publication own the equity stake. The question here is how can they bring some micro-niche publication to market without gambling money that they do not have - either because they did not have it originally, or else because they tried that before, and lost more gambles than they won, so now they don't have it anymore.

How would that work with Units?

Well, people could buy Units that wish to see the publication brought to print. Suppose that they buy enough units to ensure that the publication and logistics can be paid for.

Once the publication and logistics can be paid for, the operation can take orders for the publication. Orders placed before the print run are subscriptions - they are "pre-orders" when the series is going to be sold into the regular channel, but for simplicity, lets suppose that this publication is sold on a pure subscription basis. Once the subscription time limit has expired, the print run can be worked out.

That revenue can be allocated to holders of units. Non-equity holders of units can place their orders. The unit share of revenue provides a discount against the purchase price of the publication - how much, of course, depends on how many pre-orders were sold. If the discount exceeds the purchase price of the series, then the unit holder can choose between obtaining more copies or receiving a share of the revenue in cash.

What does the operation putting the publication together live off of? The same units - it is stated up front what portion of units the publisher receives for putting the publication together, and the publisher receives their share of the revenue from those units as a cash distribution.

This is a cooperative approach, not a speculative venture, so the sale of units is structured like a ticker to a fund-raising goal - the funds required to publish is stated up front, people pay for units, and as units are sold, the ticker approaches the target. Once the ticker hits the target, it is time to proceed to publication.

If the ticker falls short, the funds paid for units are either repaid or rolled over into a different offering.

In the above scenario of a niche manga with a nominal cover price of $75 for 3 issues of 450pp. each - a unit might cost $50, with the publisher receiving (purely arbitrarily) 25% of the units. If there are no subscriptions, and only single units were sold, its a purely cooperative venture. A $75 sale to each single unit holder generates $56.25 in revenue for the non-equity unit holder, so the unit holder has to pay $18.75 for the first issue in the series, and receives the second and third issue free.

Printing costs go down with larger print runs, so a substantial volume of pre-orders will increase the effective discount to the unit holder.

Uhhh ... You Called This a Hero Model: Where's The Heroes?

So, if all the outside unit holders normally get is a discount based on how popular the series turns out to be, how are they heroes?

That's simple: they are heroes because it says so. Right on the inside of the publication is a heroes page listing the heroes that brought the publication to print, in chronological order of unit purchase, as they wish to be know - by name, nom de plum, online pseudonym, or whatever.

"The following heroes made this publication possible:"

And of course, the heroes that made the publication possible could well spread the word when the series is ready to launch, why they were interested enough in the series to invest in it, and what people will miss out on if they do not subscribe.

Every once in a great while, pre-orders will be so strong that the publisher will decide on a print run large enough to put the series into the channel. But primarily it will be a matter of those series that have enough people who really want to see it in print to cover the printing and logistic costs, plus those who find out about it during the subscription period, after its decided to go ahead with publication but before the size of the print run is finalized.

What if it never works

One question that arises with an innovation along these lines is - what if it doesn't work? At least, not yet.

Well, for the people who purchase units that do not lead to publication - they lose the use of $50 (or whatever) for however long it takes to sort out that either this approach does not work, or that conditions are not yet ripe for it.

For the publisher or going concern that attempts it, they are out the time, effort and headache of setting it up to try to make it work, plus the cost of putting together one "LLC for the purposes of publishing a series of graphic novels". If a series launches, that LLC would stay with the series and another one started for the next venture, but as long as potential series are being put out to try to attract enough publishing heroes to get launched, its likely that the same LLC can be recycled unless and until one takes.

Which leaves the licensing. Negotiating a license is not something I have any experience in, and it certainly seems to be quite far from "if you've seen one license negotiation, you've seen them all".

However, what would seem to fit with this model would be an "option to license" model, in which a time-limited option to enter into a license is purchased, with the heads of agreement, including license fees for a range of print runs, included in the option.

The publishing group first needs to arrange finance for a license to option. That is part of the publishing costs - but it is a non-refundable part of the publishing costs. And until the license to option has been obtained, there is really no basis for selling the units in the publication of the series.

In the hero publishing model, this requires a special type of hero: people willing to buy a unit for a series sight unseen, which is to say - people willing to buy a unit in the publication strategy of the publisher. "License-option" units would be locked in as soon as the funds to option the first series has been accumulated.

What does the hero holding the "license option" unit get? When publication units are opened for sale, they can convert their "license option" units into publication units. If the publication launches, its like a "unit pre-order" - and if it doesn't, they get their option-unit back. And if they decide they are not interested in that particular series, they can just hold onto their license-option.

Buying a license-option unit is making a seed-money investment in a publishing group, and if nothing ever sprouts, the treasure is stored up in heaven, or karma, or wherever the treasure from sowing onto the waters is stored.

Is this a model for the post-print publication world?

I do not know whether this is a model for the dusk of the era of print publishing, let alone whether it is a model for the dawn of the era of electronic publication.

I don't know if this model is workable in many or even any areas of traditional publishing. But, independently of that, its possible that it becomes workable for niche publishing in electronic media.

For electronic media, the per item publication costs drop, and the distribution and logistics cost drop, and costs become dominated by rights and production of copy.

Whatever the channel for "mainstream publishing", if those who wish to see the rights obtained and the work produced band together, perhaps there is some division of shares between publication-producer units and publication-consumer units which will defray the expenses of getting the niche publication produced. If so, then the hurdle of publication has been passed - the mainstream publishing channel will have to cover the per-item costs of reproduction and distribution, so once the the cost of getting the master copy is covered, the balance can be assumed.

How much revenue that will yield back - likely not much. It seems highly likely that this involves owners of publication-consumer units keeping owners of publication-producer units in operation, with the "Rest of the World" acting as a residual after-market except for the one in a thousand runaway success.

But it also seems like ... that would be OK. The owners of publication-consumer units would be seeing to it that the kind of publications they wish to see are made available. The fact that a broader range of "fans" are getting the same publication for a fraction of the cost is neither here nor there. And the owners of publication-producer units would be receiving income to work on producing the publications.

And those living in a world of Fantitlement (autoscript movie), who believe that the fact that they love a series entitles them to a say in what is produced, how it is produced, and on what terms it becomes available - they don't really have that entitlement now, so the fact that they will not have that entitlement under the Hero Publishing System is no loss to them.


Erica Fredman said...

Interesting model Bruce. In a sense, it's what pre-orders are meant to do, but in reality, few people pre-order anything but blockbusters.

As my "market research" showed, people have a price point and they are willing to commit at the lowest point for the most (perceived) value. The investor model is harder, because people want extras - not just recognition, but *physical* extras, in order to fee like they got their money's worth.

Look at Right Stuf - Pre-orders are rewarded with *stuff*. do you think their pre-orders would be as high if they offered thanks instead? I'm inclined towards "no." :-)

I do believe that for certain projects microfinancing is viable. I am not sure that publishing is the right industry. People want way more out of books - paper or electronic - than the industry really has to give.

Microfinancing works for indie music. The fan base is rabid *precisely* because the musician is indie. Should they be signed to a label, many fans will drift away.

Which makes me think about trying to leverage the "obscure, niche fandom" factor more than just the Hero side. Hmmm...

BruceMcF said...

Yes, but on the other hand, unlike pre-orders, the more people that that the Heroes can persuade to subscribe, the higher the discount on the Heroes purchase.

On the "obscure niche fandom" side, most of these are not available in stores. There's just Heroes, Subscribers, and Losers who missed the -boast- boat.