Can "Real" Money Be Made in Digital Rights Licensing?

Not just icing anymore – digital rights income can taste a lot like cake.

How many of you have booked a million dollars in digital rights revenue? $500,000? $100,000? How about $50,000?

Admittedly, digital rights licensing has not yet become a primary profit center for many publishers. Why? The obvious reason is because print still drives the vast majority of revenue for most publishers (therefore, print-centric work-flows continue to be a practical reality). Other reasons; most publishers don’t clearly understand how digital products are sold. And if they happen to know how the product is being sold, they misunderstand who the customer is. They believe e-books are priced dramatically less than their print counterpart and therefore two things happen – less revenue is generated and print sales are cannibalized. They look at royalty calculation methods and see nothing but pennies. And since the expectation of getting rich is so low, many publishers sign contracts that virtually guarantee it. Worse yet, some publishers become so confused that they take the easy way out; they avoid the category completely.

The truth is, money can be made. In some cases, the revenue can be significant. In other cases, it can be incremental. As a publisher, it’s important for you to be aware of the potential revenue streams and take a ‘more is better’ approach.

Lots of Flavors to Taste – there are many revenue models

Different types of books will generate different amounts of revenue. Books should be matched to fit their market. Reference, text books, or better yet, books you open to the middle rather than at page 1 make better selling digital products in some channels than the latest John Grisham title or Harry Potter book.

When licensing digital rights, sign non-exclusive deals. If there are two or more suppliers in a market, don’t lock yourself into just one, but be sure one of those is the market leader. Make sure your licensing policies are flexible enough to accommodate a ‘one size doesn’t fit all’ market. Get to know your partner and their product. Gain a clear understanding of who their customer is and how they buy digital products. There is no single business model, so get used to hearing a lot about how “this type of content sells best at this price and in this kind of configuration.”

Avoid the temptation to think that selling digital products is the same as selling individual print copies. Many products sell best when multiple books are bundled together. Digital library products exclusive to certain disciplines can be very lucrative for publishers who commit with multiple titles.

Smorgasboard vs. Ala Carte – selling digital book collections

My company sells a product that includes 330 reference books, costs $630 and includes over $6,100 in equivalent print editions. You might think, “Wow, that’s nearly a 90% discount from list price on each book.” Well, you’re right. And when you look at the individual royalty revenue each book generates when sold this way, your first reaction would be to say, “Who in their right mind would want to license books for this product?” But what you may not know is that we sell tens of thousands of copies of this product each year. Those kind of sales provide a lot of potential royalty revenue for the publishers who have licensed books to us. But of all the publishers represented in the product, some are much happier than others. Why is that? Well, some publishers own and have licensed to us dozens of titles in that box. Others have licensed one or two books in there. The publishers who represent dozens of books are collecting tens of thousands of dollars from us in royalty revenue each year, while the others are collecting under one thousand dollars.

In our model, more is better due to the volume of bundle sales. If your publishing house is taking a conservative stance as to which books you license to us and you limit the way we can sell them, your revenue will reflect that.

When to Open Your Own Place – publishing your own content digitally

Most publishers have fewer than 100 titles available digitally and many of those have come to market through sub-licensing deals with partners. If your publishing house is small or medium sized, there’s good reason to keep licensing digital rights. After all, committing to your own digital publishing means higher costs over the short-term and a stretching of (already stretched) resources. But, for those of you who believe participation is better than spectatorship, there are models you can follow to begin publishing your own digital editions.

At my company, publishers partner with us to bring their own digital products to market by licensing the technology we create. In many cases, we act just like a packager does. We help publishers identify the books that will sell best together. They pay us to digitize the books (if they’re only available in print) and work with desktop publishing formats for books that are already digital. Once everything is formatted for our technology and made searchable, we create a master CD or DVD-ROM and hand that back to the publisher. At that point, they create the product packaging and enlist their own sales and marketing team to bring the product to market.

By partnering with us this way, the publisher avoids the cost of developing a custom e-book technology and the ongoing burden of providing technical support services. They pay us a small royalty on their sales, and in exchange we handle everything for them.

But that’s just one way for a publishing house to bring digital products to market. There are lots of digital book technologies and lots of great companies to partner with.

Remember I mentioned that at my company, the ‘more books are better’ approach yields more royalty revenue for our publisher partners. This ‘a lot of a little’ philosophy is shared by major publishers who do their own digital publishing. In 2001, HarperCollins offered 188 digital titles which were chosen selectively, and as a result, the revenue generated was small. Since then they increased the amount of digital books published and here’s what they found. Today, 75% of the revenue generated from digital books sales by HarperCollins is from titles selling less than 49 units per month. In fact, 95% of HC titles sell fewer than 49 units per month. Yet, their revenue climbed over 800% from 2001 sales. By June 2008 they will offer over 4,000 titles in the market.

The lesson here is, if your publishing house is going to jump head first into the digital publishing pool, don’t forget the water. And don’t be afraid of its temperature either.

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