The same forces are at work undermining the power of gatekeepers in every entertainment industry, film, books, and games:
“Let me give you the simplest math,” he replied. “The simple, simple, simple math.”
Good,
I thought. Because my friends and I are not so great at math. I can
guesstimate the budget of a big movie to within a hundred thousand
dollars by reading the script, but I can’t add the columns therein.
“The
movie business,” Peter said, “the historical studio business, if you
put all the studios together, runs at about a ten percent profit margin.
For every billion dollars in revenue, they make a hundred million
dollars in profits. That’s the business, right?”
I nodded, the good student, excited that someone was finally going to explain this to me.
“The
DVD business represented fifty percent of their profits,” he went on.
“Fifty percent. The decline of that business means their entire profit
could come down between forty and fifty percent for new movies.”
For
those of you like me who are not good at math, let me make Peter’s
statement even simpler. If a studio’s margin of profit was only 10
percent in the Old Abnormal, now with the collapsing DVD market that
profit margin was hovering around 6 percent. The loss of profit on those
little silver discs had nearly halved our profit margin.
This
was, literally, a Great Contraction. Something drastic had happened to
our industry, and this was it. Surely there were other factors: Young
males were disappearing into video games; there were hundreds of home
entertainment choices available for nesting families; the Net. But
slicing a huge chunk of reliable profits right out of the bottom line
forever?
This was mind-boggling to me, and I’ve been in the business for thirty years….
When Peter referred to the “transition of the DVD market,” and
technology destroying the DVD, he was talking about the implications
of the fact that our movies were now proliferating for free—not just on
the streets of Beijing and Hong Kong and Rio. And even legitimate users,
as Peter pointed out, who would never pirate, were going for $3 or $4
video-on-demand (VOD) rentals instead of $15 DVD purchases.
“When did the collapse begin?”
“The bad news started in 2008,” he said. “Bad 2009. Bad 2010. Bad 2011.”
It was as if he were scolding those years. They were bad, very bad. I wouldn’t want to be those years.
“The
international market will still grow,” he said, “but the DVD
sell-through business is not coming back again. Consumers will buy their
movies on Netflix, iTunes, Amazon et al. before they will purchase a
DVD.” What had been our profit margin has gone the way of the old media.
This is the very point that the SFWA members didn’t understand when I tried to warn them about the sale of ebooks through non-Amazon channels such as games. The big mainstream publishers, (and more importantly, the genre publishers owned by them), not only don’t have these channels, they can’t even sell through them because their legacy distribution contracts prohibit them from selling books for virtual currencies. And I very much doubt Ingram or Barnes & Noble is going to allow publishers to rewrite contracts in order to help them bypass the conventional channels into which they are locked.
Amazon is putting serious pressure on ebook pricing, but it is also maintaining a strong floor. That floor will disappear once the in-game channel starts to see decent volume. So on the one side, their profit margins are going to decline as ebook prices continue to fall – the average price of an ebook bestseller fell from $11.79 in October 2012 to $6.59 in May 2013 – on the other, they’re not going to be able to sell game tie-in books much longer once Microsoft starts selling HALO ebooks through the Xbox and Disney starts selling Star Wars ebooks through its in-game stores.
It will probably surprise no one to discover that the primary response of the forward-thinking futurists was to declare their opinion that First Sword was unlikely to sell enough ebooks to matter one way or the other, as if the universal adoption of 3D hardware texture-mapped acceleration that Big Chilly and I introduced in Rebel Moon, and the 16-bit color we introduced in Rebel Moon Rising, had anything at all to do with how many copies of those games were sold.
Speaking of First Sword, I’m working on the standard contract for in-game ebook sales right now, and I would welcome any comments or suggestions those interested in selling either original Selenoth-related fiction or unrelated material through First Sword and other games might have.