financial models for digital products timothy doyle, harvard university press february 14, 2011
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Financial Models for Digital Products
Timothy Doyle, Harvard University Press
February 14, 2011
Overview of Harvard University Press
2
98 year-old academic publisher
Target markets: Institutions and individuals
Editorial focus: a diverse list that includes: Humanities, History and Science From scholarly monographs to trade titles for a
general audience
Growth strategies: Introduce new products (digital and print) Publish more titles (front and backlist) Target new markets
Deliberate Approach to Digital Products
3
Development of digital product strategy as starting point
Content assessment Understand markets and customers for digital products
Prioritization of opportunities eBooks as an additional format Curated collections Enhanced eBooks Digital distribution
Critical to consider implications to staffing and infrastructure
Economic Drivers – Print v. Digital
4
Digital
CostsCosts
RevenueRevenue Subscription Perpetual access Pay-per-view Aggregated and
Disaggregated content
Different kinds of editorial, production, sales, fulfillment
Platform and development Digitization and encoding Customer service (3rd
party)
Individual book purchases via booksellers
One time payment via wholesalers (institutions)
Editorial costs Book production Sales and marketing Warehouse and fulfillment
Key Considerations for Digital Products
5
Size of digital product (corpus v. single work)
Semantic markup (interpretive v. structural)
Permissions (availability of worldwide digital rights)
Multimedia and interactive enhancements (complex v. simple)
Design (comprehensive design layouts v. format redesign)
Platform and IT investment (custom development vs. modifications to existing systems)
Example of Print P&L
6
Working Column Proposal EdComProject Description & Estimated Timing
Date of input 03/03/10 04/01/09
Approval Stage Completed Turnover EdCom
Acquisition Editor
Author (last, first)
Title
Job number (5 digit number) 18331N
Translation No No
Import No No
Imported from whom?
Contract signing date 06/04/09 06/04/09
Contractual delivery date 12/01/09 12/01/09
Publication month (type "MMM-YYYY") Nov-2010 Dec-2010
List Fall 2010 Fall 2010
Discount Ac Trade Trade
Discipline African/Black Studies African/Black Studies
MetaDiscipline Cultural Studies Cultural Studies
Sales Discipline History History
Audience General Reader General Reader
Imprint Harvard University Press Harvard University Press
Who pays? HUP HUP
Updated by (initials)
Sales Projection
Initial 12-month Sales 2,000 2,000
Second 12-month Sales 0 500
Projected 24-month Sales 2,000 2,500
Advance Sales 1,000 1,500
Initial Print Run 2,000 2,000
Price $22.95 $22.95
Projected Avg Discount % 41% 35%
Projected Avg Net Price $13.54 $14.92
Author / Contract Decisions
Author Advance $7,500 $7,500
Royalty Rate % (Avg of First Year Sales) 10.0% 10.0%
Royalties calculated on: List List
Foreign Rights $0 $0
Author grant $0 $0
Subvention (income not expense) $0 $0
Marketing Expense $0 $0
7
Editorial & Production Decisions
Wordcount 33,388 30,000
Trim 5 1/2 x 8 1/4 5 1/2 x 8 1/4
Pages 200 200
Text Permissions Cost $0 $0
Artwork Permissions Cost $0 $0
Artwork Creation Cost $0 $0
Illustration count: b&w line 0 0
Illustration count: b&w halftone 20 20
Illustration count: color 0 0
Editing Method EdPro / Packaged In-house
Design Needs Format Format
Development Costs
Project management $0
Editing $0
Book design $0
Typesetting $0
Jacket design $0
Packager Fees $0
Pre-press $0
Translation $0
Total Development Costs $0
Fixed Costs per Page $0.00
Variable Costs
PP&B Cost (interim average figure) $3.25
Financial Projection Results
Example of Digital P&L
8
TI TLE:
AUTHOR: Perpetual AccessPUB DATE: Top UpEDI TOR: Single-Viewer eBookSERI ES: Multi-Viewer eBook
Year 1 Year 2 Year 3 Year 4 TotalMarket DiscountAcademic 0% 100 200 150 100 550Public 40% 25 25 25 15 90School 70% 50 50 50 20 170Consumer 70% 25 25 25 15 90Other 5% 0 0 0 0 0
Total 200 300 250 150 900
Year 1 Year 2 Year 3 Year 4 TotalMarket DiscountAcademic 0% 0 0 400 100 500Public 40% 0 0 25 25 50School 70% 0 0 25 25 50Consumer 70% 0 0 50 50 100Other 5% 0 0 0 0 0
Total 0 0 500 200 700
Year 1 Year 2 Year 3 Year 4 TotalRenewal % 77% 77% 80% 85%New Contracts $20,000 $40,000 $40,000 $40,000 $140,000Renewal $ $0 $20,000 $50,000 $80,000 $150,000Spread Revenue $10,000 $40,000 $80,000 $100,000 $230,000I mmediate Earning Revenue $0 $0 $0 $0 $0
Total $10,000 $40,000 $80,000 $100,000 $230,000
Year 1 Year 2 Year 3 Year 4 TotalMarket DiscountSingle Viewer eBook 50% 75 100 75 50 300Multi Viewer eBook 50% 150 200 100 50 500
% - - - - 0% - - - - 0
Total 225 300 175 100 800
$2,000.00
Perpetual Access Top Up: Units/ Discount Matrix
Subscription Earnings
eBook Aggregation: Units/ Discount Matrix
Perpetual Access: Units/ Discount Matrix
PRI CI NG
$5,000.00$500.00$1,000.00
9
Year 1 Year 2 Year 3 Year 4 Total$642,500 $1,142,500 $892,500 $577,000 $3,254,500
0 0 $214,250 $64,250 $278,500$10,000 $40,000 $80,000 $100,000 $230,000
$187,500 $250,000 $137,500 $75,000 $650,000Total Net Sales $840,000 $1,432,500 $1,324,250 $816,250 $4,413,000
Year 1 Year 2 Year 3 Year 4 Total$500,000 0 0 $0 $500,000
0% 25% 25% 25%$0 $125,000 $125,000 $125,000 $375,0000% 0% 0% 0%$0 $0 $0 $0 $0
Total Platform $500,000 $125,000 $125,000 $125,000 $875,000
Net Sales
Assumptions of the ModelNot modeling revenue from individual subscriptions; only individual perpetual accessSubscription Earnings $230,000 5%Not modeling data set licenses Single Viewer eBook $150,000 3%Subscriptions price ($1000) reflects a median price point. See tier structure in business plan.Multi Viewer eBook $500,000 11%Perpetual is priced at 5 times the average subscription. See tier structure in business plan.Download Earnings $0 0%Licensing includes hosting Perpetual Access Academic$2,750,000 62%Not modeling print sales Perpetual Access Public $283,500 6%
Perpetial Access School $76,500 2%Consumer $144,500 3%P&H $0 0%Top Up $278,500 6%Total $4,413,000 100%
Cost of Sales
Platform $875,000 20%
Royalty $1,103,250 25%
Other Costs $250,000 6%
Total $2,228,250 50%
GROSS MARGI N $2,184,750 50%
Gross Margin %COMMENTS
Online Development
Platform and DevelopmentSoftware License %Software License $
Web Hosting $Web Hosting %
Net Revenue Top UpNew Revenue SubscriptionNet Revenue eBook Aggregation
Sales
Net Revenue Perpetual Access
Financial Outlook: Year 1
Revenue $27,081
Fixed Direct Costs
Advance to Author $7,500
Rights, Subvention, Marketing $0
Artwork & Development $0
Total Fixed Direct Costs $7,500
Variable Costs
Royalties beyond the Advance $0
PP&B Cost $6,500
Total Variable Costs $6,500
Resulting Gross Margin
Gross Margin $ $13,081
Gross Margin % of Revenue 48%
Consider for Subsidy? No
10
Summary and Key Take-Aways
11
Focus on digital product strategy Understand content depth and market opportunities
Plan for iterative development Need to adapt to industry changes and learnings Revenue models still not clear (as compared to
costs)
Consider staffing and infrastructure implications
Questions:
12
1. What types of products beyond eBooks is the market interested in
2. What other tools have people found to be successful
3. Cannibalization and Piracy – any experience
4. What success are people having digitizing out of print backlist
Appendix
13
Digital Consideration Matrix
14
DIGITAL PUBLISHING PROJECT UNDER CONSIDERATION Acq. Ed: Action Requested: Date:
Author, Title, Affiliation:
Project Title:
Dev. Ed. MS. Ed. Prod. Ed. IT Pub date:
Ed/Prod/IT maintenance level
Highest High Low Lowest
Editing for Digital Format
Developmental (structural)
Moderate (substantive)
Light (style)
None (proof-reading)
Multimedia and Interactive Enhancements
HUP develops or Au supplies complex/many
Au supplies some, average complexity
Au supplies few, simple
None
Semantic Markup
Interpretive, Close Reading
Entities and Cross-References
Mostly Structural None
Platform and IT investment
Custom Development
Modified Standard Out-of-the-Box
Size Large Corpus Mid-sized Collection
Small Group Single Work or Sub-work
Permissions HUP assesses, requests, and monitors
Au assesses and requests many, advice from HUP
Au assesses and requests few, advice from HUP
None
Design
Comprehensive design layouts/ High-profile trade
Many text elements/ Trade or academic trade
Few text elements; format design possible/ Professional
Format design / Text
Metadata
From Scratch Supplementing and reformatting
Minor reformatting
None
Source From Scratch Print, motley digital
Uniform digital Formatted
Schedule
Immediate (ie. 6 weeks)
Near Term (ie. 6 months)
Lead Time (ie. 1-2 years)
Long Range (ie. 5 years)
Project Management
Full Time Part Time Occasional None
Author or Stakeholder
Major trade or Harvard au
Other significant or past trade au
Senior scholar Junior scholar
Investment Price Sales Income Please list any roughly comparable digital projects: Title Notes 1. 2.
Summarized Digital P & L
15
Net Sales
Subscription Earnings $230 5%
eBook $650 14%
Perpetual Access – Academic $2,750 62%
Perpetual Access – Public Library $283 6%
Perpetual Access – School $77 2%
Consumer $144 3%
Top-Up $279 6%
Total $4,413 100%
Cost of sales
Platform $875 39%
Royalty $1,103 50%
Other Costs $250 11%
Total $2,228
Gross Margin $2,185 50%
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