We often hear that content is king. But I wonder if this is still true.
Let’s take some very simple examples.
I am sure most of you know that the iPod was not a revolutionary invention. It was merely a new spin on the already existing MP3 player. The real innovation was the integration of the iPod with iTunes. This changed the game. Using this model, the distribution of content became as important as the creators (the musicians) and the publishers (the record labels). Apple is now one of the most powerful and profitable players in the music industry.
I now own an Amazon Kindle. I have to admit, I love it (I’ll blog about that another time). But what strikes me is that we are seeing the same ‘content distributor as king’ dynamics unfold again. In the book business, the author’s royalty is a pretty small slice of the pie. I should know because I just signed a two book deal with Penguin’s Portfolio imprint.
Here are some illustrative figures for a printed book (kept very simple using made up, yet not far fetched numbers):
- An author can expect about 10% +/- of the retail price of the book. So if the book retails for $25, the author gets $2.50.
- The retailer expects roughly a 50% discount and then they sell it for whatever they can get. If they sell it for a 20% discount, they gross approximately 30% of the price of the book (about $7.50). Their profit is quite a bit less due to overhead costs.
- Finally the publisher gets the remaining 40% or so – about $10 a book. By the time the publisher has covered all of their costs, books that sell poorly can lose them money because they need to pay the editorial staff, the various designers, the printers, and the shipping companies.
As you can see, the creator of the content (the author) gets a small slice. The publisher of the content gets a small slice. And the distributor gets a small slice. The rest of the money is eaten up in various costs.
Enter in the digital age.
Book on Kindle sell for $9.99 as a rule (we’ll make it $10 to keep it simple). Let’s look at an illustrative breakdown now.
- The author gets 5% of the retail (eBooks typically get a lower royalty) – $0.50. As you can see, an author can make 80% less with a Kindle book.
- The publisher and Amazon split the rest in a way I am not privy to.
- The publisher’s costs are lower because they don’t need to pay for shipping and printing. They still incur the upfront design and editorial costs.
- Amazon’s costs are close to zero. They only need to pay a small amount to Sprint to provide mobile services. No overhead (except maybe some computer servers). No distribution. No warehouses.
In this model, I want to be Amazon. Everything sold is nearly pure profit. The content creator (me) is definitely not the financial king in this model. The publisher does fine. But the distributor appears to be the one in charge.
This concept of distribution as king appears in all areas. I was speaking with a seasoned consultant from the retailing industry. He indicated that a few years ago, the power shifted from the manufacturers to the retailers. Wal-Mart has the lion’s share of power in the industry and they now call the shots.
You could argue that Google has a similar position, although their financial model is a bit different (AdWords accounts for most of their profit). But like other distributors, they don’t create content. Instead they aggregate content from a variety of sources into one distribution system.
I just read on Friday that Comcast may be buying a 51% stake in NBC from GE. This shows how the power is moving from the creators of the content (the writers) and the publishers of the content (NBC and their production staff) to the distributors of the content – Comcast.
Are you a content creator or you a content publisher? Does someone else control distribution? Or, are there new entrants who might control distribution? Beware. The current and future distributors/aggregators of your content could be one of the most serious threats to your business.
Stephen Shapiro is the author of three books, a popular innovation speaker, and is the Chief Innovation Evangelist for Innocentive, the leader in Open Innovation.