Monday, September 29, 2008

"How to Make Webcomics" Business Model Doesn't Hold Water

The bible is flawed.
"How to Make Webcomics," which presents a serious working business model for making a living from webcomics:
  • cannot be verified by the majority of case studies; and,
  • appears to offer incorrect guidance about what sort of webcomics are most likely to succeed.*
The issue of the business model is of immediate importance to anyone entertaining a living wage, or even a part-time income, from webcomics. A review of my findings must:
  • find my data is seriously in error; and/or,
  • confirm the magnitude of the error, and its implications; and/or,
  • identify missing data that would correct the outcomes from negative to positive and generally support a new analysis.
If the interpretation I offer is reasonably accurate, serious webcomics creators must:
  • find a business model with a higher rate of success; or,
  • lower their expectations.
I hope someone will find fault with my analysis, because if it is sound, it is a setback for webcomics. Sometimes, however, from a setback comes inspiration.
The Problem
"How to Make Webcomics" is not titled "How to Make a Living in Webcomics." Nonetheless, it contains a chapter on earning revenue that is probably among the most heavily read portions of the book. Most of the ideas seem sound, and the only serious error is presenting data with insufficient explanation. The consequences of this error, however, are serious.
The error is a sidebar by Dave Kellett:
"The 10% Rule"
"How many of your readers will actually buy a book, a t-shirt or a bumper sticker? Conventional wisdom among Webcartoonists is that 10% of your readership (5-10% playing it safe) will actually crack their wallets. It's a useful metric to keep in mind when you start pursuing different kinds of merch."
Doing some fact-checking (for I am using the HalfPixel plan for my own comics), I discovered that the 5-10% figure, called the sell-through rate, seems unique to the book. Every sell-through rate I found on the internet pertaining to t-shirts and similar merchandise was 1%, and in one case, half of 1%. The last is from one of the most successful names in webcomics, Chris Crosby.
The obvious situation is either HalfPixel has over-optimistic forecasts, or something special is happening in webcomics. Perhaps a special sort of fan loyalty has emerged to drive higher sell-through rates. (To check that, I developed a statistic for fan loyalty that as statistical instruments go isn't fantastic but isn't bad. It tells me that comics with unusually high fan loyalty scores might turn moderately insufficient traffic into sufficient traffic, but it wouldn't perform miracles. We'll visit that another day.)
I contacted Dave Kellett and asked where he got his data. He kindly spent a lot of time emailing me, and I think I can sum up his position as being:
  • The data comes from "years" of conversations with people who are "making a living" [his emphasis] from their webcomic;
  • I read the book recklessly, failing to perceive the "central tenet" that the figures are for 5-10 years after a comic is launched (lowered to three years in a later email).*
I think it would be fair to speculate that other distractions may have prevented Dave from reading all my emails carefully, making it difficult to stay focused. I came away with these conclusions:
  • Dave stands by his numbers, and offered me four specific examples of people whose experience supports them. Besides Dave himself, there was one I have already verified, one who appears in another book using the 1% figure and a somewhat unique, "niche" comic. These may simply be who came to mind first;
  • Dave doesn't place much faith in anything I say (I'm sure he's not alone);
  • Dave seems to overestimate the amount of warnings in the book regarding precisely when and if you should have a go at the webcomic profession, and seems to underestimate the amount of cheerleading;
  • I continue to respect Dave, but I don't think he and I are personally on the same wavelength, which happens in life.
  • I didn't mention this quote from the book, which seems to plan more ambitiously: "You're nearing the start of your third year in webcomics. You've done a book through print-on-demand, you've exhibited at two or three conventions, and you're going to order your first run of t-shirts with a clever design..." This suggests the book's plan sees some trial and error POD and Cafe Press experiments to be followed by an actual, fledgling merchandise operation circa month 22. Presented with the 5-10% sell-through rate, the reader is left to assume the high sell-through from the beginning. Also, without discussion of circulation, it seems that arbitrary chronological benchmarks are risky.
I decided the next step was to look at some case studies.
I've decided not to identify the comics I am using for my case study, because if I make an error and someone becomes upset, it will distract from the goal of checking and refining the HalfPixel business plan. I've chosen comics in a range of sizes from a list in Wikipedia which reports comics that support their creator(s). If you are fairly informed about webcomics and you visit the list, you will see that there are comics which should not be on it. An example of this is "Hero by Night" by DJ Coffman, since he no longer controls the comic, and I'm sure it's an oversight. But there are also more than a few dreamers... I set aside a screen shot, as a study in human nature, and a hedge against sudden rewrites. We might also want to look at how the "Fake it till you make it" ruse distorts the truth, one day.
I removed the ones that don't belong and analyzed the rest. The sample of case studies below, with numbers slightly fudged for anonymity but not enough to affect outcome, all present claims to self-sufficiency that can be used to test the HalfPixel model. This is because with most comics we lack income data, but any comic claiming self-sufficiency has to be making a minimal amount of profit -- at least $15 - 20,000/year, after taxes, by my reckoning, and even that is pretty low.
The formula for estimating each comic's profit is:
We use a sell-through rate of 5%, at the conservative end of the Halfpixel model.
We assume the average profit per sale is $5 -- typical for a t-shirt, thus:
Traffic x .05 x 5 = Profits before taxes (This variation can be simplified to Traffic x .25 if you want to run some on your own.)
Monthly traffic: 8,050
Profits before taxes: $2,012
Monthly traffic: 69,080
Profits before taxes: $17,270
Monthly traffic: 32,000
Profits before taxes: $8,000
Monthly traffic: 3,900
Profits before taxes: $975
Monthly traffic: 96,000
Profits before taxes: $24,000
Note that I was careful to avoid people who may have had big years, such as Chris Onsted, who produced the No. 1 graphic novel of the year, according to Time Magazine.
It's a safe bet that anyone substantially over 100,000 traffic is doing well or very well, though I don't know if that can be said for a title like "Cyanide and Happiness," with its numerous creators.
Obviously, there are plenty of people on the list who either aren't earning a living from their strip, are on it accidentally, don't know they are on it or who have income from their comic that does not appear as a result of this analysis. Let's examine that next.
Possible Errors in the Analyses 
  • Faulty data. Possible in some cases, but so many were checked from multiple sources or checked for believability by statistical instruments, I think not.
  • Wrong variables used. You can double the profit or the sell-through, and the profit will double. If you think those higher numbers are more realistic, use them, but please explain why. I would like to know.
  • A glitch involving what's a monthly number and what's a yearly number. Dave's sell-through has to involve readers of the course of the year, or we'd be minting webcomic millionaires. Monthly traffic can be adjusted to determine unique visitors, readers, loyal fans, and so on. My method pulls slightly low (due to reader attrition and replacement over a year), but I can't find an alternative that is both valid and produces a happier result. In fact, if the 5-10% rate is firmly based on annual sales, my downward pull is already built into Dave's model -- as an over-estimation of the sell-through, because the actual number of people in the audience over one year is higher than 12 x (one month's readership).
  • Hidden income. This is my personal favorite "nice" answer: cash transactions at conventions sound particularly appealing as a hidden income source, not often spoken about in public. Some of the case studies I did are of convention warhorses who reputedly achieve stunning sales levels at conventions. The problems with this is we have to remember the significant overhead involved in conventions, from booth rental to food and lodging; and we must note that "stunning sales" at a convention would mostly be to non-readers. Such cold sales might be a valuable income source for some comics, but they are no different than if I made a bunch of pottery, sold it at a pottery fair, and counted it as webcomic reader income. For this model, there is a dividing line between merchandise sales directly linked to your comic and those which are not. The point of concern comes when the appeal of the merchandise is unrelated or substantially disconnected from your comic, such that the buyer is unlikely to become a reader. I personally don't mind selling merchandise related to my comic but if I have to sell miscellaneous novelties and tomorrow's trash today items, I would prefer to know up front, as I would not find that appealing.
  • Both the 1% and the 5-10% models are wrong. This is possible, and I bet the model has been beaten on occasion, but the reason this probably isn't true is that it would mean webcomics are really, wonderfully profitable, and it's been kept a secret.
  • Exaggeration. If the human tendency to exaggerate is accurately reflected by the Wikipedia self-supporting webcomic list, then we can assume that there has been serious inflation in webcomic financial reporting. Of all the possible explanations, I think this will take the lion's share, but I retain an open mind, hoping for more data.
  • Above 100,000 readers, the model does begin to work, for the six or so comics at that level.
  • Some observers were tempted to cite various other sorts of income, both closely and distantly related to webcomics, as explanations for the earnings gap. The fact is, we are testing a specific model, and we can't modify it to make it fit a desired outcome. It's possible we can write a new model, but until others have critiqued this analysis, it seems premature.
Remarkably, on the day I wrote this, Kris Straub, one of the HalfPixel guys and co-author of "How to Make Webcomics," announced that he has taken a full time job.
*This second point will be addressed in the future.
Special thanks to the twelve webcomickers who volunteered to assist with data gathering and fact checking. An impressive group, to be sure.