Over the past 30 years, we’ve witnessed a radical transformation of creative industries buffeted by digital formats. Moore’s Law governing the cost of digital computing has drastically reduced the costs of creative production and product distribution. For aspiring authors this means no need for commercial book printing — all one needs is a simple computer with a word processing program and eBook publishing software provided free online. The zero marginal cost of digital distribution has also made large scale distribution through publishing houses unnecessary; one can distribute through Amazon for a 30% fee or distribute directly for the price of an Internet connection.
Moreover, the massive capital outlays associated with producing and distributing physical product no longer apply in the digital world. This means risk capital is no longer the tail that wags the dog of creative industries (film production excepted).
Following the simple economic law of supply and demand, these trends have led to an explosion of supply while collapsing the selling price of content. Most self-published titles on Amazon sell for $2.99 or less. Many are given away for free to build a more valuable brand.
While global demand from readers has responded strongly to these lower prices, the considerable costs of matching supply and demand across global niche markets prevent the price from increasing to a sustained equilibrium. Recent data show the number of books self-published in the U.S. in 2018 was 1.68 million, up from 1.19 million in 2017, a 40% jump. But this is not a response to excess demand, rather an explosion of excess supply driving down unit prices and author incomes. According to the Authors Guild 2018 survey, the median annual income for all published authors fell from $3,900 to $3,100, while full-time traditionally published authors earned $12,400. That’s not a lot of money. For authors to rely on book sales as a primary source of income is an exercise in poverty.
The upshot is that creative content is mostly given away for free in order to build audience awareness while incomes for author/creators fall below the subsistence level. Hence the photo above.
The Streaming Siren
In his book, Who Owns the Future, technology guru Jaron Lanier cited the main failure of the digital age: By encouraging users to give away valuable information about themselves in exchange for free services, network platforms accrue large amounts of valuable data at virtually no cost. Lanier calls these firms “Siren Servers,” alluding to the Sirens of Ulysses. Instead of paying each individual for their contribution to the data pool, the Siren Servers concentrate wealth in the hands of the few who control the data centers.
Read more: Jaron Lanier: Beware of Siren Servers!
In terms of creative content, when users share their creativity, or exchange and sell it, that very process creates valuable information that platforms sell to third parties. This information includes who you are, who your friends are, what you like, and what you buy. Amazon and other online booksellers accumulate this information through their online marketplaces and other services. Together with its bookstore, Amazon has successfully developed data mining through its various publishing services: Kindle Unlimited, CreateSpace, and the Goodreads sharing network.
One needs to unpackage the subscription-based streaming business model to understand what is going on. Storing and streaming all the world’s content is not economic as a revenue model based on subscription revenues alone. In other words, the cost involved in storing and delivering all the eBooks in the world greatly exceeds the $10/mo. subscription prices KU members pay, so these services are being subsidized by shareholders, and/or by revenues pooled from other sources by diversified companies like Apple, Amazon, and Google. In other words, Amazon or Apple can lose money on subscriptions indefinitely as long as they can see some additional return from another source. That source is the network information data generated by users.
Because the streaming model is not really profitable, except as a loss leader to keep signing up new users, cost pressures prevent platforms from paying authors fair value for their content. The online eBook lending Kindle Unlimited has used its data-gathering Kindle network to monitor readers’ habits and only pay out “per pages read” royalties to authors. Needless to say, these are extremely low compared to an outright sale.
In addition, traditional book publishers that control copyrights can demand the lion’s share of any licensing royalties. For existing catalogs, this is just free money with no production costs or investment risks involved. New boss, same as the old boss.
Interestingly, due to the almost zero market price of digital content, the cost of streaming/lending probably exceeds the true purchase price for that same content. The real difference is the actual content we are interested in consuming: the entire universe of possibilities or what we’ll actually consume? Streaming is an illusory choice: “I have the world’s library of books at my fingertips, but actually I’ll never read 99.9% of them.”
So, what are we paying for? Subscribers who read infrequently are cross-subsidizing the few who read voraciously. These voracious readers used to buy books; now they just rent them through Amazon’s digital subscription library so total revenue in the book marketplace is reduced, squeezing all participants. Amazon’s subscription lending service is essentially a global library where the price of admission is the subscription paid to Amazon as the gatekeeper. Once inside borrowing is free. This not how the public library system works.
We should also note that the lending model is less successful than it could be because many authors and publishers refuse to participate in Kindle Unlimited, refusing to allow their books lent out for a pittance. This is especially true of authors under print publishing contracts.
Lost in an Ocean of eBooks
With such a vast supply of books being published, the search and discovery process for individual consumers becomes prohibitive — it just takes too much time and energy to find what we want. The nature of creative content has a lot to do with this because the value of creativity is very subjective and difficult to anticipate. Professional critics exist but, with so much content, random popularity is usually the default while the commoditization of eBooks drives the price to the common denominator on price. A future Hemingway or Fitzgerald commands the same price as some erotic drivel.
The Big Data solution is to search and curate content for us with recommendation engines. Without the resources to consume and evaluate all that content, we must rely on machine algorithms that primarily measure objective factors such as stylistic similarities and streaming or sales counts. This means AI machine algorithms are judging and choosing the art we wish to consume.
This doesn’t mean robots are in control, but it does privilege certain metrics, like popularity. Success breeds success as we are fed the most popular content and creative incomes become more drastically skewed in a winner-take-all, superstar contest. This is why 5% of the authors are earning 95% of the revenues and the pressure to keep readers engaged means publishing shorter formulaic works more frequently. This is also why it’s so hard to find a refreshing new author within our chosen genres and interests. Unseen and unheard, innovative, risk-taking authors toil in obscurity or cease to create. Forget about the next War and Peace.
With a few notable exceptions, this is what we are seeing today with the streaming of digital content in music, eBooks, and movies. This state of affairs is unsustainable and damaging to the long-term evolution of culture.
What to Do?
To truly understand what has happened in creative industries, one must stop thinking about these industries using the business models of the recent era, which are defined by the ownership and control of physical media. In the publishing industry, this would be the printing and distribution of physical books. Physical media permitted centralized control over market supply and price, most often through the distribution channel. This is how distributors like record companies, movie studios, and print publishers came to dominate this era. All that has changed, but what has replaced it is not fundamentally different, with centralized control over online distribution networks by technology behemoths like Google, Apple, Facebook, and Amazon. Some great efficiencies have been realized, but the skewed distribution of value has become even worse.
Artists have been responding to the challenges of the digital age over the past two decades by harnessing many new tools provided by technology. We’ll discuss some of the more common online platforms in terms of their strengths and weaknesses, realizing that none of them solve the true problem.
In the digital age, artists are faced with three related challenges: promotion, distribution, and pricing. Social media is the primary channel for promotion and audience building. Platforms like Facebook, Instagram, Twitter can be used to build brand awareness and attract followers. Some streaming platforms connect their streaming services to a marketplace where artists can sell content for a nominal price. Examples are Amazon, Smashwords, Apple, and YouTube/Google.
With each of these promotion and distribution channels, artists are limited in their ability to monetize the value of their content. Because the age of physical media focused on the transaction value of content — selling books or CDs — many artists are still focused on selling content at the much-reduced price. This is not financially viable unless one is in the elite winners’ bracket; as with other free media channels, the sales revenue stream is negligible.
The current streaming/lending distribution services cannot solve this problem for artists, they can only make it worse. Spotify has been lobbying artists heavily to convince them that eventually, they will receive all of the royalty revenue streams, cutting out the record companies and publishers, but that only favors the elite winners who can reach a global market through their unique brand presence.
What really matters is audience share and follower networks. A successful author doesn’t need seven billion readers to survive, a hundred thousand will do, but the problem is being able to sift the billions of readers worldwide to find those one hundred thousand who want to read your book. This is a promotion and sales challenge that can’t be financed these days. On the plus side, artists who are savvy social media influencers can reap far more value from selling access to their follower networks to 3rd party advertisers and marketers. This is what the network platforms are doing with our data. Mostly they are selling it back to us and reaping the flow of data both ways: a ready supply of free content that creates user network data that they then repackage to advertisers who want to reach a targeted market. It’s great to be on the receiving end of that revenue model, as any shareholder of Apple, Google, Facebook or Amazon will attest. The trouble is most artist-creators do all of the giving and none of the receiving.
The only viable solution for the large majority of artists is to secure ownership and control over their audiences, or peer networks. But this means to control the revenue stream that platforms wish to exploit for themselves. The old centralized distribution model, with all the centralization of market control, has merely been replaced by a new centralized digital distributional network. But the true promise of information technology and data networks is market decentralization. This is where we can integrate social media, digital distribution, and blockchain to build an ecosystem that distributes value fairly across that ecosystem.
The Secret Sauce: It’s All About Data
The first maxim of this new world of digital media is that value is derived not from individual content, but from the data networks created by sharing this content. This bears repeating because it requires a different way of thinking about the role of creative content. Content is used as a means to create networks rather than as an end in itself. This may go against the grain of artistic expression and motivation for its intrinsic value, but it does promote the sharing of that expression with an appreciative audience. We should be seeking to reinforce that human connection.
Broadcast television was built on the 3rd party advertising revenue model, so it’s not a radical innovation. Network platforms, like television broadcasters, gather the information data from their users and sell it. Think of Nielsen ratings. The problem, again, for artists and users is that they don’t receive a fair share of the data value they create in the network; instead, that value accrues to those who own and control the centralized network. This is especially true for those servers that, like tv broadcasters, stream content.
How can we change direction?
First, as previously mentioned, the solutions offered up by the streaming platforms don’t really solve the problem. Streaming services like Spotify, YouTube, TikTok, Apple, or Amazon Music/Kindle are consumer-centric in that they deliver an infinite supply of content to consumer devices at a low, subsidized price. Artists virtually give away their art in order to promote their brand and build audience awareness. Top streaming content can also be used to demonstrate market viability to attract interest from a publisher or record label.
Platforms for independent artists, like Smashwords and Amazon, are artist-centric in that they help artists build an online presence and monetize sales in a marketplace.
Pure social networks like Facebook and Instagram help artists promote their brands and can be harnessed by influencers to build follower networks that can be monetized through the platform.
But in each and every case, artists and creators end up with tiny residuals after the platforms take their share of the transactions and data network value created. Instead of continuing down this road, artists need a platform that allows them to own and control their audience shares. They also need to harness the power of social media networks to promote their content so they don’t have to become social media marketers in addition to artist-creators. In other words, we need to harness social network dynamics to a marketplace with users in control of their peer networks.
One can imagine such a platform as illustrated in the graphic below. This model integrates social network dynamics with a peer-to-peer marketplace and blockchain ledgers to keep track of user-generated network data and value.
· The social network searches, shares, curates, and promotes content as it builds peer networks of users, or audiences, with similar content tastes.
· The peer-to-peer marketplace allows creators to sell or license their content directly to users. The importance is less about the price value of content and more about making strong network connections between artists and consumers.
· Control over peer networks (followers) allows users to monetize their audiences to 3rd party advertisers or promoters while spreading the value received across the peer network through special discounts or token rewards.
· Blockchain ledgers anchor the network data to artist content and user behaviors. Decentralized blockchain allows value to be distributed to users who create value through sharing and purchasing/licensing content. Tokens can be used post-sale by artists to reward followers/influencers who promote their content that leads to sales conversions. Crypto-tokens rewards become the unit of value to be exchanged, which can be used on the platform or converted to other currencies through an exchange.
Conceptually, a network platform hosting a decentralized creative content catalog that becomes large enough can develop a streaming channel that would operate more like an artist cooperative. Think United Artists. Revenue streams would include direct digital downloads, streaming royalties, and advertising.
So, the short answer to the question, How Can an Author Make Money? is: By sharing their stories and controlling the network they create. All one needs is the right platform.
If we build it, they will come.
Read More: tuka: Connecting the Creative
The author is the Founder and CEO of tuka (www.tukaglobal.com), a social network platform for sharing creative digital content that will integrate with the Ethereum blockchain platform.