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To make a purchase at a website, someone has to know exactly what
they want, who makes it, and where to find that site.
...I redundantly stress the fact that every cent of income must first
be used to pay for utilities, taxes, salaries and other overhead costs before a profit even enters
the picture.
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...continued from previous page
Example Z: BOO BOO RUBBER PANIC - THE MOVIE
Ms. Honey-Bunny purchases her DVD for $30 (because
HighRise Video also hates uneven math), and cumulates a very complicated mechanism of rights and
royalties. First, HighRise Video, who purchased the DVD from Crater Distribution
at a 20% discount, pockets $6 from the sale to pay for
their salaries, rent, utilities, etc. Then Crater Distribution, who purchased the
DVD from Explorer Entertainment at a 40% discount uses
their $6 from the sale (40% of $30
is $12, but they sold the disc to HighRise Video at $6 off =
$6 profit) to pay for their salaries, rent, utilities, etc. Next Explorer
Entertainment takes their $18 from the sale and pays their duplicator
$3, and a consumer premium company $0.50 for the papercraft
model of Tokyo Tower that is packaged in the video with a match. Next Explorer Entertainment prepares
the 30% royalty paid against the wholesale price (wholesale price = their
customer's cost, i.e.: 30% of $18.00 =
$6.00). The remaining $8.50 from the sale is used to pay
for salaries, rent, utilities, dubbing costs ($10-30k), subbing costs
($1-2k), DVD authoring/menu costs
($1-10k), package design ($1-5k), and the legal expenses
($150,000) from the settlement with the original creator over the theft of
his original intellectual property.
Of the $6.00 royalty, 10%
($0.60) is used to pay for the music rights and is shared between the music
publisher ($0.30), the song writer ($0.15), and the
performers of the music ($0.15), the LUKE WARM BELL PEPPERS.
The remaining $5.40 is sent to the licensing agent who takes a
10% commission ($0.54) before sending the remaining
$4.86 on to the BOO BOO COMMITTEE. The BOO
BOO COMMITTEE splits the $4.86 into three equal shares of
$1.62 for each of the three partners in the venture (assuming that the production
costs of the Japanese language version and the animation has been paid off first): Monkey Madness Toys,
TV Fresno, and Baka Shoten. Baka Shoten, in turn, takes its
$1.62 share and takes a 50% cut for a management and
investment fee ($0.81), and passes the remainder on to the hit Manga group
VISE. VISE receives the check at their bank which
processes the payment into four equal $0.20 shares, and manages to hide the
extra $0.01 in a "Rounding Error" scheme that provides them with nearly
$100,000 a month for political "contributions." In all of these examples, with
the exception of the bank, any funds are used to pay for rent, utilities, salaries, taxes, etc. before
profits are considered.
After such examples, there are some obvious questions that arise. Ignoring the ones pertaining to my
sanity, we move on to the industry related ones, and unlike the examples, the answers to the
questions are real.
Q: If companies make so much money selling direct,
then why use retailers?
A: Several reasons. First, by far, the majority of product, for most
companies, is still sold in the retail stores where people can satisfy the need for tactile sensation
during the purchase. Additionally, retail stores are much better at fostering impulse sales than a
company website since people can just walk into a store. To make a purchase at a website, someone has
to know exactly what they want, who makes it, and where to find that site. Finally, if the anime
company begins to promote their internal site for sales, it really pisses off their loyal retailers
and jeopardizes the majority of their income.
Q: Why do retailers use distributors?
A: Again, several reasons. Some retailers prefer to use distributors to
order many different kinds of product from different companies all in one phone call, which decreases
their paperwork, and consolidates both their shipping charges as well as their bills. Some companies
use distributors when there is only a small product line from a company and the retailer doesn't
want to be bothered with tons of phone calls about ten products when they only really care about buying
one of them. Other retail outlets also use distributors when they fall behind in paying their bills
and the anime company stops shipping them directly. By ordering from several different distributors,
a flaky retailer like that can get months worth of product without paying a single bill, which
definitely helps with their cash flow even if it leads them towards bankruptcy...
Q: Why did only one of the two examples worry about
music rights?
A: Two possible explanations:
1) During the licensing process, the company that sells the rights (Red
Pinenuts in Example A) can handle all of the music clearances necessary, or
possibly has bought all of the rights for a flat fee eliminating the need for a royalty (this is known as
a buy-out).
2) Some companies may be ignorant or willfully ignoring the need to clear music
rights. The willfully ignoring companies sometimes bet that it is difficult for the music rights
holders to discover if their music is being used overseas, and that it will be even harder for them
to locate the company using the music illegally.
Q: If it splits up the money so much, why use licensing
agents or make project committees?
A: Expertise and risk. Licensing agents are supposedly experts at selling
rights into foreign markets, so companies usually justify that a 90% share of
$50,000 of income generated by a licensing agent is better than a
100% share of $25,000 generated by their own internal
agents. Committees can also bring expertise and additional income by bringing in toy companies,
merchandise companies, or even television stations together. However, even if the committee members do
not have experience or generate income, there is always the justification that if the project goes sour,
a 100% loss of a $30,000 investment is much better than
a 100% loss of a $100,000 investment (assuming a project
takes $100,000 to complete).
In every example, and even the first half of this column, I redundantly stress the fact that every cent
of income must first be used to pay for utilities, taxes, salaries and other overhead costs before a
profit even enters the picture. While this seems totally basic, I have constantly seen businesses that
seem to forget this basic principle, and if you have ever been stiffed on your paycheck because your
employer has gone out of business, I'm sure you would have a choice vocabulary to remind them of these
facts. Anyway, this is the world according to Chad. If you have a different perspective, I'll be glad
to hear from you, but don't just rant or use arguments rooted more in alcohol or conspiracies than
reality or logic. Life's to short to bother arguing with drunks and morons, so I'll be inclined to
ignore you. Of course, even if you have a brilliant argument, I may be inclined to play with my kids
instead of doing work, so don't take it personally!
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