The Financial Aspects of Comic Book Self Publishing
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The Financial Aspects of Comic Book Self Publishing FIN6416-798 Advanced Financial Analysis Prepared for: Dr. Susan Long University of South Florida Due: April 26 2005 Written By: Chris Harden FIN6416-798 Financial Aspects of Comic Book Self Publishing Prepared for: Dr. Susan Long Due: April 26 2005 Written By: Chris Harden Table of Contents Table of Contents......................................................................................................................... 2 Introduction.................................................................................................................................. 4 Purpose of this Discussion:...................................................................................................... 4 Product & Process – How a Comic Book is Created, Distributed, and Sold........................... 4 The Product.......................................................................................................................... 4 The Process .......................................................................................................................... 5 Economic Analysis - A Look at the Industry: ........................................................................ 6 Financials:............................................................................................................................ 6 Financial Analysis: Choosing a Business Model......................................................................... 7 The Source Data:...................................................................................................................... 7 Several Business Models One Can Use................................................................................... 8 Model 1: Self Publish, Self Distribute ................................................................................. 9 Model 2: Self Publish, Distribute through Diamond ........................................................... 9 Model 3: Publish Under a Well-Known Label: Image Comics........................................... 9 Comparing Models – The Bare Bones Approach.................................................................... 9 Assumptions....................................................................................................................... 10 Creative Team Pay Rates................................................................................................... 10 Printing Fees ...................................................................................................................... 10 Model 1: Self Publish, Self Distribute ............................................................................... 10 Model 2: Self Publish, Distribute through Diamond ......................................................... 11 Model 3: Publish Under a Well-Known Label: Image Comics......................................... 11 Choosing the Right Model................................................................................................. 11 Financial Analysis: Selling One Comic Book for Three Years................................................. 12 Capital Budget ....................................................................................................................... 12 Inventory............................................................................................................................ 12 How We’ll Treat Initial Investments ................................................................................. 12 Sunk Costs ......................................................................................................................... 12 Other Expenses .................................................................................................................. 13 Cost of Capital of Average Comic Company’s Creator ........................................................ 13 The Creator ........................................................................................................................ 13 Equity................................................................................................................................. 13 Debt.................................................................................................................................... 14 Cost of Capital ................................................................................................................... 14 Will ACC Make Enough Money?.......................................................................................... 15 Cash Flows......................................................................................................................... 15 Measuring Devices............................................................................................................. 15 Recommendations.................................................................................................................. 16 A Note on Actually Financing the Project................................................................................. 18 For Smaller Print Runs .............................................................................................................. 18 Wrap-Up Other Recommendations/Practices............................................................................ 18 Appendix1 : Quote from Quebecor Printing.............................................................................. 20 Appendix 2 : Quote from Brenner Printing ............................................................................... 22 2 FIN6416-798 Financial Aspects of Comic Book Self Publishing Prepared for: Dr. Susan Long Due: April 26 2005 Written By: Chris Harden Appendix 2 : Quote from Brenner Printing ............................................................................... 22 Appendix 3: Standard and Poor’s Leisure Products Outlook.................................................... 23 Appendix 4 : WACC and CAPM Equations ............................................................................. 24 Figures ........................................................................................Error! Bookmark not defined. Bibliography .............................................................................................................................. 25 3 FIN6416-798 Financial Aspects of Comic Book Self Publishing Prepared for: Dr. Susan Long Due: April 26 2005 Written By: Chris Harden Introduction Purpose of this Discussion: As children most of us are exposed to the exciting modern mythology of superhero comic books, such as Batman, Superman, Spiderman, and the X-Meni. The thrill of this entertainment medium over time can prove to be so enthralling as to lead some people to pursue a career in the comic book industry and others to simply dabble in it. Those who attempt to make a foray into comics will do it in one of many ways, one of which is publishing their own comic book. In bringing a book to market, whether they want to make millions, start a full-fledged company, or simply create something of which they can be proud, they will all have to deal with the financial aspects of creating, publishing, and selling a comic book. This analysis takes a close look at the finances associated with publishing comic books; more importantly it takes a closer look at the finances of a small time, usually single-person capitalized effort, rather than the finances of a multi-million dollar corporation like Marvel Enterprises Inc or DC Comics. The audience for this paper is that small publisher who is trying to get a feel for the financial aspects of publishing a comic in volumes much more manageable by a small press than a large one like Marvel. It will get a bit heavy with Financial lingo in a few spots, but readers bored to death by such items can skip ahead to keep the flow at a good pace without getting lost. Those with a Finance background will have access to all the background calculations used in the analysis as well. The goal is to determine, for a comic book startup, the number of books one has to sell, according to their chosen publishing & distribution situation, and associated expenses in order to be profitable at selling a comic. For the research in this discussion, we have been given financial figures from two existing Independent publishers (as opposed to “large press”, like Marvel), who have existed in the industry for several years now. We’ll use their financial data for most of the discussion, while occasionally referring to figures from Val Staples, a recent industry superstar, who has created a good guide to self-publishingii. Additionally, we’ll have a look at some aspects of Marvel Enterprises’ financial statements from 2004 to see where they are getting most of their income. After this, we’ll summarize the discussion and make some recommendations. To set the stage for this discussion, we’ll quickly describe the product, the process of getting the book to market, and a present an economic look at the state of the comic book industry. If the reader is already familiar with the details of the aforementioned topics, he or she can skip to the Financial Analysis section below. Product & Process – How a Comic Book is Created, Distributed, and Sold The Product For the purposes of this discussion, we will be printing a “standard” industry comic book. This is a 32 page full-color, glossy comic book that is approximately 6.5x10.125 inches with a paper weight of 70 to 80 lbs inside