When it comes to big startup news in the online publishing space, the sexier opportunities always seem to be on the music side. There has been lots of activity in streaming content, with Spotify going after Pandora in the digital rights management / restricted content provider category. Google Play is quickly gaining users as well, and Apple is demonstrating that it may have to move beyond iTunes to preserve its market share, with its recent $3 billion acquisition of Beats. But as listeners have shifted away from downloading to streaming, artists face significant complexities and revenue loss associated with the collection of royalties. New York-based independent publisher Kobalt Music Group, currently serving over 2,000 clients (including many high-profile ones, such as Paul McCartney and Disney), helps artists collect royalties on streamed music through a dashboard application that detects song plays and samples. Kobalt just raised $140 million (bringing them to a total of $156 million) in a venture round including Balderton Capital, MSD Capital, and Spark Ventures.
But what about books? Everyone thinks it’s a bad business — with brick-and-mortar stores closing by the hundreds and even Amazon supposedly using books as a loss leader to lure consumers to the site. But publishers make money — and not just the educational providers — net revenues topped $15 Billion in 2013. The economics of blockbuster hits are particularly compelling, as the right book investment can be a tremendous winner. An example:
The top-grossing movie of 2013 was The Hunger Games: Catching Fire. It took in almost $500 million at the box office — but it cost $120 million to make. A tidy 4x return, for sure, but look at this: The top-grossing book of the year, Diary of a Wimpy Kid: Hard Luck, brought in around $50 million — but only cost $50,000 to make: a 1000x return!
The crowdfunding innovator Kickstarter has been successful in supporting new authors. Since 2009, 6,935 Kickstarter campaigns in the publishing space have raised over $43 million. But authors in these cases still need to go out and find publishers. Same with indiegogo and the most of the crowdfunding platforms. New York-based Pubslush takes things a half-step further, seeking to become a boutique Kickstarter for books, offering marketing consultation in conjunction with the crowdfunding, and enabling direct book sales once the work is published. The missing link — Pubslush, like the rest, still does not actually publish books.
UK-based crowd-funded publisher Unbound attempts to fill this gap and handle the entire end-to-end transaction. Authors pitch their ideas directly to readers, readers pledge support and funding, the authors then write the books — and Unbound edits, prints, and distributes. Unbound has published 16 books in the UK market and fully funded 10 more titles beyond that since launching in June 2011. One of the neat things about crowdfunded books is that publishers get a sense of demand in advance, based on how many people are contributing, and how much money — patrons vote with their pocket books. Potentially, it’s as much about collecting information on marketing trends, demographics, and demand than just financing new books.
In the US, Inkshares is making its own attempt to disrupt the publishing world in dramatic fashion. Similar to Unbound, the online platform allows authors to pitch, readers to fund, and the company to publish. Inkshares attracts authors by giving them 70% of royalties, taking no commission on the fundraising, and using the proceeds raised to cover the costs of publication.
Inkshares employs an algorithm to estimate funding goals (including budgets for editorial, design, printing, marketing), and supplies an analysis dashboard to authors. For projects that meet their funding goals, Inkshares provides an editor and designer, prints bound copies, and uses distributors to place the book in brick-and-mortar retail channels, as well as providing e-book distribution. Inkshares also handles the PR. The company is raising $1.2 million on the seedchange platform beginning today, and already has significant interest from early stage venture funds.