books or greeting cards?

“Content” producers — journalists and writers, book authors, musicians, film-makers, and similar professions — are becoming digital goods producers. Person thinking about how digital goods producers can make money might ponder two old-fashioned paper goods: books and greeting cards.

According to U.S. Census Bureau surveys, from 2001 to 2007, greeting card publishers received about 50% as much revenue from greeting cards as book publishers received from adult trade books. So don’t write a novel, make two greeting cards!

My neighborhood CVS provides additional evidence of the value of greeting cards. The store has 30 aisle sides (connected sections of display space). Greeting cards (holiday cards, birthday cards, wedding cards, condolence cards, etc.) take up 2.5 aisle sides. Books have only about 1/4 of an aisle side. Magazines have about 1/3 of an aisle side. Small, convenience-oriented stores such as CVS manage display space carefully to maximize profit. The large amount of display space for greeting cards suggests that these cards are highly profitable to sell.

The books on display attract even boring and stolid economists. I noticed Susan Yarina’s Best Man for the Job. The epigram: “They’re up for the same job — love decides who comes out on top.” This story of workplace competition and love features a “fiercely handsome cowboy” and a “sizzling saucy cowgirl.” The back cover explains:

The work is hard, the sexual tension is blazing, and they are desperate for relief from both.

The regular prices is $8.99, but it’s now 1/3 off ($5.99). The book has 348 pages. Hence it costs about 1.7 cents per page. Quite attractive!

Greeting cards have relatively higher value. Prices for many cards, which probably by weight have less than 1/100 of the paper of Yarina’s romance, are from $2 to $3. Poetry is an important component of many greeting cards. A birthday card selling for $2.99 has on the front: “Today we / CELEBRATE / Your birthday, / and in you / we celebrate LIFE / Kahlil Gibran“. Another birthday card, this one selling for $2.49, features another illustrious writer: “Treat / every birthday / as a shining / brand-new / birthday / still wrapped / in glossy / paper / Maya Angelou“. Given that Maya Angelou read a poem at Bill Clinton’s presidential inauguration in 1993, the lower price of the Maya Angelou birthday card relative to the Kahlil Gibran birthday card is somewhat surprising. But this pricing may just be a straight-forward matter of supply and demand. Gibran has been dead since 1931, and hence cannot produce more poems. Angelou is still alive and potentially productive.

Greeting cards are more readily, significantly differentiated than books are and have much lower cost of consumption than books do. Different greeting cards look different, and customers judge cards by their looks. A book, in contrast, is not to be judged by its cover. In addition, reading a book has much higher time cost than receiving an attractive greeting card with a few socially sanctified words on it.

Digital goods producers need to figure out how to make their goods more like greeting cards. Actually, successful digital goods producers seem to have already figured that out.

the fate of traditional print media

Traditional print media are facing major challenges from digital communications networks that allow everybody to share written words at low cost.  The U.S. newspaper industry reports tremendous opportunities and exhibits fiery indignation at the newspaper industry’s ongoing meltdown.  As recent analysis has highlighted, general-interest mass-market periodicals seem to have lost any special value as a source of information and ideas.  Google makes many books freely available in digital form through its Google Books project, and Google Books is now available on mobile devices.  Sales of e-book readers from Sony and Amazon (Kindle) may have totaled a million in 2008, or perhaps a half-million. Amazon recently announced Kindle 2.  It includes text-to-speech technology that reads ebooks to those who have purchased them. Traditional print newspapers, periodicals, and books are now only some media possibilities for obtaining similar written information, stories, and entertainment.

Data from the U.S. Census Bureau’s Service Annual Survey indicates that, among traditional U.S. print media, newspapers are particularly badly positioned.  From 2004 to 2007, newspaper publishers’ non-print revenue  has risen only from 4% to 5% of total newspaper revenue. Periodical publishes’ non-print revenue, in contrast, has risen from 7% to 11% of total periodical revenue.  Book publishers’ non-print revenue seems to depend quite strongly on the survey reports’ categorization of firms; from 1998 to 2000, about 20% of book publishers’ revenue was reported as non-print revenue, while the figures for 2004 to 2007 are about 6%. This difference may reflect what firms produce audio books and multi-media books.  Relative to periodical publishers and book publishers, newspaper publishers have developed relatively little non-print revenue.

Advertising revenue figures provide another perspective on traditional print media.  From 2004 to 2007, advertising revenue accounted for about 70% of newspaper publishers’ total content publishing revenue.  Over that same period, advertising revenue accounted for about 45% of periodical publishers’ total content publishing revenue and probably close to zero of book publishers’ revenue. Newspapers are heavily reliant on print advertising.  At the same time, online advertising offers much better opportunities for measuring and tracking effects of advertising expenditure.  Newspaper publishers need larger and more rapid change in their business model in order to survive.

Data note:

Here are print, online, and other non-print content revenue for newspaper, periodical, and book publishers from 1998 to 2007.  These data are from the Information and Communication Industry Revenue Dataset.

U.S. advertising expenditure, 1998-2007

The U.S. Census Bureau’s Service Annual Surveys include data on advertising expenditure from 1998 to 2007. I’ve extracted and compiled these advertising data and compared them to widely cited figures from the Coen advertising expenditure dataset.

The Service Annual Surveys use statistically representative surveys of firms. The survey reports classify and aggregate firms’ revenues by firms’ industrial classifications. The Information and Communications Industries Revenue Dataset provides data for all revenue categories reported in the surveys from 1998 to 2007. One revenue classification is advertising revenue, which of course is advertising expenditure seen from the other side of the transaction.

The Service Annual Surveys have some advantages for measuring advertising expenditure. These data are based on a consistent, well-documented methodology administered by an independent, highly professional organization (the U.S. Census Bureau). The Coen advertising expenditure dataset is an extraordinary information resource spanning the years 1917 to 2007. However, it is closely linked to interested industry sources.  Moreover, the methodology underlying the Coen advertising expenditure dataset isn’t clear, probably has varied across time, and almost surely varies across advertising expenditure categories.

The Service Annual Surveys provide an insightful alternative categorization of advertising expenditure. Because the surveys are firm-based, they allow some separation of advertising media expenditure, e.g. payments to television stations for advertising air time, from advertising service expenditure, e.g. fees paid to advertising agencies for preparing and placing ads. The Coen advertising expenditure data, according to a Universal McCann source attribution, aggregate with advertising media expenditure “all commissions as well as the art, mechanical and production expenses that are part of the advertising budget for each medium.” Based on data reported in the Service Annual Surveys for 2004-2007, expenditure on advertising agencies, media buying agencies, and media representatives amounts to about 18% of expenditure on advertising media.

The Coen advertising expenditure total is about 30% larger than total advertising media and services revenue recorded in the Service Annual Surveys for 1998 to 2007. Survey Annual Survey totals for media categories, marked up by the services/media ratio, typically are within plus or minus 40% of the corresponding Coen categories. However, Coen direct mail advertising expenditure is more than three times the corresponding Service Annual Survey figure from 1998 to 2007.  The Coen “miscellaneous” advertising category rises sharply relative to the Service Annual Survey “other advertising” revenue from 1998 to 2007, and from 2004 to 2007 the Coen miscellaneous /other advertising figures are more than twice the Service Annual Surveys other advertising figures.

The comparison between the Service Annual Survey advertising data and the Coen figures points to difficulties in precisely estimating advertising expenditure.  Advertising time and space often are sold with a variety of price discounts.  Advertising time and space also are commodities commonly included in barter deals.  Discounts and barter make advertising expenditure difficult to estimate even thought a set of well-known firms dominate the supply of radio, television, and cable advertising opportunities.

The advertising data from the Service Annual Surveys, 1998-2007, along with the comparisons to the Coen advertising data, are available online in a browser friendly format as well as an Excel workbook.