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Explaining the ComiXology In-app Purchase Debacle

As I’ve said several times here in TidBITS, digital comics are one of the killer uses of the iPad. Leading the way has been ComiXology, which grew from a comic discussion site into the industry’s premier digital storefront. Since launching iOS and desktop apps in 2009, the company has sold over 6 billion pages of comics, 4 billion of those in 2013 alone.

Despite the enormous success of superheroes at the box office, comic books have flagged as an industry for years. Over the past three decades, the industry has shifted away from newsstands to the so-called “direct market” of niche comic book stores. Despite it being a more profitable arrangement for the industry (unlike newsstands, direct market retailers aren’t allowed to return unsold stock), it relegated comics to specialty stores that attract primarily existing fans. As a result, readership dwindled.

That is, until the magical combination of ComiXology and the iPad revitalized the industry. With the tap of a button, you could buy new issues, and you were prompted to buy the next issue as soon as you finished the previous one. This made trying and buying comics easy and discreet. No longer relegated to nerdy specialty stores, new demographics were brought into the fold. Wired reported that in the third quarter of 2013, 20 percent of ComiXology’s new customers were female, which is impressive for a hobby that has in the past appealed mostly to males.

Even better, and unlike what the rise of Amazon did to bookstores, instead of hurting Friendly Local Comic Shops, ComiXology actually helped them. Of the 20 percent of first-time ComiXology customers in the fourth quarter of 2013, 64 percent also began buying print comics, Wired found.

But all that may be about to change. On 10 April 2014, ComiXology CEO David Steinberger announced that the company had been purchased by Amazon. The online retail giant wasted no time in mixing things up, and on 26 April 2014, ComiXology retired its existing app, releasing a new one that did not offer in-app purchases. From now on, ComiXology customers were told they would have to make purchases via the company’s Web site, and were given a $5 credit to encourage them to do so.

While to outside observers, this may not seem like a major change, it could have enormous ramifications for the comic book industry.

What’s the Big Deal? — You may be wondering what all the fuss is about. After all, Amazon has never sold Kindle books through in-app purchases, instead directing customers to its Web site. Similarly, in 2011, Amazon subsidiary pulled in-app purchases from its iOS app.

But comic books are vastly different from novels and audiobooks. Audiobooks can require 20 or more hours of listening, and a single full-length novel might keep you occupied for weeks (unless you’re our own Michael Cohen, who reads a handful of books every week). At the risk of sounding disparaging, comic books are the snack food of the literary world. Individual issues usually have around 20 pages and take 15 to 20 minutes to read, at most.

Switching over to the ComiXology Web site adds significant friction to the reading and buying process. Previously, once you finished an issue, you could buy and read the next with a single tap (and possibly your Apple ID password). Now you have to switch to a browser, pull up the ComiXology Web site, log in if necessary, find the next book, add it to your cart, buy it, and wait for it to be added to the app. Not only that, but the ComiXology site is aggravating to navigate on the iPad. Its touch response is jumpy, and when I’m trying to slide lists of comics sideways I’ll often inadvertently flick the page up, losing my place. None of these issues is itself a big deal, but together they add
a lot of friction to the comic-buying process.

Removing in-app purchases eliminates one of the key advantages that ComiXology had in the market, and the fear is that it will lead to a massive drop in sales.

Why is ComiXology/Amazon Doing This? — It comes down to the 30 percent cut that Apple takes from in-app purchases. In 2011 alone, ComiXology brought in $19 million in revenue, and it has long been Apple’s top grossing non-game app.

Ultimately, this change doesn’t hurt Apple too much, but:

  • It provides an additional revenue stream for Amazon. That 30 percent cut now goes into Amazon’s pockets instead of Apple’s.

  • With comics being so popular on the iPad, it weakens the iPad platform and strengthens the position of Amazon’s Kindle Fire tablets.

  • In theory, it leaves more money on the table for creators. More on that in a moment.

Is Apple’s 30 Percent Fee Greedy? — Alongside the debate about ComiXology, the subject of Apple’s 30 percent fee has also become a topic for debate.

With every digital purchase you make through an iOS app, whether that’s a Netflix subscription, buying extra cars in a racing game, or subscribing to Time through Newsstand, Apple takes 30 percent of the asking price. This has led some digital retailers, like Amazon, to bypass Apple entirely, even if it means less convenience for customers and potentially lower sales.

Apple’s cut is standard industry practice among app stores (largely because Apple set the standard). If you sell in-app purchases to Android users through Google Play, Google also takes a 30 percent cut. (As ComiXology removed in-app purchases from iOS, it added them to its Android app, using a custom payment processor to bypass Google’s fee, which Google, unlike Apple, allows.) Amazon takes the same 30 percent cut from its own app store.

30 percent may not even be that bad, depending on what you compare to. Things are even worse in the print comic world, where a retailer will often take 47 percent of the cover price, not to mention the large percentages that go to distribution and printing. ComiXology itself takes 50 percent of the sale price, after payment fees.

The notable exception here is comic publisher Image, which sells some digital comics directly and allows payment through PayPal, which takes only 2.9 percent plus $0.30 on each transaction. For whatever reason, most comic companies choose not to do business this way, and Image also sells through ComiXology as a way of reaching a larger audience. The lesson here is that 30 percent isn’t some immutable economic law; transaction fees from most ecommerce firms have long been under 10 percent, even from those that offer full-fledged carts and top-notch customer support (like FastSpring, Digital River’s eSellerate, and Avangate).

Nonetheless, because Apple has made the App Store the only way to buy iOS apps and associated content via in-app purchase, numerous businesses, including ComiXology before the buyout, see that fee as an acceptable price to pay for in-app purchase sales generated by increased user convenience. Beats Music, which resisted in-app purchases when it launched near the start of this year, caved earlier this month. Beats CEO Ian Rogers told Re/code that it’s hard to get iOS users to subscribe without in-app purchases.

Will This Hurt the Comic Industry? — Possibly, but it’s impossible to tell yet, since the publishers are staying quiet. However, industry legend Gerry Conway decried the change, saying, “This is a disaster… [Amazon has] destroyed the future of digital comics to give an advantage to their hardware platform — and, in passing, to leverage their control of digital comics distribution to do to comic book stores what they’ve already done to brick-and-mortar book stores.”

Many have cheered Conway’s comments, but as comic expert Moises Chiullan pointed out on TechHive, Conway hasn’t written comics in years (he wrote a one-shot in 2011 and a six-issue limited series in 2009, but has been otherwise inactive since 1993). Comic author and publisher Chris Roberson was more bullish than Conway, saying that he has always encouraged fans to buy from the ComiXology Web site, as the creators get more of a cut. “Now, readers will be spending the same amount on their @Comixology purchases, but the creators will be getting a bigger cut across the board,” Roberson tweeted.

In theory, Roberson is correct, but the question that remains to be answered is if readers spend as much as they have been. I’m skeptical.

I’m more worried for independents like Roberson than I am for the big two: Marvel and DC. The unified ComiXology app listed boutique titles alongside big names like Batman, X-Men, Superman, and Spider-Man, giving them way more exposure than they ever would have received otherwise. Without such prominent placement and easy purchasing, I fear they will suffer the most.

Of course, for True Believers, a little inconvenience won’t stop them from picking up the latest issues of their favorite titles. But then again, driving to the nearest comic shop never deterred those readers either.

Aren’t There Alternatives? — Yes, and many of them come from ComiXology itself. You see, ComiXology powers the individual stores of Marvel, DC, Image, and other publishers, and those stores still offer in-app purchases, at least for now, but I suspect that won’t last long. Those purchases will sync with your ComiXology account.

Confusingly, Marvel offers two apps in the App Store: the aforementioned ComiXology app and Marvel Unlimited, which offers Netflix-like subscriptions and individual comics for sale (that you must purchase outside of the app). I gave that app a rather poor review in “FunBITS: Marvel Unlimited App a 97-pound Weakling,” (24 May 2013), and though it has improved substantially in the past year, it still isn’t nearly as polished as ComiXology. However, thanks to the awesome Marvel Unlimited Service ($69 a year for all you want to read), it has become my primary comic app, in spite of its

Image has perhaps the boldest alternative out there, selling DRM-free comics in multiple formats from its Web site. Unfortunately, Image’s Web site is slow and cumbersome, and it can be difficult to figure out which issues are available digitally.

Finally, you can buy digital comics from Amazon’s Kindle store or the iBooks Store, but I don’t recommend it. Availability is spotty, and comics don’t adapt well to formats and reading apps intended for novels.

My Two Cents — I think it was foolish for publishers to put all of their eggs in ComiXology’s basket, where they had no ownership of the store, nor a direct relationship with customers. Marvel was the smartest of the bunch here, running its own subscription service alongside ComiXology.

Frankly, if I were in the comic business, I would be panicking right now. The last place any publisher or retailer wants to be is at the mercy of Amazon.

If the publishers were smart, they would band together to create their own unified storefront and subscription service, much as rival TV networks joined forces to create Hulu. But I don’t see that happening.

The two companies that could make this happen, Marvel and DC, are now owned by Disney and Warner Bros., respectively, and their interest in the comic business is secondary to the value of comic book characters in film, television, and toys. A single superhero blockbuster can bring in well over one billion dollars, far more than any comic book will ever generate.

I do think ComiXology’s move will hurt the industry in the short term. I worry that we’ll return to the same old story that has plagued comics since the 1980s: they’ll again be a niche purchase for diehard fans and will have only minimal mainstream popularity. The corporate-owned giants will survive, but independents will suffer, and readers of all digital comics will buy fewer titles because of the mediocre user experience.

Ultimately, I think the future of comic books, much like TV, movies, and music, lies in subscription services like Marvel Unlimited. Before Marvel Unlimited, it was almost impossible to catch up on the decades-long X-Men story, due to cost and availability of back issues and collected editions.

Even if Marvel Unlimited isn’t terribly profitable, and I suspect that it isn’t, it leverages Marvel’s enormous back catalog to build brand loyalty. As much as I love Batman, I haven’t bought a new issue in years, and whenever I do buy a just-released comic, it’s almost always a Marvel title, because that’s the universe I’m invested in. If I wanted to pick up Batman, I wouldn’t even know where to start.

In the end, comic books are the pebbles in the pond whose ripples extend out to books, toys, TV shows, and particularly movies. The more comics we read, the more marketable their fictional characters and universes will become, and the more profitably they can be extended into other media. ComiXology’s dropping of in-app purchases may be bad idea in that regard, but it also throws into sharp relief how subscription services like Marvel Unlimited can promote the role of superheroes in popular culture.

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