Friday, January 22, 2010

Reconciling Digital Sales Isn’t Easy

Does a publisher always know what has been sold and how much they are owed? In the physical world it is a relatively easy to account for and although they may only know what they sold to the next person down the chain, that’s where they collect their money and have a relationship. The publisher sends a wholesaler, or retailer, 100 units and charge them for a 100 units. According to the sale terms, some units may be returned and, the net payment agreed.

Does the same logic apply in the digital world? On the face of it should be a lot simpler and the unit should never leave the warehouse until it’s sold. All sales should be sold firm and you could even make a case for self billing invoicing and call it consignment stock!

Today the vast majority of digital titles are deposited with digital aggregators. They may sell these as a ‘wholesaler’ through the channel or direct as resellers and irrespective each sale is to the consumer and the publisher updated by the aggregator via a consolidated sales report. There is nothing wrong with this practice and the element of trust is a given as these aggregators are regarded as trusted parties.

Today many publishers can have 15 plus aggregators that they trade their digital files with and in most cases they deposit the files with them and merely see the reports on sales achieved.

So what can be the digital sales issues?

Firstly, sales’ reporting is neither to a standard format nor a standard schedule. Some report monthly, others quarterly and all have to be reconciled. We know that reconciliation today is not straight forward and wonder what the effort will be in a more mature market? We are aware that industry bodies are now working on reporting standards and working practice and there is a clear need for these once agreed to be adopted by all.

Secondly, The digital sale is complete on the download, the reseller is paid and there is no inventory to reconcile. If the file and the transaction is ‘digital’, why not process the sale reporting ‘digitally’? Today DRM files that are downloaded are automatically license stamped in flight by the likes of Adobe, so why not record the sale the same way? Imagine the publisher knowing instantly what sold where at any moment, or an author being notified on digital royalties due instantly and transparently? Is it such a farfetched dream or does the interest earned on banking the cash get in its way?

Thirdly, we believed that there were no digital ‘returns’. After all there is no unit to return and you can’t upload a file back to where it was downloaded from. There will always be sales errors but this should be a consumer/ reseller issue and the sales in reports and financial terms should be net. Why introduce effort and information that is outside to the commercial relationship. There is trust in sales so why not trust in refunds. Even if the file is faulty and a refund is demanded the retailer is not paying for the goods until sold and therefore there is not cost of sale to be recouped. We may be naïve, but telling a publisher that a download was returned merely creates waste.

Finally, we wonder once again why digital royalties can’t be paid to authors on a more frequent basis, or even on sale. If the new aggregators such as Amazon, Apple and Google are clearly aiming to set simple commercial terms to publishers so shouldn’t this be reflected up the chain to authors? We know one publisher who pays physical sale Royalties on a quarterly basis yet only pays digital sale Royalties annually.

As an industry we need to think just as much as the back end process as the front end and ensure the dots are joined.

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