The Value of MOD for Distributing Media
Real Savings When Getting Product Out The Door!
The first comparison to make is the true manufacturing cost. On-demand manufacturers generally bundle manufacturing and fulfillment all into one price. So – when comparing on-demand with replication there is the understandable reaction “$1.20 compared to $6.00, why would I ever make the product on-demand?” The reality is it is $1.20 compared to $4.00 not to $6.00, when you consider you have a minimum $2.00 per unit fulfillment cost.
More importantly, let’s look at other costs faced by the content owner. The financial tar-pit many fall into when dealing with significantly excessive inventory is failing to amortize the excess over a reasonable measurement period.
What is a reasonable measurement period? Well that can depend on your content, your business model, the pending growth of internet delivery, new media formats (i.e. HD), potential obsolescence, etc. But, given today’s rapidly evolving environment, most say that anything beyond 18 months is probably a mistake.
So, let’s look below at the true impact that 1000 unit purchase had on profitability of this title that is selling 200 units per year.
| Library Data Below | On-Demand Information Below | Conventional fulfillment information below | ||||
| Business model information | ||||||
| Enter number of months to be measured over (i.e. 12) | 18 | |||||
| Break-even Analysis: | ||||||
| Sales Information | ||||||
| Monthly units sold | 17 | |||||
| Monthly sales in $'s from entire library | $382.50 | |||||
| Basic expense information | ||||||
| Total fulfilled per unit cost | $6.00 | $3.20 | ||||
| Total per month storage/mgt/inventory carry cost | $2 | $22.06 | ||||
| Total monthly fulfillment expenses | $102 | $75.39 | ||||
| Raw profit (not including cost of excess inventory) | $280.50 | $307.11 | ||||
| Impact of excess inventory on "real gross profit" | ||||||
| Impact of excess inventory on per-unit cost | $ - | $2.80 | ||||
| Impact of excess inventory on monthly fulfillment cost | $ - | $46.67 | ||||
| Real gross Profit | ||||||
| Profit per disc in $'s | $16.95 | $15.63 | ||||
| Profit per month in $'s | $280.50 | $260.44 | ||||
| Annual gross profit from business unit | $3,366.00 | $3,125.28 | ||||
The first thing to notice is that the raw profit (revenue minus delivered cost, inventory carry cost, plus hard storage), for replication is less than 10% more than manufacturing on-demand.
But – that doesn’t address the fact that at the end of 18 months you still have over $700 invested in inventory that hasn’t sold – much of it that won’t sell for years to come. Moreover – that money is at serious risk of being obsolete, lost, damaged, etc. So – to truly assess the economics you need to amortize that $700 over what you have sold in the measurement period. That yields the $2.80 per unit impact cost, and the $46.67 per month.
So, the real gross profit turns out to be 8.4% greater when manufacturing on-demand. Investment capital is more liquid, and can be devoted to other business needs. Branding, version control, product enhancement, all are more flexible when not burdened by excessive inventory.
Obviously – when the sales numbers climb, these metrics change. But, the general rule of thumb is that when selling less than 250 units, the economics begin to significantly favor manufacturing on-demand.
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