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Valuation, Bite-Sized Copyright, and The Decade Ahead…

New Videos Every Monday Morning..

Not sure about the folks who are signed up on either Bite-Sized Copyright or The Decade Ahead classes (which get new videos every Monday morning for this entire year), but I am having a blast with both classes.

48 weeks to go on both. Wow, that is going to be a lot of information, so don’t hesitate in jumping in on either or both of the classes. It won’t talk long to catch up with the first four weeks and then have new videos awaiting you every Monday on both topics. Find them on Teachable.

Copyright Valuation Topic…

Why there has not been another post yet is because I am having a battle with myself.

You see, the tried and true and tested method that came out of traditional publishing was to treat books like bananas and discount their value over time.  Say if you got $5,000 in income for a book in a three year period  and you have expected 30 years of life left, the book for those years would have a present value of $50,000… But wait, it would be discounted.

The value of that book for just those years might be discounted down by more than 50% depending on all kinds of factors, so the book for those years would only be worth presently $25,000.

And then for the 70 years after you die, the factors of discount grow because the standard belief is that there must be an author alive to make a book have value. (Doyle, Burroughs?) The entire 70 years might add as little as $10,000 to the book’s present value. If that. Again a ton of factors.

But over a decade ago, the world of publishing changed. So here is the issue I am fighting over with how to even talk about.

The copyright of a book now grows in value.

A book could make $500 one year, 1,000 the next, and on up. Year after year. Brand new factors have hit the market and none of them are discount factors to lower value. The factors all increase sales and value.

I would love some day to do a small Kickstarter campaign for my first published novel, to do a limited edition on it, and so on. I have no doubt that I would make far more than the $5,000 Warner books paid me in 1987. (Book never earned out and Warner reverted the rights back to me.)

And even more importantly, because of the indie movement, that book is in print and still selling, making me 70% of cover price, and has been for years. Since I put it back in print in electronic and trade paper and also put it is Smith’s Monthly, it has already passed that initial advance in sales and is continuing to grow. And I see no reason why that income would just not continue upward.

So Kris and I tried to work on this today and came up with nothing.

Traditional publishing and all the elements around it, including courts and “common practices” think copyrights of books lose value with each year over the copyright life. But in the last ten-plus years, that fact for indie writers is not in evidence. Books start slow and grow.

Copyright is a property. As I said, my parents built a house in 1962 for $20,000. It is now, without any major additions or improvements, valued for over $400,000.

Copyright is a property. Seems the indie revolution will need to clean out this “common practices” of discounting book valuations. Books are not bananas that spoil, at least not in the indie world.

 

10 Comments

  • Tom Slee

    Hi Dean, my understanding of Net Present Value is that the discount applied to future earnings is related to assumptions about investment of potential current earnings. Ie if I take the money now (a book contract) and invest it, I can make more overall than I would if I waited for the slow build future earnings via indie publishing.

    In this mode, it’s not that the property is less valuable in 20 years time. It’s that, depending on the assumptions I make about investment, the $10,000 i might make in 20 years time is less valuable to me than $5,000 i would get from a publisher today.

    Is that the kind of dicounting you’re referring to? Or is the discounting that traditional publishers apply something else, tied to the old volume model where books go out of print and die and therefore are less valuable to them? In that world, that kind of discounting would have made at least some sense.

    • dwsmith

      Not at all what I was referring to, Tom. Your second option. (To traditional publishers, it is not an “old” volume model but still very much how they think. (See the DOJ case stopping the big merger. All stated right out in court under oath by the top executives.) And courts think that way too, as well as the professional companies that you can hire to figure your valuation.

      When it comes to copyright, the idea that it is a banana and starts to rot fairly quickly is “common practice” for valuation.

      This only varies slightly in young adult books in traditional publishing, because they understood that the market is constantly refreshing and that a book is new to a reader no matter when it came out when the reader reads it for the first time. But minor exception and was not enough to change common practice of valuation. (This used to be called “backlist” and “front list” but traditional publishers have dropped those terms lately because they sell more backlist than front list now. as Young Adult always used to do.)

      This has nothing at all to do with money up front vs money spread over later thinking. Talking valuation of a copyright at a certain point in time.

  • Luigi Ballabio

    Dean, would it be possible that the value is discounted not because the value spoils (wrong, as you point out) but because of the fact that it gives you cash flows in the future and 1000$ in, say, 2 years are worth less than 1000$ today? If so, one would have to take both effects into account — the fact that the property value will increase, and the need of discounting future cash flows.

    • dwsmith

      Yes, you are correct on that, Luigi. But my house example still does not help. A $20,000 house in 1962 should be worth $196,000 today only accounting for the inflation, not $400,000. And the problem with valuation of copyright is that 1962 is only 60 years back, not lifetime plus 70 years.

      So the crystal ball of valuation of copyright automatically assumes in common practice that the house in sixty years will never be painted and fall into ruin and be worth almost nothing by that time. Exactly the opposite of treating a copyright as if it will at least be maintained, not counting all the possible expansions, many of which we can’t see coming.

      So if that house was a copyright property instead of a real property (not that much difference, actually), the copyright would be valued at at least $400,000 in 1962 (plus at least ten more years of increase), adjusted for the difference in value of money from 1962. Yeah, makes a head hurt with too much crystal balling.

  • Michael W Lucas

    I’m really struggling with valuation.

    I only have ten years or so of fiction out, a dozen or so books, but it seems pretty clear that each new novel or major collection increases the value of every title in the backlist. A dozen data points isn’t conclusive, but I could easily argue that every year I write exponentially increases the value of my backlist. Transformative business changes like Kickstarter supercharge it. (Presumably, we’ll also get bad transformative events, we just haven’t had one in the last decade.)

    Once I quit, the value will taper off over time.

    My nonfiction is a little easier. Most of them lose value each year, then plateau. But hey, those $500/year books add up! Can’t complain.

    • dwsmith

      Michael, and thus the one assumption you made that I am struggling against. Yes, if you quit or die and do nothing, the value will taper off, and thus the assumed deductions in present value. I understand that. Got it. And at the moment, that seems true, unless when you quit or die, your work is not transferred into an entity that will continue to keep it out and do the new thing and keep it growing. A house sitting, without being painted every decade or so, will lose value. Yup. But if you make arrangements to keep the work going after you quit, it will not, and thus those arrangements will impact the current value.

      • Michael W Lucas

        I spent too long in high-level IT; I always assume other people will screw up on execution. 😉

        Seriously, though, my will advises my beneficiaries to license my literary estate to a company that can exploit it. That’s not ideal, no, but I have nobody who can realistically take over this business. If they can keep it alive, more power to them!

        • dwsmith

          Money is an amazing incentive. And it does not have to be a person you know at this point in time. So so many ways of working things out, not even counting the mechanisms of the task such as corporations and trusts.

          Got a hunch I’m going to be doing a bunch of posts and maybe a book on estates for fiction writers. Matt Buchman did a good one for the basics. Well researched on certain aspects of this issue. But for me, at the moment, it is back to valuation. Going to wrestle this one to the ground.

  • allynh

    I know that you are going to argue about this, but I think that you are mixing “value” with money “earned”.

    – Trad treated books as bananas, Indy looks at the lifetime of the copyright,

    The book has no “value” in its own right. Over time it can “earn” money as people keep buying copies, as long as it is not in “Public Domain”.

    Look at the bestsellers from a century ago. They have no “value” now, and are free from Gutenberg. Still great books, but people will not pay money for them.

    When you put a “value” on all of your IP it simply makes it impossible to leave your books to your heirs, because they would be forced to sell the IP to pay the taxes.

    BTW, The house example is apples & oranges. The house is 400k because of the artificial price based on false scarcity caused by the rental market buying every available home. They leave a few homes on the market for people to fight over to create that false scarcity. That lets them charge high rental prices because they can say, “Look at what homes are selling for.”

    – If Congress ordered that the national rental companies sell their housing stock, the price of a home would drop to pennies on the dollar.

    We are still trapped in the same bubble as before the housing crash. The housing stock was larger than the need. Rental companies bought all of the foreclosed houses and the “available” housing vanished.[1]

    As example: Decades ago, the uranium mines shut down in Grants, NM. The “price” of homes dropped to pennies on the dollar. You could buy a MacMansion for 10k, but with no jobs, no one could afford even that.

    [1] The real truth about the 2008 financial crisis – TEDx
    https://www.youtube.com/watch?v=RrFSO62p0jk

    • dwsmith

      Allynh, afraid I got no clue as to what in the world you are talking about. Value for copyright is possible money earned. That is how you figure value and what I have been talking about. I live in a high-rise condo and have no desire to care about all the theories about the housing market. It was just an example.

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