Your business is worth more than 6X yearly earnings

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In the recent Monotype foundry conference call (which I believe many of you attended), they once again highlighted their foundry acquisition efforts.

They stated the usual price for acquiring a foundry as “mid single digit multiple of your yearly earnings”. They gave an example of calculating it with number 4, but to be fair in this discussion, I’ll use 6 — because it still fits the description and gives them some leeway. I doubt any number over that still fits their description and if it did, they’d use a higher example.

The point is, your business is worth more than 6X your earnings and it makes me sad they’re hoarding our IP on the cheap and bolstering their monopoly.

Let’s look at it this way; so you accept Monotype’s offer and receive 6X what your fonts earn in a year. To keep it simple, let’s assume they keep earning the same on them, even though any fonts sold directly by the largest company in this space receive an automatic advantage due to prioritized marketing, direct enterprise sales etc.

So you receive the 6X in full while Monotype starts receiving their 1X per year. As an investment to keep earning on the lump sum you’ve received, you could buy shares in a large stable business that pays out dividends, and get 5% yearly on the amount — after 20 years of this passive income, everything you get later is pure profit… Monotype? They’ll start getting pure profit off of your IP after the 6th year already. 

I’ve used the example of a dividend paying asset, as that is the closest thing your foundry becomes to them after purchase. To be realistic, I can see the earnings of a type library easily doubling when owned and sold by Monopolytype instead of an independent player. And at that point, they’re profiting in 3 years — probably less than it took you to even design all that IP.
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Comments

  • Johannes Neumeier
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    For the sake of sparking a debate: You can now take 6 years off work. No customer service. No marketing. No admin. Start your next business, slurp cocktails or reorient to pursue other work. While fonts are a long-tail business, I do think the immediate last year/s is probably a generous metric if you are prolific publisher; I reckon this productiveness and how close to "beginning-of-life-cycle" the IP is overall determines the digit Monotype is willing to offer.
  • Peter_Schoenwald
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    Hi @PabloImpallari - thanks for your input, very interesting. I haven’t considered AI has reached our realm yet. 

    Where can I find more info on the topic? How did you create the font attached?
  • PabloImpallari
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    In this thread
    (Warning.. is a bit crazy, read it lightly, ignore the drama and focus on the good bits):
    https://typedrawers.com/discussion/4665/alphabetmagic-my-first-ai-experiment#latest
  • Jens Kutilek
    Jens Kutilek Posts: 342
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    Does the 6x factor apply to the royalty split that MT pays you, or the full revenue of your font?
  • Igor Petrovic
    Igor Petrovic Posts: 264
    edited May 2023
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    Thanks for pulling this topic. Based on my recent release, I would say that the market is VERY different than it used to be before COVID, and we need more of a type business discussion. 

    A classic third-party font store selling is oversaturated, and new strategies should emerge. This Monotype move is an additional indicator that they don't plan to favor the percentage model in the future, and big numbers (and AI) come into play.

    My impression is that foundry websites will become more important for those who plan to stay independent. Maybe a kind of independent type syndicate. This is a tricky question how to have a syndicate that doesn't grow up into a classic store...

    Some time ago I opened a discussion about it, but there was not enough interest to work out the functionality of the model :)

    Also, I have a really small and fragmented catalog so my perspective is limited. But on the other side, it is also an input for that level of business. I made 10x more money with one weight all-caps color font in 2016 than with a serif variable font in 2023.

    One more important thing. I think that the trend of extensive character sets and dazzling OT features might compromise the quality. I don't know how one can produce a 9-style family, plus matching italics, with 2000 glyphs and a ton of OT features in 6 months. 

    Type business slides into quantity over quality, and the user's ever-shortening attention span doesn't help.
  • Jasper de Waard
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    If anything, I'd say AI is likely to drive down the worth of your foundry. Better AI means more and cheaper competition, which means less money to be made for your foundry. Anyway, that is how monotype will surely frame it. The point is that AI creates uncertainty around future market value, and this uncertainty usually drives down the price.
  • James Montalbano
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    Igor wrote:
    My impression is that foundry websites will become more important for those who plan to stay independent. Maybe a kind of independent type syndicate. This is a tricky question how to have a syndicate that doesn't grow up into a classic store...

    Some time ago I opened a discussion about it, but there was not enough interest to work out the functionality of the model
    Could you argue that this is how MyFonts began?

  • Igor Petrovic
    Igor Petrovic Posts: 264
    edited May 2023
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    That's the crucial question in defining a model which couldn't be sold (at least not easily) to big players.

    Right off the bat, the idea might be that the syndicate should increase the visibility of independent foundry sites, but not bypass them. The customer would end up at the foundry site/license. 

    Second, the syndicate would be owned by all members, not a few persons, and important decisions might be made by voting. 

    Third, members would pay the membership (in form or fee or percentage) to maintain the marketing and functioning of the platform. But the platform itself would be non-profit. So no extra profit for the "platform owners", fees would be just enough to pay marketing and maintenance people. There is no owner to feed. 

    Fourth, compared to all other font stores, this model would have an important mission. I believe that customers would be glad to know that there is a platform through which they get the best possible products and that they support creators directly as much as possible. 

    These are just my first ideas, with a ton of hidden problems probably. But I still believe that type community is big enough to protect itself.  

    BTW, I am perfectly aware that it's much easier for type designers who anyway earn a little (like me) to propose changes. I know that there are people who earn decently through the stores and are not interested to engage in new models.

    But I don't see these changes as an attack on existing models. They are not mutually exclusive, you could offer your fonts on personal foundry, through the syndicate, through the third-party stores, bundles...all together. 

    And just to note, I don't see selling one's IP or foundry to Monotype as problematic. That's perfectly understandable, and I would seriously consider it if I got the offer. This is not they are bad we are good debate.
  • James Montalbano
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    Igor, I proposed something very similar to this to Fred Smeijers and Paul Shaw back in 1998. Fred was in town to judge the first TDC Type Design Competition, MyFonts was not yet in existence. To say that my idea was greeted with the sound of crickets is an understatement.
  • PabloImpallari
    PabloImpallari Posts: 783
    edited May 2023
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    This practice turned Monotype into something like a shark, which has to keep moving constantly to feed itself, as their supposed main business, selling fonts, performs very poorly. Marketing and sales is hard work; acquiring companies for the sake of accounting tricks is easy.

    This paragraph clarified the idea for me, I had never thought of it that way before.
    Thanks for your insight Scott!
  • Claudio Piccinini
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    By the way, I think Pablo’s theory about newly acquired fonts becoming fodder for AI-generated fonts is extreme overthink, especially when applied to a company like Monotype. They don’t want more product—they can’t sell what they already have; what they want is more goodwill. 

    What do you mean by "goodwill"? As related to Monotype?
  • Peter_Schoenwald
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    @Scott-Martin Kosofsky I understand your point that they can state these acquisitions are worth more than they are, as well as the general point that some accounting gymnastics could be going on; although for a private company it shouldn’t impact much. But let’s not forget they are buying them pretty cheap after all — so stating that an IP acquired is worth more than 6X its yearly earnings is no stretch in itself.
  • PabloImpallari
    PabloImpallari Posts: 783
    edited May 2023
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    What about this fake business plan?
    1) We get together to create a new fake foundry and use AI to release fake fonts.
    2) We loan some money and invest it to create fake sales, by funding our fake clients (some poor country call center minions) to buy the fake fonts from our fake foundry, monthly paying the loan with the money from the fake sales. We do this for a whole year.
    As someone once said: "The illusion, while it lasts, is a reality in its own right."
    3) Now we have a great real "year's sales volume" and since we are at the "beginning-of-life-cycle" for our IP, we qualify for "the Shark" offer 6x our investment on fake sales.
    4) We enjoy our real sales money & the shark can keep doing real goodwill accounting tricks.
    It's a win-win situation!
    5) Restart again from point 1

    I've have detected multiple "foundries" doing point 1 at CM and DF already.
    For example: 2 different foundries releasing the very exact same font (with a few alternate glyphs exchanged) under different names the very same day. I can guess what fonts where used as the ingredients for the baby fonts too. It's a clever business plan after all! They seem to be clever guys!!!

    Fonts can now be created in mass, releasing 100 fonts a week is now possible (as Henry Ford did for Cars). Using AI and Font to print money!
  • Thomas Phinney
    Thomas Phinney Posts: 2,770
    edited May 2023
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    Does the 6x factor apply to the royalty split that MT pays you, or the full revenue of your font?
    The original statement was “earnings” so that is your net profit, after all expenses. Said expenses would include money taken by a distributor such as Monotype. (Unless it never enters into the picture as income at all.)
  • Igor Petrovic
    Igor Petrovic Posts: 264
    edited May 2023
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    Igor, I proposed something very similar to this to Fred Smeijers and Paul Shaw back in 1998. Fred was in town to judge the first TDC Type Design Competition, MyFonts was not yet in existence. To say that my idea was greeted with the sound of crickets is an understatement.
    Too bad they didn't show interest, who knows how things would look now if your idea was accepted at the dawn of OpenType...
  • Ray Larabie
    Ray Larabie Posts: 1,385
    edited May 2023
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    Before I begin, I would like to clarify my definition of "AI lettering." I'm referring to tools where the text image is generated directly in software or by the software generating its own font. This is in contrast to AI-generated fonts, which either compete directly with or assist in the development of human-created fonts.

    If you're considering selling your font library due to concerns that the font business may not exist in six years, it is important to understand the distinction between selling new fonts and selling existing ones. While I don't believe the font business will completely disappear in six years, there will still be a need for legacy fonts for a few years after the initial impact when AI lettering begins to replace traditional fonts.

    In the case of companies like Adobe and Canva, people will still be editing documents created in 2023 by 2033, and they will not be pleased to see their fonts replaced by AI-generated lettering. The annual license payment scheme from MyFonts and Adobe's Creative Cloud subscriptions will likely ensure some level of income for at least a decade.

    Considering the millions of documents created daily in Canva and Adobe Creative Cloud, there will be millions of font dependencies. While AI lettering may become available in these tools within a couple of years, eliminating new documents with font dependencies, we cannot disregard the millions of legacy documents that already exist.

    Will there be a market for new human-created fonts in the 2030s? That seems unlikely. However, this does not mean that today's fonts will lose all value in the coming decade.
  • KP Mawhood
    KP Mawhood Posts: 294
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    Will there be a market for new human-created fonts in the 2030s? That seems unlikely. However, this does not mean that today's fonts will lose all value in the coming decade.
    If we acknowledge that MANY human-made fonts are already enhanced using plugins and tools, then we can view AI as just another tool in our arsenal. 

    There will always be a human involved in the process. They will make key decisions regarding the font's style and its potential appeal in the market. A human will define the AI's prompts, and need to refine the AI-generated font so that it is appealing to other humans.

    At most, AI can serve as a robotic intern.  :D

  • Igor Petrovic
    Igor Petrovic Posts: 264
    edited May 2023
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    BTW, my expectation was that the foundry acquisition price is more parametric: the number of typefaces, the structure of the font family (number of styles, glyphs, OT features), the general establishment of the foundry (bestsellers, diverse and versatile catalog) etc. Yearly income on a particular platform is a very relative factor.

    As for AI, I would really like to see a decent auto-kerning, that sounds like a perfect AI task :)
  • Jeremy Dooley
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    I wholeheartedly concur with Ray's viewpoint. The truth is, fonts crafted in the pre-AI era hold immense future value due to their unique origins. As AI becomes more pervasive, it may lead to a homogenized design landscape, akin to "gray mud." The designs we create today will resonate for a century, as nostalgia and timeless classics will never go out of demand.
  • PabloImpallari
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    There is only 1 DTL, there is only 1 TEFF... if you get what I mean.
    They CAN be legally replaced by other fonts as training data "ingredients".
    They are the Philosopher's Stone for AI alchemists.
    Errata: They "CAN'T" be replaced
  • ValKalinic
    ValKalinic Posts: 49
    edited May 2023
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    I wholeheartedly concur with Ray's viewpoint. The truth is, fonts crafted in the pre-AI era hold immense future value due to their unique origins. As AI becomes more pervasive, it may lead to a homogenized design landscape, akin to "gray mud." The designs we create today will resonate for a century, as nostalgia and timeless classics will never go out of demand.
    Yep, agreed. So far, everything I've seen created with/by AI are mish-mashes of various preexisting things (ie ChatGPT of the publicly available information on a topic you ask about, Midjourney of publicly available images that relate to a term you state) - although I'm sure these mish mashes will start being more worthwhile as it evolves. 

    Don't get me wrong, I'm sure tools that truly understand us will be groundbreaking in many ways... but this first wave we're seeing now is just a flash in the pan IMO, which many will soon start realizing is not as useful or revolutionary as first thought. 

    If AI can someday (admittedly probably sooner rather than later) create a thousand faceless amalgams of existing fonts in the time it takes a hard-working professional (like any of you here are), to create a single great font... isn't that single font logically significantly more valuable than all that "gray mud" to use Jeremy's fitting term?

    To truly replace any of us, AI has two tasks the way I see it:
    1 - replace the technical part
    As Igor has mentioned kerning, spacing, etc seem like the perfect task for AI. Yet I'm surprised this is hardly being attempted (instead of the generative mish mash BS all fields are creating in AI these days). I do believe this will come actually and can fully imagine it as a reliable $49 Glyphs.app plugin within a year.

    2 - replace the actual design part
    Remixing multiple things by combining them can be a convincing act... however people and businesses will still have a need for new type that evokes new identities instead of blending them in with the expanding sea of grey mud.
    Even when AI learns what attributes in preexisting fonts are considered elegant, robust, traditional, European, strict, and a million other terms -- these definitions change. And more importantly yet, they are challenged by a designer. If a client describes to a tool what "allure" they want to evoke in their brand, they'll get a regurgitation of what AI can find as evoking the same feeling in the past. A truly good designer in this situation of course would be creating a new identity based on a new view on the property itself. Whether AI can do this, judge for yourself... I'd posit this first approach to this field is just mimicking this, and as for me unconvincingly at that. Somewhere much further down the line of course possible as everything is, but IMO even then not without collaboration with actual people who are the ones that give things meaning.
  • Jeremy Dooley
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    The capabilities of AI are presently confined to interpolation, and while it may have the potential to extrapolate in the future, true creativity demands the generation of something original that exceeds the limitations of the latent space. Furthermore, trends and fashions are in a perpetual state of change, molded by the ever-evolving nature of human processes and culture.
  • KP Mawhood
    KP Mawhood Posts: 294
    edited May 2023
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    Could those who disagreed also share their perspective? 

    KP Mawhood said:
    Will there be a market for new human-created fonts in the 2030s? That seems unlikely. However, this does not mean that today's fonts will lose all value in the coming decade.
    If we acknowledge that MANY human-made fonts are already enhanced using plugins and tools, then we can view AI as just another tool in our arsenal. 

    There will always be a human involved in the process. They will make key decisions regarding the font's style and its potential appeal in the market. A human will define the AI's prompts, and need to refine the AI-generated font so that it is appealing to other humans.

    At most, AI can serve as a robotic intern.  :D


  • Fontfruits
    Fontfruits Posts: 51
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    I had made a comment just now about how AI might be successful in the font industry, but then deleted it incase AI little bots read these forums, and low and behold, it was I who changed the course of history for the worse. Just kidding. But not really kidding.
  • Nick Shinn
    Nick Shinn Posts: 2,152
    edited May 2023
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    It seems naive to not anticipate emergent disasters from such a sea-change in technology.
    Here is a screen-grab from the recent video by the Center for Humane Technology.
    Quite a lot for a “robotic intern” to accomplish.
    In other words, used as a tool for a specific job, AI will be a very useful army of low-paid servants, but the systemic effect will be massive, unpredictable disruption, with the bad outweighing the good.
    If you think their fear mongering is exaggerated, watch the whole video—they address each of the points.
  • KP Mawhood
    KP Mawhood Posts: 294
    edited May 2023
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    @Nick Shinn I agree that AI requires caution, and a font forum may not be the most best place to discuss all the potential risks.

    To stay relevant to the font industry, I think it's important to debunk the idea that "AI will take away our business," since people will be using AI.

    The idea of the "robotic intern" is from a brief clip by Edenspiekermann.