Digital Platforms Are Strategically Changing

This last week we have seen three pieces of news which were all worthy of note but when taken together offer us an interesting insight into the strategies players need to adopt moving forward. Today is no longer a case of simply having one compelling offer or thinking that you own a slice of the market. Tomorrow will be won by those with broad appeal and that add real value.

First there is the launch of BT’s digital sports television service. We already have a saturated market in the UK with players such as Sky dominating. Taking on Sky with a straight head to head offer would have been yesterday’s approach, would have probably resulted in a bloody price war and could have been an expensive failure. So BT bid a won some significant rights to live sports including some 30 Premier soccer matches but how would they use these to build their consumer base?

The answer is now out, they will effectively give it away on the back of their broadband service. Those that subscribe to their broadband now get free access to live soccer over the internet. This not only captures the heart and minds of soccer fans who up to now have to buy it as a secondary added service but introduces that magic consumer word ‘free’. Consumers can pay an extra subscription to BT and get it delivered onto their TV through a set top box in HD but many will happily watch on their tablets, laptops and even smartphones.

BT has not only slapped Sky across the face but it has put pressure on those broadband providers that have been eating away at their business. The move reinforces BT broadband services and is a smart move.

Second we have the news / rumours that Microsoft (MS) are about to splash out $1billion to fully acquire Barnes and Noble’s Nook digital world. The hardware is already being phased out and discounted and the partnership / joint venture that offered so much is now being taken over by the Seattle giant.

This would bring MS into the media battles again. Remember Zune that music competitor to the iPod, or their latest damp squib Surface, the tablet that choose the wrong operating system – again. Microsoft has a track record of getting things wrong and playing catch-up. However when they do acquire a readymade solution such as SKYPE they can screw up over engineering something that didn’t need the attention. Try accessing Skype today on Windows 8, through a browser or on an Android smartphone and you would think you were connecting with three different applications.

So what will Microsoft do with Nook? Maybe they will focus on education, but exactly what will it give them? Perhaps they believe that they can take on Amazon but do they really understand media or just bits and bytes? It’s a great financial exit for Barnes and Noble but what’s in it for the consumer?

Thirdly we have the rumours that Amazon is planning to launch its own smartphone.

We often ask what is amazon. Is it a media retailer, a publisher, a one stop shop, a marketplace, a technology company? The answer is probably all the above but primarily it’s a community hub that attracts many through not one but many offers and its quality service.

So why a smartphone? Well it’s an obvious extension of its hardware offer and remember when Apple went into the phone business we asked the same of that move. Unlike Apple it doesn’t need to plough its own furrow and can piggy back on a wealth of technology already out there. Maybe like BT it sees a way of being able to offer primary services with added value additional service that effectively lock in consumers.

Tomorrow is not about the best device, the best product offer, the cheapest price, the widest range, the fastest connection. It is about the best holistic offer that adds real value and is built around a primary driver.

Shrinking Discretionary Spending

We are increasingly moving toward a subscription lifestyle which bodes well for some and could give others a few sleepless nights as consumers’ discretionary spending effectively shrinks.

Only last week we were discussing subscription models with a financial industry expert, who informed us that it is being predicted that some 10% of spending could be subscription based in the near future. That may sound a small percentage but when we remove the must buys on rent, utilities, food, clothing etc. it leaves little discretionary spending and that 10% suddenly becomes a much larger threat and leaves far less in the pocket.

So what does this mean to a media sector and who could be the winners and losers?

Film has increasingly embraced the subscription model with cinema clubs and mega download stores such as Netflix and Lovefilm.com. Television has also moved from its previous dependence on ad revenues to build significant subscription layered services which are aimed at reducing churn and locking members into a bigger package which invariably now includes broadband, phone and much more.

Software was once traded on a one off fee and a perpetual licence, but this makes little sense for the developers who have to maintain a growing and changing environment. We now have Microsoft Office 365 on an annual subscription and Adobe products such as their Creative Suite, Dreamweaver Illustrator and Photoshop going onto a monthly on demand fee model. Interestingly Adobe will still sell standalone versions but these will not be upgraded and today may date very quickly. Abobe are to offer the whole creative suite for a 12 month contract based on fees of £47 a month (£564 pa as opposed to today’s £1800). Software providers see this move as freeing them from the traditional 18 to 24-month upgrade cycle and enable them to release updates as they became available.

Music is still in flux but the likes of Spotify and Pandora have both established significant user bases based on a simple on demand subscription model.

Newspapers have all fallen in and out of love with paywalls for accessing their digital versions. The challenge is often the wealth of material outside of the service and often news is news and unless a specific source adds real value paywalls will continue to have mixed success.

STM, professional and academic publishing has generally been a subscription based environment.

So what about the book trade?

Some have introduced digital subscription models but unless there is a base of heavy readers and wealth of materials it often fails to hit the consumer button. The old book clubs had the opportunity to migrate their offer to digital but often failed to visualise the potential and execute the change. There are obvious potential opportunities for the likes of Amazon. They already have subscription based offers such as Audible, Lovefilm, Free time and that Trojan horse Prime. Being able to mix and match these with on demand offers would give them a substantial offer that very few would be able to match.

If you are able to get all you want, at the right price do you want to shop around? Does the subscription model enhance the consumer / provider relationship and effectively lock out others? We all would like to market and sell direct but for many this will not be practical and being inside the subscription tent may prove more rewarding than being outside it. 

The History That Gives us Read Petite

The digital era allows us to revisit what once worked but became inefficient and uneconomical in the physical world. It is not a case of repeating the old ways but understanding how digital technology and network connectivity can redefine the process and make what once work , work again.

We are working on a new venture Read Petite which reintroduces and redefines short form for today’s time poor readers.

Humans love short-form reading.  The recorded history of the short story goes back to the likes of Homer and collections such as Aesop’s Fables. Much later came Chaucer, Boccaccio and the early translation of collections such as The Arabian Nights. Then came Sir Walter Scott, Nathaniel Hawthorne, the Brothers Grimm and Edgar Allen Poe whose definition of the form still stands: a narrative that can be read at one sitting.

The age of mass literacy ushered in even more opportunities for short-form reading.   The widespread popularity of periodicals created a vast appetite for short-form reading of all types, creating opportunities for the likes of Dickens, Hardy, Kipling, Wells and Conan Doyle in the UK and Melville, Washington and Henry James in the US. Russian writers such as Tolstoy and Turgenev rose to fame on the back of the short story, and their fellow compatriot Chekov is widely credited as defining its structure for others to follow.

Today's publishers would be envious of the commercial successes of many of these pioneers of the form.  For example, in 1837, Dickens was selling some 50,000 copies of his Pickwick periodicals at a shilling a time.  By the time that Great Expectations was published in installments in 1861, he was selling 100,000 units a week.   Interestingly, installment-publishing didn’t cannibalise sales of the complete single-volume book - in fact, serialisation fuelled interest in the full-length work.

In the early 20^th century, periodicals such as The Atlantic Monthly, The New Yorker, Scribner’s, The Saturday Evening Post, Esquire and The Bookman in the US and  The Strand, The Sketch, Harper’s and Story-Teller in the UK continued to feed an apparently-insatiable market.  Many of today's "classic" authors were given their first platform and public recognition through short-form writing, including Somerset Maugham, Saki, P.G. Wodehouse, G.K. Chesterton and Agatha Christie. In the US, writers such as F Scott Fitzgerald, Parker, Hemmingway and Faulkner often earned high fees for their short stories.  In the 1920s, the Evening Post was paying Fitzgerald $4,000 for a single story, (the equivalent of $80K today).

The market broadened still further with the rise of mass-market weeklies and monthlies.  For example, in the UK, weekly magazines such as Woman, Woman’s Own and Women’s Weekly started to dominate the short-form market.  "Name" authors gave way to genre fiction, literary to mass-market. 

The Fall and Rise of Short-Form

In the latter half of the 20^th century short-form writing took a tumble.  Outlets for short fiction atrophied: for example, IPC Media who dominate the UK woman's magazine market have seen a 22.5% drop in year-on-year sales (2011 compared to 2010).

While readers were as keen as ever on the medium - and writers certainly wanted to write it - book publishers found it increasingly difficult to package it in a profitable way. Physical production costs for a short story are close to that of a full-length work ten times the size - yet consumers clearly would not pay the same price for a 2,500 word piece as they would for a 125,000 word tome.  Distribution costs are identical, too.  To put it simply, the short-form story became largely uneconomic for publishers to sell.

The golden, once-in-a-lifetime opportunity created by the ascent of digital publishing is revolutionising every aspect of the publishing business, but nowhere more than in the realm of short-form publishing.  Physical productions costs have vanished.  Distribution expenses, while not disappearing, are now simply one more minor amortisable cost - and physical distribution costs, such as warehousing have of course vanished completely.

All this makes the rise of short-form reading little short of inevitable and Read Petite both viable and exciting.

All Change At Tools of Change

Often knowing when to stop and move on is harder than continuing to plough the same old furrow.

Last week Tim O’Reilly decide to call it a day on his well respected ‘Tools of Change’ adventure. 

Many applauded him for the work he had done in moving the digital agenda forward, whilst others said he should continue and owed it to his follows to keep up the work. We are not able to say what tipped his thinking to flip his attention elsewhere, but will say that we should never expect any party to go on forever.

Tools of Change arrived at the right time. It fed the appetite of many to understand the emerging digital landscape and listen to those breaking new ground. It certainly pulled together the brightest and reshaped the Book Fair World. We attended one of the conferences and found ourselves wondering what all these folk attending would be doing, or adopting, if they didn’t have this focal point?

Does the shutting up of the Tools of Change mean we are fully conversant with digital and change? We would suggest not and change is all around us. But it does signal the end of the beginning and the question now is as what follows and how will that help shape our thinking. Perhaps it signals the end to the mega conference, which in our opinion is probably well overdue, but again we have thought that for a long time. Perhaps it signals an end to the ‘payola’ conference where money can buy the platinum sponsor a speaking slot, a booth, literature in the delegate pack and even if they have little to say. We refused to be drawn into this sham circuit with its often predictable group of speakers and luvvies.

Perhaps it draws an end to the constant barrage of conferences and pulls them together around major Book Fairs.

Others will step into the void and some are already doing so, but are they merely replicating the formula or adding new ingredients?

We remember Richard Charkin shutting up his blog, which was insightful but often more a mixture of social insights and executive travels than a commendatory on digital advancement. Then Evan Schnittman took off those Black Plastic Glasses and said we are now digital time to put this pen down. Now Tools of Change is moving on.

It’s ironic that this last month we have written nothing. Were we missed? Did the digital world stop spinning? Probably we were the ones most frustrated and itching to write about so many things, but we found ourselves not with writer’s block as much as a desire to get on with something different.

We have just announced our Read Petite venture with ex Chief Editor of the Bookseller, Neill Denny, Agent and broadcaster, Peter Cox and founder of Waterstone’s Tim Waterstone. We found ourselves wanting to write about Read Petite at the expense of all else. That would clearly be wrong but how do we balance the industry commentary with what we feel so passionately about?

After some 2,200 blogs, we have decided it’s not time to move on but it is time to start to rethink what we write and how we communicate it. It’s a bit like when Bibliophile started t do video reviews to supplement the text ones. We saw the power of the visual the passion of the reviewer and realised that text reviews are good but are only they because that was the only way we could effectively express them. Today music is about YouTube more than it’s about iTunes. Conferences are more about TED than packing a room full of delegates and collecting money of the speaker’s companies. Commenting on change is about effecting it and helping it happen than writing about it.

Digital Evolution: Part 2 Images

Yesterday we explored the evolution and impact of digital music and today we look at Images. This can be ‘still images’ such as photography, or ‘moving images’ such as film, animation and television.

We now all take television, photography and film for granted, but it was less than 200 years ago that the only way to capture images was literally with a pen, ink and paint. It wasn’t until the 19^th century that photography, followed later by film was invented. Many of the technologies first adopted were time consuming, proprietary and gave low quality results but the seeds of mass adoption and audience were sown.

Although Kodak proudly boasted of their camera in 1889, ‘you press the button we do the rest,’ the rest was what made companies such as Kodak very rich.  The first movie camera didn’t appear until 1880 but it wasn’t until ‘The Jazz Singer’ in 1927 that sound on film became reality. Ironically, at the same time in the ‘20s, Logie Baird was creating the very first television signals.

The digital evolution which began 1957 with Kirch’s first digital picture (176 x 176 pixels) and later with Kodak’s first megapixel sensor in 1969. The next decades have somewhat mirrored the experimentation phases of the 19^th century and at the same time have had the same profound impact on how we now, create, develop, share, distribute and consume images.

Tim Berners-Lee published the first photo on the web in 1992. Today we all post our pictures on the likes of Facebook and store our digital libraries on the likes of Instagram. The once mighty Kodak has fallen and technology has consolidated and shrunk into the smartphone we all carry. This means that we are all now capable of capturing that moment and instantly posting it, not just to friends, but to everyone connected to the net.

We witnessed the bloody video wars between VHS and Betamax which were won by the availability of the first consumer camera and some would suggest the take up of the technology by the porn industry.

Television is no longer restricted to the schedule. The likes of Tivo and later BBC iPlayer have redefined TV on demand. The increased capacity of today’s network means we don’t have to buy the DVD, or the lost Blue ray, we can click and watch almost anything on demand when we want, where we want and on what we want. This is now resulting in the merging of services. The likes of Netflix, iPlayer, Sky and others are commissioning their own unique material to supplement their existing content. Film channels that were once provided on the back of a connection service, such as Sky, now have to compete with services such as Netflix who don’t have the same infrastructure. TV schedules and ratings have become less important and the money is shifting to the value of the rights, content and brands.

We have seen the production experts and expert tools continually fall. To alter an image you once needed an expert, then you needed very expensive and complex software tools, now the likes of Adobe Photoshop, digital publishing and movie publishing software is freely available to all. Even the relatively new world of CGI, which commanded an expensive software price, has now plummeted down in price and is available for all at £5K and falling. Technology, or its cost is no longer a barrier to creative entry.

YouTube has not only started to redefine music consumption it has helped redefine moving image quality. What once would have been frowned upon as sub standard filming is now more acceptable. Even the movie industry has made ‘hand held’ films and recognised that everything doesn't have to be perfect. CCTV surrounds us and what appears to be our every move. The smartphone has also started to redefine news coverage, where news can be instantly capture and contrary to the words of Gil Scott Heron, the news will be televised.

However, finding a digital needle in a digital haystack still requires effort. Still images are all too often badly indexed and their rights unclear. Semantic tagging is still a holy grail with one person seeing ‘Hay’ and another a ‘straw hat’ and another seeing neither and just a painting by Van Gogh.

So what is the future of imagery? Sharing and distributing and being able to consume content has never been simpler and available to all. However, a good photograph still requires a photographer, a good film a director, script and actors.

It’s not so much about technology, it’s about human creativity.

Digital Evolution: Part 1 Music

When we look at today’s digital revolution we often see disruptive change. Many shout, ‘out with the old and in with the new,’ but we have to often ask if the new is really ‘new’, or merely a reiteration of the past? What once worked, but became uneconomic, or inefficient, or was often constrained by the technology of the day, can often come back, without the baggage that once burdened it in its previous days. Suddenly we have a renaissance, a new opportunity, a new dawn.

Music is a classic example where the constraints of the technology inhibited or defined the form. What was once accepted as efficient soon was overtaken by technology that tackled that which limited its performance or capacity. The length of a single or an album was determined not by the content but originally by the constraints of Vinyl. When we were released from those constraints we often found other inhibitors with eight-track, cassettes and even CDs. When we went digital these constraints were no longer with the media, but the network and its capacity to transfer files. Now we have the cloud and super-fast connectivity and these has spawned streamed services such as Spotify and Pandora. 

We now have to question the definition of recorded music itself.

During the vinyl evolution the LP, or album, came into its own and moved its content from a collection of tracks to the concept album. Then digital allowed users to pick and mix their own playlists of tracks. No longer did they have to buy the whole album, or the unwanted ‘B’ side, they could just buy what they wanted and create their own mix playlists. The only time constraint was with the consumer. We often refer to this as the ‘iTunes moment’.

However many producers wanted to restrict sharing, copying and imposed unsociable DRM locks on the material. Thankfully, the threat of Napster, Kazaa and bit torrent made them see sense and music freed itself from proprietary formats and went MP3. MP3 wasn't the best format but it was the common one all could adopt.

The neutralization of the format has enabled us all to copy and share our music. We now question whether we have to even own all our musi, or build big repositories of music we hardly even listen to. Faster communications allows us now pull down the music on demand from the cloud and even enjoy it on or offline. This has changed not only how we collect our music, play it, but also the payment model itself. We are now moving from pay to own to pay to play and subscribe to as much as you want.

Unless you went to a live concert, music pre-digital could be described as ‘one dimensional’ and that dimension was pre-recorded audio. MTV was one of the pioneers that introduced us to the music video, but again it was initially constrained and supplied on a broadcast or CD/DVD format. You could buy music video and later CDs but the opportunity to recreate the concert and live music was heavily reliant on a film and sound crew, and limited it to the bigger and wealthier artists.

Digital cameras and video not only spawned YouTube, they smashed the ‘packaged’ music video and concert. YouTube  Myspace, Facebook etc have democratized the music video and made it possible for everyone to record and share live music. It is now claimed that more kids today watch their music than listen to it. No longer is the music video restricted to the ‘haves’ it is now available to anyone with a smartphone to create, record and share.

Musician and ex Talking Heads lead, David Byrne was one of the first artists to recognise this and open his concert performances by encouraging the audience to film it and post it on the net. In his book ‘How Music Works’ he says, ‘In the past, performers would at least try to limit amateur photographers and especially video cameras, but now that idea seemed simply ridiculous- hopeless. We realised there was a silver lining: they liked our show and their postings were functioning as free advertising. The thing we were supposed to be fighting against was actually something we should be encouraging. They were getting the word out, and it wasn’t costing me anything. I began to announce at the beginning of the shows that photography was welcome, but I suggested to please only post shots and videos where we look good.’

People’s music taste is probably more eclectic than ever and no longer restricted to what they hear on the radio or the top ten. The big artists still dominate the market but the music tail grows ever longer.

It’s often hard to accept that up until 1878, music was restricted to the live performance, be it in the home, on the streets, in bars and clubs or in concert halls. The original recorded format was restricted in both length and quality. Sousa feared, that we would see the recording as the master and the live performance as secondary and this has largely prevailed over the last century. However, today digital and communications have brought us full circle and the only constraint is often the ability to discover that something you had never heard before. Live, uncensored music can be created by anyone and delivered to potentially millions in real time.

Perhaps we will next address the 'dumming down' ,or restriction of the quality master tape by the format and await Neil Young’s Pono venture. What is interesting, is that in an emerging on demand world we will no longer have to replace our collection. It may be that MP3 becomes the free sub standard rendition whilst you pay for the quality one. Many will continue to search for the money but whatever happens this may be the case. 

So where is music going next? 

Territorial Entrepreneur Wins

We remember speaking as part of a team on Supply Chain opportunities at the UK BA conference back in Dublin in 1998. We knew the statement that would provoke a response was going to be when the final speaker of our team, Mike Shatzkin, would suggest that UK retailers should buy their books from the likes of Ingram in the US. The outrage from some on the day was expected and somewhat overshadowed all else and although the case was somewhat different to the Kirtsaeng v. Wiley recent case, the issue of territorial restrictions and pricing wasn’t.

Last week, the US Supreme Court’s ruled in the Kirtsaeng v. Wiley case and the landmark ruling, by a 6-3 margin, held that the doctrine of first sale, which allows for legally acquired copyrighted works to be resold by their new owners, applies to works made overseas and that previously were restricted by territorial rights.

The case centres on Kirtsaeng, a Thai-born US student who had been successfully sued by Wiley in a lower US court for importing and reselling foreign editions of Wiley textbooks made for exclusive sale abroad. Kirtsaeng had seen the pricing difference between content available in Asia and the content in the US and had bought the Asia content and sold it in the US. No different to global commodity market operations, but the publishers claimed that the copyright was specific to the territory and could not be resold in another territory. Although they won the case in the lower court they lost it in the Supreme Court.

Now many predict that the only option for publishers is to set uniform pricing across territories and end the practice of different prices in different regions.  This could result is unlikely to lead to lower US prices and is expected to result in consumers and students abroad seeing dramatic price increases or losing access to their US educational content. However this decision impacts not just education publishers but all publishers and also cuts across all media.

If we step back from the barricades that sprung up after the ruling, what we see is a change that some would say is inevitable. The practices that ‘protected’ interests in the old analogue world are being rigorous tested in the digital online global world of today. It isn’t just about foreign editions or territorial rights, it’s about consumer rights be they intuitions, businesses, or consumers and today the law will always err towards them. We have friction between, publishers and libraries over digital, publishers and institutions over fair use, publishers and consumers over territorial restrictions, pricing and the emerging issue of digital resale. These in many ways are no different to the battles between global corporates and the people over tax avoidance. The common thread is that the law is now demanding transparency and consistency and what was often built into a convenient extension of copyright is now falling shy of the rigorous legal test.

Many throw their arms in the air and say that these tectonic shifts will be the death of publishing as we know it and probably they are right. But is that a bad or good thing? Does it mean the industry is dead, or are they merely signalling that it is time to move on to new models, new processes and new relationships?

Consider the potential implications if publishers were to withdraw from markets such as Asia because the old model no longer worked and they deemed the market unprofitable? Do we believe that the gap would be filled by local efforts or by the pirates? Sometimes we have to accept that change is here and adjust and not merely pick up our ball and go off in a sulk.

The case, in some ways is no different to a bookstore finding that they can’t buy titles cheaper than a leading reseller or supermarket is actually selling them for. Should they be stopped from buying these copies and reselling them?

MOOCs Getting Bigger

MOOCs (or Massive Open Online Courses) emerged in 2008. Offering students the opportunity to study high quality courses with prestigious universities, but interestingly do not demand entry requirement and the courses are online and can be undertaken from anywhere and regardless of a student’s financial circumstances.

MOOCs are built for an online networked world where they can form virtual shared interest communities that can cut across geographical and cultural boundaries. These communities offer the learning support rather than the academic staff and assessment of MOOC courses includes peer-assessed written assignments and computer marked tests.

Course can include video lectures, online discussion boards, blogs, wikis and use social networking sites such as Twitter and Facebook.

Coursera, was set up as a MOOCs less than a year ago by Stanford University and today offers online courses from 62 universities to some 2.8 million online registered students has now announced that it is signing up a further 29 universities, including institutions in the US, Europe and Asia. The move outside the United States includes the likes of; the Chinese University of Hong Kong, Ecole Polytechnique in France, Leiden University in Holland, Sapienza University of Rome in Italy, the University of Tokyo in Japan, National University of Singapore and the University of Geneva in Switzerland with new US universities including Northwestern, Penn State and Rutgers.

At present, although these online courses might be as difficult as their campus-based versions, most of them are not formally recognised as counting as course credits. However, five Courera courses including a genetics course from Duke University and algebra at University of California, have been recommended for accreditation. The interesting thing is that these courses are now effectively in the reach of students around the world.

The change is potentially significant effectively pitching high cost traditional campus-based courses against low cost and free online courses, which are distant based. One charging the students the other raising revenue from internet traffic and add-on services.

The edX competitor which is by the MIT (Massachusetts Institute of Technology) and Harvard has also announced an international expansion with the likes of Australian National University, Delft University of Technology in the Netherlands, École Polytechnique Fédérale de Lausanne in Switzerland, McGill University and the University of Toronto in Canada and Rice University in the US.

The Open University in the UK has Futurelearn, with some 18 universities and institutions Universities such as Bath, Leicester, Nottingham, Queen's Belfast and Reading and also the British Library developing online courses.

So what is the future of the bricks and motor institutions with their spiraling fees and demand against this new breed of distance online and cheaper alternatives? Distance learning is not new but what is new is the commercial approach and collective collaborative platforms which could offer the best for less.

·         Futurelearn

Asda / HMV Is It Wise.Com?

Today we read that Asda, the UK arm of Walmart, is ‘considering’ a bid for UK entertainment retail casualty HMV. Administrators Deloitte have already almost halved the number of HMV stores leaving it with some 116 outlets and the deal may be attractive given Walmart’s own position in the same market in the US.

It is an interesting rumour given that their two biggest UK supermarket rivals have clearly pinned their money on going after the growing online media marketplace. It also comes on the back of the news that Argos is reintroducing CDs and DVDs into selective stores. The CD and DVD is clearly becoming transient technology and not one to invest in today unless you see a quick buck in ‘stacking them high and selling them cheap.’

Last year Sainsbury acquired the flagging Anobii ebook service, rebranded it and now are pushing it hard to their customer-base .  It may not give them a comprehensive online media offer but it starts to plug the gap.

Tesco,  now the third largest retailer in the world, have made their online intent clear by hiring Gavin Sathianathan, Facebook’s EMEA head of retail for Europe and Mark Bennett, a former EMI and Warner Music executive who headed up Sainsbury’s digital entertainment unit. In 2011, Tesco bought an 80% stake in the Blinkbox which gave them a competitive position against LoveFilm and Netflix and it also acquired music streamer, We7 and ebook retailer, Mobcast. It now has added Blinkboxbooks and Blinkboxmusic sites and is planning to target market its millions of customers about the services. Tesco are also about to launch a Clubcard TV channel, which will be available to Tesco’s ClubCard loyalty scheme members, free of charge, and will offer a mix of archive films and television shows. An interesting move after Argos had announced it was to close its own TV station. However, with some £64bn turnover and £3.9bn operating profit, Tesco has the money to compete in the media marketplace and is not about to simply roll over.

Both supermarkets have avoided the device wars and have stuck to being online and device agnostic. A wise move.

So what about Asda? Do they need the HMV store footprint in an online marketplace? They could flip the stores into smaller media outlets, but does that really make a difference?

When virtually every laptop, ultrabook, notebook and tablet today does not have a CD drive and even the car manufacturers are starting to fully embrace online,  is buying a store range that never understood this, is it wise.com?

The Need to Revisit The Supply Chain

Logistics always taught us that supply chains are only as strong as their weakest link. This is particularly relevant in a finely balanced chain such as the book trade, which is made complex by the many to many relationships and single source of product.

Publisher, former politician and founder of Biteback Publishing Iain Dale, made a strong speech at the Independent Publishers Guild conference last week claiming that the large retailers have publishers ‘over a barrel’. So what is the ‘barrel’ he was claiming and how does it impact today’s supply chain.

His points are nothing new:

Sale or return

This works well within a stable and predictable market, but becomes somewhat of a mare when the market becomes volatile and unpredictable. What started off as a good idea to ensure new stock was promoted and visible, can become a wasted journey when stock is not moving fast enough to support it. What was celebrated as a good sale one month, becomes a nightmare when it comes back two months later and still be in its packs opened. Sale or return has to be mixed with firm sales otherwise it can become a very weak link in that supply chain. An early logistics truth is that ‘every time stock moves or stands still it costs money and any cost is a cost to all.’  

High Discounts

Again these are fine if the volume is there to fuel them and generate the margin return. But high discounts, applied across the board are very questionable as many titles may not wash their face if they don’t sell. What tends to happen in markets with little price points is that the supplier just ups the RRP to compensate for the discount they have to give which in turn just creates an unsustainable cost spiral. Its easy to give stuff away it’s a lot harder to sell it.

Payola

Promotional marketing, or ‘pay to play’ and make a title visible is often a standard practice but again it has to be successful to recoup the investment made and when coupled with high discounts and sale or return begs the question of who is taking the risk. Some would suggest that being paid to fill shelves, merchandise and send it back if it doesn’t sell is a franchise and far from independent. Do book become like cards, where the stock is based on filling genre, or card type slots, more than true selection based on shared risk?

There are many challenges facing the trade supply chain today. As it shrinks and becomes less predictable, it must also learn to adapt and hone its practice. Merely continuing with the practices that were right yesterday is not the answer and will further provoke stone throwing from either side.

Sam Walton, who foundered Walmart, once described the dialogue between suppliers and Walmart as being like them being in two separate rooms and communicating ‘ by slipping notes under the door to each other.’ He realised the need to open the door sit down and work together and lets hope that Ian Dale’s comments now open doors.

Digital Resale: Opportunity not Threat?

Last week Apple followed Amazon with a patent application to create a service which many fear would wreck the digital booktrade – a used ebook market.

Some will suggest that it will never happen and that the lack of a first sale doctrine on digital files, be they, software, music or ebooks is covered by law. Others will suggest that the law may bow to consumer pressure and the arguments against resale of digital files are not in the interests of the consumer. Whatever the point of view, the consumer awareness is now being raised and the issue is being tested in the courts. We first wrote about Redigi last year and still await the US court ruling, but we already have seen a the software case brought by Oracle fail in the German court. Redigi has also stated its intent to come to Europe and to not just sell music but also ebooks.

We then had the patent granted in the US to Amazon and now an application by Apple. The Apple application goes into great detail on how the process will work and cites different scenarios. So are the two giants squaring up to close the door to others even before it is even open?

Anybody standing on the sidelines would probably suggest that the writing is already on the wall and that it is less of a case of ‘if’ and more a case of when.

The logic against resale would appear strong:

·         The file is pristine and not worn and therefore it has not lost value

·         Resale of what are ‘new goods’ would undermine first sales.

·         How do you authenticate genuine ownership?

·         The resell would put nothing into the copyright owner purse and in fact will reduce their earnings.

·         It is difficult to guarantee that the original file has been deleted on resale.

However, we would suggest that rather than looking at the glass half empty, the potential to resell digital ebooks could be a great opportunity not only to raise additional revenues, appeal to consumers but also address some of the black holes in today’s digital environment.

The Honesty Box

A controlled resale marketplace offers the opportunity to finally make the initial first sale market transparent to all. If digital licences need to be authenticated then that has to be auditable and transparent to owners. In other words unless a licence can be authenticated it is a ‘rogue’ and as such can’t be resold. Not only do we start to see all licences granted but also all licences transferred.

Authentication

To be able to resell authentication needs to be established which could be easily achieved via watermarking technology. Some would suggest that watermarks could be removed or amended. This is true but once removed or tampered with they become rogue and clearly pirate copies. Being able to sell used copies may be a bigger incentive to consumers than sharing free via pirate or unauthorised sites.

DRM

Rather than flipping from the current heavily restricted encrypted files which remain locked for the life of the owner, we can move to a more social DRM environment based on authentication of ownership and which rewards honesty.

Walled Gardens

Today we have what is often referred to walled gardens . These are platforms which lock customers and their content into one service and exclude or make it difficult for others. They thrive on their own encrypted files and DRM and Amazon and Apple’s parents would perpetuate this situation. However if a open resale marketplace were to be established, it could change this situation in a similar way to how MP3 broke the iTunes stronghold on digital files.

Revenue sharing

Fixing the price of a second sale may sound easy but may prove impossible. However, fixing the levy paid to the copyright owner on a second sale may prove easier to enforce. If we presume a file may have more than a second life this would mean that revenues would be generated on each resale which itself could prove a sustainable revenue stream. Interestingly, it is easy to see how this promotes reading for free where the buyer pays and recoups their investment on sale. Would this destroy new book sales – no. It would certainly alter them but unless there is a copy in of new titles produced but could also stabilise the cannibalisation of print.

We have to look at both the negatives and well as the positives and discuss these with a view to moving forward. We could sit on our hands and expect nothing to change but it will and by not exploring the positive we will just inherit someone’s else’s rules.

The glass can be half full but only if we look at it that way.

the marketplace someone has to buy that first copy. This may skew the number.

Related posts:

Redigi to Land in Europe and Sell Music and Books! Jan 2013

Digital Files Aren't Just For Christmas, But For Life July 2012

First Sale Doctrine: Digital Threat or Opportunity? Jan 2012

Music For Nothing - Well Almost

The expected new music streaming service from Apple appears to have been delayed, not due to technology, but due to the commercial terms demanded by them. The service is expected to be very similar to Pandora.

The music labels want to ensure that they get a respectable return from this new revenue stream and already it appears that the rates companies pay varies significantly.  Spotify, who are often cited as the bad boys, are paying some 35 cents per 100 songs, whilst iHeart pays around 22 cents and Pandora only 12 cents. So is it any surprise the talks hit stale mate when Apple wanted to only pay an initial royalty rate of 6 cents per 100 songs streamed. To confuse the situation even further the rate set by the Copyright Royalty Board, is around about 21 cents per 100 songs streamed. Again three times the rate proposed by Apple.

So we have a significant variance in the rates paid and a move to lower the bar even further by Apple. The result would be obviously less income for the artists and the Apple service would have to generate six times the volume of Spotify for it to generate the same return to the labels and artists. Any service that was paying more than Pandora today should seriously be comparing the streaming volumes and seeking a leveller playing field which in turn could reduce rates others are paying today and the net receipts of the labels.

Apple propose an iRadio services supported by its iAds advertising platform. This could bring in additional revenues to offset the low streaming rate but he music labels want a standard fee and a percentage of ad revenues and are cautious about a greater emphasis on somewhat variable and highly volatile advertising revenues which could evaporate as easily as it appears.

Although all the technology giants are looking at streamed music and no doubt global services, we have to be somewhat cautious, as the likes of Pandora with its 67 million regular listeners isn't exactly generating huge profits today. The service like its competitors is delivering significant growth with 4th quarter revenue up some 54% to $125 million and with mobile revenues accounting for almost 50% on the year and nearly double at $255.9 million. However, whilst the revenue results beat Wall Street forecasts, they remain unprofitable, reporting a net loss of $38.1 million, which is almost double the previous year’s loss.

Despite this uncertain backdrop and with their CEO, Joe Kennedy standing down, Pandora’s share rose some 20%. It is clear that the markets believe in the long term sustainability of streamed subscription and ad based music services and it is also rumoured that Google is now in discussion on its own planned service. 

A Netfix For Children's Books?

Netflix for Children’s books sounds interesting but hasn’t Amazon already put a stake in the ground with their ‘FreeTime’ start-up service?

US start-up Sproutkin, is a new US subscription service for books for children aged between 0 and 3 and 3 and 6. Like a book club it is based regular shipments of up to ten new books to its older members and some two to four books for its younger members. All members pay a monthly subscription of $24.99. It also works with a small educational advisory board to select its books to ensure their selections are relevant and quality. It aims to create many ‘happy sprouts’ or children who it happily posts on their web-site.

It sounds a good option for busy parents with claims of 45% discount on the younger material and 60% for the older material, but is the selection going to appeal to all and although the volume appears logical do the parents that would commit to this service not be the same parents who want to find their own material?

The terms sheet is an exercise itself but one of the opening lines is somewhat confusing, ‘The Company provides a place for purchasing and borrowing children’s educational and entertainment materials delivered physically and electronically.’ Also we loved the catch all, ‘The Company may, in its sole discretion, modify or update this Agreement from time to time, and so you should review this page periodically.’

So what doe sit what to be when it grows up? If the answer is another ‘FreeTime’ it is likely to loose on clarity, width of offer and price.