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.

Chicken and Egg: Technology and Content?

We often assume that those driving the market and the leading marketplace are the same and would expect to find the US number one in intellectual property, its ownership, creation and consumption. With the exception of the far eastern players, such as Samsung, Sony, LG, etc. the technology drivers and leaders all have strong US origins and bases, but the content , or IP drivers are outside of that marketplace.  

In an interesting blog post ‘Foreign Ownership of Firms in IP-Intensive Industries’ by Jonathan Bland , he highlights how the actual ownership is often outside of the US centric marketplace. His argument that this questions whether US copyright favours these owners ahead of US citizens is interesting but far more interesting is the fact that everyone sees the US as the digital market leader but the content that underpins that marketplace is effectively produced and owned from outside the marketplace where digital is not so prevalent. Bland cites some interesting examples below which he claims demonstrate the ownership of publishing is from outside the US and he lists others such as music, film, games, patents and pharmaceuticals which are similar.

·         Four of the “Big Six” publishers, the largest English language trade publishers, are foreign-owned. More than 80 percent of the global revenue of the Big Six is generated by these foreign-owned companies.  These foreign-owned companies published more than two thirds of the trade books in the U.S.

·         Four of the five largest STM (science, technical and medical)/Professional publishers are foreign-owned.  More than 90 percent of the revenue of the five largest STM/Professional publishers was generated by foreign-owned firms.

·         Only seven of the world’s 50 largest publishers of all categories are U.S.-owned.

·         The book publishing industry in Europe has approximately twice as many employees as in the United States.

·         Of the top ten best-selling fiction authors in any language whose work is still in copyright, five are foreign.  A British author wrote three of the top five best-selling books in the U.S. in 2012.

So is the push by the content and IP or by technology effectively pulling through the content. Is this why there tends to be a huge gulf between what the technologists expect from digital content and what is on the ground today and why the content appears somewhat conservative to the technology advances?

Tomorrow's World, Today

When we look at the big technology spend on R&D in the last financial year we see Samsung spent $10.5bn, Microsoft $9.8bn, Google's $6.8bn, Sony's $4.6bn  and Apple's $3.4bn. A staggering total of some $35.1bn. So the obvious question is what is coming out of the spend and will it change our lives in the near future or is it still some way off making it to the market?

If we look at the current projected innovation we see two potential systemic changes, one that still appears unclear and one that is clearly some way off.

Turning Pages

The Samsung Galaxy S IV is scheduled to be unveiled this month and there are very strong rumours that it will extend the ‘Smart Stay’ feature which detects whether the users is looking at the screen to a new feature that will allow the phone to track the movement of your eyes down the screen and effectively scroll or turn pages without any fingers! This is a significant step when it comes to reading and starts to change the way we read. Imagine no more turning pages and the previous page turner really does become automatic.

This along with the other Samsung technology could start to differentiate it from the pack and given their cross Galaxy approach would make their Note and tablet offers very appealing.

I watch, I record

The Apple Glass project has seen considerable coverage and as it gets closer to the expected launch later this year the noise about it is only going to increase. The glasses are designed, futuristic and comprise a number of parts. They are even reported to come in different colours and there may well be deals pending with major glass designers to make them even ‘cooler’ tp wear.

They aim to lift the users heads from constant distraction of starring at a display to one where the display is closer to the senses and is shared with other activity. The main body of Glass is a soft-touch plastic that houses the processor, battery, and counterweight and then there is a thin metal strip that creates the arc of the glasses, with a set of rather typical pad arms and nose pads which allow the device to rest on your face.

Although it can be controlled by a touch sensor at the side or via defined head movements the Glass responds to and is aimed to be driven by voice commands. It gets its data via either its own Wifi or via a tethered device such as a smartphone and has a GPS chip.

We immediately think of the information benefit of seeing maps, getting directions whilst on the move but probably the most interesting feature will be the ability to take still or moving images as you see them by a single voice command. This obviously raises the question of privacy but also the ability to effectively upload them in real time to services such as Google’s own YouTube or Facebook, Twitter etc.  

Apple on the Wrist

We are less sure of the forthcoming watch with full iOS planned for later this year from Apple.

When we look at Pranav Mistry’s technology and ability to display on any surface we have to ask whether Apple are moving us forward in our interaction with technology or merely giving us designer blig?

We have to await more information but this would appear to be far behind both Samsung and Google in delivering us the future.

Microsoft’s Interactive Whiteboard

Whilst the other focus on the mobile world and making things smaller Microsoft continue to look at the larger canvas.

They are working on ‘SketchInsight’, which aims to redesign who we interact with data and access and present it. They are working on a more intuitive approach, which instead of forcing you to build a presentation in advance correlating the data and prettifying its presentation lets you call up pre loaded data to create interactive charts, maps and diagrams via a touch screen.

Whichever technology changes our interaction with and ability to exploit communications and technology is hard to call today but what is clear is that huge sums are being spent today in trying to invent the future and some will almost certainly succeed.