TAX is Never a Level Playing Field in a Global Economy

All businesses large and small cry for a level playing field, a fair taxation system under which apples can compete with apples and where all contribute the community in which they earn their living. Unfortunately Utopia doesn’t exist and as trading communities spread, global trade increases and an individual consumer can buy direct from anywhere in the world with any business anywhere in the world the issue of tax just gets more complex.

The new digital and technology traders from outside the EU discovered what could be best described as sink holes in corporation taxation and VAT across Europe. Not only were the rates all over the table but many governments were happy to induce companies to set up operations in their own countries with generous allowances and breaks. As new markets such as digital media grew many screamed foul, others tried to imitate and no one actually sorted much out.

Jean-Claude Juncker, the European commission president is now facing increasing pressure as allegations mount which indicate that even he used questionable tactics when he was prime minister of Luxembourg to promote the country as the destination for multinational corporations such as Amazon.

Bob Comfort, the former head of tax for Amazon, has claimed Juncker helped Amazon secured a confidential deal from the local tax office. A deal which is now the subject of a formal investigation by the European commission itself. Since 2003 Luxembourg has become the VAT haven for the likes of Amazon, Kobo, Nook and others all wanting to benefit from their 3% digital VAT rate. Companies could buy digital wares at a VAT inclusive price from higher rated counties such as the UK (20%), sell at 3% and effectively cream off 17%. This was possible due to the VAT being incurred at the point of distribution and registered office.

European commission investigators claim that they believe the Amazon 2003 deal with Luxembourg is so generous as to amount to illegal state aid. Amazon EU Sarl, the company with which customers across much of EU do business when they buy online from the retailer, took €13.6bn (£10.7bn) in sales last year, up from €11.9bn in 2012.

In January The EU is changing the rules such that VAT will be paid at the point of consumption of digital product. This means that the previous VAT benefit is levelled and this should benefit local retailers but many question whether this is the case and whether the EU has made it even harder for smaller traders to compete as they have to now deal with potentially not one but 28 different rates of tax. This also applies to those authors and publishers who sell direct and may be too small in terms of VAT sales to be registered. The VAT threshold below which many small businesses do not have to register for or pay/claim back VAT will be entirely removed for those dealing in digital goods selling into the EU. All companies will be responsible for paying VAT on every digital product they sell, even if they only sell one. Sell one ebook at 99p directly to someone in the EU, fail to report, and you risk of an unlimited fine. To avoid the need to register in up to 28 different EU member states, sellers can opt for the Mini One-Stop Shop (MOSS) alternative: registering in its home jurisdiction only, and submitting only one return and payment.

The question as to whether the VAT change will result is higher ebook prices for many within the higher rated EU countries remains a strong reality. However those selling into businesses and education will remain unaffected. Where the goods supplied consist of physical product which is ‘bundled’ with a product that is accessed digitally, then the place of supply rule changes will only apply to the digital element of the supply if this is seen as a supply or the dominant part of the bundle.

We still have no answer over the drop in France’s ebook VAT rate to 5%, which was deemed illegal by the EU but remains despite protest. France has now been joined by which has lowered the VAT on e-Books from the standard 22% to 4% so it matches the rate imposed on printed books. Malta has also cut its VAT on e-books from 18% to 5%, also so it is in line with print. The rates in France, Luxembourg, Italy and |Malta now are at significant variance to the likes of the UK , Denmark and others. VAT harmonisation across the EU even on one product seems very unlikely and so the muddle will continue.

Corporation, or business tax, which is based on profits made within a trading community also remains in a mess with various different rates being applied in different countries across the EU. This prompts Apple to seek refuge in Ireland and others to channel funds through other countries or create high royalty payments to subsidiaries to offset tax. The UK has declared a “diverted profits tax”, or Google tax, which is aimed at targeting companies who shift profits out of the UK in artificial ways, with a punitive 25% tax rate from April next year. The question of how effective this will be remains as does the question of whether the EU will follow suit. What is clear is that many are demanding tax is paid where sales are made not in safe tax havens.

But change is not just about the EU and the Japanese government is introducing a new Consumption tax on digital good sold to Japanese consumers. This will mean that any digital media sold by vendors whose headquarters are located outside Japan will be subject to the new tax. This will include companies such as Amazon.com and even Kobo Inc., who despite being owned by Japanese retailer Rakuten is registered in Canada.

Nook: The Bride Stuck on the Shelf?

It must be the season when dreamers and some journalists cast their thoughts to opening their presents, sitting around open fires, drinking egg nog, watching sentimental films and potentially losing sight of reality.

Last week the long overdue divorce between Barnes & Noble and Microsoft was made absolute and the ill matched pair were finally put out of their misery. As we looked back over the couple’s short history, it is clear that the marriage was somewhat ill-conceived, and one more of convenience and hope than business logic. On one hand it was reliant on Barnes & Noble stretching itself past the Eastern seaboard and venturing where it had failed to tread before. Although they finally did this, it was too little, too late and done without real conviction and probably more down to the terms of the Microsoft deal than a burning desire to open up business outside the US. On the other hand Microsoft were pitched to be some sort of white knight to take on Amazon and deliver not just the much needed cash but the technology element of the proposition. Unfortunately the technology was not built on their Windows platform but on Android. There wasn’t cracks in the plan but chasms.

So Nook have apparently found yet another suitor in Samsung. Is this third time lucky or just another blind date and on the rebound? They appear to be still quietly beavering away to offload its Nook platform and this time to the media wanttobe. Samsung may have smarter technology and be in a good position to help Barnes & Noble, but does Barnes & Noble offer Samsung anything they can’t or shouldn’t be able do by themselves? Many will point to Barnes & Noble’s huge understanding and knowledge of the trade, others will say that they once claimed to be able to take on Amazon, but that they lost this battle even in their own back yard. Some will say that Barnes & Noble physical business is on the mend and Nook is a brand and service which has much to offer. Nook may be more stable now than those recent times when executives appeared to be leaping off buildings faster than the best trained lemmings.

Nook continues to haemorrhage and in its second quarter, ending November 1^st,  it's revenue fell 41% to $63.9 million, while digital content sales fell 21% to $45.2 million. This contrasted with Barnes & Noble’s retail sales, which fell marginally by 3.6% in the same quarter, which was partly down to store closures, but offset by the 1.9% rise in their college unit.

When we visited the flagship Union Square bookstore a few months ago, we were somewhat taken aback by the real estate given over not to more books but to non book product. It would be very interesting to discover the product revenues and profit by category and one would suspect that books are doing worse than it may appear.

We then read the Street’s article, ‘Wal-Mart Should Buy Barnes & Noble's Struggling NookDivision.’ No we didn’t miss the question mark off the end, they obviously thought that this was a serious proposition. The logic was that WalMart was building up its digital offer so Nook would offer them a quick and cheap leg up. They even believed that Nook had built up a serious and ‘robust’self-publishing digital business.

We also found ourselves in somewhat weird discussions with others who also proposed Barnes & Noble should go further and even consider subletting space within Walmart stores.

The reality often hits home after the Christmas. The merry festive season is replaced with the cold and often dark reality of January. Even the sales can’t often lift that morning after the party feeling. Perhaps it’s time the accountants allowed the Nook to be put out of its misery. Nook has been to the alter more times than many and unfortunately time, even this short time, has not made it any more attractive and the dowry has dropped significantly.

 Related Articles:

So What Does Nook Want to be when it grows up?           Feb 2013

Microsoft Return to e\books via Nook  April 2012

Living in a US Cenric World july 2012

Barnes and Noble, Nook and NEWCO Come to UK    August 2012

Nook , Nook, Please Let Me In    September 2012

Pearson: Is Nook Investment Wise Dot Com?  Dec 1012

Buy, Read and Then Return Your German eBook?

When we look at the Amazon dashboard we are often confused as why, or how, there can be the odd one ebook return. After all you can see everything you need on the screen, make your mind up and even sample the content before you buy, so why is there a refund. The official Amazon policy on returned eBooks is: 'Books you purchase from the Kindle Store are eligible for return and refund if we receive your request within 7 days of the date of purchase. Once a refund is issued, you will no longer have access to the book. To request a refund and return, visit the Manage Your Kindle page. Click the Actions tab for the title you'd like to return, and select "Return for refund"'

Some would suggest it reflects Amazon’s customer-friendly return policy and others that it’s easier for them to do than other services where the horse has literally bolted out the stable door and isn’t coming back. Some go as far as to suggest that it's like going into a restaurant, buying your meal, eating it and then getting your money back.

Barnes and Noble state that 'Once purchased, eBooks cannot be refunded.' and this also is the policy of Sony who state 'Please confirm all purchases before you complete them as all sales are final. There are no refunds for digital content.' Kobo Books doesn't provide information on their refund policy and consider all sales are final and once the services commences, customers cannot cancel the contract or payment. The iTunes Store Terms of Sale, also state that all purchases made on the iTunes Store are final. This policy matches Apple’s refund policies and provides protection for copyrighted materials.

However, we now read in eBook Fieber.de bout a change to German consumer law that potentially gives everyone a no quibble return window of up to 14 days on digital products. These new regulations come into effect in June this year and will require online retailers to offer refunds for ebooks and other digital downloads under an extended “right of withdrawal”.

So you buy the ebook, quickly read it, then return it within 14 days and you get your money back. The question is how will retailers stop abuse especially with respect to services which don’t synchronise activity post download?

Retailers will have the option of trying to get consumers to waive their right to a refund and no doubt the small print may be about to get even longer and smaller.

We had to look twice to ensure it wasn’t April 1st, or a spoof by the German equivalent to The Onion, but it appeared not, so someone in the German legislature must be just having a laugh.

How Do We Compete With Amazon?

The questions over what the industry can do, or not do about Amazon’s dominance, were raised yet again last week. It was first sparked first by Barnes and Noble's declining interest and funding of its Nook venture, then we had Sony shutting up it US store and handing the keys to Kobo as it battles with many greater corporate issues, then came Kobo itself filing objections to a Competition Bureau agreement impelling four of the biggest publishers operating in Canada to renegotiate their contracts with ebook retailers and finally by an article by Jane Friedman in which she raises the new Amazon policy to drop its escalating royalty rate of 50%-90% on ACX titles sold exclusively to a non-escalating 40% and audiobooks distributed non-exclusively to a non-escalating rate of 25%.

The Kobo filing claims that prior to the Canadian adoption of the agency model it had been ‘losing millions of dollars per year” under wholesale terms and also that when, ‘In the U.S., when Agency Lite was brought into existence, Kobo saw its net revenues steadily decline. Kobo has since stopped investing in marketing in the U.S., closed its office in Chicago and is focusing on other markets. Its market share and revenues are now negligible there.’

The result of these announcements was to further fuel the debate on Amazon and its dominance of the marketplace in both ebooks, audio and the huge US market. It would be wrong to believe that they can be beaten on discounts, as the only winner in a discount war is the consumer and the one with the strongest nerve and deepest pockets. Wishing for a white knight may have been feasible ten years ago, but today it isn’t going to happen and no start-up is going to suddenly change that. Apple is tied to its own Appleworld and will never venture out into Android land, Google, well they may have scanned everything that has been printed, but please be careful what you wish for. Amazon has effectively woven itself into the publishing DNA and is not just at the consumer end but right across the value chain.

We have harped on about books being different till the cows have come home, been milked and gone back to pasture. Yes, books are different, but interestingly ebooks aren’t that different and maybe that’s where we often loose the thread. We have now to accept that we don’t live in a book centric world and that the larger media and home entertainment umbrella has several component strands. Books is the baby among several stronger digital sectors and the networks today are the gorillas. 

We are fast becoming the one sector that still is DRM obsessed, sell through orientated and like King Cunute think we can stop the digital tide sweeping over us. Only last week it was widely reported that the majority of books on our shelves are unread and a recent US poll suggests that some 25% of US citizens didn't read a book in 2013. We continue to think ebooks are just books in a digital container and in doing so we kid ourselves, confuse many and potentially miss the opportunities.

Amazon watches, learns, then acts and changes consumer behaviour in ways that many in the book industry have failed to grasp. At a basic level they offer, used books, marketplace, KDP, Goodreads, Book Depository, publishing, audiobooks, self publishing, on-demand and that is without its other media and technology arms. Just think it was just a little old internet shop in 1995, which right up to the turn of the century many predicted it would not survive. This last week they started to roll out their fresh food delivery service in the US and it is widely predicted it will soon come to Europe and some are already trying to protect the giant supermarkets, who ironically, have been often demonised for their destruction of the High Street. 

The Amazon is a huge river that is fed by many large tributaries and supports many ecosystems and is very important to the ecology of the world. Amazon the business is now no different.  

We have to analyse and think differently just punching the biggest kid in the schoolyard is futile and you just get hurt. Amazon’s weakness and its strength maybe is that it acts as a lone wolf. Some would suggest that It often buys to take out the competitive threat, or like with its audio market purchases, sets out to quietly corner the market.

Yes publishers need to develop their own direct business,but apart from the few this isn’t going to be a major channel to market, is only aimed at the consumer end  and some would suggest is too little too late.  Niche players may carve out a healthy living but the minute they get on the radar they are themselves vulnerable.

So where is the answer? It is almost certainly not within the book market by itself. Amazon crosses other media sectors and is competing for a strong position in many but it is a lone wolf. It rarely hunts in packs. It may have a federal approach to those it owns, but it retains a tight strategy grip over them. Perhaps its strength is its weakness? Perhaps a joint ventures that cut across current boundaries and create something that is not easily replicated is the answer. Last week we wrote about Nubico and although that is not necessarily the answer it starts to point in the right direction. People belong to very large subscription bases who all face threats and an everchanging power struggle. Lining up the ducks may appear hard today but if they create something of real value then maybe, just maybe there is an alternative.

Who Would You Buy; Readers Digest, B&N, Nook, Whatsapp?

This last week has seen three company potentially changing hands and although they are all very different in the price offered they are also very different in what they offer their new owners. So which would you buy and how much are they really worth?

Barnes & Noble

G Asset Management LLC has offered to acquire 51% of Barnes & Noble at $22 a share, valuing the bookseller at $1.32 billion. They also proposed to acquire 51% of the Nook e-book division at $5 a share.

The big question is whether the business is worth the valuation and also exactly what they will do with it in order to get their return.

Nook is clearly on the ropes, losing executives in a continual game of musical chairs and only this month declared it will shed engineers on Nook as they continue to haemorrhage business and try to dump their hardware development. Competition from Apple's iPad and Amazon's Kindle continue to dominate the market and with Kobo picking up the international new business and aligning with Kobo what does Nook really have to offer? Barnes and Noble made two fatal ebook errors in not expanding its International reach until it was too late and not creating an attractive and easy to use self-publishing and digital content business.

The retail business remains but is like a giant ship that has built on yesterday’s economic model and is increasingly challenged to tack and change course in what are choppy and dangerous waters.

The news of G Asset Management offer has increased the demand and trading in Barnes & Noble shares which closed still short of the $22 offer price, which would indicate that the market may be sceptical that the deal will go through. Analysts are expecting Barnes and Noble to announce a per-share profit of $0.61 on $2.03 billion in revenue, an 8.8% drop from a year ago. So even splitting the book and Nook businesses may not look that attractive and maybe Microsoft may wish to counter the Nook offer.

Readers Digest

Next comes a relative little publicised sale of Readers Digest for just £1 by Better Capital to a venture capitalist. Readers Digest was once a force to be reckoned with and dominated its marketplace. Better Capital bought the business out of administration for £14m in 2010 adding a further £9m of investment, but despite the title’s administration freeing a £125m black hole in Readers Digest’s pension fund they failed to stave off its collapse into a company voluntary arrangement last January. Now Mike Luckwell who made millions from the TV company behind Bob the Builder has snapped up Reader's Digest UK for £1.

Mr Luckwell wants to take on Saga and focus on the over-50s market and exploiting financial services opportunities who he states are increasingly active and under-served by other media groups.

“Over-50s have a very different life than they did 20 years ago,” Mr Luckwell said. “People over 65 are jumping out of aeroplanes now, it’s a younger type of audience with a ridiculously high proportion of the wealth and only 10pc of advertising.”

He plans to restart the Reader’s Digest product sales business and invest in its online services, even potentially charging for access to its website and couple this with an expansion into financial services. So is the brand recoverable and importantly is the mailing list that is key to its reestablishment sufficiently active to support it? The mail list may be huge but like all lists it ages quickly and becomes harder to mine effectively when the vast majority is postal and you wish to convert them to a digital business. However, managing the list and renting it could be attractive and the brand alone is a steal for £1.

The purchase raises the question why no publisher who had any intentions to offer a direct to consumer offer did not stump up the cash to buy Readers Digest for a £1?

Whatsapp

Facebook announced last Thursday that it would pay $4bn (£2.4bn) in cash and $15bn (£9bn) in Facebook shares as part of the deal to buy the Whatsapp real-time messaging service. The app's founders and employees will get $3bn (£1.8bn) of the shares as four year restricted stock. Facebook previously bought Instagram for $1bn and has a strategy of extending its community offer buy acquistion.

Since the likes of Skype first showed that connecting people for free over the internet could build and deliver huge communities others have taken up the mantle. So does being able to offer even further growth as well as extending the offer make Watsapp a perfect Facebook fit?

It is not that the service is ad free, or has stringent privacy rules, or that it has relatively small in overheads in only having some 50 staff, as all these could change with the wind. What is important is that it has the community, the quality of the service and is easy and free to use. When you plug this into Facebook you have a rich community with multiple ways to effectively communicate and this starts to protect Facebook from others who merely copy and refine their current offer. The younger Facebook generation who may be becoming disillusioned with the site that is now being used by their parents and even grandparents, may be retained by the lure of comprehensive connection by any means under one roof and advertisers just value more connections and a larger community.

We may question the price paid but it is relatively chump change for Facebook to stump up and offers them a quick growth and increased valuation options. There are few who have the cash or the benefits case to compete with such a purchase but it is worth noting that Skype has gone somewhat corporate and dry since it was itself acquired by Microsoft and this has fuelled the likes of Whatsapp. However Facebook doesn’t yet have the same corporate treacle of Microsoft so can probably ingest Whatsapp a lot better.

So which is the best buy and which buyer offers the best investment strategy? All three are very different but all 

Kobo Takes Over Sony's North American eBook Business

Today, two days after Takahito Aiki, took over the reins as CEO of Kobo, he has announced the effective consolidation of the Sony ebook business under Kobo in North America. It is almost certain that this is the final and long overdue retreat of Sony from a market that they expected to win and sadly lost from beginning. It also sends a strong signal to the market that the dominance of Amazon in this sector is real and is giving even those with potential credentials and market presence a hard time.

Sony entered the market some 8 years ago with huge fanfare, fancy ebook readers based on eink and were the early adopter and major driver and influencer on Adobe’s ACS4 DRM service. I remember meeting their senior players once in San Deigo and listening to how they were going to dominate the academic and educational markets. But their offer and market understanding was always someway behind their words. It’s also somewhat ironic that this death knell has occurred at the same time that Adobe has also gone through the PR mangle and has had to retract so publicly on their ACS5 statements.

So we have Sony ready to preinstall Kobo on its smartphones , laptops and other devices and to hand over their customers and business to Rakuten  and its Canadian ebook subsidiary Kobo. It’s also interesting as it comes at a time when devices matter little and the platform is what counts. How smooth the takeover will be for those who backed Sony and bought their devices and ebooks remains to be seen, but transferring encrypted DRM licences is not always as easy as you would expect. All this is without considering how they are going to deal with those Sony BBeb licences.

Some accept that Sony has been facing many challenges across its business and they may still come back, but with many bases to cover this seems highly unlikely.

So we read the usual hype and words on what this means, and how it is going to make the difference, but the reality is that another door is shutting and real consolidation is happening. The obvious next candidate is Nook, which on the face of it would be destined for Microsoft, the discussion on this are already in play as Barnes and Noble grapple with the same issues and facts of life. Now if we just look at the North American market at a potential combination of Nook, Kobo and Sony that would certainly give Apple a challenge and wake them up from their apparent complacency. This sort of consolidation works best in the established and dominant North American market where it can be honed before it goes global.

So what’s the betting on Nook going somewhere soon?

eBook Censorship In A Global Multi-Cultural World?

How do you censor the digital world? Can you censor the digital world? Is it right to even try to censor the digital world?

In the 70s and 80s campaigners such as Mary Whitehouse created movements such as the Student Christian Movement and Moral Re-Armament. She led a crusade to clean-up TV. She founded the National Viewers' and Listeners' Association and was a leading figure in the Nationwide Festival of Light. She did initiate a successful private prosecution against Gay News on the grounds of blasphemous libel, the first such case for more than fifty years. But her often overzealous mission waned, alienated many and public opinion accepted a more liberal approach. Malcolm Muggeridge’s TV attack on ‘The Life of Brian’ Python film and at John Cleese and Michael Palin is another example of the moral posturing of the time.

We now have the question of ebook content and self-publishing and whether a combination of these is promoting and selling pornographic e-books which feature incest, rape and bestiality and the reaction of sites such as Amazon, Kobo, Nook and others?

In a somewhat kneejerk reaction WH Smith took its site down and publicly stated this was with the sole aim of removing all abuse-themed ebooks. WH Smith partners with Kobo in the UK. Kobo meanwhile announced it was, ‘working quickly to review its catalogue and remove the content, authors and publishers in question’. They were also, ‘evaluating new procedures to help ensure that this type of content will not become available... in the future.’

Over the weekend US retailing giant Barnes & Noble said offending titles were in the process of being removed.

The questions are not whether the books are self-published or ‘published’, graphic or textural, but what is acceptable and what is not and how do you police abuse?

Some would suggest that automated programmes can be used to screen offensive titles, metadata and even the content itself, but what is offensive and once you draw a line in the sand how do you later adjust it to match changing public values? What may have been offensive 20 or even 10 years ago may be acceptable today and visa-versa.

Were ‘Lolita’, ‘Lady Chatterley,’ ‘Tropic of Capricorn’ and others acceptable to the moral majority on their release? Is ’50 Shades’ literature or soft porn? When does soft porn become hard? Is the violence portrayed in some video games acceptable or over the top? Are some of the Photographs of the likes of Newton, Mapplethorpe, Akari etc art or pornography? How do you determine whether a picture or video is abusive?

Words are just that and without context in there are meaningless. So do we have contextual search engines that determine what is good and what is evil? Is the answer binary, or are there 50 Shades of pornography? Should all material have a rating? A chiili counter, one chilli denotes with parents guidance and Five chillis, red hot and strictly adults only.

The previous owner of my wife’s business, Bibliophile, was prosecuted under the Obscene Publications Act for bringing into the UK a reprint of ‘The Amorous Illustrations of Thomas Rowlandson.’ The case was thrown out when it was revealed that the originals of many of the pictures were in the Queen’s private library. ‘If it was good enough for her Majesty, surely it was good enough for her subjects?’ was the killer remark.

Some would point to China with its reported millions of internet state watchers aimed at blocking and censoring unwanted material. Others would suggest that some governments are taking the right steps to block sites promoting abusive materials. But the question remains what is abusive and what is not?

The question of self-publishing is frankly a red herring and after all there are significant examples of similar materials that are ‘published.’

Finally, we must all remember that there is always the ultimate censor - ‘off’ button.

So Who Will Pay The eBook VAT on 1st January 2015?

We are all aware that the EU VAT rules will change at the beginning of 2015 and that this will effectively end the offshore tax loophole operations of the ebook operators. This EU rule change will not impact the corporation tax loophole and so we will not see a mass migration from those countries who offer low corporation tax today, but it demonstrates that the EU as a block has the ability when pushed to change the rules.

The EU official statement is available on their taxation and customs site. http://ec.europa.eu/taxation_customs/taxation/vat/traders/e-commerce/

What it mean is that EU operators have to pay VAT at the point of consumption not at the point of dispatch and operations. They also no longer have to any VAT on consumption outside the EU which may be advantageous, but doesn’t not mean that the non EU country will not charge their own tax on digital services. Those supplying from outside the EU will be charged at point of consumption. A long overdue level playing field even though it is some 15 months away.

All operators will now have to amend their systems to operate and levy tax accordingly, which is not in itself a simple task.

This is going to be an interesting change to watch as those with a large customer base in a high VAT country will have to either pass on the hike in tax, absorb it or negotiate tighter supplier costs. We often automatically expect the cost increase to be passed onto the consumer but with digital ebooks this may not be as simple as that. As prices of ebooks continue to fall, we are clearly seeing the emergence of price points and once these start to be accepted by consumers, merely adding say 20% may not be palatable and it could trigger of a further hike in the price wars. Those with deeper pockets may elect to start to force a visible price difference and hurt the margins of others who don’t have the flexibility to part absorb this drop in profit, or the clout to get tighter cost prices.

Far from damaging Amazon this could damage others and in fact strengthen Amazon’s grip on suppliers and appeal to consumers. 

The Untouchables

Globalisation and Technology has introduced a new breed of corporation who ‘see no evil, hear no evil and speak no evil, do no evil’, but sail very close to the wind in their approach to many moral aspects of business.

We have all heard the lengths that they go to avoid tax and ensure that they operate at maximum profit. The list of companies that play the game and operate within the tax laws but with questionable moral,s is not just restricted to the big technology companies we read about. The hall of abdication includes; Google, who have  a preferred lower rate in Ireland than the Irish companies, Amazon, who have the weird situation where they earn more out of government subsidies than they pay in taxes in the UK, Apple whose tax regime is ‘complex’. There are many others, such as the ticket company, The Trailine and UK rail operator, First Great Western, which are hardly international companies, but find it good to be based in Luxemburg.

Then we have the VAT games which apply to those who operate in lower EU tax countries and sell into higher rate countries and gain the obvious windfall VAT as a result. Of course the EU are going to fix this in 2015 but that doesn’t stop 'hay being made while the sun shines' today and traditional businesses suffering a governmental penalty for paying their appropriate tax. Most of the major digital media operators look to use the Luxemburg VAT haven; Amazon, Kobo, Nook. There should be a simple windfall tax levied against this organisations and they should be made to realise that there is a moral conduct of practice even if they can skirt around the legal one. 

All this is without the social network and technology services that are constantly pushing the privacy boundaries and being challenged by authorities and social rights groups when they make changes. Here we often see the old, 'act first and think later’ approach being adopted.

We also have CEOs who sit in front of being questioning and merely state they operate within the law. Its like listening to a suspect being questioned and them merely saying, ‘No Comment’ to every question. Some such as Google’s Schmidt have the bare faced arrogance to claim, that as they employ workers in a country and the workers’ pay tax then that should taken into consideration.

One of the biggest commercial challenges we face is the global corporate's ability to become untouchable. They want to reap the benefits of doing business in one country whilst paying their reduced dues in another. They want to have an unfair advantage over traditional and indigenous business who pay their taxes in the country they do business. They want to offset huge revenues to Intellectual Property companies sitting in some far off tax haven.  

If politicians are to earn the consumer respect they need to tackle this plague of locust before they truly become untouchable. 

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.

So What Does Nook Want To be When It Grows Up?

The news that Barnes & Noble’s losses in its Nook Media division will be higher than the previous year and that revenue projections for 2013 will come in significantly below forecast, raises the question of whether it is positioned to slug it out with the technology giants, expand internationally, or whether at some time soon it will have to exit the device market and focus on its content?

Only last year it secured an attractive partner and cash from Microsoft and later Pearson bought a 5% stake in Nook Media. So is this a blip, or a serious issue?

This dilemma was covered by the New York Times in their article ‘Barnes & Noble Weighs Its E-Reader Investment.’ They questioned whether the losses signalled ‘that the digital approach that Barnes & Noble has been heavily investing in as its future for the last several years has essentially run its course.’

The question is whether a move away from, what after all, was never their core competency or strength - technology engineering, to what is their core strength - trading content, will work with the market, their partners and the consumers?

If we look at the market Nook appear to have the bases covered with their platform and devices and content on offer, but have they?

First, we have said before that neither the Barnes and Noble or the Nook brand is well know outside of the US and their launch into Europe last year was too low profile and far too late. The ebook business is a global business and sitting in the US and expecting instant recognition could prove a fatal error of judgement.  If we were to ask consumers on the main city streets of Europe even today if the knew of Nook or Barnes and Noble, what would be the response? If we asked the same people the same question about Apple and its iPad, Amazon and Kindle and even Samsung and Galaxy the results are almost certain to be very different.

This would not be the same in the US, but although Barnes and Noble have dominated the book market, they have failed to dominate the ebook or device market. Is there any reason to believe that, if they can’t do it at home, they can did it abroad? Being a follower isn’t always good in a rapidly changing and costly market. Barnes and Noble are not technology innovators and also do not have the deep pockets of their competitors. Apple have their own environment which is constantly being fuelled by ‘fans’ and is about a family of strong global brands. They sell, or facilitate the sale of content and apps on the back of a robust end to end technology range. Amazon is the world’s largest online retailer of ‘stuff’ and have created an effective marketplace and service offer. They sell technology and services to effectively ‘lock in’ consumers to their ‘one stop shop’ marketplace. Samsung are like Apple, but are today’s leader of the significant Android pack and have yet to really score on the content side. They are clear leaders and are heavily tracked by a host of technology players. Blackberry and Sony are fast becoming an ‘also rans’. Microsoft have the ability, but often lack the execution. If the Slate would have been a full Windows 8 device and not yet another deviant the story may be different even today.

We must also remember that Barnes and Noble / Microsoft partnership which married an Android based technology Nook platform with a Windows 8 one with its own Slate device running under Windows 8RT. Not exactly a compatible marriage. Imagine feeding those profiles into an online dating agency and expecting to find the love of your life!

At the core of this turmoil is the reality, that even tablets as we know them today may well be transient. As the mobile range of devices continues to converge and more intuitive devices such as glasses and watches emerge to connect to mobile servers and the cloud, do we honestly think the Nook has the legs to compete as it stands today?

Nook Media needs to shift itself fully to cover what it says on the can – media. It is still in a strong position to build a retail, library, education offer that is device agnostic and free of the cost of competing with giants, yet agile and canny enough to licence and brand build a true competitor to Amazon. Consumers increasingly want a seamless one stop trusted shop that covers media.  

Although Kobo now has deeper pockets and is backed by a media giant it faces the same challenges and same opportunities. They do have a better global presence, but do not have the right market awareness and perception today. Consumers recognise that technology isn’t for life but they want to know that their chosen platform will be around for some time.

We hope that Barnes and Noble decide what they want to be when they grow up and effectively communicate it and take some fast and bold steps to set the on that path.

Just Give Me The Right eReader?

Technology doesn't stand still and today’s desirable device soon becomes tomorrow’s yard sale or land fill.

When the first eink readers appeared they were novel, functional and expensive. They promised much and helped kick start the ebook movement. We now take them for granted, but they were always very limited in their scope and monochrome in the offer. We often referred to them as the ‘lookie likie’ devices, which  all offered the same experience, the same technology’, all promised to be the next biggest player, but all looked the same. We soon saw the casualties, as one after another they hit the wall and their technology started to follow eight track and cassettes and became history. Forget the recent claims made by IHS iSuppli of reader decline, what remains today are, the Kindle, Nook and Kobo and are becoming less a desirable present,  but more of an  unwanted one.

The tablet changed many people’s perception of mobile computing and playing media on the move. The iPad became the must have device and although many competitors appeared, few could compete with the Apple offer. However, as with all technology the serious competitors are now muscling in on the market and starting to redefine the tablet from their own perspective and in doing so offer real alternatives. Samsung clearly offer convergence from the smartphone through the tablet, ultra book, laptop to the TV, their pen technology is a clear winner and they continue to grow across all devices.  Microsoft have thrown the hat in the ring with Windows 8 and RT plus Surface. It is questionable whether Surface, as it stands today, will attract enough with its limited offer. However, Windows 8 is the key component and if as expected and by being pre installed and performing, it starts to dominate the ultra book and laptop market, it could strongly influence the smartphone and tablet markets and become a serious third player.

They are wild cards out there and Amazon’s holistic offer and Fire is a serious contender. They may appear to be ‘cheap and cheerful’ tablet, but by locking in purchasing benefits to the devices they will remain a contender. However, it is harder to see Nook and Kobo in the same league and playing catch up may be a step to far and maybe this is where they fall out. Nook and Microsoft could re-emerge, but it is hard to see how that will happen in the short term and today is about short term plays.

The real markets to watch are at either end of the mobile platform not in the middle. The Ultra book offered so much, but was upstaged in yesterday’s beauty contest by the bikini clad iPad. The ultra books were over priced, still wedded to the laptop form and burdened with legacy operating systems. However, we are starting to see real changes here with the emergence of hybrid convertibles – an ultra book with full office and PC strength, which flips into a tablet. The Surface was a perfect form, but unfortunately limited itself to the tablet internals. Samsung and others are close to delivering the answer and when it happens and at the right price then the market will change and business not consumers will drive that change. There are enough players out there to fix the price issue and that need to create the right device to ensure their own survival.

At  the other end of the sandwich we have the smartphone, which is no longer a mobile but a computer in the pocket. The Samsung Note II is a classic forerunner for what must happen next – the convergence of the mini tablet and the smartphone. Apple must have one in prototype and finally drop this nonsensical division between two devices, where the only real difference is the ability to make phone calls! The real challenge is getting that something extra inside the box. Voice appears to be a given and Apple have the lead there, whilst Samsung’s pen is both incredible to use and they have the lead there. We see these being the two contenders today and because they play on all the device platforms, they well positioned and are the clear favourites to succeed in the short term.

However, the other emerging driver is the cloud and the opportunities to de clutter the device of everything but the basics. Those ebook readers that boasted they could store thousands of books are fast becoming dinosaurs living in a forgotten time and saying the wrong message. We are now moving to  an on demand 24 x 7 with access to everything and subscription services replace outright purchases for what is an access licence after all. These change not only how we consume media, interact, purchase services but the devices themselves.

Finally, we have the ‘Ray Hammond’ mobile server that we wrote about earlier this month. The smartglasses are almost here, the intuitive gesture detection is still in the labs, the Bluetooth and wi fi connectivity is here. It’s now more about the packaging and creating consumer demand that will be the challenge.

Sacha Baron-Cohen in accepting his Lifetime Comedy Award this week, did so as his character Ali G. He took a humorous retrospective look at the changes since he last played Ali G some ten years ago, ‘there was no iPhone, no iphone 2, no iphone 3, no iphone 4, no iphone 5 and I wonder what is next?’

Perhaps its time for a step change in 2013?      

PubIt Score An Own Goal?

We welcomed the news, which was well broadcast and received, about Barnes and Noble finally breaking out of the US with PubIt. PubIt is their publishing response to Amazon’s KDP and Kobo’s publishing and self upload service. Until today, or should that be ‘still’, PubIt required all publishers to have a US address and bank account and was very US centric. It basically asked all to submit the same vendor details as if you were supplying physical books, but they are a bookseller so understandable to a point.

We rushed to sign up and load up our ebooks, but our initial enthusiasm soon deflated as we discovered that Barnes and Noble may have put out a press release, but had obviously not told their staff, as the PubIt pages had not changed.

We read today that Barnes & Noble’s CEO William Lynch, has just delivered a somewhat limp  second-quarter financial figures with total revenue down 0.4%, to $1.88 billion, whilst Nook revenue rose only 5.6%, and the losses increased to $51.4 million.We must note that when Amazon claim the kindle is effectively a loss leader, the reduced 18% price that B&N have had to pitch the Nook, is obviously a contributory factor.

Lynch claims that self-published titles and digital magazines and newspapers are among the fastest-growing e-book categories. This makes one question why they could not then get the internationalisation of PubIt  right.

It's also somewhat confusing as to 'who is who' within the Barnes and Noble multi brands, but with the Nook being the brand marketed internationally why do they continue to flog Barnes and Noble, Nook and whatever the Newco is now called to a market that is unaware of all three?

Oops! International PubIt doesn’t fill one with confidence, this may be a goal, but its clearly an own goal. 

Let's hope their game improves.

Three Start-ups That Could Change The Market?

New services are appearing weekly and all offer to either, save publishing, or redefine it within the new digital world. This last week has been no different and has seen three new services gain visibility, drive interest and create a significant volume of debate amongst the industry thinkers, and advisors.

What is now interesting is that services are being launched with outside funding and these are not only different, but are potentially very disruptive in how they challenge the way we do business and interact within the market.

Are objective today is not to decide the winners and losers but to explore some of the challenges and their potential to disrupt tomorrow.

Humble Bundle

Humble Bundle create a package of ebooks from different authors and offer these at a consumer driven price. In other words the consumer chooses how much they want to pay. If they pay more than the average payment they can receive additional ebooks and they also get to choose how their money should be divided. The files themselves are DRM free.

We all remember the famous event when Radiohead did the same consumer driven pricing for their album release, ‘In Rainbows  ‘. Some gave a cent, others paid a responsible sum, others paid a fee aligned to the standard RRP. It caused a stir, gave Radiohead loads of publicity and as a one off promotional exercise and according to who you listened to, worked, or didn’t. 

Humble Bundle are doing the same in other media sectors with their ‘brew’ bundles and now have extended it to ebooks. The collection on offer featured books by the likes of Cory Doctorow, Neil Gaiman, John Scalzi, etc. The titles offered are mainly backlist with the exception of one new Tor title.

Some may be forgiven to thinking that the children had actually taken over the chocolate factory.

The ebook bundle certainly  gives new meaning to the term ‘net receipts’ and raises many questions on rights, other renditions and the model’s sustainability if it were widely adopted.

Cory Doctorow claims combined sales have exceeded $400k. However how many of the bundle have or will be read and what is the percentage that is merely there to pad out the bundle to make it look attractive? Are the receipts spread evenly or do they go to the better known authors and to the detriment of others?

It certainly is a great promotional way to sell backlist, and maybe mix in some front list to add spice. It would also work were there is a clear genre attraction, but is it just another Groupon in the increasingly ‘Voucherclouded’ world? We can only read one book at any point in time and a bundle would suggest a high percentage will be mere shelf fillers to aid a promotion.

When ebooks are being sold at 97% discount, you can’t blame Humble Bundle’s for asking , how much?

Oyster

No it’s not the latest swipe card for London Transport, but a new start up which offers a different sort of a potential ‘pearl’ to publishing.

It is not the first, nor will it be the last start up to offer ebooks under subscription. However, it’s well funded and determined to push the increasingly visible issue of ‘licence versus ownership’ . Oyster claim to be the new ‘Spotify for ebooks’ and we can’t argue that this make sense and is long overdue.

However, just as Spotify have found in changing the music culture, there are many questions  and challenges Oyster now face in its drive to change book culture.

Oyster offer a  ‘much as you can eat’ for a straight monthly subscription. This makes good sense but we are all constrained by time and they are highly unlikely to have the field to themselves.

 The subscription has to offer a true value statement and match or compete with the current high discount offers in the market. This is becoming increasingly difficult as some front sellers are being discounted at ridiculous levels such as 97%. The traditional retailers can easily undermine the Oyster offer by heavy discounting on the leading titles and Oyster’s ability to respond may be somewhat limited.

The next challenge is on range. If Oyster offer the full range, then how will they be seen as different and what compelling reason will the consumer have to tie themselves into a contract as opposed to playing the market? They could ‘twig’ content and feed vertical niches, but as readers are eclectic in their habit, they will fall into the hole the big book clubs did before them. 

They could align with vertical interest groups, but today they have not said this is a route they are planning to take.

Then we have the commercial model and rights whether these sales fall under business as usual, subsidiary sales, or whatever. Asking publishers to revisit contracts can be a big negative and roadblock to getting content. Therefore publishers need to be able to square the subscription model against their existing contracts.

The subscription model is logical in a licenced environment but changing culture is not easy and the digital market has a reputation in being somewhat fickle even if there may be a pearl in the oyster.

Bookshout

Finally we come to what may be the most contentious of the start-ups, Bookshout. The new operation is attempting to aggregate readers ebook libraries, by what some may described as the back door.

A member gives Bookshout their Amazon, Nook and whatever logon details and allows Bookshout  to use these to effectively log on and verify their purchased ebooks. Bookshout then sets up copies of these ebooks on their service, enabling the reader to be effectively device and retailer independent. The new copy is provided by the publisher on the basis that Bookshout has established proof of previous purchase. Bookshout can not only consolidate a reader’s library onto their platform, they can also consolidate reading information and activity information and feed this back to publishers.

Obviously, Bookshout retails ebooks in their own right too.

Questions remain as to what DRM they are using and how what is effectively therefore a fresh licence can square with the like of the lack of a first sale doctrine on media today. The publishers appear happy , BookShout are happy, but how long before Amazon and Nook shut the back door? It somewhat like making a business on stealing someone else’s sale and expecting them to roll over.

Who does the customer have a contract with?

Obviously, their unique proposition is based on the member being willing to give them their personal access credentials and that the publishers accept that they have established proof of purchase of the original licence. Most importantly it is also based on them being able to operate, within what some may say, is a loophole in Amazon’s and Nook’s terms both with publishers and their consumers.

So is Bookshout the reading platform for all? Will it be the place of choice or merely somewhere one goes to aggregate their library? It may depend on how many people have ebooks from both Amazon and Nook which no one today can really answer but is a big question on which to build a business.

The interesting thing is that all three if successful are disruptive, but how do we measure success and is it sustainable or merely a flash of first mover excitement?