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.

Never Mind the Ethics - Get Children Reading

Today we are alarmed at the report in The Bookseller that Kobo and Fast food chain McDonald’s are teaming with, Hodder Children’s Books and National Literacy Trust (NLT) to give away ebooks to children when they buy a Happy Meal Box at the fast food chain.

Every Happy Meal box will come with an e-book voucher, which will allow customers to download a Famous Five book by Enid Blyton from Hodder Children’s Books. This new promotion is in addition to the existing one, where boxes contain one of six of Blyton’s Secret Seven stories and a £1 voucher that is redeemable to buy a Secret Seven or Famous Five book at WHSmith or Eason.

The World Health Organization (WHO) regards childhood obesity as one of the most serious global public health challenges for the 21st century. The latest UK National Child Measurement Programme (NCMP) figures, for 2012/13, show that 18.9% of children in Year 6 (aged 10-11) were obese and a further 14.4% were overweight. Of children in Reception (aged 4-5), 9.3% were obese and another 13.0% were overweight. This means almost a third of 10-11 year olds and over a fifth of 4-5 year olds were overweight or obese. Results from the Health Survey for England (HSE), claim that some 28% of children aged 2 to 15 were classed as either overweight or obese. However, it should be noted that imbalanced diet is only one cause of the steep rise in childhood obesity

Early this week we wrote 'Do we continue to have Ketchup on our hands today?' referred to the article on the content of McDonald’s Hamburgers 'Hamburger Chef Jamie Oliver Proves McDonald’s Burgers “Unfit for human consumption”' and questioned the industry’s continual support of promotional the ‘free book’ programmes via McDonalds.

Kobo is probably getting used to controversy.

On a separate ethical note, last month, we raised in our article 'Does Rakuten Deal In Blood eCommerce?' the exposure by the Environmental Investigation Agency (EIA), of Japanese retail giant Rakuten, who own the likes of Play.com and ebook operator Kobo. Their report claims that Rakuten is the world’s biggest online marketplace for elephant ivory and whale meat products. 

On a further separate ethical note, last year Kobo, WHSmith's eBooks partner also had to quickly respond to complaints that pornographic e-book material appeared alongside children’s literature on the W H Smith website. Kobo said this was as a result of “a select group of publishers and authors violating the self-publishing policies of our platform". John Whittingdale, chairman of the Commons Culture, Media and Sport Select Committee at the time, said it was “it is unacceptable that anyone could access this material within a click of a mouse.”

Some may suggest that the apparent lack of an ethical code by some would lead others to question the true price being adopting in getting people reading.

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.

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?

Rakuten Replaces Serbinis at Kobo

All companies and teams only change their leader when they are forced to do so or when the current one isn’t delivering what the owners seek. Only a fool changes a wheel when it isn't broken.

Two years after Kobo was acquired by Japan’s Rakuten they have announced that Kobo CEO Michael Serbinis is stepping down as chief executive of the ebook company. Serbinis will be replaced by Takahito “Taka” Aiki, with immediate effect and Aiki is to relocate to Canada. It is reported that Serbinis will remain with Kobo as the company’s founder and vice chairman.

Until recently Aiki was CEO of the Japanese telecom company and subsidiary of Rakuten, He is reported as bringing, ‘a wealth of experience in building and growing successful projects and companies, and has built his career on achieving ambitious goals and forging strong teams.’ So the obvious question is whether that is what Rakuten did not see in Serbinis? Or is it a planned handover which just happens to happen immediately?

Kobo have been making good progress and have thrust themselves into international markets and sought first mover benefits, but they remain at best number three and a long way behind number one. They claim 18 million users in 190 countries with a digital book library of more than 4 million titles in 68 languages but is that enough? They still have hardware that worked initially but is now subject to fire sale pricing and is looking like a duck out of water. Like Nook they have developed the platform approach but they remain focused on a single media, ebooks, in a multi media world. They have been quietly developing and taking control of their DRM walled garden and moving away from the transaction cost model of Adobe. But you have to ask is it enough for a player the size of Rakuten?

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. 

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.

Should We Condemn DRM to Room 101?

The latest lawsuit to surface in the US has been raised by three independent US book stores and is against Amazon and the major trade publishers. It is done in the name of all independent bookstore and although it would appear little more than a great PR stunt.

At the core of their claim they assert that Amazon has acted with publishers to effectively  create a monopoly in the marketplace and control prices through the use of their proprietary DRM (digital rights management). The logic begs the question as to whether the stores understand the marketplace, technology and also what outcome they are wishing to achieve?

They claim that if a consumer decides to switch to another company's ereading device, they would lose access to any already purchased ebooks. This is a fact no matter which ‘walled garden’ you buy from. Some would suggest that in signalling out Amazon their argument is in fact flawed.

Kobo has its own DRM and ePub render software but also supports ACS4. B&N has ‘passhash’ which it acquired from Fictionwise and can also support ACS4. Apple has Fairplay and the wholesalers in the main have deployed ACS4 and so has Overdrive. Moving from ACS4 to another ACS4 platform is not straightforward. Unless achieved through a cloud approach, moving downloaded files from one device to another often requires patience and a manual! But moving between and walled garden is often if not impossible. This is without the various DRM technologies that can apply to PDFs. The result is that today we have today some five different DRM technologies being used for both ebook  retail and library distribution market. The technologies often demands their own nuances, encrypted licences and even playing in its own environment can be far from user friendly to the novice. Amazon to its credit, has in the main, kept it simple.

We would love to see an end to DRM ebooks full stop but even today see others such as film and broadcasting entities running to try and get it extended to open and important environments such as HTML5.

But let’s wave the magic wand and condemn Amazon’s DRM to ‘Room 101’. What about the DRM environments that remain? ACS4 may be prevalent but is far from user friendly and Adobe has even outsourced its service as it was not capable of managing the payment collections effectively. Do each of the other DRM services also have to go and if not does the same augment and claims fail the test? You either unilaterally remove DRM, or you construct a better argument. This would appear to be as ill conceived as agency pricing and far less robust than that other legal money-spinner the Google Book Settlement.

Let’s envisage a world free of DRM.

Do we honestly believe that the consumers that have bought into the Kindle platform will suddenly say, ‘now I can buy from the local independent so let’s go there!’ Naivety is hard to rationalise with, but the reason consumers like Amazon is not about their DRM. It is about their platform, one click process, thought through download capabilities from literally anywhere, their secondary offers such as Prime, film, games, music, lending and innovations such as FreeTime. All this without the primary offer of next day service on the constantly often best priced physical books. Some would suggest that its not just about ebooks but books and the independents have not seen past the books in print and some the front list, but Amazon offers used, rare and a marketplace for affiliates to compete in.

Then the authors often now recognise that Amazon and their KDP programme offer the only real clean digital self publishing and importantly volume business. The independent bookstores, even put end to end, can’t make offer that today. 

  

Forget the legal claims and potential counter claims and court outcome and assume we suddenly have a DRM free world, much like the MP3 music world that prevails today. Will it make the playing field level? Will independent book store suddenly become digital centres of commerce and a must go to destination to buy ebooks? Are independent book store capable of presenting a compelling digital proposition? The reality is that they sat on their hands too long. Didn't respond to the early messages and often stumbled from one alternative to another and diluted their digital offer to being commissioned based within others walled gardens. Some would suggest that Waterstones are a classic case of a lack of digital strategy and execution and today could be argued are handing over their customers to Amazon. We must also recognise that Apple whose iTunes dominated the music download market before they moved to MP3 still dominate it today post MP3. Independent music stores and even chains are still sitting on their CDs. An MP3 level playing field did little to save HMV.

The other consideration has to be the current digital ‘honesty box.’ Will publishers want open files to be distributed to anyone to sell, or will they demand that distribution is contained and achieved through a limited number of trusted associates? After all you are highly unlikely to hand out open access ebooks to hundreds and thousands of resellers you can’t effectively audit or even monitor. It was a pity that some industry bodies felt it wasn't their business and beyond them to build book community services when, after all , others were only starting themselves. The independents have not collectively or independently invested in their own repositories and distribution environments and are now reliant on third parties such Overdrive, Ingram, Kobo and others. The chains, or B&N, have invested, but have seen that they by themselves struggled to compete and often any success was limited to their home turf. The point is that the independents today can sell through many options, but even if they do, everyone in the chain will want paying and the resultant price may be itself a non-starter with the consumer.

There are basically two parties that add real value the author who creates the initial value and the consumer who puts in the cash. Any market proposition has to recognise this.

We all want book stores to survive and compete. We all want libraries to survive and compete. But the money spent in futile and expensive legal gestures could be invested far better.

The Books That Came In From The Cold

Just published four more ebooks from award winning author Deric Londgen and already selling on Kindle store! So we now have 7 of Deric's book including the award winning BAFTA and EMMY titles that spawned those memorable films 'Lost For Words' staring the late  Dame Thora Hird and Pete Postlewaite and 'wide Eyed and Leggless' or as it was re titled in US 'Diana's Story' staring Julie Walters and Jim Broadbent. 

They join some twelve of Aileen Armitage's romantic historic novels set in and around the Yorkshire town of Huddersfield.



What have we learnt from this small and rewarding exercise so far?

The Kindle platform is where 'the rubber hits the road', both in terms of sales and publishing. Kobo has a better upload process, but sales are tougher.Nook, or Pubit, may now say that they are international, but even today, after they have announced they are to bring Pubit to the UK, they still require a US address and bank account, or want to pay by something called a Cheque and leave you questioning if they do really know their way around outside the US. As for Apple, figuring out their process it just a step to long and its any wonder they get people to bother.

The epub format works best both in presentation and uploading. We tried some PDF files which were a waste of time and native Word when allowed, is native Word! We have one title which we are doing to do some corrections on and demonstrates that proof reading is a must!

The process today is so simple and rewarding it again seriously begs the question why authors aren't demanding their old rights to revert and self publishing their back list titles themselves.

Mr Osborne Stand Up Against Tax Abusers

This week, George Osborne stands in front of the UK parliament and delivers his Autumn Report. As the UK economy continues to ‘flat line’ some will say this is his most important report. It is his opportunity to make a tremendous bold moral statement on tax avoidance that will do much more for UK moral and business than tweeking the odd penny on personal taxes and duty. It will also send a clear message to those who avoid UK tax and play EU registration games, that enough is enough. We may be split over Leverson and the press solution but we are as one on the morals of some of the tax avoidance moves currently in play. We are all going through hard times and tax avoidance is fast becoming immoral and tax abuse.

When Banks and Oil companies have made massive profits in the past, they were subject to potential windfall taxes. These were often one off excess tax demands to level the playing field. So why not apply the same logic to those that have benefited significantly by raising huge revenues in the UK, but  then scurried off to hide behind the skirt of some other EU country in order to avoid paying their fair contribution to the people and country that made their wealth possible.

Luxemburg is now the ebook and digital media capital of Europe. It probably makes very little sales there but also pays relatively little in VAT there. So the larger economies of UK , Germany and France where they actually do business suffer as they have higher VAT rates and no VAT revenues. VAT is applied across the supply chain at the appropriate rate for the goods and services, but in this case it nose dives in Luxemburg. The EU promises to address the issue, but the EU is often full of promises and delayed timelines and also tax standardisation is a minefield within a Federal Europe.

So why not accept the status quo and let Luxemburg keep their 3%,  but introduce an additional annual tax on the difference as a windfall tax? This would apply to all sales and services sold into the UK from companies registered for VAT in other EU countries. In the case of ebooks it would raise excise on 17% of Amazon, Kobo and Barnes and Noble’s UK sales. There may be some countries where the their rate is higher than the UK and the company is based here, but in those cases the UK economy will still raise 20% and it will be up to others what they do.

The message this would send out to Europe may be a difficult one for some to swallow, but it would be good for the UK, UK businesses and may even help apply a brake to some of the crazy ebook discounting that some can afford to do more than others. It will certainly send a message to the EU commission that VAT is a mess.

Corporation tax is more taxing and today we have the likes of Google and Apple hiding in Ireland where they pay some 50% less than they would in the UK. We also have one coffee company flying below the radar in the Isle of Man, but making all their revenues in the UK. We have others such as Starbucks with such complex trading accounts and cross country movements that they appear to make no money and are serving coffee in the UK for nothing!

A straight forward windfall tax should be applied to corporation tax avoiders on the same basis as the VAT top up.

Some will say the UK can’t do it and the EU would block any such taxes. However, the alternative is everyone registering for business elsewhere in exploiting tax differences within a common trading community, which surely goes against the essence of the EU.

Mr Osborne, we must not just sit back and tax the tax payers but step forward and tackle the causes of tax abuse.

Finding Digital Needles In Digital Haystacks

Remember those dark days before ONIX standards, search inside the jacket, or even picture of the jacket?

Contextual data , or as it in know, Metadata, is produced to help consumers find the book, validate it and also to promote it. When the physical bookshelf was the only option, then we relied heavily on the touchie, feely approach and the promotional sell was to the bookshop. After all,'if it isn’t on the shelf you can’t sell it' and bookstores often have finite shelf space at all levels. Then came the internet and it wasn’t so much about getting it on the shelf, but making it visible amongst the hundreds of thousand others. The onus shifted from supplying the retailer with basic information to supplying the consumer with rich information.  Now we are entering a new phase where the book starts to promote itself and it only the consumer that counts.

The new industry metadata standard (ONIX), has helped define the basic metadata and also its adoption across the supply chain. It served the intermediary world well , but is it enough in a consumer only world where titles are effectively on consignment and don’t have to be sold to the retailer? 

Many will argue that standards and agreed data structures are a must and without them books will just be lost in the new virtual space. Others will counter saying that they all too often act as a straight jacket and are still supply chain focused and not consumer orientated. Somewhere in between lies the reality, the challenge and the opportunity.

One of the greatest constraints the standards give us is on genre classification. We appear to have created the standard ‘tree, branch, twig’ hierarchical approach to genre classification. This was great when you had one book and only had one slot in a bookstore to display it, but is it really as relevant in a virtual bookstore with infinite shelf space where the book can sit in literally thousands of relevant slots? Is it relevant when digital content itself can define in which genres it belongs? Is it relevant to the consumer who is constantly finding and redefining genre and can’t wait for the standards bodies to endorse the name? After all, by the time new vocabulary is defined in the authoritative dictionaries, it already has been widely adopted and used.

So we now have a truly ‘mixed’ economy comprising, physical books sold through physical stores, physical books sold through digital stores and digital books sold through digital stores. Should the same construct serve all three channels, or should the physical model act as a loose base, but we adopt more appropriate and consumer facing methods for the digital world?

Amazon Kindle only allows two ‘dry’ classifications and seven keywords, Kobo is more tolerant and PubIt is only just about to finally go international.

Are genres truly hierarchical or now lateral? Are keywords now more important than the headline genre? Do we find ‘books like’ through sales or more sophisticated means? Do we enable keywords to be excluded as well as included? How do we express multiple demographic appeal? How do we rate relevance? How do we rate or harness genuine reviews? How do we use the content itself to define its appeal? Do new books always come before older ones?

We don’t have the answers, but we do realise that today’s cumbersome expressions are frustratingly restrictive and far from being engaging and in some cases relevant. They provide a base in the digital world, but sadly not much else.

Today, finding a new unknown title in these silos, is like finding a digital needle in a giant digital haystack.

It was a Good Week For Amazon and a Bad Week For The Rest

Well it was a good week for Amazon and a disappointing one for the rest. That may sound a bit harsh but what is becoming clear is that even the strong players and pretenders often lack Amazon’s vision, customer focus, market understanding and delivery and in some cases many of these.

So what was so good for Amazon?

First they raised the device bar and ‘Fired’ everyone up for Christmas. New fire tablets, better Kindle ereader and Fire devices coming to UK. The announcements weren’t earth shattering, but well communicated and sufficient to nullify the opposition. It was if they were being innovative, as the reality was that they were just doing the same as their main competitors in the ereader device market and raising their tablet bar in order to compete better with their real competitors in the tablet arena; Apple, Samsung and Google. They also claimed that the original fire had captured 22% of the US tablet market which should be a significant wake up call for all given its basic features.  

The interesting twist was their media focus. They own: Audible, the leading audiobook player, Lovefilm, a leading European on demand film service, ABE the largest rare and second hand book marketplace, Book Depository a significant global book retailer, are a growing publishing force both for established and new authors and of course are the largest global ebook and physical bookseller buy any measure. They now are clearly starting to intertwine these offers, using ‘Prime’ to generate loyalty and with yesterday’s announcements starting to build a differentiator that will be hard for others to follow let alone compete with. Their new announcements on X Ray and their new serial programme are clear indicators of them pushing the boundaries.

Then we have Judge Cote approving the DOJ settlement with three publishers which some would suggest leaves Apple, who can afford to play hardball and the other two publishers who perhaps can’t afford too, looking exposed.

They also announce that they will be taking on 600 more staff in a new depot at Hemel Hempstead, 3,000 temporary staff over Christmas and creating 2,000 new jobs in the UK. All of which was not lost on David Cameron who welcomed the announcement. How to influence people in high places!

To top it all the share rose 2%.

Nokia never seem to learn. Just when some said that their new Lumia 920 smartphone running the new Windows platform may be one to watch they scored a stupid own goal. It appears that the video which was claimed to have been shot using the new phone was fake and created using a higher quality camera. The result, their share dropped a further 6%.

Having announced three new devices you would think Kobo would have had a good week. However, when you step back, the week will belong to Amazon who clearly upstaged the a poorly timed announcement from Kobo. The one thing you don’t do is beat your chest and declare you are a winner when the opposition is about to wipe the smile off your face. Kobo’s offer is now an also ran and like their service they are seen as having a poor competitive offer. Rakuten need to step up their investment and focus on building a real differentiator if they have any hope of competing in the major markets. It is clear that Kobo now have a narrow media offer and devices are not going to make any difference whatever they price them at. They are competing on the wrong thing, but perhaps like other forgotten pretenders such as Sony, that’s all they have got.

Barnes and Noble now know that they left it too late to venture outside of their comfort blanket – the US. They now have got strong established and committed opposition in the UK and that’s before they even spend a dollar trying to build their profile.

Apple are oblivious to bad weeks but even they must be wondering if agency was wise and why they continue to fight the inevitable. They have their own announcements coming up and the iPad nano (remember they said they would never shrink the screen) and a new iPhone are bound to play to the fans delight, but unless they start to get real on pricing there will soon be a serious price gap with the rest. This was easy to defend when they stood out but as the others improve, like with smartphones, people will start to look seriously at others.

However Apple appears to have bitten the hand that feeds it in their zealous patent actions against Samsung. It is claimed that Samsung is withholding memory chips for the initial shipments of the new iPhone because of a disagreement about pricing. Apple obviously doesn’t like to be dependent on Samsung , but there is only so much volume Apple can get from elsewhere. The Korea Economic Daily reported Apple’s exclusion of some Samsung components earlier today.

It’s a sign that we only have 19 weeks to Christmas. The cards are starting to appear in the shops and despite the potential Indian summer we are starting to think about presents.