Amazon.com And You're Done

I remember in the late 90s siting in a strategy board meeting, where one director predicted that Bertlesmann would ‘crush ‘ Amazon and that the company would not last at the level of losses is was making. I tried to explain global branding, customer service, and how retail operations can work on positive cash flow, but I only got a glazed look in return. The outcome is now history.

It is hardly surprising to find that the media that Amazon started with, books, is one that they cover so well. It is the width and depth of Amazon’s book vision and commitment that makes it different. They proved themselves adept in understanding the market’s weaknesses and seizing on opportunities. As a result Amazon is truly vertical.

Who else has a significant if not major share of:

Physical books - Sales over the internet now includes The Book Depository and ABE acquisitions. Amazon remain one of a few who openly sell new books alongside, bargain, second hand and rare. They understand that to a consumer, a book is a book and that bookselling is about selling all books, not just front list.

Ebooks - Amazon not only rekick started the ebook market, but drove the consumer adoption of eink readers and later platforms. Although they still own Mobi, it is somewhat languishing in the background and we are not sure what happened to that other acquisition, Lexcycle’s Stanza reader. They have however created a market leading and global Kindle brand, which now transcends the device itself.

POD – Amazon acquired Booksurge. Although POD never fulfilled its potential to change the model from print and distribute, to distribute and print, Amazon still acquire content through this channel and it has also established their appeal to many authors.

Audiobooks – Amazon has this base covered with market leading and aptly named Audible.

Marketplace – Amazon’s service pulls in retailers, wholesalers and publishers and creates a place where Amazon may not be the cheapest but they still gets a healthy slice of the takings from each sale. A very clever move to create a service which everyone has to be in.

Singles - Amazon Singles may still be a bit lost but could easily find a home in their new Washington Post offer.

Digital Library – The Amazon owner lending library creates a new lending model which offers the consumer a new service and the author additional new income.

This is all without KDP and its successful self-publishing arm and also Amazon’s now serious and potentially disruptive moves into being a publisher. Did we forget that Kindle brand? Did we forget that umbrella subscription service, Prime?

To achieve the above in less than 20 years and do so across the globe is significant. Together it shows a clinical understanding of the value chain, book sectors and its supply chain that has to be admired. Amazon is truly a category killer.

Now add LoveFilm video streaming and DVD rentals, a very healthy CD Rom music retail offer and music downloads, the Washington Post, Amazon’s new Art offer and we see a media conglomerate that has subtly moved in and picked the industry’s ‘low hanging fruit’.

We must not forget all the other Amazon businesses. The range of goods it now sells is diverse and generates significant revenues. Here it services the same consumers through a single marketplace portal, offering a true one stop shop, or ‘Walmart on the internet’.

Then we have the technology that underpins all their services and like their cloud and web services are now being retailed in its own right. 

Amazon is here and is here to stay.

As long as they continue to provide that comprehensive cover, service and one stop shop, they will not be dislodged. Some may want to be number two or three, but it’s like chasing rabbits and their future will be determined more by Amazon’s actions and their ability to merely track them. We now need to learn to survive in an Amazon world. To do so we must innovate and do things differently and smarter and in doing so recognise that only the agile survive a category killer.  

Subscription Is Coming

Subscription business often make good business sense to both the service provider and the consumer. For the service provider it enables them to build a sustainable and predictable revenue stream where the peaks and troughs of fads and the unpredictability of demand is cushioned by the width and depth of offer. They still have to manage down the exposure to churn, but have the opportunity to build customer loyalty and relationship. For the consumer it offers the obvious one stop shop and protection from change in what today is often dynamically changing markets.

Media, technology, software, communications are some of the sectors now either moving towards or heavily entrenched in subscription business models.

Today we have the new battles between BskyB and BT, where the latter threw a new gauntlet down with their ‘free’ new sport channel. BskyB have now responded with unlimited broadband for anyone signing up to its Sky Sports channels. This means that a new Sky customer can now pick up broadband for as little as £5 a month on top of their line rental. It is clear that this cross selling and subsidy offer is just starting and will not just effect these two but everyone else who offers any competing service.

We now have some clear adversaries in the various markets. In music we have Spotify locked with Pandora with Apple and Google trying to muscle in. In films we have Lovefilm vying with Netflix with the battle now spilling over into production and competing with Sky. The world of software which was built on selling perpetual licences is now rapidly repositioning itself to annual licences and is being driven by the likes of Microsoft’s Office 365 and Adobe’s Creative suite. 

But what about books, newsprint and magazines?

Learned and Academic journals have long successfully worked within an institutional subscription model, which is now under a different threat from the open access movement. Newsprint and magazines have had mixed success with subscriptions. Where the material can be sourced from an alternative free feed it has struggled, but where the material is highly valued, authoritative and is a 'must have' subscriptions have had success. 

Some have tried book subscriptions and the many failed book clubs are a warning to many, whilst others such as Oyster believe that subscriptions will work for ebooks. The challenge is that apart from heavy book readers, consumers don’t read enough books to justify subscriptions and those heavy book buyers aren’t the problem. We believe that our new Read Petite venture is different and that short form work is perfectly suited to a subscription model.

It’s interesting that some of the largest technology players are looking hard at subscription businesses. Intel is reported to be looking to create a US cable service that would sell a bundle of television channels to subscribers over the Internet. However the existing players are not for rolling over led by Time Warner Cable and other cable and satellite distributors. The distributors are pressuring the cable channels, with whom they have lucrative long-term contracts, not to sign new contracts, which in turn is threatening to bring in the DOJ antitrust investigators. It is certain that the likes of Apple, Microsoft and Sony are watching from the wings.

What is certain is that cross media consolidation will happen. You will be able to subscribe to a service and receive; broadband, tv, film, music, games, software, mobile and digital reading. Devices won’t matter as everything has to be device agnostic. It is not a case of if, but when and who will dominate the market with offers you can’t refuse. To prepare for this opportunity we have to understand how ‘stuff’ gets licenced and how creators get rewarded. 

We should not simply say ‘no’: we have to instead engage and make it work.

Is The Online, OnDemand, Subscription Model The Way Forward For All?

Netflix launch in the UK at the beginning of 2012 and we thought that they would have a tough time establishing themselves, their brand and competing head to head with Amazon’s Love Film rival. We were wrong! Netflix in its first seven months has acquired 1 million subscribers in the UK. They have created a new business territory that is now worth £72 million and growing in just 7 months! Netflix took 10 months to achieve 1 million subscribers in Latin America and the Caribbean, and 10 months again in Canada. The catchment and infrastructure is different in the UK and Ireland with some 67 million consumers with good access to high-speed Internet services, whereas Canada is smaller population 34 million and Latin America and the Caribbean have 98 million but inferior infrastructure.

Some may say so what and point to LoveFilm’s 2 million customer base is wider and is across not just the UK, but also Germany, Sweden, Denmark and Norway and Sky. However, Netflix plan to launch in Norway, Denmark, Sweden and Finland by the end of the year. But the fact is that Netflix can to the UK and gave a simple message video on demand and as much as you can view for one price. The recent Harris Interactive ‘Screenlife’ report (July 2012) asked smartphone and tablet users to rate the appeal of an online music service on any connected device, with access to  practically any track available today even if you don’t own them, where you pay a monthly subscription of around £5 – 10? They also asked the same about watching as many films or TV programmes from a large library using any connected device, where you pay a monthly subscription of around £5 – 10? The response was significant

Appeal	Extremely	Very	Somewhat	Not Very	Not at all	Not sure
Smartphone
Music	14%	11%	24%	24%	25%	2%
Video	17%	16%	25%	17%	21%	2%
Tablet
Music	28%	17%	18%	16%	21%	1%
Video	32%	19%	19%	12%	17%	1%

Netflix claim that the top UK and Ireland genres are comedy and drama and users’ favourite time to stream is on a Sunday night, according to the service.

So will the same shift to an on demand subscription based service model impact other media markets? It is clear that the the  way we all consume and pay for media is changing radically and moving from, pay to own, to subscribe for on demand. This is no longer about music, film, games, TV,information and books , but about all digital media and how we find it, access it and pay for it.

Today’s book market is tearing itself apart with discounting, ebook pricing tactical games and a lowering of consumer price perception. Will now lead to a Spotify or Netflix for books or a continuation of the devaluation of the content? 

Related articles:

http://bookseller-association.blogspot.co.uk/2012/01/media-on-demand-takes-another-step.html

http://bookseller-association.blogspot.co.uk/2011/01/amazon-take-all-of-lovefilm.html

Media on Demand Takes Another Step Forward

The way we all consume and pay for media is changing radically and moving from, pay to own, to subscribe for on demand. This is no longer about music, film, games, TV,information and books , but about all digital media and how we find it, access it and pay for it.

The film on demand wars just got a lot more interesting in the UK with the news that Movie and TV streaming service Netflix has launched in the UK and Ireland. It is claimed that Netflix has been the single biggest driver of internet traffic in the US and has over 20 million online subscribers in 47 countries.

Online rival and Amazon owned Lovefilm, recently surpassed two million subscribers and both it and Netflix now line up against Sky Movies,Sky Atlantic, Virgin Media, YouTube and retailers such as Tesco’s Blinkbix for the online market.

Netflix has only launched its online service in the UK and in doing so has pledged to break BSkyB's stranglehold on the movie market. The service will allow users to stream film and TV content on devices including tablets, smartphones, games consoles and internet TVs and all priced at just £5.99 a month. Not to be undone Amazon's LoveFilm, has announced a new "streaming-only" tariff at £4.99 a month. Netflix hopes that its personalisation technology and an integration with Facebook, which allows people to share what they are watching with friends on the social network, will also provide it with competitive edge.

Netflix has also announced a number of new TV and film deals with partners that include Channel 4, Disney, ITV, Sony, 20th Century Fox and All3Media. These deals are mainly for the second rights window as opposed to BSkyB’s which has prime rights deals with the six major Hollywood studios which enable it to air films in the first pay window. When Netflix launched in Canada the company had no "pay one" deals.

Netflix has also announce deals with the likes of the BBC, Miramax, Lionsgate, MGM which will give it access to titles such as Pulp Fiction, Kick-Ass, Top Gear and Doctor Who. Lovefilm has agreements with partners including ITV, BBC, Warner Bros, Entertainment One, Sony and Studio Canal for titles that include the Twilight Saga, Tinker, Tailor, Soldier, Spy and The Social Network.

So the UK now has three determined online streaming service providers who are not only going to aggressively compete on price but also on content. We see the growth and demand for Spotifty's music on demand, Wii's expansion to media console and recognise that as media continues to converge, platforms become important and usage migrates to on-demand we ask why many many still see books as different?

Amazon Take All Of LoveFilm

If you already own 42% why not close the door and buy up the remaining 58%? That’s what Amazon effectively have done today in acquiring the remaining 58% in European film rental operator Lovefilm in a deal that is suggested to be around £200m. Amazon originally bought a 42% stake in Lovefilm in 2008.

Lovefilm was formed in 2004 as a film club sending DVDs to customers in the post and has now expanded into streaming digital movies to TVs and PCs and renting video games. It has some 1.6 million members in the UK, Germany, Sweden, Norway and Denmark.

Amazon clearly are eyeing up the wider media space and outside Europe, see US operator NetFlix, with a market capital of around £9.7bn and 16 million subscribers as both a potential threat and opportunity.

Despite having a very strong, stable and growing core business in DVD by post, Lovefilm has stepped up its movie streaming business, declaring that online was now its "primary" business. Equally, Netflix has announced its intention to expand, with Europe and the UK being a natural next step after Netflix Canada. Netflix's movie library is significantly larger than Lovefilm’s but Lovefilm should now be in a stronger position to defend itself against Netfix’s declared international expansion and with Amazon have a global brand and service leader.

This is obviously a good day for Lovefilm but we would suggest it is also a good day for Amazon who would want to have a global offer across all media.