Hear, See and Speak - No Used eBooks?

How do industry bodies and major players respond to new entrants who offer something different? Do they go out to squash them in order to maintain the status quo? Do they attempt to reign them in and restrict their influence and impact? Do they invest in them and work with them to create new channels, new markets and new revenues? Some believe that many stick their head in the dark and wish them to go away?

This last week we have all read the Amazon Press Release over their ongoing battles with Hachette and one of the most relevant statements came right at the beginning in their reflections of the current consumer offer.  

A key objective is lower e-book prices. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there's no printing, no over-printing, no need to forecast, no returns, no lost sales due to out-of-stock, no warehousing costs, no transportation costs, and there is no secondary market -- e-books cannot be resold as used books. E-books can be and should be less expensive.

The somewhat throwaway line that caught our attention was that, ‘there is no secondary market ebooks cannot be resold as used books.’ With the revelations earlier this year about Amazon’s used ebook patent, we know that it has had its eye on this opportunity, but that the first sale doctrine is maybe a battle too far today. But used ebooks are almost certainly to happen and the change will be either driven by consumer demand or other start-ups who are prepared to push the envelope. It took the likes of Waterstones, Dillons and others some three years from starting to discount in 1991, to the collapse of the Net Book Agreement in 1994. It took years of patient lobbying for the B&Q and other large UK retailers to open up Sunday trading. It took years to change UK licencing laws. Things change in time and they change in favour of public demand.

Last month a judge for the District Court of Amsterdam ruled that Dutch used ebook reseller, Tom Kabinet can continue to operate while it is being sued in court by the Dutch Trade Publishers Association. Tom Kabinet enables users to resell DRM free and digital watermarked ebooks.

The Tom Kabinet site takes a 10% commission on all ebooks sold and have offered to pay a 5% royalty on all sales to authors for each ebook sold on their marketplace.

However, Tom Kabinet like the used l digital music service ReDigi are also up against EU legislators and a strong lobby. Although ReDigi is still in operation today, and have been awarded a patent earlier this year for their marketplace platform they have had to adapt their service in light of losing legal battles.

When Napster first threatened the music production business, the industry fought back through the courts and set out to shut down the new file sharers. The propaganda PR and lobby machines were wound up and the sound bites and messages broadcast. The political lobbing started as the industry  set out to shut down the new file sharers before they could establish themselves. The problem was Napster was free and consumers made it go viral.

The music industry won its battle with Napster, but then had others to deal with who had watched the Napster battle and learned new tactics. Although the music business kept winning they also kept losing and by the time they tried to get the Napster brand under their umbrella it was too late and the stable door was wide open.

The music streamers came next. First there was Spiral Frog who failed to deliver, but they were followed by Spotify and Pandora who did. The big music producers had learned some lessons and bought into the service but also tried to tame it and minimise the risk to their model. However they failed to understand that the threat wasn’t free, nor was it sharing, but it was about the whole ownership ethos that they had profited from for decades. The streaming services asked why you needed to buy when you could access on demand, from anywhere at anytime. Spotify with its 24 million users, of which 6 million are subscribers and the other services started to redefined ownership and how we paid for and listened to music.

It’s amazing how long the music industry took to include downloads into its charts and that they have only just opened the door to include streamed music. Today 228 million downloads happen across the various services every week in the UK and that is up from 142 million in 2013 and 67 million in 2012 (Official Charts Company). The maths of how many tracks on average people download a week, is not hard to calculate and is significant. Some 41.5% of singles are streamed and 12% of the current top ten are streamed. The UK alone has delivered a staggering 18.5 billion streams and in 2013 overall market revenues from streaming pasted the $1 billion mark for the first time. Interestingly, while streaming has experienced explosive growth the overall revenues of the global music market have only increased by a mere 4.3% (IFPY and Spotify).

We wonder how long it will be before they fully recognise the impact YouTube has made and that some suggest that more kids now watch their music today than listen to it. Interestingly, the success of streaming is negating the demand for used digital sales and in a market where growth is clearly in a new ownership model enabling secondary sales makes sense and will generate further income for artists.

Change will happen and denying used digital media a second life and sale will increasingly be seen as wrong and an untenable position by the people that matter the consumers. Denying a second income opportunity also impact creators at a time when their own first sale income is increasingly not meeting their expectations and the pool is being shared with even more fish.

Unlike music, ebook consumption is relatively low and prices relatively high and this will reduce some of the appeal of on demand ebook subscription services. The book market will remain a mixed economy for the foreseeable future with physical, digital, see through and subscription offers.  Perhaps it time that publishers work with new stat-ups to create and support a thought through and complimentary used ebook market and not wait for the collapse of the restrictions they have today and the chance that the result may not be favourable. 

eBook Subscription Part 1: Will It Change Publishing?

Many new eBooks services are setting themselves up with claims to be the next Netflix or Spotify. They aim to be the subscription service for eBooks. But are they just dreaming and hoping that there is a market? Are they truly aligned, or are they adrift of consumer demand? The pundits and soothsayers all have their opinions, but does anyone really know, or are they merely playing to their respective audiences? The truth today is that no one knows and a gut feel is just that – a gut feel.

Today we look at the digital subscription marketplace and its potential impact on tradition publishing. Tomorrow, we shall look at some of the many new players, their segmentation and offers. We will finish by offering our thoughts on the potential opportunity, the potential winners and losers.

What we do know is that subscription, on-demand streaming services such as Spotify and Pandora are seriously challenging the traditional music market and raising many questions over creator rewards, the music value chain and business models. The music business’s challenges may have started with the P2P services such as Napster, but today’s streaming subscription cloud based services have the potential to challenge and change from inside the industry in a way Napster never could. The big music production players bought early into the likes of Spotify and are tending to control its impact on their businesses, whilst others outside the tent often remain not so well off. Artist often complain that they hear their music, but often can’t equate it to the reward received. Many of the economics of the music industry are slowly now being questioned by the emerging subscription models and as a result are starting to be rewritten.

Netflix is not alone in introducing change to the film and TV Home Entertainment market and has joined a number of other players who are now reshaping what was once a very predictable market. They are not only challenging the distribution channels, but also the content and its funding and creation. Netflix’s production of ‘House of Cards’, Amazon’s ability to convince the BBC to produce a third series of their ‘Ripper Street’ having previously publicly dropped it and Sky’s exclusive productions are some of the examples in a shift in content creation, funding and power.

Many today still can only see the consumer proposition, but as demonstrated, subscription models start to challenge what is produced, how it’s produced and funded and who is the driver within the value chain.

The reality is that we live within a publishing value chain where there are two constants; the author who creates the initial value and the Consumer who buys, validates and values the end product. All the rest are only there as long as they add, or are perceived to add, value. Anyone who doubts that, need only look at the self-publishing value chain and the amazing position Amazon has been allowed to create, or at the traditional bookseller and how their offer has to now be supplemented in order to compensate for their perceived lack of range and higher pricing.

So what makes subscription models potentially attractive to consumers?

If you consume lots of stuff, then the obvious subscription benefits are around convenience, price and range. This works well with music where folk have spent heavily on replacing vinyl with CD and are now starting to draw breath with MP3 and question a further reinvestment in virtual tracks. People tend to listen to a lot of music, a wider range of music, in lots of locations and in particular on the move and they are aware of the price points and are sensitive to price variation. The new digital tracks are no longer a physical object that you place on a shelf and that say who you are and what you like. You may still display them on a social network, but as more music is digital and even a video track can be streamed for free via YouTube, why do you need to own anything? 

Even though music tracks often are replayed, the vast majority of tracks sit on the virtual shelf forgotten. This may have worked when the album library was both a decorative and taste statement but becomes a wasted investment in a digital buy through environment. The range and diversity of music that is now demanded by many and makes an on-demand model more appealing especially if it is tied to a recommendation engine, reviews and sampling.  

Spotify, Pandora and others have effectively offered music on demand, anywhere, anytime, any device and in doing so have offered both discoverability and convenience at an affordable subscription. This concept changes ownership, rights, valuation and the business model that the relatively new music business has operated within from its conception. iTunes reintroduced the single track, but often at a cost that made little sense to the collector or for people who want to discover new artists and then immerse themselves in their work. 'All you can eat' subscription offers enable the consumer to experiment, take risk and enjoy a wider range of artists than the buy through model. So do the subscription members now listen to more or less music?

Film and TV Home Entertainment is different and here convenience is the real driver as consumers in today’s time hunger environment increasingly want to watch in their time, their chosen place and to break free from the antiquated scheduled slots. Today’s increased bandwidth, mobile technology and network connectivity makes even viewing live video streams a reality. Tying the previously separated subscription services together under one umbrella subscription makes sense as does the shift from the power from the network or device subscription to the content subscription. This can have a disruptive impact on advertising where live audiences are in decline and replay and on-demand audiences are growing. This can even change the funding and pay through models. Home entertainment is just that and producers are having to look at horizontal partnerships as well as cooperative deals to increase the odds of success.

Does the previously well honed staggered release model still work in an environment where the consumer wants it now?

Some would suggest that eBooks have had it easy to date. In the main the industry has merely poured the physical content into the digital container and cried ‘Hey Presto!’ But that could be seen as short-sighted and leaves the door wide open for others to do something different. Subscription models by themselves are different even if they merely offer the same content on a different payment model, but they also have the power to offer more for less. This is especially relevant in a marketplace where readers do not consumer books at the rate they consume other media and often results in a spiky demand profile. Does am easy payment subscription attract only the heavy reader or can it also appeal to those whose reading habit is less predictable? 

Can an eBook subscription offer recreate and feed that book consumption rate that enabled the old book clubs to thrive, or have consumer habits and social trends now changed that? Readers are often very eclectic in their reading habit and need a wide and deep range which is obviously suited to the digital repository but what is the difference between a digital library offer such as Amazon's Lending Library and the public library offers of the likes of Overdrive? Does range matter or is it down to convenience? 

Today's buy through and download model tells us very little about what happens post sale and whether the book was even read or merely languished on the buyer's virtual shelf. Will an elibrary subscription model offer more reading data and if so will it be shared or remain with the retail service provider?

There remains the often thorny issue of what's in it for the author? How will they get rewarded? Can a subscription market offer greater discoverability, reader loyalty and royalty? Will they get paid instantly on each click through, or do they have to wait months in what is a real time world? 

Tomorrow we will look at the emerging subscription players and their segmentation.

Free Music?

The music industry continues to grapple with streaming and new subscription models and is generally shrinking and what is a volatile market. The pirates are still here, but so are a growing number of services whose legitimacy is often hard to determine. Free music and file sharing can be traced back to Napster and those that followed such as Kazaa and The Pirate Bay. Free music is not going away and making sense of where we will end up and balance the market is often hard to determine.  

This week we were introduced to a new Android app ‘Music Download Pro’. It looked and behaved like a music download service allowing extensive search against artists, tracks, albums etc and the results were quickly displayed and were quite impressive. You can then sample a track or download it and the result was quite impressive regarding the speed and quality. It also remembered your downloads in the library, so you can replay them at your will. The challenge we found was that there appears to be no pay slot and the app itself was free, so where’s the money?

Spotify continues to lead the streaming music market and has a sizeable audience across Europe and the US. Its Premium subscription service has a growing following with users willing to pay a monthly fee to receive ‘as much as they can eat’ ad free music. The free ad funded model still works in parallel and they do have a model that everyone can see and which importantly pays royalties.

We now read in Lifestyle that 68.6% of Japanese spend no money on music downloads. We can’t substantiate the validity of the claim, or the basis of the sample surveyed, but the Japanese music market is claimed to have narrowed to the big hitters and ‘X Factory’ clones. The alternative revenues from ringtones, concerts and merchandise do offer new or increased revenues and the market mix is obviously in a state of digital flux, but if consumers reject the pay model – where’s the money?

So where could we be heading?

There will be various revenue models that are based on the artists ability to turn their fans into money. It’s not about selling records but selling stuff to fans. Will artists now make more money from product endorsement of a perfume, car, watch etc and their image, than they make from music royalties? We often assume artist will all make money from concerts and merchandise but does the celebrity factor make a bigger contribution in the future and what does that mean to the music produced? Do we now accept the fabricated stars as musicians or merely as celebrities?

Meanwhile we continue to download music for free via the likes of Music Download Pro and think little of who’s paying for it.

Publishing's 'Napster' Moment is Now!

The Book Business is now experiencing its ‘Napster’ moment. It is not about file sharing and digital distribution, but about an industry facing significant digital disruption. It is a wake up call and although books face similar issues to other media industries, ‘books are different.’ Music had to initially deal with losing control of distribution and the threat of ‘free music’. However, the Book Business now have to deal with changes right across the value chain, the relationships that have supported it, from the author to the reader and even the physical spine that has bound it together for many centuries.

Creative Explosion

We now have at one end of the chain, published authors, whose reward and recognition system is imploding, whilst the number of books available and unpublished authors cambering to be heard, is exploding. Our culture is now moving from watching TV and film, listening to music and reading to one of creating, film, music and stories. The digital world has created a platform which allows anybody to express themselves and a social environment that actively demands it. We are living in a YouTube, Scribd, Wattpad, Flickr, Twitter, Facebook and Wiki world and the genie is going back into the lamp. Some may suggest that the vast majority of what is outside of ‘publishing control’ is not worthy, but others may ask who the best arbiter is.

Our book world today can only digest and develop so much content. The ‘Napster moment’ here, is a case of content creation outstripping the capacity of channel to absorb it. Some may say this has always been the case, but the reality is that the publisher can increasingly be now bypassed and is no longer the ‘gatekeeper’. As the traditional publisher route is being squeezed, authors are now increasingly siezing their new opportunities to be read

Content Demand

At the other end of the chain, we have the consumer, who now lives in a Google and Wikipedia world and expects instant access to everything. We have governments, stating that internet access and broadband connectivity is now a basic right and those without are below the poverty line.

We have a consumer, who increasingly is price sensitive and is being sent mixed messages by the book industry. On one hand, the industry openly wants to control prices of digital and yearn for a return to price maintenance on all books. On the other hand, we have books being devalued through suicidal discounting and grandiose give-aways. The High street retail model is becoming uneconomic but in its attempt to attract customers through discounting, is again sending out mixed pricing messages. The only winner in discount wars is the consumer.

The consumer now wants the widest range and the ability to search, select, value and get books on demand. They don’t want limited range and have always been eclectic in their buying habit.

The ‘Napster moment’ here, is a realisation that consumers can’t be manipulated and now demand ‘my world’. They are informed, eclectic, discerning and they can now find needles in digital haystacks and can virally inform and recommend in ways marketers often can only dream of. It is a case of moving from mass marketing to direct marketing in a market you can’t control.

Commerce is global, consumers are global and publishing has to grapple with how it can break free from the previous territorial shackles, which are meaningless to the consumer in a digital world.

Stuck in the Middle
In the middle of the chain are the intermediaries; the publishers, agents, suppliers, retailers etc. All of these have to add perceived value in order to survive. However they find themselves often treading digital treacle as they try to maintain the existing business and culture whilst trying to adapt to the new digital demands. Publishers who once controlled the channel increasingly find themselves controlling a channel, but the old terrestrial one, whilst the new digital one is fought over by new entrants.

The issues are significant but often basic. How do we apply yesterday’s copyright rules in a digital world that is without even the simplest of a rights registries of who owns what? How do we demand digital pricing control without a net book agreement and control of all pricing? Meantime, how can we standby and turn a blind eye as Rome burns in a fire sale on physical works? How can the existing physical channel be protected whilst it still generates 80% plus of revenue? How does publishing engage with consumers who they don’t know? How can we compete with global brands when the only real publishing brand is the author? How do we maintain and grow the bottom-line in a price sensitive market? How do we compete with new entrants who don’t have the same baggage, often different business models and can adapt quickly and can often even invent the change?

The biggest challenge about being stuck in the middle, is that once was ‘large’ is now ‘small’ and what was once ‘small’, can find itself lost in space, or very niche. Small can be beautiful and has a place, but has often no option to follow folk and avoid being stuck in digital treacle.

Are We Listening To The Music Industry?

We are often asked to look at other media segments and learn from their experience and one that is often quoted is music. We are also often asked to fear ‘free’ and a change to the business models of today. Some would say the mistake the music industry made was waiting too long to provide a business model to support pay for digital and everyone got accustomed to the idea of free. Other would say that it was their inability to understand demand and react. Napster, Kazaa and others merely did what everyone was doing anyway but did it better.

So it is very interesting to watch music today as it grapples with the new Spotify model which is now one year old. Not only are they going to new places with their free model but they are also treading an interesting path with their premium £10 a month model. A premium user can now store more than 3,000 tracks offline, to listen to as and when you want and these are accessible on the move via an iPhone, iPod Touch or Android phone. The equivalent cost of ownership would amount to some £2,3005 or 20 years subscription on Spotify! An added bonus is that you can switch off spotify payments and when you switch them back again you still enjoy the same level of access.

Now Napster is to offer unlimited streaming for £5 per month plus five DRM-free downloads without charge with extra downloads charged at a modest 59p.

Forgetting the current skirmishes between napster and Spotify what is fundamentally changing is the way we collect and consume music. Why buy when you can rent and pay by the frink, or for many on Spotify, pay nothing to use. Spotify's use of "freemium" where you can use the ad-supported version forever and move to premium on demand makes sense for all. The question now is does this model work in other sectors such as books? Well we do have the public library challenge that is still outstanding and offering a similar opportunity. It is easy to see the appeal of a Spotify for books model – after all its all media. So while the industry continues to demonstrate that it can’t make it mind up on ebook pricing, as always, others have the potential do it for us.

Digitisation Is All About The Money

Some 10 years ago an 18-year-old Shawn Fanning released his Napster file-sharing program on the internet and started to destabilise the business models that had supported media over the best part of the last century - a digital revolution that continues today. Fanning turned the computer into a media and entertainment player and created ‘free’. At its peak in February 2001, more than 60 million people worldwide used Napster and in that month downloaded 2.79 billion songs.Putting the cat back in the bag was going to be hard.

Speaking at the Cannes Lions International Advertising Festival, Steve Ballmer, CEO Microsoft, warned that all media companies should not plan for revenues to bounce back to pre-recession levels, that traditional media business would continue to see their share of the advertising revenue move to digital. He stated that newspaper publishers have failed to generate new revenues from the digital opportunity and predicted that within 10 years all traditional content will be digital and online. He claimed that the old approach of simply trying to replicate a print newspaper online is doomed to fail. He failed to say where the money was.

Earlier this year, US Congress made permanent a requirement that all research funded by the National Institutes of Health be openly accessible, and others are following. Academic and scientific publishing is being challenged by online, free and searchable open access. Newspapers face meltdown as they attempt a digital transition and find that their ad revenues have left the room without them. Music is moving from the album and track to live and the musicians are taking back control. Music prices are in ‘free’ fall.

The challenge we face is not digitisation, but the business model or models to support digital media, be it books, films, music, TV, games, podcasts, whatever. We now have to also ask whether we are focusing on the right part of the value chain, or merely trying to prop up the traditional one? Yesterday, all creators, artists, authors were ‘lost’ and needed a publisher or intermediary to shape them and present them to the channel. Publishers understood the packaging and production of the media and also had the relationships to maximise its exposure to the market and its distribution through trusted channels. The consumer, creator and the reseller, all required the intermediary. However , does that translate to the digital world? Will all today’s players make it to the Brave New World, or just as with previous major changes,will some become victims of the change in business models and value?

Who do you think has a place in the future; the author, the agent, the publisher, the wholesaler/distributor, the reseller, the library, or a different player? More importantly, where’s the money and who gets it?