MY BEP EXPERIENCE

This is my third week working in the TV broadcasting industry and the question I keep asking myself is: How disrupted is that business?

I don’t have an answer yet, because I am too busy understanding the status quo of this industry, which is overwhelming for a newbie like me.

The talk is dominated by “audience share”, “gross rating points” ” reach” and “prime time”. The industry seem to work by some very well defined rules around these parameters. It does not take a genius to figure out that technological and social developments will have an impact on how things work in the TV business. I will try my best to figure them out and share them with you over the next couple of month.

In the end this is essentially an advertising driven business and therefore I think a good starting point is to review some social media dynamics. This video  does a great job in putting things into perspective.

More to come, stay tuned
Tobi

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Putting things into perspective:

When I first wrote “The publishers dilemma” my key concern was that publishers are doomed to manage the digital (ebook) business the same way as the traditional physical business. I developed two options that could help publishers to defend their core value proposition within the value chain. Since I published these ideas, news flow around ebooks and publishing increased and some interesting developments emerged. Even though I still support the core of my argument, I would like to revisit my arguments and offer a third option to solve the publishers dilemma.

The container does no longer matter: eBooks are nice but not the end of the story.

The revolution in the publishing industry is not that books become ebooks, but that reading itself becomes digital. This means that you can consume text on virtually any electronic device available, be it a mobile phone, game console, TV, Mac or e-ink reading device. Multi-use devices are increasingly popular and the race for dominance in the consumer electronics market has already begun. As virtually all these devices will have wireless access to the internet, the leading device or electronics manufacturers will develop direct download store-fronts. Without the ability to fill the devices with content, consumer electronics manufacturers will find it difficult to sell these products. From the publishers perspective, this is essentially a good thing, as exclusivity increases the value for content. Hence other than suggested in my initial post, I do believe today that investing into proprietary distribution might result counterproductive. The fact that Nintendo, Sony, Philipps, Apple, Samsung and many others might build content distribution platforms, creates a whole new ecosystem of competing platforms. Competition among these platforms will prevent the dominance of a single one and potentially strengthens the publishers bargaining power.

Here an example of how Nintendo enters the ebook market.

The opportunity of channel complexity: Publisher ought to adopt a service approach.

The new channel reality is far more complex than the old brick and mortar world most publishers were used to. Here however, lies the opportunity to defend the role of the publisher. In a complex world, disintermediation becomes more difficult. Technological know how and close relationships with the leading content platforms must be an asset that publishers have to add to their value proposition. Managing a complex channel, controlling different file formats or monitoring consumption behaviours, streaming or download patterns is an essential service, authors cannot sacrifice. The third option to solve the publishers dilemma is the transformation into a service business, with a strong bias towards technology and analytics.

Media, maybe more than any other sector, has to live with the paradigm of an information and knowledge economy. Our assets used to be printing press and physical distribution. These times have passed. In order to continue to add value to authors, retailers and consumers, publishing has to explore a service approach that takes the new market reality into account .

As always, feel free to comment.
Best, Tobias

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Hi everybody,

today I would like to draw your attention to a really cool widget which was launched by my colleagues from Bertelsmann HR Services North America.
In these turbulent times it is a great sign and indicates Bertelsmann’s ability to be cutting edge in the digital arena. Well done guys!

Miodrag Perin describes the Windows Vista only Gadget: “as a tool that allows anybody, whether they are a job seeker or not, to “connect, learn, and interact with our company”:

The main functions are:

  • Read and apply online to any Bertelsmann company or division Job worldwide
  • Read blog entries, view photos and embedded content
  • Read twitter entries, respond, reply, and retweet
  • Twitter directly from the widget to you twitter account and with the BertelsmannCYOC twitter channel
  • Interact with Bertelsmann in a whole new way

Future version will be available in ADOBE Air and will work on all Operating Systems including MAC.

The New CYOCwidget Windows Gadget can be downloaded at www.cyocwidget.com

If you want to digg the widget, here is the link


I have returned to Europe and currently enjoy a quite time on the beach.

I”ll be back next week with some concluding comments on my experience in the publishing world and a taster of what will keep my mind busy for the end of the year.

Un abrazo desde España,

Tobi

As one of my last official acts for Random House, I participated in the 2009 J.P Morgan Corporate Challenge, held last night in Central Park.
Run_2009

We had a fantastic team and a great run, despite the rain. My time for the 3,5 miles was 24:07 minutes. If you are used to run kilometers instead of miles, the 3.5m may sound like a walk in the park but that is not quite the case, trust me.

Thanks to Random House and my colleagues  for the great organization!

The winning times are here and the official website of the challenge here.

Keep running,

Tobi

As the industry is moving  towards it’s digital future, it becomes more and more evident to me that publishers are in a dilemma.  Recent growth figures of  ebook sales and continuous press coverage on the topic are responsible for the industry’s effort to manage a transition rather than change. A fatal mistake.

In previous posts I repeatedly argued that in the long run book publishers might not be able to defend their place in the value chain. The effects of digitalization (mainly new distribution powers for content creators and eroding prices for digital content) were too harsh and impossible to offset with ordinary restructuring efforts. A new perspective and more importantly, new capabilities were needed to defend the publishers role, I argued.

The dilemma  publishers are in today is that selling ebooks (the way they currently do) might actually be good for them, at least in the short run. The reason for this is that retailers and technology firms are currently battling over the dominance in this new market. In order to win customers, amazon and Sony need content to fill their devices and retail platforms. To do so, they are willing to pay publishers a parity price for ebooks, even though they sell them for less.

This currently favorable situation will lead to the the following. Publishers will manage their digital business the same way they used to manage their physical business. I call this transition management. Nothing really changes here besides the product being a digital file versus a physical book. The whole value chain and the publishers business model is assumed to remain the same.

But digitalization is not about a product moving from its analogue to a digital form. It is a revolution that changes everything. The old business models don’t work the way they used to. Inevitably, publishing needs to think about how it can still inject value somewhere in between the creation of content and its distribution. Not transition but change management is needed.  Acknowledging this is the first step in getting out of the publishers dilemma.

The following model represents my current state of mind on how the much talked about change could look like.

Let’s start again with the commonly known value chain in publishing:

  • authors –> agents –> publishers –> whole-sellers –> retailers –> consumers

In order to be consistent with my previous argument, digitalization empowers the creator and consumer of content, and potentially allows disintermediation. In the end of the day, consumers spend the money that needs to feed all activities along the chain. If the price for the digital good is lower than its physical counterpart ($26 hardcover book vs. $9.99 ebook) it means that all value chain participants earn a lower margin.  In order to maintain margins for all players, the digital content would have to be produced and distributed cheaper (by the amount of the price differential). At least for publishers this is a daunting task and almost impossible as most costs don’t go away (editing, marketing, etc.) in the digital world. The logical consequence is the following:

  • authors –> agents –> publishers –> whole-sellers –> retailers –> consumers

Publishing needs to solve this conundrum for the sake of their survival. I believe there are two ways for to act assuming the other chain participants are not engaging in any reshuffling themselves. The options are not mutually exclusive. Going one path does not mean you cannot go the other one, but I recognize that going in both directions might be a stretch at this point.

Option 1: Backward integration

You can call this option IP Development. Publishers currently don’t fully own the rights of their authors. In some cases not even the right to publish an electronic version of a book. This is a problem, especially if authors learn to distribute their work themselves through digital channels. Other than placing huge bets (rights acquisition and upfront payments to authors) publishers should reach out to authors and have them develop stories (content) that publishers fully own and distribute in the channel of choice.

The competency of the publisher now becomes story development. Similar to film studios and gaming developers, the successful story creation is the product of a process that carries the DNA of the publishers creative capabilities and cannot be easily replicated. A story team would consist of creative people (authors), cross media specialists, technical staff and general managers who overview the process. During the creation phase the team already takes into account the possibility to add, short film, video game, audio or even TV elements to the original format.

The Knight Digital Media Center from the Berkeley Graduate School of Journalism has a great article on multimedia storytelling on their website.  The market for a story becomes significantly bigger and due to the enhanced capabilities of a publisher, authors might be more inclined to stick.  The benefit for  publishers is twofold. Being a true specialist in developing IP for multi channel distribution allows them to fully explore the possibilities of the digital age and at the same time offering the place to be for creative talent. Other than the simple activity of connecting the value chain, the new content creation processes cannot easily be disintermediated.

model2

Option 2: Forward integration

Other than in Option 1, publishers could reach out to the consumer themselves in a direct to consumer effort. Publishers currently give away approximately 50% of the margin to retailers. This is a lot. Considering that the retail price for ebooks steers towards a much lower price point ($9.99) it is hard to imagine how a mutually beneficial relationship between retail and publishing might unfold.

In a digital market, a purchase becomes essentially a download triggered by the click of a button. Great logistics, retail space, service and all the key success factors for traditional retail become less a value driver when it comes to digital downloads. The shopping experience to the consumer nowadays is more driven by context and relevance than availability and assortment. It is about the community, recommendations, exploration of the new and cross media relevance (ability to cross sell parts of a story through different channels, as described in option 1). None of that is currently a strength of traditional book retailers.

No matter how the dominant business model for content business might look like in the future, it appears to me that the Dollars are where the customer is. Being close to the customer isn’t something content creators should give out of hand. Whether we talk about subscription models, advertising based or ‘free’ financed through ancillary businesses, the value of a relationship with the paying customers will outweigh anything else.

Whether you agree or disagree, I think it is important to look beyond the current hype of exploding ebook sales and look into the real impact on the publishing business. I would much rather see us all in managing change than transition.

Happy weekend,

Tobi


My Wednesday night DVD routine (I love Netflix) gave an interesting twist to my thinking about the ebook market and how it might unfold.

So far, I’ve been pointing out in previous posts that we are currently observing a race between amazon, google and Apple to gain critical mass in the ebook market. Maybe I have been wrong about their intentions. With the release of the 3.0. iPhone software update, Apple decided to pursue a new strategy by opening up the way for third parties to develop iPhone applications that allow users to download ebooks from multiple sources. Since the announcement  of the release, I  was wondering why they did it? And why do I think today that this has been a brilliant strategic move?

The answer lies in the movie “A Beautiful Mind”. The movie tells the story of Professor John Forbes Nash and his work in the field of Game Theory. The Nash Equilibrium explains Apple’s move. The basic idea of Professor Nash’s is:

a solution concept of a game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only his or her own strategy unilaterally.

Contrary to a strategy that aims to do what is best for one player, an equilibrium strategy takes into account the outcome for the other players. The equilibrium outcome is what is best for me and the group. If that does not make sense to you, the following dialoge will make it clear.

Nash (in the movie talking to his peers in a bar): If we all go for the blonde and block each other, not a single one of us is going to get her. So then we go for her friends, but they will all give us the cold shoulder because no on likes to be second choice. But what if none of us goes for the blonde? We won’t get in each other’s way and we won’t insult the other girls. It’s the only way to win. It’s the only way we all get laid.

Until yesterday, I thought that google, amazon and Apple were all going for the blond, competing against each other for the individual best outcome. Today, I believe that Apple thinks that the equilibrium outcome is better for them. This outcome allows everybody (publishers and retailers) to win (or to “get laid”).

Here are some reasons why I think this might be the case:

  • The iPhone is a huge success and already used widely as a mobile reading device. (check out the stanza application) It is not clear if “ever” a stand alone device will dominate the ebook market. Why wait if you can earn revenue from multiple content providers through the application store. Even if the iPhone is inferior to whatever Apple is going to launch in the future, a healthy ecosystem around downloadable content through the app. store creates demand and gets people used to the idea. This will fuel demand for future Apple devices. This has great option value to Apple.
  • Apple requires a 30% margin for digital goods sold through the iTunes store. If the retail price for ebooks evolves to be around $9.99 (which I argued it will), the 6.99 that Apple would be prepared to pay to publishers won’t satisfy publishers and would gradually drive them out of business. Giving publishers and retailers the possibility to directly approach customers through applications, preserves the status quo in the value chain. Apple needs quality content to fill their products.
  • Consequently, other than amazon or google, Apple has no interest in disintermediating the editorial process, in order to make the $9.99 work.
  • Apple realized that achieving critical mass on the device site and at the same time on the content site is a high risk strategy, especially as multiple formats and devices are already established.The efforts of three players actively pursuing their best case scenario might cancel out the benefit to the consumer and might slow down the development of the market. This is not in Apple’s interest as digital entertainment content and their hardware and software solutions depend on each other.

From the perspective of the Nash Equilibrium, the individual best outcome would be to totally lock-in the ebook market with control over content and device. Apple decided to move away from this strategy by acknowledging that doing what is best for the group is ultimately best for themselves.

Tobias