Earlier this week I was invited to speak at the London Book Fair Digital Conference. Thanks to Orna O’Brien and the team from Reed for putting on an excellent event . With over 350 executives from the trade publishing, digital retailing and technology space attending, the appetite to learn about digital best practice in the book market remains high.
It was interesting to see the majority of speakers take a binary view of the emerging digital opportunity. The consensus seemed to be that E-Books were going to be an important part of the future, and that Apps (& other digital products) were unproven, and as such were not worthy of significant investment and effort (beyond R&D). I do have concerns about this approach. A focus on building E-Book revenue is understandable given very clear market demand. However failing to grasp the wider opportunity to innovate around product & customer engagement is risky.
By way of example, in lifestyle publishing we should expect new competition from outside the industry who will offer Apps and interactive multimedia experiences which will satisfy customer needs better than traditional products. (e.g think about a travel guide created by a new wave digital developer that recognises your location, makes recommendations, and earns revenues by partnering with local businesses). Publishers that focus their digital efforts on e-books in these categories will be exposed.
In other categories of publishing, there is potential for a new wave of digital products to be created for ‘Superfans’ of authored IP who are hungry for more content linked to their favourite franchises. Publishers can choose to systematically serve this need, or let others benefit from this market opportunity.
Whilst it is true that the commercial case to support investment in these areas remains unproven, a failure to embrace these opportunities risks damaging the future earnings potential of the business. This requires a change in mindset around the management of risk which should be led from the top down.
As a starting point, I would encourage publishers to think harder about how they can deliver new digital products that surprise and delight, and take full advantage of current technology. In the LBF showcase of digital products , a children’s talking book was featured. Similar products have been around since the CD-ROM boom of the mid 90’s, which does beg the question whether some publishers are fully committed to innovation.
My panel session focused on Mobile , and what was in store for publishers. I shared my prediction that there will be a shakeup in the market with power transferring from Mobile Network Operators to the owners of the smartphone operating systems, and digital storefronts. My forecast was the market would consolidate around a limited number of players with Apple, Google and Microsoft being the likely winners in the OS space, and I-Tunes, Android Marketplace and Amazon the likely winners in digital retail. Other players would, in my view, either struggle to reach scale or would focus on serving narrow market segments.
I also talked about the emergence of new $billion businesses which exploited mobile’s unique ability to offer social, local, & personal experiences, and a trend for consumers choosing to own a variety of mobile internet devices (e.g a smartphone for general use, a mobile gaming device for social & multiplayer gaming, and tablets for entertainment and information on the move).
These trends matter to those in publishing and other categories of the media & entertainment market.
The potential consolidation of Operating Systems and digital storefronts means content owners may have less bargaining power in the future. To counter this threat, consideration should be given to seeding & supporting new digital storefronts on open platforms like Android.
The changed device ecology also raises important questions of whether content should be delivered in the cloud for consumption across a variety of devices, or whether effort should be focused on delivering a high quality native experience on the device where the majority of usage is expected (e.g tablets for books and newspapers)
The choices publishers make now (in these and other areas) will have a significant impact on the structure and dynamics of the future market.
The good news is that the book industry is early enough in its digital transition to shape its destiny, but a single minded focus on e-books will not in my view deliver the best outcome.
Thursday 14 April 2011
Friday 11 March 2011
How to survive and prosper from Digital Transition - Planning for pain before enjoying the gain
The transition to digital formats offers a once in a lifetime opportunity for Trade Publishers to re-energise customers, address structural issues with the current industry model, and emerge bigger, stronger and much more profitable. However, a number of publishers will not I am afraid survive long enough to enjoy these benefits. The next 2-3 years will be extremely tough for the industry and will end up with a shakeout of weaker, less digitally savvy players . Operators who are not prepared to make difficult choices now, and whose balance sheets are not strong enough to invest in the digital supply chain will be exposed. Whilst publishers who play their cards well will reap significant rewards. My conviction about how the market will play out is based on experience of digital transitions in the music, tv, games and video markets. The parallels with these industries are real, and it is not too late to learn the lessons.
The next 2-3 years will see trading conditions deteriorate for trade publishers, at a time when it is essential the business invests in its digital future. The temptation to retrench and to postpone digital initiatives should be resisted ( if circumstances allow).
Publishers will contend with a physical book market declining in value. Profits will be eroded by continuing discounting by supermarkets & on-line retailers, the removal of high street capacity (Waterstones recent trading update is the shape of things to come), and the growth of digital consumption.
Unfortunately e-books, enhanced e-books and other digital formats will not in the short term make up for the shortfall. Promotional pricing and a wide selection of free titles will help to educate the market but will impact margins. Sales revenues will take time to realise their potential as Publishers learn how to price and build up understanding of demand elasticities, and storefronts mature and begin to offer more sophisticated merchandising, marketing and retailing capabilities. Costs will also remain relatively high. Current market fragmentation and lack of interoperability between digital storefronts will drive up delivery costs, whilst digital product development cost will be artificially inflated until publishers learn how to reap economies of scale & experience (for example by reusing digital engines).
The choices for Publishers during this testing period will be stark. Either make major Investments in the digital supply chain in a period of declining revenues, with the expectation of a long pay back. Alternatively JV or partner with digital specialists to share the financial risk of digital transition, but risk losing control of your digital destiny. Or make small, piecemeal investments in digital based on current market size, with the risk of being unprepared when the market reaches its inevitable tipping point.
Publishers that make the wrong choices, or who execute their chosen strategy poorly will end up as casualties in an industry shake out. Those who plump for the first option and make significant investments in their digital future but craft the wrong strategy or fail in execution will burn cash, undermine the financial health of the business & be exposed to takeover (unless they have a friendly parent to bail them out). Publishers that take things slowly and play the waiting game will shrink in size by over relying on a weak physical books market, with their best option being to continually cut costs to maximise returns in a declining market. Whilst those that opt to JV & partner with digital specialists, may be protected from the next wave of industry consolidation but will in the longer term end up with a weak digital value proposition for authors. Given the risks involved with every approach, my expectation is alot of businesses will be impacted by the shakeout, and the industry will consolidate around 3 big international publishers with room for a large number of operators to serve niches in the long tail.
Nevertheless publishers that make the right digital investments, have a credible plan to deal with the short term industry issues , and understand how to position themselves in a reshaped market, , will emerge stronger & better able to benefit from a more attractive business fundamentals. My confidence in the long term future is based on three things.
Firstly demand for authored content will, over time, increase materially. The convenience of digital consumption, coupled with improved customer insight & precision targeting that digital platforms will deliver will enable publishers to increase volumes (borne out by the experience of other digital transitions and by recent research conducted by Bain found that 42% of E-Book readers buy more books than before, while only 7% buy less)
Secondly significant new opportunities for creating customer value will emerge. Whether by reimagining children’s, cooking and travel titles as interactive multimedia experiences, or seeding fan communities which connect readers to their favourite authors. Publishers that create exciting new digital propositions will be better able to maintain premium price points and protect against aggressive discounting.
And Thirdly innovation in the packaging and windowing of content, will help to squeeze more value from authored content. New digital windows that complement current hardback and paperback releases, and offer customers something new over and above a standard e-book will help to squeeze more value out of existing IP, and create excitement and noise around digital product launches. Best practice learnings from the movie industry prove the real opportunity around digital windows. However to realise this upside the industry will need to find new ways of working together.
Whilst new packaging models, such as subscription (think book clubs for digital customers) can complement current a la carte pricing, . There is growing body of evidence from the music (e.g. Spotify) & video (e.g. Netflix) space that the subscription model resonates with digital customers, is supported by attractive economics and helps to expand the market.
In summary, digital transition is an opportunity for publishers to develop a new & better business model, based on deeper customer engagement and insight, offering author fans more of what they like and expanding the market by attracting consumers who would not consider themselves book lovers.
To realise the digital pot of gold will be a very long & painful haul. It will require new thinking, new digital skills, and a new era of industry co-operation. Complex rights, technology and workflow issues will need to be aggressively managed. There will be many casualties along the way, but the battle is one well worth fighting.
The next 2-3 years will see trading conditions deteriorate for trade publishers, at a time when it is essential the business invests in its digital future. The temptation to retrench and to postpone digital initiatives should be resisted ( if circumstances allow).
Publishers will contend with a physical book market declining in value. Profits will be eroded by continuing discounting by supermarkets & on-line retailers, the removal of high street capacity (Waterstones recent trading update is the shape of things to come), and the growth of digital consumption.
Unfortunately e-books, enhanced e-books and other digital formats will not in the short term make up for the shortfall. Promotional pricing and a wide selection of free titles will help to educate the market but will impact margins. Sales revenues will take time to realise their potential as Publishers learn how to price and build up understanding of demand elasticities, and storefronts mature and begin to offer more sophisticated merchandising, marketing and retailing capabilities. Costs will also remain relatively high. Current market fragmentation and lack of interoperability between digital storefronts will drive up delivery costs, whilst digital product development cost will be artificially inflated until publishers learn how to reap economies of scale & experience (for example by reusing digital engines).
The choices for Publishers during this testing period will be stark. Either make major Investments in the digital supply chain in a period of declining revenues, with the expectation of a long pay back. Alternatively JV or partner with digital specialists to share the financial risk of digital transition, but risk losing control of your digital destiny. Or make small, piecemeal investments in digital based on current market size, with the risk of being unprepared when the market reaches its inevitable tipping point.
Publishers that make the wrong choices, or who execute their chosen strategy poorly will end up as casualties in an industry shake out. Those who plump for the first option and make significant investments in their digital future but craft the wrong strategy or fail in execution will burn cash, undermine the financial health of the business & be exposed to takeover (unless they have a friendly parent to bail them out). Publishers that take things slowly and play the waiting game will shrink in size by over relying on a weak physical books market, with their best option being to continually cut costs to maximise returns in a declining market. Whilst those that opt to JV & partner with digital specialists, may be protected from the next wave of industry consolidation but will in the longer term end up with a weak digital value proposition for authors. Given the risks involved with every approach, my expectation is alot of businesses will be impacted by the shakeout, and the industry will consolidate around 3 big international publishers with room for a large number of operators to serve niches in the long tail.
Nevertheless publishers that make the right digital investments, have a credible plan to deal with the short term industry issues , and understand how to position themselves in a reshaped market, , will emerge stronger & better able to benefit from a more attractive business fundamentals. My confidence in the long term future is based on three things.
Firstly demand for authored content will, over time, increase materially. The convenience of digital consumption, coupled with improved customer insight & precision targeting that digital platforms will deliver will enable publishers to increase volumes (borne out by the experience of other digital transitions and by recent research conducted by Bain found that 42% of E-Book readers buy more books than before, while only 7% buy less)
Secondly significant new opportunities for creating customer value will emerge. Whether by reimagining children’s, cooking and travel titles as interactive multimedia experiences, or seeding fan communities which connect readers to their favourite authors. Publishers that create exciting new digital propositions will be better able to maintain premium price points and protect against aggressive discounting.
And Thirdly innovation in the packaging and windowing of content, will help to squeeze more value from authored content. New digital windows that complement current hardback and paperback releases, and offer customers something new over and above a standard e-book will help to squeeze more value out of existing IP, and create excitement and noise around digital product launches. Best practice learnings from the movie industry prove the real opportunity around digital windows. However to realise this upside the industry will need to find new ways of working together.
Whilst new packaging models, such as subscription (think book clubs for digital customers) can complement current a la carte pricing, . There is growing body of evidence from the music (e.g. Spotify) & video (e.g. Netflix) space that the subscription model resonates with digital customers, is supported by attractive economics and helps to expand the market.
In summary, digital transition is an opportunity for publishers to develop a new & better business model, based on deeper customer engagement and insight, offering author fans more of what they like and expanding the market by attracting consumers who would not consider themselves book lovers.
To realise the digital pot of gold will be a very long & painful haul. It will require new thinking, new digital skills, and a new era of industry co-operation. Complex rights, technology and workflow issues will need to be aggressively managed. There will be many casualties along the way, but the battle is one well worth fighting.
Friday 18 February 2011
Selling Content in the Digital Age – Why is it so hard, and shouldn’t it be easier ?
Media companies across the spectrum are struggling to find a sustainable model for monetizing digital content. As the transition from analogue to digital formats gathers pace, solving this problem lies at the heart of the strategy and potential survival of organisations across the print, video, music, and home entertainment industries.
Businesses have, since the advent of mass media 100 years ago, packaged products that large numbers of customers have consistently been happy to pay for. The entertainment, knowledge, stimulation, escapism and overall experience that media products have delivered has created utility that audiences both rich and poor have been happy to pay the cost of a cup of coffee or in some cases a simple meal.
However in the past 10 years the landscape has changed dramatically. Whilst the core product and value being offered to digital consumers remains essentially the same , willingness to pay for digital formats has dramatically declined in some parts of the industry (e.g music, newspapers), increased in other categories (e.g pay TV), with the jury still out in sectors early on in their digital transition (e.g book publishing & games).
On the surface this is hard to fathom. Digital products should be commanding higher rather than lower prices across the board, given the potential to increase customer utility via the benefits of increased choice, control, and immediacy. After all, if consumers have demonstrated they are prepared to pay materially more for a cup of coffee over the past decade, why shouldn’t they be paying more for products that are an even more important part of their daily diet ?
How can this be explained ? Well a systematic analysis of what content consumers are willing to pay for on digital formats, and what they are not, reveals some consistent themes.
Firstly on the open internet it is currently incredibly hard to get customers to pay for content. However on closed or Walled Garden digital Platforms, particularly those linked to simple ‘on bill’ payment mechanisms (like mobile and pay TV), it is relatively easy.
Why ?
Walled Gardens (like Kindle, I-Tunes and new players like Microsoft's Zune) promise a consistency of experience (in quality of streaming, speed of download), the support of a trusted aggregator brand, quality customer service, and simplicity both in terms of ease of finding and in paying for content . This experience makes it easy for impulse content purchasing, which is frankly very hard on the open internet. In addition there is growing evidence that consumers will pay for the convenience of mobile access, and the entertainment value of seeing content on the big TV screen that Walled Garden operators can offer (even when the same content is being offered free on the internet).
The open internet cannot currently compete with these benefits. Not only is getting consumers to part with their card details (or to use payment intermediaries like Paypal) a challenge for low value micro transactions , audiences are also in a different mindset on the open internet. So long as there are high quality, free and roughly comparable alternatives a couple of clicks away, most consumers will understandably choose not pay.
This all helps to explain why the vast majority of pay revenues for digital content remains on closed platforms, and this I would contend is likely to continue for some time (or at least until mass adoption of a new micro payments systems like Google’s new ‘One Pass’ , or on-line entertainment retailers like Amazon start to build very large businesses in digital formats).
Secondly many digital products, either by accident or design, do not offer sufficient customer value to command a premium pay price point.
In the newspaper and magazine market, some incumbents have delivered digital products of arguably lower perceived value than their physical equivalents.
Offering consumers the opportunity to cherry pick favourite stories, undermines the value in the bundle of content offered in print. Failing to deliver true portability removes another benefit supporting purchase. Whilst replicating analogue content on-line without delivering the real benefits of digital distribution (such as true personalisation, social & multimedia features, and increased depth and choice), disappoints customers used to enjoying new benefits from going on-line.
Creating compelling digital products is an expensive & highly skilled business (something that has not come easily to incumbent media companies). Not everyone has the stomach for it – particularly when business models are unproven, old media revenues are declining, and legacy cultures are entrenched. However to expect customers to pay without delivering a premium product is misguided.
Thirdly the skill that has been applied to digital packaging has varied enormously in different parts of the media industry. And choosing the right pricing and packaging strategy has a huge impact on the success of digital pay propositions.
The mistakes made in packaging digital content are well documented and include the polar extremes of stymying take up by pricing too aggressively (e.g digital movie downloads priced higher than the cost of a DVD) and giving away content that customers are used to paying for and thus devaluing it forever (e.g the digital editions of some newspapers).
However there is a growing body of smart operators deploying new packaging models which leverage digital’s added value and reflect changing customer behaviours. Whether offering access to content across multiple devices for one guaranteed price (pioneered by Sky and other pay TV platforms), intelligently packaging physical and digital products together (e.g the added value Nook experience available in Barnes and Noble stores ), crafting freemium offers that drive purchase through trial (e.g mobile games offered by publishers like EA), or bundling content with hardware & access (e.g Virgin Media’s bundle of video on demand programming for its pay tv customers, and Vodafone’s bundle of digital music with mobile internet access). Those that experiment with these new models, and build new digital packaging skills to support these efforts, will create the foundations for success.
These insights help to explain why some media companies have prospered whilst others have floundered in transitioning their business to digital, and provide a guide to what digital pay strategies are likely to be successful in the future.
I would recommend that media companies consider the following as they develop their monetisation plans for digital content.
1. Ignore the sirens cry that all digital content must be free – pursuing a strategy that balances advertising with pay revenues hedges risk in a digital world that is dynamic and uncertain.
2. Invest in digital product (and product development talent) to support pay offers & deliver an experience that is not only surprising and delightful but also better quality, more flexible, more personal and social than analogue or physical alternatives (Virgin Media's Tivo box proposition is a nice example).
3. Strengthen relationships with walled garden operators (with a particular emphasis on those reaching large number of customers across multiple platforms) who will to continue to account for the vast majority of pay revenue in the short term.
4. Explore strategic partnerships with ISPs – and other entities with large customer databases, billing relationships, and the potential to package content & access bundles.
5. Use the open internet principally as a free showcase for pay products – ensuring sufficient data is being captured to maximise free to pay conversion rates.
6. Develop packages that enable consumption across multiple devices. And Where appropriate integrate physical and digital products in one offer – to ensure customers are retained during digital transition.
7. Convene cross industry initiatives to deliver new pay propositions (which include a critical mass of popular brands) and aim to reach consensus of what products will remain free.
In summary, I would contend that in the future it should be easier (not harder) to get customers to pay for digital content. Lessons can be learned from the mistakes of the past. So long as media companies apply rigorous thinking & slick execution to their monetisation initiatives, the obstacles to getting consumers to pay for content can be overcome.
The development and marketing of digital media products should be treated no differently from other fast moving consumer goods. If the product has a clear target audience & competitive positioning, delivers benefits that are valued & clearly communicated, & billing is seamless and convenient, then customers will pay.
Google One Pass - Hoping to make micropayments easier on the open internet
Barnes and Noble Nook - offering a value added experience in Barnes and Noble Stores
Virgin Media Tivo box - a nice example of a digital product that reflects changing customer behaviours
Microsoft Zune - One of a number of operators providng that i-tunes isn't the only Walled Garden in town.
Businesses have, since the advent of mass media 100 years ago, packaged products that large numbers of customers have consistently been happy to pay for. The entertainment, knowledge, stimulation, escapism and overall experience that media products have delivered has created utility that audiences both rich and poor have been happy to pay the cost of a cup of coffee or in some cases a simple meal.
However in the past 10 years the landscape has changed dramatically. Whilst the core product and value being offered to digital consumers remains essentially the same , willingness to pay for digital formats has dramatically declined in some parts of the industry (e.g music, newspapers), increased in other categories (e.g pay TV), with the jury still out in sectors early on in their digital transition (e.g book publishing & games).
On the surface this is hard to fathom. Digital products should be commanding higher rather than lower prices across the board, given the potential to increase customer utility via the benefits of increased choice, control, and immediacy. After all, if consumers have demonstrated they are prepared to pay materially more for a cup of coffee over the past decade, why shouldn’t they be paying more for products that are an even more important part of their daily diet ?
How can this be explained ? Well a systematic analysis of what content consumers are willing to pay for on digital formats, and what they are not, reveals some consistent themes.
Firstly on the open internet it is currently incredibly hard to get customers to pay for content. However on closed or Walled Garden digital Platforms, particularly those linked to simple ‘on bill’ payment mechanisms (like mobile and pay TV), it is relatively easy.
Why ?
Walled Gardens (like Kindle, I-Tunes and new players like Microsoft's Zune) promise a consistency of experience (in quality of streaming, speed of download), the support of a trusted aggregator brand, quality customer service, and simplicity both in terms of ease of finding and in paying for content . This experience makes it easy for impulse content purchasing, which is frankly very hard on the open internet. In addition there is growing evidence that consumers will pay for the convenience of mobile access, and the entertainment value of seeing content on the big TV screen that Walled Garden operators can offer (even when the same content is being offered free on the internet).
The open internet cannot currently compete with these benefits. Not only is getting consumers to part with their card details (or to use payment intermediaries like Paypal) a challenge for low value micro transactions , audiences are also in a different mindset on the open internet. So long as there are high quality, free and roughly comparable alternatives a couple of clicks away, most consumers will understandably choose not pay.
This all helps to explain why the vast majority of pay revenues for digital content remains on closed platforms, and this I would contend is likely to continue for some time (or at least until mass adoption of a new micro payments systems like Google’s new ‘One Pass’ , or on-line entertainment retailers like Amazon start to build very large businesses in digital formats).
Secondly many digital products, either by accident or design, do not offer sufficient customer value to command a premium pay price point.
In the newspaper and magazine market, some incumbents have delivered digital products of arguably lower perceived value than their physical equivalents.
Offering consumers the opportunity to cherry pick favourite stories, undermines the value in the bundle of content offered in print. Failing to deliver true portability removes another benefit supporting purchase. Whilst replicating analogue content on-line without delivering the real benefits of digital distribution (such as true personalisation, social & multimedia features, and increased depth and choice), disappoints customers used to enjoying new benefits from going on-line.
Creating compelling digital products is an expensive & highly skilled business (something that has not come easily to incumbent media companies). Not everyone has the stomach for it – particularly when business models are unproven, old media revenues are declining, and legacy cultures are entrenched. However to expect customers to pay without delivering a premium product is misguided.
Thirdly the skill that has been applied to digital packaging has varied enormously in different parts of the media industry. And choosing the right pricing and packaging strategy has a huge impact on the success of digital pay propositions.
The mistakes made in packaging digital content are well documented and include the polar extremes of stymying take up by pricing too aggressively (e.g digital movie downloads priced higher than the cost of a DVD) and giving away content that customers are used to paying for and thus devaluing it forever (e.g the digital editions of some newspapers).
However there is a growing body of smart operators deploying new packaging models which leverage digital’s added value and reflect changing customer behaviours. Whether offering access to content across multiple devices for one guaranteed price (pioneered by Sky and other pay TV platforms), intelligently packaging physical and digital products together (e.g the added value Nook experience available in Barnes and Noble stores ), crafting freemium offers that drive purchase through trial (e.g mobile games offered by publishers like EA), or bundling content with hardware & access (e.g Virgin Media’s bundle of video on demand programming for its pay tv customers, and Vodafone’s bundle of digital music with mobile internet access). Those that experiment with these new models, and build new digital packaging skills to support these efforts, will create the foundations for success.
These insights help to explain why some media companies have prospered whilst others have floundered in transitioning their business to digital, and provide a guide to what digital pay strategies are likely to be successful in the future.
I would recommend that media companies consider the following as they develop their monetisation plans for digital content.
1. Ignore the sirens cry that all digital content must be free – pursuing a strategy that balances advertising with pay revenues hedges risk in a digital world that is dynamic and uncertain.
2. Invest in digital product (and product development talent) to support pay offers & deliver an experience that is not only surprising and delightful but also better quality, more flexible, more personal and social than analogue or physical alternatives (Virgin Media's Tivo box proposition is a nice example).
3. Strengthen relationships with walled garden operators (with a particular emphasis on those reaching large number of customers across multiple platforms) who will to continue to account for the vast majority of pay revenue in the short term.
4. Explore strategic partnerships with ISPs – and other entities with large customer databases, billing relationships, and the potential to package content & access bundles.
5. Use the open internet principally as a free showcase for pay products – ensuring sufficient data is being captured to maximise free to pay conversion rates.
6. Develop packages that enable consumption across multiple devices. And Where appropriate integrate physical and digital products in one offer – to ensure customers are retained during digital transition.
7. Convene cross industry initiatives to deliver new pay propositions (which include a critical mass of popular brands) and aim to reach consensus of what products will remain free.
In summary, I would contend that in the future it should be easier (not harder) to get customers to pay for digital content. Lessons can be learned from the mistakes of the past. So long as media companies apply rigorous thinking & slick execution to their monetisation initiatives, the obstacles to getting consumers to pay for content can be overcome.
The development and marketing of digital media products should be treated no differently from other fast moving consumer goods. If the product has a clear target audience & competitive positioning, delivers benefits that are valued & clearly communicated, & billing is seamless and convenient, then customers will pay.
Google One Pass - Hoping to make micropayments easier on the open internet
Barnes and Noble Nook - offering a value added experience in Barnes and Noble Stores
Virgin Media Tivo box - a nice example of a digital product that reflects changing customer behaviours
Microsoft Zune - One of a number of operators providng that i-tunes isn't the only Walled Garden in town.
Thursday 23 December 2010
Trade Publishing’s Digital Future – An Open Book
A couple of weeks ago I went along to The Futurebook Conference in London organised by trade bible ‘The Bookseller’.
I wanted to get a sense of how much had been learned from other parts of the media industry who have already experienced a digital transition, and how prepared the business was for the challenges and opportunities ahead.
The good news is it seems like book publishers have wised up that major change is imminent, and are beginning to equip themselves with the skills, expertise, and technology to compete in the new digital world.
The bad news is that many publishers have not, I think, fully grasped the scale of the opportunity that digital can offer, and how fast & decisively they need to move to realise it.
In my view, if the book business plays its cards right it could emerge bigger, stronger and far more profitable from the transition to digital formats, in stark contrast to the music and newspaper businesses. However the industry needs to be making some bigger plays in 2011 to shape its digital future.
So why the optimism about the future ?
Firstly digital boosts consumer demand.
The convenience of enjoying content on demand & the opportunity to access vast digital libraries has contributed to more consumption of news, music and TV programming, and will drive more consumption of books (and author led content). This is borne out by E-Reader owners who buy more books, after their device purchase than before (according to a recent study by consultants Bain, 42% of E-reader owners buy more books than before – while only 7% buy less ).
Furthermore the book business is still in a position to translate higher volume into more revenue by learning from the mistakes of the music and newspaper industry in pricing & packaging its content, combatting piracy, and in structuring relationships with key digital distributors.
Secondly it creates opportunities for innovation and added customer value.
Publishers that take a broader view of their business, and see themselves as managers of intellectual property, can make more relevant & valuable products in the digital world.
Whether by reimagining children’s, cooking and travel titles as interactive multimedia experiences, or seeding fan communities which connect readers to their favourite authors, or creating different versions of hit titles purposed specifically for a range of platforms . The publishers that have created exciting new digital customer propositions (like Pearson’s Poptropica) have found their investments can pay off handsomely.
And critically by creating more customer value publishers should be able to maintain premium price points, and protect against aggressive discounting.
Thirdly digital creates the scope for improved profit margins.
If price points can be maintained at a reasonable level then publishers should see margin improvement from digital’s reduced costs of storage & delivery. In addition, there are further significant potential upsides from packaging and windowing content in new ways.
To complement current a la carte pricing, publishers should consider packaging subscription offers which give customers access to recommended titles & the benefits of club membership. Not only are the economics of subscription more attractive, there is a growing body of evidence from the digital music (e.g. Spotfiy) & video (e.g. Netflix) markets that this model resonates with customers.
Publishers should also think about creating a new ‘Digital’ window timed to complement current hardback and paperback release windows, and positioned to offer customers something new over and above a standard e-book. This approach will help to squeeze more value out of existing IP, create excitement and noise around digital product launches, and draws on best practice from the movie industry where digital windows have been rolled out successfully.
However to take advantage of these opportunities the industry needs to take the initiative and act with a more unified voice in a number of key areas to positively shape market development. I really think this should be a priority for 2011.
For example:
A collective view on the timing & product offered in a new Digital window will help digital to become additive rather than competitive to physical products.
Collaboration between publishers on new packaging opportunities like subscription will create a better customer offer, and help this market to take off.
And a partnership between publishers and OEM’s to agree rules around E-publishing DRM, will enable consumers who buy an e-book to enjoy it on all authorised devices removing a key barrier to adoption.
Whilst it is understandable that many publishers remain fearful & anxious about the future, and resistant to making big investment bets, (and this was certainly my takeout from conversations at the Futurebook conference) the lessons learned from the music, video, and newspaper’s industry’s experience are that the waiting game does not pay off.
There are no doubt a large number of very complex rights, pricing, distribution, technology & workflow issues that need to be resolved if publishers are to make a successful digital transition.
However those publishers that systematically deal with these issues AND have the foresight to make considered strategic plays in the next 18 months will be more in control of their digital destiny, and will be better equipped to survive and prosper in a fast changing market.
Those that fail to do this will miss out on a digital boost to their business, and will open the door to a new wave of competitors intent on disrupting the industry.
As a momentous 2010 draws to a close for the book industry where e-books reached a tipping point & publishers caught a glimpse of what the new digital landscape might look like , I predict 2011 will be an even more interesting year where the business moves beyond experimentation to building sustainable & material new digital businesses. I for one, will be looking forward to it with optimism.
Google's E-Books play - addressing interoperability
Poptropica - Already digital business of scale
http://sites2.cantos.com/pearson-digital/player.php?p=2&l=0&w=640&h=512
Chegg.com pioneering subscriptions in the academic text book market
Amazon Singles - A new publishing format for the digital age
Scribd - A social network for book lovers that is starting to break through
I wanted to get a sense of how much had been learned from other parts of the media industry who have already experienced a digital transition, and how prepared the business was for the challenges and opportunities ahead.
The good news is it seems like book publishers have wised up that major change is imminent, and are beginning to equip themselves with the skills, expertise, and technology to compete in the new digital world.
The bad news is that many publishers have not, I think, fully grasped the scale of the opportunity that digital can offer, and how fast & decisively they need to move to realise it.
In my view, if the book business plays its cards right it could emerge bigger, stronger and far more profitable from the transition to digital formats, in stark contrast to the music and newspaper businesses. However the industry needs to be making some bigger plays in 2011 to shape its digital future.
So why the optimism about the future ?
Firstly digital boosts consumer demand.
The convenience of enjoying content on demand & the opportunity to access vast digital libraries has contributed to more consumption of news, music and TV programming, and will drive more consumption of books (and author led content). This is borne out by E-Reader owners who buy more books, after their device purchase than before (according to a recent study by consultants Bain, 42% of E-reader owners buy more books than before – while only 7% buy less ).
Furthermore the book business is still in a position to translate higher volume into more revenue by learning from the mistakes of the music and newspaper industry in pricing & packaging its content, combatting piracy, and in structuring relationships with key digital distributors.
Secondly it creates opportunities for innovation and added customer value.
Publishers that take a broader view of their business, and see themselves as managers of intellectual property, can make more relevant & valuable products in the digital world.
Whether by reimagining children’s, cooking and travel titles as interactive multimedia experiences, or seeding fan communities which connect readers to their favourite authors, or creating different versions of hit titles purposed specifically for a range of platforms . The publishers that have created exciting new digital customer propositions (like Pearson’s Poptropica) have found their investments can pay off handsomely.
And critically by creating more customer value publishers should be able to maintain premium price points, and protect against aggressive discounting.
Thirdly digital creates the scope for improved profit margins.
If price points can be maintained at a reasonable level then publishers should see margin improvement from digital’s reduced costs of storage & delivery. In addition, there are further significant potential upsides from packaging and windowing content in new ways.
To complement current a la carte pricing, publishers should consider packaging subscription offers which give customers access to recommended titles & the benefits of club membership. Not only are the economics of subscription more attractive, there is a growing body of evidence from the digital music (e.g. Spotfiy) & video (e.g. Netflix) markets that this model resonates with customers.
Publishers should also think about creating a new ‘Digital’ window timed to complement current hardback and paperback release windows, and positioned to offer customers something new over and above a standard e-book. This approach will help to squeeze more value out of existing IP, create excitement and noise around digital product launches, and draws on best practice from the movie industry where digital windows have been rolled out successfully.
However to take advantage of these opportunities the industry needs to take the initiative and act with a more unified voice in a number of key areas to positively shape market development. I really think this should be a priority for 2011.
For example:
A collective view on the timing & product offered in a new Digital window will help digital to become additive rather than competitive to physical products.
Collaboration between publishers on new packaging opportunities like subscription will create a better customer offer, and help this market to take off.
And a partnership between publishers and OEM’s to agree rules around E-publishing DRM, will enable consumers who buy an e-book to enjoy it on all authorised devices removing a key barrier to adoption.
Whilst it is understandable that many publishers remain fearful & anxious about the future, and resistant to making big investment bets, (and this was certainly my takeout from conversations at the Futurebook conference) the lessons learned from the music, video, and newspaper’s industry’s experience are that the waiting game does not pay off.
There are no doubt a large number of very complex rights, pricing, distribution, technology & workflow issues that need to be resolved if publishers are to make a successful digital transition.
However those publishers that systematically deal with these issues AND have the foresight to make considered strategic plays in the next 18 months will be more in control of their digital destiny, and will be better equipped to survive and prosper in a fast changing market.
Those that fail to do this will miss out on a digital boost to their business, and will open the door to a new wave of competitors intent on disrupting the industry.
As a momentous 2010 draws to a close for the book industry where e-books reached a tipping point & publishers caught a glimpse of what the new digital landscape might look like , I predict 2011 will be an even more interesting year where the business moves beyond experimentation to building sustainable & material new digital businesses. I for one, will be looking forward to it with optimism.
Google's E-Books play - addressing interoperability
Poptropica - Already digital business of scale
http://sites2.cantos.com/pearson-digital/player.php?p=2&l=0&w=640&h=512
Chegg.com pioneering subscriptions in the academic text book market
Amazon Singles - A new publishing format for the digital age
Scribd - A social network for book lovers that is starting to break through
Monday 15 November 2010
Cutting the Cord- Are pay tv customers really unhappy ?
Last month I went along to a thought provoking panel discussion on Connected tv hosted by the Mashup events team. It got me thinking about whether the arrival of new over the top (ott) tv services will signal a big upheaval in the TV market.
Three things are clear and I think beyond argument.
Firstly a number of well known internet, technology, software and consumer electronics companies with no previous form in developing TV services (including Google, Yahoo, Apple, Boxee, and Samsung amongst others) are betting they can deliver a step change improvement in the way viewers experience tv content, and incentivise viewers to switch or upgrade to their service. The strength of this belief is underpinned by very significant investments being made in new connected TV products.
Secondly, the current user interface and customer experience of TV is outmoded. We now live in a world where consumers enjoy precision search on the web, get viewing and listening recommendations from their friends on Facebook, and share playlists on sites like last.fm. Based on customer behaviours on the internet there is appetite for change.
Thirdly there is some limited evidence that a small number of early adopters in the US are willing to cancel their cable subscriptions in favour of access to an alternative, cheaper connected tv service. (The phenomena known as ‘Cutting the Cord’)
However the $64 billion question is whether this behaviour is likely to be extended to the mass market.
The answer will be determined by whether there really is a fundamental customer need that is not currently being satisfied, the ability of new competitors to deliver against this need in both content and customer experience, and the response of pay tv incumbents.
The proponents of the cutting the cord theory argue that pay tv does not deliver a great customer experience as some customers pay for programming / channels they don’t watch, other customers pay twice for the same content (e.g movie lovers who pay for a subscription to a film channel aswell as a DVD rental club), and currently there is no means of enjoying the best & most popular internet video content on the TV.
However the reality is that viewers seem to like to pay for packages that promise choice even if they don’t always take advantage of it (and there is plenty of evidence that they prefer subscriptions to channel bundles rather than a la carte offerings).
And internet video packaged for the TV (such as Vevo’s comprehensive catalogue of music videos) whilst very popular is not pay content, and is not likely to provide a compelling incentive to switch out of a pay offering.
Critically all this assumes that the new players will be able secure an attractive programming line up. This is easier said than done, given the top programming brands rely on income incumbent pay TV platforms for survival and are likely to be cautious about licensing rights to unproven competitors.
So in summary, it doesn’t feel like there is a fundamental need for premium programming that is not being met.
However there is an appetite for an improved user interface & customer experience of programming, and my feeling is that this will be a key battle ground of the future. This is borne out by the experience of the smartphone market. Apple’s IPhone showed that innovation in presentation of services, rather than innovation in the mix of service is a key to success.
Incumbents understand this and are stepping up to the plate with upgraded products. Sky’s recent announcement of 'Sky Anytime + for TV' and Liberty Global’s forthcoming launch of the 'Horizon Gateway' provide an indication of the improvements customers will see which will over time include improved search and social features aswell as much more on demand programming.
See http://paidcontent.co.uk/article/419-on-cusp-of-web-tv-revolution-sky-soft-launches-a-conventional-vod-servi/, and http://www.siliconrepublic.com/video/v/407-liberty-globals-
Time will tell whether services offered by new players will trump this. Early releases from Google and Yahoo do look like they offer a fundamentally new and better customer experience, and with this in mind some incumbent operators may choose to partner with the new kids on the block (and take advantage of the new commercial opportunities they offer such as addressable advertising) rather than risk being left with an uncompetitive product.
So whilst there is currently no compelling evidence that ‘cutting the cord’ is going to be a mass market phenomena, established operators will need to be vigilant. We are entering a new era in TV where viewers will expect a much better, more personalised experience. Those that can meet these new expectations will prosper and see off the competitive threat. Those that don’t (and don’t invest) will be exposed in a market that will see plenty of change.
As the CEO of US operator Verizon Ivan Sedienberg recently said ‘"We take the over the top issue with video very seriously," he said. "I think cable has some life left in its model...but that it is going to get disintermediated over the next several years."
SOME EXAMPLES OF THE PROLIFERATION OF NEW CONNECTED TV SERVICES
Three things are clear and I think beyond argument.
Firstly a number of well known internet, technology, software and consumer electronics companies with no previous form in developing TV services (including Google, Yahoo, Apple, Boxee, and Samsung amongst others) are betting they can deliver a step change improvement in the way viewers experience tv content, and incentivise viewers to switch or upgrade to their service. The strength of this belief is underpinned by very significant investments being made in new connected TV products.
Secondly, the current user interface and customer experience of TV is outmoded. We now live in a world where consumers enjoy precision search on the web, get viewing and listening recommendations from their friends on Facebook, and share playlists on sites like last.fm. Based on customer behaviours on the internet there is appetite for change.
Thirdly there is some limited evidence that a small number of early adopters in the US are willing to cancel their cable subscriptions in favour of access to an alternative, cheaper connected tv service. (The phenomena known as ‘Cutting the Cord’)
However the $64 billion question is whether this behaviour is likely to be extended to the mass market.
The answer will be determined by whether there really is a fundamental customer need that is not currently being satisfied, the ability of new competitors to deliver against this need in both content and customer experience, and the response of pay tv incumbents.
The proponents of the cutting the cord theory argue that pay tv does not deliver a great customer experience as some customers pay for programming / channels they don’t watch, other customers pay twice for the same content (e.g movie lovers who pay for a subscription to a film channel aswell as a DVD rental club), and currently there is no means of enjoying the best & most popular internet video content on the TV.
However the reality is that viewers seem to like to pay for packages that promise choice even if they don’t always take advantage of it (and there is plenty of evidence that they prefer subscriptions to channel bundles rather than a la carte offerings).
And internet video packaged for the TV (such as Vevo’s comprehensive catalogue of music videos) whilst very popular is not pay content, and is not likely to provide a compelling incentive to switch out of a pay offering.
Critically all this assumes that the new players will be able secure an attractive programming line up. This is easier said than done, given the top programming brands rely on income incumbent pay TV platforms for survival and are likely to be cautious about licensing rights to unproven competitors.
So in summary, it doesn’t feel like there is a fundamental need for premium programming that is not being met.
However there is an appetite for an improved user interface & customer experience of programming, and my feeling is that this will be a key battle ground of the future. This is borne out by the experience of the smartphone market. Apple’s IPhone showed that innovation in presentation of services, rather than innovation in the mix of service is a key to success.
Incumbents understand this and are stepping up to the plate with upgraded products. Sky’s recent announcement of 'Sky Anytime + for TV' and Liberty Global’s forthcoming launch of the 'Horizon Gateway' provide an indication of the improvements customers will see which will over time include improved search and social features aswell as much more on demand programming.
See http://paidcontent.co.uk/article/419-on-cusp-of-web-tv-revolution-sky-soft-launches-a-conventional-vod-servi/, and http://www.siliconrepublic.com/video/v/407-liberty-globals-
Time will tell whether services offered by new players will trump this. Early releases from Google and Yahoo do look like they offer a fundamentally new and better customer experience, and with this in mind some incumbent operators may choose to partner with the new kids on the block (and take advantage of the new commercial opportunities they offer such as addressable advertising) rather than risk being left with an uncompetitive product.
So whilst there is currently no compelling evidence that ‘cutting the cord’ is going to be a mass market phenomena, established operators will need to be vigilant. We are entering a new era in TV where viewers will expect a much better, more personalised experience. Those that can meet these new expectations will prosper and see off the competitive threat. Those that don’t (and don’t invest) will be exposed in a market that will see plenty of change.
As the CEO of US operator Verizon Ivan Sedienberg recently said ‘"We take the over the top issue with video very seriously," he said. "I think cable has some life left in its model...but that it is going to get disintermediated over the next several years."
SOME EXAMPLES OF THE PROLIFERATION OF NEW CONNECTED TV SERVICES
Monday 25 October 2010
Taking a slice of Apple's pie
There have been a raft of recent announcements about new digital content stores launching, which got me thinking about whether we are about to see some real competition to I-Tunes.
Apple’s position as the dominant global retailer of digital content has to date been unchallenged. With an active user base of over 500 million I-Tunes users, sales of over 250 million IPods, over 70 million IPhones, and 3 million IPads (in 80 days) Apple has been the natural choice both for customers wanting to enjoy the choice and convenience of consuming digital content and for rights holders wanting to exploit digital distribution opportunities.
No other retailer has come close to Apple’s the 10 billion music downloads and 3 billion Apps downloads. With the IPad sales & Apple profits well above forecast, new features & enhancement being added to I-Tunes, and many of the world’s leading media companies committing to work with Apple to develop new digital categories (like E-Publishing), the momentum behind the I-Tunes ecosystem seems (at least superficially) unstoppable.
So why are consumer electronics & software companies like Sony (with their new Qriosity platform) , Samsung (with the Media Hub initiative) and Microsoft (with the Zune service) now betting they can carve out profitable businesses as digital content retailers & compete effectively with Apple*.
The reason is that in every genre of digital content Apple is exposed to attack.
In the digital music market, the transition to DRM free downloads means that consumers are no longer locked into I-Tunes ecosystem. Consumers will be able to shop around for their music whilst continuing to store and manage their collections on I-Tunes. Labels will work hard with competitor retailers to make sure consumers feel like they have a real choice.
In the TV programming and film space, the consensus view is that the market will only take off once there is a mass market device for viewing digital content on the TV set. Apple has yet to deliver it. Players like Sony and Samsung with their strong market position in TV hardware, and incumbent TV platforms (like Sky and DirecTV) are perhaps in a better position to deliver a breakthrough service. With this in mind, expect new digital content stores coming to market to major on TV & film content.
In E-Publishing, market immaturity means that any device / storefront combination could end up dominating. The momentum is currently with Apple, already supported by a critical mass of leading publishers who are hoping this market will take off. However it will be at least 18 months before we know whether competitor tablets can mount a serious challenge.
So the reality is that Sony, Samsung, Microsoft (aswell as the as yet unannounced initiatives from Amazon, Google and other industry players) all have a chance of challenging Apple’s dominance in premium digital content.
Given the enormous growth potential in digital consumption of TV, film, music, books and other media there is still a big prize to play for.
The winners will offer a simple & intuitive customer experience which seamlessly connects between device and store, attractively priced content libraries & hardware, and a brand and communications voice that resonates with the mass market. To deliver all this will be quite a feat, and requires new organisational structures, new competencies & executive talent, and exceptional strong leadership.
So how should media & rights holders be responding to this evolving market landscape.
Content owners should plan to be promiscuous forming relationships with a variety of distribution partners. Energy should be focused on partners that have the scale, ambition and senior management backing to become major players in the market. Business Development should reflect a view on what players you would like to see in an ideal market scenario.
Deals should be structured in the spirit of partnership with the objective of delivering a sustainable business for the new content stores. Wherever possible distributors should be given breathing space to show momentum without being weighed down with very high fixed costs. At the same time media owners should aim to retain a reasonable level of input in the pricing, packaging and promotion of their content. This approach will help to foster real competition amongst whilst ensuring content does not become commoditised .
Finally content owners should be willing to experiment with new commercial models. We are moving into an era where digital storefronts will increasingly use content as means of selling hardware, data access or other products and services. Bundling will open up new markets for media owners, but care should be taken in deciding what content is offered within bundles & in its positioning to customers to ensure willingness to pay for premium content is not impacted.
This new era of competition should (I hope) make the digital pie a lot more appetising, with Apple as one of many flavours to choose from.
For further details on these initiatives see
Sony: http://www.guardian.co.uk/technology/2010/sep/01/sony-qriocity-streaming-music-video). Samsung: http://www.cnet.com/8301-19736_1-20016714-251.html),
Microsoft: http://www.zune.net/en-GB/
Thursday 7 October 2010
Keep taking the Tablets
Last week I spoke at the C21Media IPAD Summit at Bafta in London
Thanks to the C21 team in particular Helen Pennington and David Jenkinson for putting on an informative and well attended event that delivered some good insights on how to profit from the tablet revolution. (and congratulations for securing ‘national treasure’ Stephen Fry as keynote speaker)
In my panel session I shared my prediction is that tablets will, by 2013, be the principal mobile distribution channel for rich media content, and will significantly grow the value of mobile entertainment market.
Based on current run rates & new launches, it is likely that up to 10 million tablets will be sold in the UK
The early signs on market development are very encouraging, but there is reason to be cautious. Media companies, OEM’s and others who want to play in this space need to be cognisant of the immaturity of the space and the teething troubles that will be encountered. My advice, carefully manage expectations.
Network quality and connection speeds remain a particular issue for rich media content. Playing with the IPad on wi-fi last week I had a bad case of the ‘worldwide wait’. Downloading a video enabled app took too long for comfort.
Store, player and billing integration on tablets coming to market in 2011 will not be as seamless as on the IPad. On some devices there will be no Operator billing on OEM storefronts, and on other devices there will be several storefronts (both OEM, and MNO) competing for attention. This will contribute to a sub-optimal customer experience.
Commercial models still remain uncertain. Apple has carved out certain content categories from its App Store, including Music, TV programming and films. Other categories may follow. So opportunities for content owners to go direct to consumer may be more limited than hoped. However the position on competitor devices may be different, as storefront owners finalise policy.
Nevertheless I would encourage experimentation now, particularly for those companies that have R&D budgets and are prepared to take the long view of the market opportunity.
My advice would be to develop products that take advantage of unique capabilities of the device and connectivity, rather than repackaging old content. Penguin’s ‘Spot the Dog’ IPad App is a nice example. As Stephen Fry mentioned last week, if the end user can feel the love that has gone into the product, you have at least some of the ingredients for success.
Skill up in digital retailing and learn from players who are really exploiting the dynamic & freemium pricing opportunities offered.
Think carefully about how many platforms to distribute to. With most developers only willing to develop two versions of their Apps, storefronts outside of the top two (which are likely to remain ITunes and Android MarketPlace) may find it more difficult to scale. In the long term I think survival for smaller retailers will be down to targeting niches (both specific customer groups and content genres). However as the market plays out, content owners can take advantage of the willingness of storefronts to pay for market share. Nokia’s substantial investment in an exclusive X-Factor App for their Ovi Store is a case in point.
And finally be clear about what you want to learn. Lots of players are treating their experience in the tablet market like teenage sex. Lots of fumbling about in the dark and no real knowledge of what they should be doing. Fortunately it doesn’t have to be like that. There are lessons that can be learned from the evolution of the Apps & mobile entertainment space, and by testing out a variety of product, distribution and commercial strategies.
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