The Feldman File

Be your own role model

noreply@blogger.com (Len Feldman) — Fri, 25 May 2012 12:07:52 PDT

I was browsing at my local Barnes & Noble last night, and I noticed that the Business section seems to be getting its own "Steve Jobs" department: In addition to Walter Isaacson's biography, there's "The Presentation Secrets of Steve Jobs," The Innovation Secrets of Steve Jobs," "The Steve Jobs Way," "Steve Jobs: The Man Who Thought Different," "Insanely Simple," and on and on. There's clearly a big market for books about Steve Jobs, reflecting a great deal of interest. Does that mean that you should model yourself after him?

Consider that when Steve Jobs first started Apple with Steve Wozniak, the leading company in Silicon Valley was Hewlett Packard. Company founders Bill Hewlett and Dave Packard, and their "HP Way", were the models for many technology companies in the Valley and beyond. Wozniak had even worked at HP's calculator division for a time. Yet, Jobs and Apple didn't try to emulate HP. Jobs had his own philosophy about how a company should be run and how his employees should be treated. The signature companies that were founded in HP's model, Tandem and ROLM, no longer exist.

Founders' personalities and their companies are very much a matched set--either the combination works or it doesn't. Trying to emulate a successful founder's personality rarely works; trying to model that style and then impose it on a different organization almost never works. The most successful people follow their own path; they take lessons from others, but they don't try to emulate them. That's why slavish mimicking of how Steve Jobs thought, or how he ran Apple, is doomed to failure. The best that you can possibly be is a second- or third-rate imitation of Jobs. You're much more likely to be successful by being a first-rate version of yourself.

What are eBooks doing to the publishing industry?

noreply@blogger.com (Len Feldman) — Mon, 21 May 2012 15:14:44 PDT

We’ve now had a couple of quarters of earnings reports from the Big 6 publishers and some other large, publicly-held publishers, and two patterns have emerged:

Overall revenues (sales) are down, but earnings (profits) are up.
Print book sales are down, but eBook sales are up.

Overall revenues are down in part because consumers are substituting less-expensive eBooks for print books, and because total demand for books is declining (I’ll discuss that latter point in a moment.) Earnings are up because it’s less expensive to “manufacture” and distribute eBooks (the costs for editing and designing eBooks and print books are comparable and overlap to a great degree.) Folks are arguing all over the Internet as to whether or not eBooks are cheaper to produce than print books, and if it even matters. The fact is that eBooks are cheaper to produce, and it does matter. Here’s an abridged list of all the costs that print books require that eBooks don’t:

Printing
Binding
Shipping
Warehousing
Acceptance of returns
Inspection, warehousing and shipping of salable returns
Recycling or destruction of unsalable returns

Publisher margins are up because consumers are substituting lower-cost eBooks for higher-cost printed books, and heavy book buyers are buying more eBooks. However, printing and binding costs are extremely sensitive to quantity, so as eBooks comprise a bigger and bigger percentage of overall book sales, book manufacturing costs will start to rise. That’s one of the reasons why the Big 6 publishers have been raising prices for their eBooks—the increased profits they earn on eBooks are being used in part to subsidize the manufacturing cost of print books.

There will come a time when eBook profits won’t cover increases in print book manufacturing. At that point, publishers are going to have to make some very hard choices:

Raise print prices to reflect the full cost of manufacturing and risk an even faster decline in sales,
Adopt Print-on-Demand (POD) technologies, which allow manufacturers to control costs and minimize inventories but require dramatic changes in how books are manufactured, warehoused and distributed, or
Stop supplying printed books.

eBooks aren’t the only reason why demand for print books is declining. For many years, the average number of books read by each person has been dropping. The number started declining before eBooks became a major factor. The primary reason is that there are so many more ways for people to entertain and inform themselves. Consider that in the 1960s, when Random House co-founder Bennett Cerf was a regular panelist on the U.S. prime-time television game show “What’s My Line?”, there were three commercial television networks and, in most markets, three television stations. In most cities, you’d have one or two daily newspapers. Radio was an option, but it had been declining since the advent of television. There were movies, and of course there were books. Those were your choices.

Today, there are literally hundreds of thousands of additional media choices, most of which are available whenever and wherever you want via the Internet. There are video games and casual games available on game consoles, PCs, smartphones and tablets. Social media provides ways to get information and interact that weren’t thought possible in the 1960s. The result is that while the total media “pie” is getting bigger, each media choice is fighting for a smaller and smaller share of the pie.

Books haven’t fared well in the battle for attention, but eBooks may be slowing down the decline. Heavy book readers have been the most enthusiastic adopters of eBooks—they’re buying more titles, because the cost per title is less with eBooks than with print. Medium book readers’ use of eBooks is catching up with heavy readers, but they’re buying about the same number of eBooks as they did print titles. Light book readers are also light adopters of eBooks, and it’s unclear if they’ll buy or read any more eBooks than they do print books.

Even with eBooks, overall book sales will continue to decline—but they’re certainly not going to zero. In some countries, it’s entirely possible that eBooks will result in overall sales growth, as expensive, hard-to-distribute print books are replaced by less-expensive eBooks. (This is particularly true in markets such as India that still have primitive distribution infrastructures but fast-growing mobile phone availability.)

eBooks are changing publishers’ cost structures, redefining how print books are manufactured, reshaping channels of distribution and reeducating consumers about how much books “should cost.” However, they’re not changing the competitive environment in which publishers find themselves today, and at the end of the day, competition for consumers’ time and money may have far more impact on the publishing business than eBooks could ever hope to have.

The tablet makers' dilemma

noreply@blogger.com (Len Feldman) — Sun, 06 May 2012 19:21:34 PDT

Last week, DigiTimes wrote that "Android 4.0-based tablet PCs will be the dominant products in the segment in the third quarter of 2012 as most brand vendors will not rush to launch Windows 8-based models until the fourth quarter." The reasons for holding off on introducing Windows 8 tablets are fairly clear:

Microsoft had been expected to release Windows 8 in Q2, but it's now looking like it won't be released until Q3 or possibly even Q4.
It will take time for vendors to test Windows 8 and related products for their tablets.
Vendors are suspicious of Microsoft's intentions with the Barnes & Noble deal--is B&N going to become Microsoft's "preferred" tablet vendor in the same way that Nokia is favored for Windows Phone 7 smartphones?
Vendors see no reason to rush Windows 8 tablets to market.

But, will Android 4.0 products be "dominant" in Q3? Not likely. According to Google's Android Developers site, all versions of Android 4 constitute less than 5% of the active Android installed base. That number overstates Android 4's true share because Google bases its installed base numbers on usage of the Google Play website, which only "authorized" devices can access. If the Kindle Fire and Barnes & Noble Nook Tablet and Nook Color were included, Android 2.3.3 to 2.3.7 would have even more market share than the 63.9% reported by Google.

That leaves tablet vendors other than Apple, Amazon and Barnes & Noble in a quandry. Should they continue to invest in Android tablets when, to date, Google hasn't been able to provide a version of Android for tablets that's compelling to consumers? How much hope should they place in Google getting it right with Android 5? Should they follow Amazon's model and fork a stable version of Android with their own user interface, perhaps even going back to 2.3.X?

Is Windows 8 the solution? Possibly--the Windows Phone user experience is superior to that of Android, and both Windows Phone and Windows 8 uses Microsoft's Metro design language However, Windows 8 is the "floor wax/dessert topping" of operating systems. It's designed to be used for both touch-oriented tablets and keyboard-oriented personal computers, and as a result, it has compromises that iOS and Android don't have. The "tablet" portion of Windows 8 looks like its usability will be competitive with iOS, but there are likely to be very few apps available for it at launch, compared to more than 600,000 for iOS. The "personal computer" portion of Windows 8 looks and works almost identically to Windows 7, which means that it has nothing to do with the tablet apps.

One the one hand, computer companies can't afford to concede the tablet market to Apple. On the other, it's clear that Android, at least the stock version offered by Google, isn't competitive with iOS. Windows 8 is likely to be better, but as a tablet operating system, it's starting where Android was more than a year ago. So what should tablet vendors do? The safest approach is to wait and see: Develop prototypes of Android 5 and Windows 8 tablets that can be taken into production quickly, but let competitors test the waters first. Don't commit the resources to production or distribution until one of the operating systems proves that can compete with iOS. Another option is to fork and skin Android in order to improve its user interface--riskier, but possibly the only way to make Android a viable alternative to iOS.

Did Apple and the book publishers get what they wanted?

noreply@blogger.com (Len Feldman) — Sat, 28 Apr 2012 16:48:17 PDT

With all the Sturm und Drang surrounding the eBook price-fixing charges against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster, and the counter-charges that their actions prevented Amazon from establishing an eBook monopoly, a fair question to ask is: Did Apple and the publishers get what they were after? The short answers are "no," "yes" and "don't forget the Law of Unintended Consequences."

Apple: It may have hoped to become a major bookseller by getting the publishers to force all its competitors to sell eBooks at the same price, but if that was its hope, so far it's failed. Apple's eBook market share in the U.S. is, at best, in single digits, while Amazon still controls around 60% of the market and Barnes & Noble has approximately 25% market share.

The publishers: They wrested pricing control for their eBooks away from Amazon and were successful in getting Amazon to raise its prices. They also, at least in part, enabled Barnes & Noble to become a viable competitor to Amazon in the eBook market (although a good part of the credit should also be given to B&N's own strategies, including selling and supporting its Nook tablets and eReaders in its stores.)

The unintended consequences:

Amazon moved quickly to develop a supply of titles that are beyond the control of the Big 6 publishers, first by strengthening its self-publishing efforts with the Kindle Direct Publishing program, and then by entering the publishing business itself with Amazon Publishing. Amazon is now competing directly with the Big 6 for contracts with top authors and licenses for popular backlist titles. Had the publishers not taken away Amazon's pricing power, the company probably would have gone much slower in building up its own publishing business.
Price-fixing lawsuits have been filed in the U.S. by the Federal government, 16 state governments and private individuals, and in Canada by private individuals. Lawsuits are being considered by the European Commission and Australia. These lawsuits have the potential to cost Apple and the publishers hundreds of millions of dollars in damages and legal costs, not to mention years of management distraction, reputational damage and constraints on how they do business. Hundreds of millions of dollars may be negligible to Apple, which has $110 billion in cash and equivalents, but the cost is much more significant to the publishers.

Given Apple's inability to turn the deal into significant market share and the publishers' inability to keep Amazon from maintaining control of a majority of the U.S. eBook market, it's hard to argue that Apple's and the publishers' actions were worth the cost.

Apple's potential defense: The publishers didn't need us to collude on pricing

noreply@blogger.com (Len Feldman) — Mon, 23 Apr 2012 20:57:21 PDT

I've been wondering about Apple's apparent resolve to fight the eBook price-fixing charges leveled against it by the U.S. Justice Department, states and private individuals. Apple's defense and decision not to settle have, so far, made no sense to me. The relative cost and inconvenience of settling with the Justice Department and states would be minimal compared to the potential distraction of Apple's management and reputational damage resulting from years of litigation. So, why is Apple holding out? Keep in mind that I'm not a lawyer, but here are some thoughts:

The publishers wouldn't possibly have been stupid enough to talk directly with each other about adopting uniform agency terms and pricing. Apple would have had to serve as the "switchboard", acting as an intermediary between the various publishers. The problem is that if the Justice Department charges are correct, the publishers did meet face-to-face multiple times to discuss business issues including "the Amazon problem," and also had myriad communications between each other by phone and email. Years ago, when I took a Business Law course in college, my professor said that such contacts between competitors simply shouldn't happen. Even if all the parties do nothing more than talk about the weather, the very fact that the meetings took place can be used as evidence of collusion among competitors. That may explain why, according to the Justice Department, there were never any corporate counsel at the face-to-face meetings held by publishing CEOs in various Manhattan restaurants.

The CEOs could never agree on how to take on Amazon and force the company to increase its selling prices for eBooks; it took Apple to propose first agency terms, and then a "Most Favored Nation" clause that would guarantee that Apple would always have the lowest eBook prices. The publishers could have come up with a similar scheme and worked the details out among themselves. It was convenient for Apple to do the work for them, but Apple wasn't necessary to either create or further the collusion.

The problem for Apple is that the Justice Department appears to have evidence that the company did, in fact, act not only as a "switchboard" between the publishers, but that its role was essential to getting the five publishers on board with exactly the same terms and conditions. There's also evidence that Steve Jobs himself intervened to try to convince Random House to join the other five Big 6 publishers in implementing agency terms. That may be enough to prove that Apple was integral to the conspiracy.

Adobe is onto something with Creative Cloud

noreply@blogger.com (Len Feldman) — Mon, 23 Apr 2012 19:00:01 PDT

Adobe has started accepting pre-orders for CS6 Creative Cloud, its software subscription program. Everything that's been in Adobe's previous Creative Suites, plus a number of new applications that are either being released from or are still in Adobe Labs beta, and all of Adobe's tablet apps, are included in one monthly subscription. Month-to-month subscriptions are $75/month; annual subscriptions are $49.99/month. Prior purchasers of any version of Creative Suite from 3 or above qualify for a discount on the first-year subscription, which brings the price down to $29.99/month.

There were many complaints when Adobe first announced its plan to move to subscription pricing. The fear was that subscriptions would cost more than purchasing software outright--and in some cases, the fears were well-placed: Upgrading from CS5.5 Master Collection, which is the equivalent of Creative Cloud, costs $525, less than the $600 annual price of Creative Cloud before the first-year discount. However, if you skipped version 5.5 and stayed with version 5, the upgrade price is $1,049.00. Upgrades from earlier versions of Creative Suite are even more expensive.

The $29.99/month discounted first-year subscription price is a powerful incentive for Creative Suite users to switch to Creative Cloud. Adobe hopes that it can convince enough people to switch to Creative Cloud that eventually, it will no longer be economic for people to upgrade their packaged software. There's nothing keeping Adobe from raising prices once they get a critical mass of CS users to switch, of course. However, it looks like Adobe is willing to take a chance that lower prices will result in more total users. In addition, the company may be counting on the psychological benefit of a fairly low monthly payment versus a one-time big purchase to get into or upgrade Creative Suite. A completely new Creative Cloud user will get the equivalent of $2,599 worth of software for a first-month payment of $50 on the annual plan.

My bet is that Adobe's pricing is going to bring in many more users, and it's going to put additional pressure on Avid, and especially Apple.

When "something for everyone" may be too much

noreply@blogger.com (Len Feldman) — Mon, 23 Apr 2012 09:31:15 PDT

On the cover of the current issue of "TWICE" (This Week in Consumer Electronics,) there's an ad for Nikon's cameras with the tagline "There's a Nikon for Everyone." It got me thinking about something I noticed at the Sony and Panasonic booths at last week's NAB conference. These companies have so many different camcorders and cinema cameras that even the people selling them can't keep track of all of them. For example, when I was in the Sony booth, I couldn't find the 35mm cinema cameras (NEX-FS100, FS700, F3, etc.) I asked one of Sony's salespeople where they were, and she said that all of the company's cameras were on display in the huge circular "camera pit" at the center of the booth. I'd walked around the entire pit and hadn't seen the 35mm cameras, so I went around again but didn't find them. It turned out that the 35mm cameras were in a completely separate section of the booth.

There are so many products that they overlap each other in price and functionality. The same is also true for still cameras from Canon, Nikon, Sony and others, and smartphones from Samsung, HTC, LG, Motorola, Nokia, etc. Makers of notebook and desktop computers have the same problem--just look at the proliferation of models at HP, Dell and Acer. Manufacturers make so many models in order to avoid losing a sale, but they wind up confusing potential customers. Each of these products costs a significant amount of money to develop, manufacture and support. Resources that could be used to develop entirely new products are instead used to create minor product variations to fit into every conceivable price point.

Apple is a great example of a better approach to the problem. At any one time, Apple has a single line of smartphones, tablets, and notebook, all-in-one, mini and full-sized desktop computers, each of which is refreshed once a year. Apple continues to sell a single version of the previous year's tablet and smartphone (two years in the case of phones) at lower prices. Each computer line has four or five models, which vary by display size and processor. When a new computer line is launched, the previous line is discontinued. It covers all the price points, yet it's simple for consumers to understand and for Apple to sell. It also works well with Apple's strategy of making product announcements into newsworthy events.

Sony lost $6.4 billion last year; Panasonic lost $10.2 billion. They no longer have the money to invest in endless product proliferation--which might explain the relatively paltry number of new products shown by Panasonic at NAB. They, and companies like Canon, Nikon, Samsung, etc., would be well advised to focus on fewer, better products that are clearly differentiated from competitors and from each other.

David vs. Goliath? How about Goliath vs. Goliath?

noreply@blogger.com (Len Feldman) — Sat, 21 Apr 2012 19:12:58 PDT

In the U.S. Federal, state, and private eBook price-fixing lawsuits against Apple and five of the Big 6 publishers, some observers have equated the battle to David vs. Goliath. The defendants are David and Goliath is Amazon, which, they argue, would have monopolized eBooks and wiped out the publishers if they hadn't imposed agency pricing. The problem with both the analogy and the rationalization is that most of the Davids are actually Goliaths. Here's a rundown:

Apple: Until recently, it was the most valuable company in the world, with $100 billion of cash and equivalents on its balance sheet and profit margins that Amazon, and the other defendants, would kill for. 2011 revenues: $108.25 billion.
Hachette: The second-largest publisher in the world, and a division of Lagardère Group, which owns magazines including ELLE and Paris Match, a variety of television broadcasters in Europe, a network of duty-free shops, and 7.5% of EADS, which is the parent company of Airbus. Parent company 2011 revenues: $10.02 billion.
HarperCollins: A division of News Corporation, which owns Fox, The Wall Street Journal (which has been one of the most vocal critics of the Justice Department's lawsuit,) the New York Post, a bunch of newspapers in the U.K. (which are embroiled in an ever-widening phone hacking scandal,) newspapers and broadcasters in Australia, 39.1% of British Sky Broadcasting, and a lot more. Parent company 2011 revenues: $33.4 billion.
Macmillan: A division of Georg von Holtzbrinck Publishing Group, owner of Macmillan Education, Nature, Scientific American, several German publishers and the newspaper Die Zeit. Privately held; parent company 2010 revenues: $2.98 billion.
Penguin: A division of Pearson PLC, the world's largest education and trade book publisher; owns Pearson Education, the Financial Times and 50% of The Economist. Parent company 2011 revenues: $9.45 billion.
Simon & Schuster: A division of CBS Corporation, which owns the CBS television network, multiple television and radio stations in the U.S., Showtime, CBS Television Distribution (which used to syndicate Oprah and still syndicates Dr. Phil and other shows,) and CBS Interactive (which owns CNET among other Internet properties.) Parent company 2011 revenues: $14.2 billion.

Amazon is certainly no slouch; its 2011 revenues were $48 billion. However, that compares to total revenues of the defendants of $178.3 billion. Even if you leave Apple out of the comparison, the parents of the five publishers had revenues of $70 billion. You can argue that publishing is only a small portion of the revenues of some of the parent companies, but books only represent a small portion of Amazon's revenues as well. In 2011, Amazon's media sales, which include books. music and video, were $6.01 billion--12.5% of the company's total revenues.

In short, the conflicts between the five publishers and Amazon aren't David vs. Goliath--they're actually Goliath vs. Goliath. When Apple is added into the mix, it's Amazon that could justifiably be called David.

Blackmagic Design crashes the cinema camera party

noreply@blogger.com (Len Feldman) — Fri, 20 Apr 2012 21:08:27 PDT

Last year at NAB, when I spoke with Blackmagic Design's CEO Grant Perry and Director of Marketing Americas Terry Frechette about the company's new video production switchers, I noted that they sold just about everything for video except cameras. This year, they corrected that oversight. The new Blackmagic Cinema Camera shown at NAB was a huge surprise--to my knowledge, there were no rumors that Blackmagic was working on a cinema camera, especially one as "out of the box" as this design. It looks like a simplified, trapezoidal DSLR with mounting points on both the top and the bottom of the case. It should work with a variety of cages and mounting systems from companies such as Redrock Micro and Zacuto.

The Blackmagic Cinema Camera has a 2.5K sensor (2432 x 1366) with an active area of 15.6 x 8.8 mm—bigger than Super 16mm but smaller than Micro Four Thirds. The company claims 13 stops of dynamic range. It supports Canon's EF-format lenses, including Canon's autofocus lenses, as well as Zeiss's EF-compatible ZE mount lenses. The camera can output RAW using Adobe's 12-bit open-source Cinema DNG format at full 2432 x 1366 resolution, as well as compressed video in Apple's ProRes and Avid's DNxHD formats, at 1080p/23.98, 24, 25, 29.97 and 30 fps. It saves onto a SSD using a built-in recorder and outputs through both 3Gbps HD-SDI and Thunderbolt interfaces. (A 256GB SSD can store 30 minutes of RAW footage or more than two hours of video in ProRes or DNxHD format.)

Virtually all interaction with the camera is through a built-in 5" 800 x 480 touchscreen display that comes with a snap-on hood--there's no separate viewfinder. A handful of buttons are used for recording (buttons on both the front and back of the camera), automatic iris, focus, transport control, bringing up the menu and power. Audio in is via standard stereo mic/line inputs. The camera can run on 12V to 30V DC and has a built-in battery. And, I forgot one important thing: Its list price is $2,995 (U.S.). That's not a misprint--it's priced less than $3,000. The Cinema Camera is scheduled to ship in July.

According to Blackmagic's representatives, the company learned from customer feedback that, while cinematographers love the price and video capabilities of today's DSLRs, they're tired of working with cameras that were designed for still photography first. That includes small LCDs designed more for changing menu settings than for accurately judging image framing and quality, limited recording time, no built-in support for industry-standard video recording formats and HDMI outputs that are useless for live recording.

The Cinema Camera fixes all these problems, drops all the still photography-oriented features, and sells for $2,995. It also comes with a full copy of DaVinci Resolve software for color correction on Windows and OS X PCs, and Ultrascope for monitoring output--the software alone costs $995 when purchased by itself. Of course, the camera's not perfect--it's not 4K, the imager is small, the compressed output is 10-bit 4:2:2, there's no 60p mode, slow motion or ND filters--but it's $2,995, which covers a bunch of complaints.

As I always say when new cameras are released, you'd be smart to hold off on placing an order until good third-party reviews of the Cinema Camera are released, along with sample footage. (Australian John Brawley was the first cinematographer to get his hands on a prototype camera for in-field testing. He's posted footage on Vimeo.) However, I suspect that there are lots of people who aren't going to wait--they want to be among the first to get their hands on it.

It's On: U.S. Justice Department sues Apple and five publishers for eBook price-fixing, settles with three of the publishers

noreply@blogger.com (Len Feldman) — Wed, 11 Apr 2012 11:37:31 PDT

The long-rumored eBook price-fixing lawsuit against Apple and five of the Big 6 publishers (Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster) was filed in Federal court in New York today by the U.S. Justice Department. In addition, the Attorneys General from Texas, Connecticut, Ohio and Pennsylvania are filing their own lawsuits today in Federal court in Texas. Here's a summary of U.S. Attorney General Eric Holder's remarks:

Hachette, HarperCollins and Simon & Schuster agreed to a settlement, which must be reviewed by the court, with the following terms:

The publishers will ~~go back to the wholesale model and~~ allow retailers to set their own prices for eBooks. Update: Publishers Lunch Direct has clarified the situation (and given the actual verbiage in the settlement, I use the word "clarified" advisedly.) The three publishers will be allowed to continue to offer agency contracts, and they can use variable commissions and discounts to encourage resellers to limit their discounting of eBooks to consumers. However, they can't prohibit resellers from offering discounts. Publishers Lunch Direct claims that this clause prohibits resellers from selling eBooks below the retail price less commission set by the publishers, but I don't read it that way: Resellers can sell eBooks at any price they choose and take as much of a loss as they want. In addition, resellers can refuse to purchase on agency terms, but publishers can refuse to sell to them.
They will terminate their "Most Favored Nation" agreements with Apple, Amazon, Barnes & Noble and other eBook retailers.
They're prohibited from placing constraints on resellers' ability to offer discounts on eBooks for two years.
They're prohibited from conspiring or sharing competitively sensitive information with their competitors for five years.
They must implement a strong antitrust compliance program.

Justice charges that the defendants held regular, near-quarterly meetings to discuss confidential business and competitive matters as part of a conspiracy to raise, fix and stabilize retail prices.
They also mutually agreed to seize pricing authority from resellers, agreed to pay Apple a 30% commission on eBooks sold through the iBookstore (and to impose the same 30% on other resellers,) and used most-favored-nation provisions to guarantee that no reseller could sell their eBooks at a price lower than Apple's.
According to the statement, "...one CEO allegedly went so far as to encourage an e-book retailer to punish another publisher for not engaging in these illegal practices."
Acting Assistant Attorney General Sharis A. Pozen quoted from the complaint as follows: "One executive said that, 'the goal is less to compete with Amazon as to force it to accept a price level higher than 9.99.' And yet another said, 'we’ve always known that unless other publishers follow us, there’s no chance of success in getting Amazon to change its pricing practices.' Our complaint also quotes Apple’s then-CEO Steve Jobs as saying, 'the customer pays a little more, but that’s what you [he’s referring to the publishers here] want anyway.' As you can see, we allege that these executives knew full well what they were doing. That is, taking steps to make sure the prices consumers paid for e-books were higher."

The "Most Favored Nation" landmine

noreply@blogger.com (Len Feldman) — Mon, 30 Apr 2012 08:18:44 PDT

Reuters is reporting that the U.S. Justice Department could file suit against Apple and one or more publishers for eBook price-fixing as early as Wednesday. I won't rehash the details of the case; you can read this or this for background. In this post, I want to discuss one of the sticking points in the case--the "Most Favored Nation" clause. Apple's "Most Favored Nation" clause requires publishers to price eBooks that they supply to Apple at least as low as the lowest price offered by any other reseller. If the publisher or one of its resellers lowers the price for a title below that of Apple, Apple has the right to drop its sale price to maintain the lowest price.

It's very important to understand that Apple isn't the only eBook retailer with a "Most Favored Nation" clause; both Amazon and Barnes & Noble have them as well. In fact, Amazon is far more aggressive at exercising its clause than the other two retailers. Amazon regularly scans the prices for eBooks at competitive websites and will automatically drop the price of any title that it finds lower at another site, without giving notice to the publisher (or, for a self-published eBook, the author.)

The effect of Amazon's "Most Favored Nation" clause is magnified by another clause the company demands: For non-agency titles (in other words, titles that Amazon purchases to sell under the wholesale model,) Amazon reserves the right to set and change the price as it sees fit, although it will still remit the same wholesale amount back to the publisher or author. If Amazon drops its price for a title below that of Apple or Barnes & Noble, even without the knowledge of the publisher or author, Apple and Barnes & Noble have the right to match Amazon's price.

You may already see where this is going. If, either by design or error, the price of an eBook drops at one retailer, the others have the right to drop their prices. Any pricing mistake can quickly cascade. Is it possible that the price could go to zero? Self-publishers have been giving away some of their eBooks to encourage customers to buy others, so finding a title priced at zero wouldn't necessarily be flagged as an error. In at least one case, Amazon mistakenly found a self-published eBook priced at zero at another retailer, and dropped its price on the title to zero.

Okay, so what happens when the price accidentally goes down to zero? All the publisher or author needs to do is make a phone call or send an email to the retailers in order to fix the problem, right? That assumes that they can figure out who to contact at the retailer, and that the retailer takes action quickly to correct the problem. So let's say that you're an author whose eBook is, through no fault of your own, now priced at zero. You contact Amazon, Apple and Barnes & Noble, and they all agree to correct their prices. Amazon goes first, and you're back at, say, $4.99. Then, before the other retailers have a chance to change their prices, Amazon's scanner checks Barnes & Noble's website, sees that their price is zero, and sets Amazon's price back to zero. Then, Barnes & Noble corrects the price, until the Barnes & Noble price scanner sees that Amazon is selling your eBook for zero, at which point Barnes & Noble also sets its price back to zero.

There are two big takeaways:

"Most Favored Nation" clauses suck for everyone except retailers, and
Just getting Apple to get rid of its "Most Favored Nation" clause without doing something about Amazon and Barnes & Noble isn't going to fix the problem.

Update. April 30, 2012: According to The New York Times, Apple selected "After Friday Night Lights" to be part of its "Pick of the Week" promotion that allows Starbucks customers to get a free copy of the eBook. Amazon saw the promotion as a giveaway and dropped its price for the eBook to zero. Then, Byliner, the publisher of "After Friday Night Lights," withdrew the eBook from Amazon until the conclusion of the Apple/Starbucks promotion on May 1st.

Apple: Don Quixote de Cupertino?

noreply@blogger.com (Len Feldman) — Wed, 11 Apr 2012 10:20:12 PDT

Update, April 11, 2012: Bloomberg is reporting that the U.S. Justice Department filed suit this morning against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster for eBook price-fixing; Hachette, HarperCollins and Simon & Schuster settled with the Government.

Bloomberg reported that Apple, Penguin and Macmillan are unlikely to agree to a settlement with the U.S. Justice Department over eBook price-fixing accusations, and are preparing to go to court. The three other publishers in the case, Hachette, HarperCollins and Simon & Schuster, are said to be very close to agreeing to a settlement with the Justice Department.

Regular readers of my blog know my opinion on the subject: There's very strong evidence, even if circumstantial at this point, that the publishers imposed agency terms on all of their resellers at almost exactly the same time, including the exact same commission rate, and that all of them threatened to stop supplying eBooks to any reseller who refused to agree. Apple's precise role in the scheme isn't clear, but it's known from Steve Jobs' own words that Apple proposed the scheme to the publishers and knew that it included the part about refusing to sell eBooks to any reseller (including Amazon) that didn't agree.

Apple may believe that it didn't coordinate the actions of the publishers (or that it's covered its tracks well enough that the Justice Department can't prove that it did coordinate their actions.) It may also not want to agree to a settlement for fear of its impact on the civil price-fixing case underway in New York. However, in my opinion, Apple is taking a huge risk by not settling the case before it goes to court.

As it looks now, Hachette, HarperCollins and Simon & Schuster are close to a settlement. If they settle, they'll enter into what's called a consent decree, which doesn't require them to assume guilt for the charges. They'll be required to change their business practices, possibly pay a fine, and agree to court supervision for a limited period of time. The pain and reputational damage will be over quickly. For Apple, Penguin and Macmillan, however, their senior executives are in for months of depositions, they'll be required to provide many thousands of documents as part of the discovery process, and the court trials and appeals will likely take years to play out.

In addition, the Justice Department will be able to compel Hachette, HarperCollins and Simon & Schuster to testify against the other three companies. They'll have immunity as a result of their settlement, and they'll have no reason to protect their competitors or Apple. This is a standard part of most price-fixing cases: One or more defendants cut early deals with the Justice Department and gain immunity, and then they provide evidence against the other players in the price-fixing scheme.

The worst possible outcome for Apple would be for it to lose in court, even if it eventually wins on appeal. All they have to do is look at Microsoft to witness the damage that could be done. That case was eventually settled with a consent decree, but Microsoft was under court supervision for ten years. The company could no longer pursue the aggressive tactics that it had used in the past to suppress competition. Most importantly, it became a convicted monopolist, which changed both the public's perception of the company and the stakes for any future litigation. (When Bill Gates eventually passes away, stories about his philanthropy will have to share time with the videos of his depositions.) The press was no longer afraid of retaliation by Microsoft's public relations department for running negative stories, and Microsoft lost control of its messages.

Apple is unafraid of litigation, as witness its myriad lawsuits against Android licensees. In Walter Isaacson's biography, Steve Jobs clearly saw Android as not only a theft of Apple's intellectual property by Google, but a personal betrayal by Google Chairman Eric Schmidt, who served on Apple's board of directors for years. Jobs swore that he would spend Apple's entire cash horde, if necessary, waging "thermonuclear war" on Google and Android.

Unfortunately for Apple, its cases against Samsung, HTC and Motorola have been far from the "slam-dunks" that Jobs thought they would be. Apple has estranged perhaps the most important component supplier for its mobile products, Samsung, and it's being forced to bring alternative vendors up to its quality and deliverability standards. For example, Apple had planned to launch the new iPad with three LCD vendors, LG, Samsung and Sharp, but only Samsung was able to meet Apple's quality requirements and ship in the necessary quantities in time for the launch. In addition, some of Apple's own patents are being challenged and could be invalidated.

Apple, like Don Quixote in Cervantes' novel, enjoys its battles. Unlike Quixote, however, Apple's opponents fight back, and are likely to hurt Apple much more than Apple hurts them.

Sony's new NEX-FS700: 4K, Super Slo-Mo, Under $10,000

noreply@blogger.com (Len Feldman) — Mon, 02 Apr 2012 10:47:29 PDT

Engadget has a press release with details about Sony's new NEX-FS700, the follow-on to the FS100, which I expect to remain in Sony's product line. Here's a summary:

The good: The FS700 has a 4K Super 35mm Exmor sensor, and it has a variety of slo-mo modes, including 120 fps in a 16-second burst at 1080P and 240 fps in an 8-second burst, also at 1080P. If you're willing to settle for lower resolution, the FS700 also has 480 and 960 fps modes. It uses E-mount lenses and can support all the usual E-mount adapters. It also has built-in ND filters and a 3G HD-SDI output in addition to HDMI.
The bad: The FS700 has the same "Lego blocks" form-factor as the FS100. There have been many complaints about handling the FS100 in the field, including poor placement of controls; it remains to be seen if the FS700 will remedy at least some of these problems.
The unknown: Sony's press release quotes the price of the FS700 as "under $10,000 (U.S.)." Leaked reports on the camcorder had it priced at $9,000 or even $8,000. We'll probably know the real price in a few weeks at NAB. In addition, even though the FS700's sensor supports 4K, the camera will require a firmware update at some unspecified time in the future in order to output 4K over 3G HD-SDI to a Sony recorder. Will Sony charge for the firmware update, or will it be free for registered owners of the FS700? Again, we'll most likely learn the details later this month.

Given that the Scarlet-X is already shipping at a $9,000 base price, the FS700 isn't likely to be a game-changer, although it will be considerably less expensive than a fully-equipped Scarlet-X or Canon C300. Canon has a new cinema camera announcement scheduled for NAB, so they may already be preparing to compete in the "4K for under $10K" market. The company that I'm surprised that we haven't heard anything from yet is Panasonic: The AF100 is getting old. Will they have anything new to show at NAB?

Consumption of online movies passes physical movies for the first time

noreply@blogger.com (Len Feldman) — Wed, 28 Mar 2012 10:32:49 PDT

If physical DVDs and Blu-Ray discs aren't dead, they're certainly in the process of shuffling off this mortal coil. According to Broadband TV News, IHS Screen Digest forecasts that legal, paid consumption of movies online in the U.S. will reach 3.4 billion views in 2012 from 1.4 billion last year, while views from physical media (Blu-Ray and DVD) will decline to 2.4 billion from 2.6 billion last year. Online views will grow 135% year-over-year.

IHS forecasts that 2012 will be the crossover point, when online viewing of movies (including video-on-demand) will first exceed rental and purchase of physical media for watching movies. 2.4 billion views on physical media is nothing to sneeze at, of course, and it'll be years before DVDs and Blu-Ray discs become insignificant. Nevertheless, the handwriting is clearly on the wall: Consumers are getting comfortable with renting and watching movies online.

There are three reasons why online viewing won't grow even faster:

Redbox's $1.20/day rental fee and huge installed base of kiosks makes its service both cheap and convenient for consumers,
Renting and buying physical media enables consumers to use the millions of DVD and Blu-Ray players they already own, and
Movie studios are still holding back most of their recent releases from Netflix and other services.

New devices, such as Roku's "streaming stick", will make adding streaming Internet video to millions of HDTVs even easier than it is today. It's entirely likely that physical media will be obsolete before the end of this decade, especially if movie studios make more of their releases available for early streaming.

Nikon's D800 DSLR: A serious digital cinematography option

noreply@blogger.com (Len Feldman) — Sat, 24 Mar 2012 07:40:45 PDT

For DSLR digital cinematography fans, Nikon has been a continual source of frustration: Their DSLRs are superb still cameras, but video has always been an afterthought for the company--more an item on a marketing checklist than a well-implemented feature. However, Nikon's new D800 might change that. EOSHD reports on one of the first D800 video samples, footage shot at a temple in Taiwan. The video is gorgeous--far better than video shot on Nikon's D4, and with much more detail than video from Canon's new 5D Mark III, which has been roundly criticized for the softness of its images.

For its part, DxO Labs tested the D800 and said that its imager is the best that it's ever tested, with a rating of 95 out of 100. It had extremely accurate color rendition, the best dynamic range they've ever measured (14.4 stops) and excellent low-light performance (the ability to go to 2853 ISO without compromising image quality). They said that the D800's imager is about as close as you can get to medium-format performance in a DSLR imager. This performance is especially impressive given the 36.3 MP resolution of the D800's imager. In general, for a given imager size (such as APS-C), the higher an imager's resolution, the worse its low-light performance will be. Nikon has managed to combine excellent low-light performance with very high resolution.

DxO didn't test the D800 in video mode, but the video found by EOSHD suggests that the quality of the D800 is very good. However, Nikon still hasn't figured out a way to do 60P in 1920 x 1280. 60P is only supported at 1280 x 720 resolution; 1920 x 1280 supports 30P and 24P. Also, the D800's very high resolution could result in rolling shutter and moire problems; much more testing of the camera's video mode is needed. In short, I wouldn't rush out and place an order for a D800 yet, but the camera is shaping up to be a serious option for digital cinematography.

Library eBooks: A simple solution to a difficult problem

noreply@blogger.com (Len Feldman) — Mon, 19 Mar 2012 11:58:51 PDT

Whether school and public libraries should have access to eBooks depends on what kind of a publisher you are. If you're a smaller general or specialty publisher, it's not an issue--your company most likely already supplies eBooks to libraries. However, if you're one of the Big 6 trade publishers, there's a 66% chance that you don't offer eBooks to libraries at all. Only HarperCollins and Random House offer their eBook titles to libraries, and both companies apply significant restrictions: HarperCollins titles can only be checked out 26 times before they have to be repurchased, and Random House recently tripled the cost that libraries pay for their eBooks. Penguin, which once sold eBooks to libraries, has pulled out of the market, and Hachette, Macmillan and Simon & Schuster don't sell eBooks to libraries at all.

Publishers that either don't sell to libraries or sell with restrictions argue that library eBook lending cannibalizes potential sales of both eBooks and print. They say that it's as easy to borrow an eBook as it is to purchase one from Amazon or Barnes & Noble. Print books require patrons to visit their local library in order to check-out and return them, and publishers want libraries to implement a similar kind of "friction" when lending eBooks (although publishers generally won't go on the record about which kinds of "friction" would be acceptable.)

A variety of solutions have been suggested, from forcing patrons to physically visit a library in order to check-out eBooks, to slicing and dicing collections and parceling out different pieces at different times to libraries. In my opinion, forcing patrons to visit libraries in order to check-out eBooks completely negates the value of the Internet and online access. It takes the progress of library access back almost 20 years. As for making available different batches of titles at different times, that's likely to become a formula for patron confusion. Consider two titles, published by the same publisher on the same day. One could be available for lending immediately, but the other might not be available for months, if ever. Who will explain that to patrons? Librarians, of course, who have better things to do with their time.

I'd like to suggest a simpler, easier approach to the entire problem for those Big 6 publishers who are afraid of what libraries will do to their businesses: Delay the release of their eBooks to libraries. If your street date for a title is X, release the eBook version to libraries at X plus 90 or 120 days. That enables the retail channel to absorb the initial demand, and those consumers who have to read the title right away will buy it. The technical name for this approach is windowing, and it's been done by the motion picture industry for decades. In the movie business, there are many windows (for theaters, pay-per-view, DVD/Blu-Ray, streaming, pay cable, free cable/broadcast, airlines, etc.), but a single window for library eBooks would be much simpler to understand and explain.

If publishers are serious about supporting libraries and aren't looking for ways to discourage eBook borrowing by making it as difficult and confusing as possible, a single library eBook window would be the best way to protect publishers' financial interests (at least until eBooks become the primary book format) while providing library access to all eBooks in a reasonable amount of time.

"This American Life" and the Daisey affair

noreply@blogger.com (Len Feldman) — Sat, 17 Mar 2012 08:09:22 PDT

You may have heard that the public radio program "This American Life" retracted an entire episode that it aired last January based on portions of Mike Daisey's one-man show "The Agony and Ecstasy of Steve Jobs". The radio program focused on a visit by Daisey to Chinese plants that manufacture Apple's iPhone and iPad, and the allegedly bad work conditions he found. I won't rehash the entire story, but Daisey lied about a number of key events that he either witnessed or participated in during his trip to China.

After the "This American Life" episode aired, Rob Schmitz, the China correspondent for the public radio show "Marketplace", became suspicious about the story. He tracked down and interviewed Daisey's interpreter, who said that many of the things that Daisey told "This American Life" and said in his one-man show were partial or complete fabrications. For his part, Daisey lied to the host and a producer at "This American Life" about the name of the translator, and said that he could no longer reach her mobile phone number.

Here's an incomplete list of Daisey's alleged or acknowledged fabrications:

Daisey said that the guards at the entrance to the Foxconn plant were armed; both Schmitz and Daisey's interpreter said that only the military and police are allowed to carry guns in China, not security guards. Daisey's interpreter said that the guards were unarmed.
Daisey claimed that he spoke with a Foxconn worker who admitted that she was underage--13 years old--and that other workers he spoke to at the same time were 12 years old. The interpreter said that some of the workers who Daisey interviewed might have looked young, but that none of them were underage or admitted that they were underage. For his part, Daisey sticks by his story, but in his defense, he said that one or more of the workers spoke fluent English to him, a statement that his translator denies and that Rob Schmitz found to be extremely unlikely.
Daisey claimed that he spoke with a group of workers who had been exposed to n-hexane, and that every person in the group was shaking from nerve damage. His interpreter said that the meeting never happened, and Daisey admitted under questioning that he fabricated the entire incident.
Daisey said that he spoke with a man who was so injured by repetitive work building iPads that his hand had become claw-like. His interpreter said that Daisey met the man, but the man had never worked building iPads, and the entire episode where Daisey showed him a working iPad for the first time never happened.
Daisey said that he visited Foxconn worker dormitories and saw bunk beds stacked nearly to the ceiling and security cameras inside dormitory rooms. His interpreter says that Daisey never visited dormitory rooms. Daisey claims that he did visit the dorms without his interpreter, but that the security cameras were in the halls, not in the dormitory rooms. Given that Daisey doesn't speak Chinese and, as discussed above, it's extremely unlikely that the workers Daisey encountered spoke English, how could Daisey have visited the dormitories without his interpreter?
Daisey claimed that he was told by a group of workers protesting working conditions at Foxconn that they met at Starbucks to discuss their strategy; Schmitz said that was as likely as a group of United Auto Workers organizers in Detroit meeting at a Chinese tea room.
Daisey also said that he was shown a government "blacklist" of people who would not be hired by Shenzhen manufacturers because they had protested working conditions; his interpreter said that the document didn't have any government stamps or seals, and was most likely a fake.

No one denies the work conditions at Foxconn and other manufacturers--they've been widely reported and have been documented by Apple's own audits. However, the most interesting parts of Daisey's allegations--that he actually spoke to underage workers, to workers injured by exposure to n-hexane, and with a man so injured by repetitive work building iPads that his hand had become claw-like--were all acknowledged or likely fabrications.

Ira Glass, the host of "This American Life", has repeately said that when Daisey told him and his producer that his interpreter could not be found, he should have killed the story. However, so much of the story checked out that they believed Daisey. When the story aired, Glass went out of his way to say that the story had been extensively fact-checked by "This American Life" before it was aired, which raises the question: Why did Glass stand behind the story when the interpreter, the only independent witness to everything that Daisey claimed happened, had "disappeared"?

Rob Schmitz of "Marketplace" said that it was very easy to find Daisey's interpreter--he simply entered the name that Daisey used for the interpreter during the radio show (Cathy Lee), and the words "interpreter" and "Shenzhen", into Google, and she came up as the first link. Couldn't the "This American Life" team have done the same thing? Finally, the authenticity of some of Daisey's monologues has been questioned in the past, including by the New York Times. Shouldn't that have raised "red flags" with the "This American Life" team?

Even though the theater where he's performing his one-man show says that the show will continue, Mike Daisey's credibility has been destroyed. The question now is, given how many errors got into this "This American Life" story, how many other bogus stories have gotten on the air?

Sony's new A57 brings high-end features to low-end DSLRs

noreply@blogger.com (Len Feldman) — Thu, 15 Mar 2012 12:02:31 PDT

Sony's new Alpha SLT-A57 is Sony's most important entry-level DSLR (yes, it's actually an EVIL design, but in a DSLR-like body) to date. Here's some of the new camera's features:

A 1.44 megapixel LCD viewfinder
10 fps continuous shooting mode with autofocus
Autofocus built into the body rather than the lenses
1920 x 1080 video at 60P or 24P (50P and 25P in Europe), with AVCHD 2.0 compression
A bigger battery, the same as the A65 and A77

The A57, with a kit 18-55mm F3.5-5.6 lens, will have a suggested list price of $799. The body alone will cost $699. As Digital Photography Review points out, the A57 is a slightly feature-reduced version of the A65 with a 16 MP imager instead of the 24.3 MP imager in the A65, for $300 less. It's going to be a serious alternative to Canon's T3i and Nikon's D5100, especially for videographers. It's also a better value for the money than Sony's own NEX cameras, although it's considerably larger.

Digital Photography Review has a site where you can compare images from the A57 with those from a variety of other cameras side-by-side. Click here to visit their site.

What would you rather have: A monopoly or price-fixing?

noreply@blogger.com (Len Feldman) — Mon, 12 Mar 2012 17:42:36 PDT

Last week, The Wall Street Journal reported that the U.S. Justice Department has warned Apple and five of the "Big 6" trade publishers (Macmillan, Penguin, Hachette, HarperCollins and Simon & Schuster) that it's planning to file suit against them for price-fixing as a result of their implementation of agency pricing for eBooks. Here's a brief overview (and a disclaimer: I'm not a lawyer, and this isn't legal advice):

Until 2009, virtually all publishers in the U.S. sold their books (both print and eBooks) to resellers under the wholesale model. Typically, books would be sold by publishers to resellers at 50% of their suggested list prices--the prices printed on the book covers. Resellers were then free to resell the books at any price they desired. This was the model (along with co-op payments for display locations at the front of bookstores and preferred positions on bookshelves) that Barnes & Noble and Borders used to drive hundreds, if not thousands, of independent booksellers out of business with discounting. In many cases, the "big box" booksellers sold books for less than the price that independent booksellers paid to buy them.

Amazon used the same model to launch its entry into the eBooks business. Amazon's strategy was to sell all its eBooks for $9.99 or less, even if that meant selling them below the wholesale price. Amazon quickly controlled as much as 90% of the U.S. eBook market.

In 2009, as part of its entry into the eBook business, Apple proposed a different model to the Big 6 publishers (all of the companies under investigation plus Random House), which became known as agency pricing. Under agency pricing, booksellers don't actually purchase the books that they sell to customers--instead, they act as "agents" for the publishers and take a commission on each sale, which Apple set at 30%. Since the booksellers don't own (take title of) the books, the publishers can set the prices, and the booksellers are obligated to sell the books at that price. Five of the Big 6 publishers implemented agency pricing for their eBooks (Random House waited a year before it implemented agency pricing, which is why it's not under investigation.)

The five participating publishers went to their resellers at approximately the same time, and told them that, regardless of when their existing distribution contracts were to expire, their contracts would be immediately amended to require agency pricing of eBooks. Any reseller who refused would have their supply of eBooks cut off. The first skirmish was between Amazon and Macmillan--Macmillan implemented agency pricing and Amazon briefly stopped sales of all Macmillan titles, but soon relented. That opened the floodgates, and Amazon agreed to agency terms from the four other publishers (although it has refused to accept agency terms from any additional publishers except for Random House).

So far as consumers are concerned, the net result of agency pricing is that prices of eBooks from the Big 6 publishers have gone up substantially, from $9.99 to as much as $16.99. eBooks from the Big 6 were once less expensive than paperbacks; now, in many cases, they're more expensive. In some cases, eBooks are even more expensive than the discounted price of hardcovers.

Both the U.S. Justice Department and the European Union are investigating Apple and the five publishers for price-fixing. The external evidence is that all five publishers implemented the same pricing policies at the same time, and all five threatened to cut off supply to any reseller who refused to agree to the new terms. In Walter Isaacson's biography of Steve Jobs, Jobs is quoted as saying:

"We told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway.'

Jobs continued, "They went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books."

That certainly gives the appearance of an organized effort to raise prices, orchestrated by Apple and executed by the five publishers. Publishers and their defenders argue that agency pricing is necessary to prevent Amazon from getting a monopoly in the eBook market, which, while only 20% or so of the "Big 6" publishers' sales, is likely to become 50% or more in a few years. A monopoly would give Amazon control over pricing. Advocates of the government's position say that the actions of Apple and the five publishers have substantially increased consumer prices for eBooks, and that it's hypocritical for companies like Barnes & Noble to support agency pricing when they used wholesale pricing to wipe out their independent competitors.

One of the most important things to understand about U.S. antitrust enforcement is that it's illegal to be a monopolist, but it's not illegal to have the potential of becoming a monopolist. At the time that Amazon had a 90% eBook market share, the eBook market was new ("nascent") and both small in units sold and dollar volume. The Justice Department almost never goes after a monopoly in a nascent market. Today, Amazon has between 60% and 65% of the U.S. eBook market--a big share to be sure, but not a monopoly. If agency pricing went away tomorrow and Amazon went back to its old pricing strategy, it's very unlikely that the millions of people who own Nooks and eBooks from Barnes & Noble, Apple and other resellers would throw away their eReaders, tablets and eBook collections and start buying from Amazon. So, Amazon didn't have a monopoly, doesn't have a monopoly now and isn't likely to have one in the future.

On the other hand, price-fixing is illegal, and it doesn't even require a formal agreement among the parties to prove that price-fixing exists. There's no question that agency pricing has raised priced for consumers, at least for titles from the "Big 6". (Statistics rolled out by some defenders of agency pricing that show that eBook prices have dropped also include titles from self-publishing authors, some of whom sell their eBooks for as little as $0.99.)

Publishers argue that Amazon is a very difficult company to do business with, and all the evidence I've seen supports them. However, tough bargainers are a fact of life: Wal-Mart has made the lives of vendors miserable for years while pursuing an "Always the Lowest Price" strategy, but vendors have learned to live with it. Taking illegal action to prevent a company from becoming a monopoly is still illegal.

Staples calculates how fast you read

noreply@blogger.com (Len Feldman) — Thu, 08 Mar 2012 20:52:55 PST

For whatever reason, Staples has put a reading and comprehension speed test on its website. Click below to take the test:

Source: Staples eReader Department

Boom goes the dynamite: It's "The Klemfarb Report"

noreply@blogger.com (Len Feldman) — Tue, 06 Mar 2012 15:12:16 PST

My consulting company just launched a new free weekly newsletter called The Klemfarb Report, covering the week's most important eBook industry announcements and most interesting analysis articles. I'll be editing the Report, but it won't replace The Feldman File, which I'll continue writing. If you'd like to see a sample of The Klemfarb Report, click here. You can subscribe directly from the newsletter page, or you can click here to subscribe.

There's always a compromise

noreply@blogger.com (Len Feldman) — Sat, 03 Mar 2012 11:16:34 PST

Andrew Chen has written a great blog post about a recent visit he made to Pixar's Emeryville headquarters. Matt Silas of Pixar invited him to tour the facility, and at the end of the tour, Chen asked Silas what his favorite Pixar film is. Here's how Silas replied:

“This is such a tough question, because they are all good. And yet at the same time, it can be hard to watch one that you’ve worked on, because you spend so many hours on it. You know all the little choices you made, and all the shortcuts that were taken. And you remember the riskier things you could have tried but ended up not, because you couldn’t risk the schedule. And so when you are watching the movie, you can see all the flaws, and it isn’t until you see the faces of your friends and family that you start to forget them.”

The lesson that Chen drew is that developers will always think that their product is s**t, no matter how good it actually is. The lesson I take is that every product, every service, every work of art, is a compromise. Pixar is arguably the most successful movie studio of the last 30 years--with the exception of the recent "Cars 2", Pixar has had a nearly unbroken streak of both critically and financially successful motion pictures, starting with the original "Toy Story". And yet, even Pixar has to compromise in the production of its films. Team members sometimes have to take shortcuts and avoid changes that might have improved the films in order to stay on schedule.

"Supercar" manufacturers like Ferrari, Lamborghini, Rolls-Royce and Bentley like to say that they build "no compromise" automobiles, yet of course there are compromises: Their cars can cost upwards of $300,000 and get eight miles to the gallon. The compromise for their "no compromises" cars is to spend a huge amount of money when you buy, drive and service them (not to mention buy insurance for them). Buyers and reviewers regularly complain about the compromises made in the design of DSLRs and camcorders: Why is the imager's resolution so low (or so high)? Why doesn't it have a 1080P/60 mode? Why does it have a limited slow-motion capability (or none at all)? Why did they use a HDMI interface instead of SDI?

Every manufacturer has to make compromises in its products. Some are made because they have to keep the price of the product under a certain amount. Some are made to protect the profits from other product lines. (For example, if a new $10,000 camcorder is just as good and does everything that the company's $30,000 camcorder does, customers would be crazy to buy the $30,000 model.) And some impose compromises on the buyer: For example, if you want a true cinema lens, you'll need to spend several times as much for it as for a lens designed for still photography.

Product developers know that there's never enough time or money to make their products perfect. They work to make their products the best they can under the constraints that they have to live with. Even with software and services that can be continuously modified, they have to ship at some point. They may ship with a minimum viable product and then improve it from there, but they have to ship. That's why there are always compromises.

There are more important things than getting press

noreply@blogger.com (Len Feldman) — Sat, 18 Feb 2012 09:06:54 PST

Yesterday, TechCrunch reported that ProFounder, a fundraising platform for startups, has shut down. According to the company's founders, securities regulations prohibited them from offering all the services that they wanted to, and led in large part to the company's failure. However, I don't want to dwell on the reasons for the company's failure, and instead examine the importance of one particular factor: Getting press.

If you look at the ProFounder home page (or the former home page, if it's no longer there), you'll see this near the bottom:

ProFounder, like many startups, worked hard to get press coverage; they believed that the press gave them credibility with customers and investors, and to an extent, that was true. However, startups often go to ridiculous lengths to get press coverage...even when their website is nothing more than a placeholder.

Press coverage can motivate people to visit your website...once. If you're not ready for the traffic or you can't do anything productive with it, getting press coverage is not only a waste of your time, it's actually counterproductive. Consider some of the mistakes commonly made by startups: Using your home page primarily to collect email addresses usually results in a low-quality mailing list. Collecting email addresses but not doing anything with them for months results in frustrated visitors. if your website is poorly designed, most visitors won't take the time to figure it out--they'll simply leave. If it's hard to sign up for your service, or either the sign up process or your service itself doesn't work, they'll leave. Even worse, once they leave they probably won't come back.

Press coverage that comes as a result of running a successful business is far more valuable than coverage pursued in the hopes that it will make your business successful. And, you have much more leverage over how your story is reported when the press is pursuing you, rather than the reverse. In the earliest stages of your business, social media is far more effective than press coverage for reaching potential customers.

Inkling and Vook: Is B-to-C to B-to-B really B-to D(isaster)?

noreply@blogger.com (Len Feldman) — Fri, 17 Feb 2012 17:40:24 PST

Let me explain that title: If a company moves from selling to consumers (B-to-C) to selling to businesses (B-to-B), are they setting themselves up for failure? Recently, a couple of well-known electronic publishing names have changed their focuses from selling eBooks to consumers to selling eBook creation tools to writers and publishers. Vook had a highly-publicized launch in 2009 as a publisher of enhanced eBooks, which included audio and video along with text. In the second half of last year, the company changed direction ("pivoted", in the current vernacular), and focused on selling its enhanced eBook production tools to other publishers. Vook's toolset remains in beta, but the company is hinting about "major announcements soon", suggesting that they're getting close to general availability for their software.

Earlier this week, Inkling, an eTextbook publisher focusing on the iPad, announced a similar shift in strategy. Even though Inkling has been in business for about 18 months and has deals to reformat textbooks from a number of major publishers, it's only released about 200 titles so far, just a tiny fraction of the number needed to be truly competitive in the eTextbook market. In order to stimulate production of additional titles, Inkling announced that it would 1) Deliver its eTextbooks in HTML5 format that will work in many browsers, and 2) Release an eBook authoring and production service called Habitat. Habitat, which is in an early closed beta, will be licensed to publishers at no cost.

Like Apple's iBooks Author application for OS X, eBooks created with Habitat can be distributed anywhere for free. However, eBooks created with Habitat for sale must be offered through Inkling's own website and iPad app. In the case of sales through the website, Inkling takes a 30% commission. They also take a 30% commission from sales through their iPad app, but Apple takes another 30%, leaving only 40% for the publisher. Unlike Apple, which limits sales of titles created with iBooks Author to its own iBookstore, Inkling allows Habitat-based eBooks to be sold through other outlets. However, publishers have to plan for the probability that most of the sales will go through Inkling's own channel, with as little as 40% of the sales price coming back to the publisher.

Both Vook and Inkling are moving from B-to-C to B-to-B. In Inkling's case, it's using Habitat in part to increase the number of titles available in its format, but Vook is now out of the B-to-C business. Both companies are hoping to find a successful business model, but history suggests that this kind of pivot is rarely successful. In the early days of online video, many companies launched advertising-supported streaming video sites. Other than YouTube, only a handful of those sites have been successful, and a good number of the unsuccessful ones pivoted to sell the technology they had developed for running their sites to other businesses. In some cases, they sold what's now termed "white-label online video platforms" for uploading, compressing, storing and displaying video content, while other startups sold technology for video ads. Most of the companies that pivoted to B-to-B were no more successful than they were when they were focusing on consumers. One of the few that pivoted successfully was Brightcove, which just went public today. However, even though they launched in 2004, the company has never been profitable.

Selling to businesses is very different than selling to consumers:

You actually have to collect revenue from your customers when you sell to businesses, which means that your product or service has to have real value and be positively differentiated from competitors.
You need a sales force, whether in-house or reps, to call on potential customers.
The sales cycle (the amount of time needed to close a sale) can be very long, and many people are likely to have input into the purchasing decision. It may take six months or more for the customer to evaluate your solution and decide whether or not to purchase.
Business customers demand a high level of customer and technical support. You may need to have support engineers available on call 24/7.

I've seen startups use this pivot enough times that it often seems more like a desperation move than a successful strategy. If a company wasn't successful using its tools, why is it likely that anyone else is going to be more successful using those same tools? The tools might solve a problem that doesn't exist, or provide features that the vast majority of customers don't want or need. They might be too difficult to use or too slow, which will lead businesses to try and then abandon them. Or, they might not be differentiated from other products and services already in the market.

I'm not saying that Vook's or Inkling's tools are bad, or that the companies' efforts to pivot will fail. (I've not been able to test either Vook's or Inkling's software.) However, both companies have a steep uphill climb, as does any company that tries a B-to-C to B-to-B pivot.

Aereo: Another "cable killer"?

noreply@blogger.com (Len Feldman) — Thu, 01 Mar 2012 20:15:57 PST

Companies have been trying for years to offer cable television-like services over the Internet, without having to either get permission from broadcasters or pay them to retransmit their shows. FilmOn and Ivi are two companies that tried last year, but are both currently "off the air" as the result of court injunctions. Aereo, a New York-based company, is the latest to try. The company launched its service today in New York City. According to the company, Aereo is designed specifically to get around the legal limitations that shut both FilmOn and Ivi down.

Aereo will stream the signals from 20 New York City-area broadcast stations to its subscribers for $12/month, and will include a network-based DVR service that was upheld as legal by the U.S. Supreme Court last year in a case against Cablevision. All the major broadcast networks, including ABC, CBS, Fox, NBC and PBS, will be included, but cable-only networks such as USA, TNT and CNN won't be. That's one big difference between Aereo's service and those of FilmOn and Ivi, both of which offered a selection of basic cable networks. In addition, Aereo will initially only be available in New York City, and Aereo will only carry signals from local television stations--another difference from its predecessors, which made signals from stations in Los Angeles and New York available to subscribers around the U.S.

Aereo is doing one more thing that it hopes will make its service ligitation-proof: For every subscriber, Aereo will install a tiny, thumb-sized antenna in an undisclosed location in New York City. (Correction, February 15, 2012: Aereo is going to allocate each subscriber their own antenna from a pool of antennas while they're using the service, not install a dedicated antenna for every subscriber.) The idea is that each subscriber will receive the signal from their own antenna, not from a "community" antenna, and therefore, Aereo isn't a cable system and isn't bound by cable retransmission rules. It's an interesting way to try to get around the regulations, but whether the courts will agree is an open question.

Aereo has one more card to play: One of its investors is IAC, and company Chairman Barry Diller will join Aereo's Board of Directors. Diller is a former VP of development at ABC Television, former Chairman and CEO of Paramount Pictures and former Chairman and CEO of Fox, where he founded the Fox Television Network. At one time he owned USA Network. Diller is one of the best-connected executives in the media industry, and he has the experience in running and working with television networks and movie studios that neither FilmOn nor Ivi had. However, it's unclear if that's going to be of any help if the New York television stations go to court against Aereo.

Update, March 1, 2012: The Hollywood Reporter reports that not one, but two, lawsuits were filed against Aereo today to stop it from launching on March 14th. The first lawsuit, asking for a permanent injunction and statutory damages, was filed by Fox, Telemundo and PBS and their New York affiliates. The second lawsuit, asking for pretty much the same thing, was filed by CBS, NBC and ABC and their local affiliates. The Hollywood Reporter says that the two lawsuits are likely to be consolidated.

If you live in New York, have poor television reception and don't care about cable networks (or can get what you want from Netflix), it may be worth considering Aereo as an alternative to cable. If you live outside New York, don't hold your breath--Aereo's unlikely to spread to other cities until the courts determine whether or not its service is legal.