Publishers throw the e-book business out the window

Book publishers have been crowing this week over having wrested control over e-book prices from Amazon. After a brief showdown with Macmillan Publishing, in which Amazon pulled all Macmillan hardcover and paperback titles from its physical-book store, the Kindle maker blinked and agreed to the publisher’s demand to raise the price of its e-books in the Kindle store from $9.99 each to $12.99-$14.99. Other leading publishers, led by Hachette Book Group and News Corp.’s HarperCollins unit, quickly said they would demand the same deal.

The publishers, of course, have long been concerned over Amazon’s strategy of pricing most new release e-books at $9.99 to spur sales of Kindle devices. Though publishers earn the same $12-$14 wholesale price from Kindle editions as they earn from hardcovers, they fretted that low prices on e-books would undercut sales of hardcovers, which typically sell for $20-$25 at retail. Eventually, they feared, the reduction in retail revenue would result in lower wholesale revenue as well. So long as Kindle owners made up the largest slice of the e-book market, however, the publishers had little choice but to go along. Read More »

Alarm bells come too late for Sony Pictures

The memo Sony Pictures co-chiefs Michael Lynton and Amy Pascal sent to employees Monday announcing massive layoffs, most of which will fall in the home entertainment and IT divisions, obviously wasn’t meant to be made public. But it’s fitting that it was leaked when it was, the same day that Bernstein Research analysts Michael Nathanson and Peter Choi published what amounted to an obituary for packaged media as a profit driver for Hollywood.

According to Bernstein:

  • For 2009-2012, we [previously] forecast overall U.S. home entertainment industry revenues to decline at a -2.1% CAGR. This underscores the mature nature of the industry, plus the importance of share gains for individual players. Over this time frame, aggregate operating profit declines of low single digits are also expected.
  • Now one year later, looking at the cold hard facts of 2009, retail spending on sell-through DVDs and Blu-Ray discs dropped by -18% while rental of these products actually increased by 4%. As a result, the sell-through of physical discs declined from 63% of the market to 57%.
  • This massive change in behavior continues to have negative implications for studio profitability as every home video executive would rather book the $16 of profit contribution per transaction from selling a disc vs. the $3.50 to $1.40 per disc profit contribution from rental.
  • [snip]
  • Our analysis also shows that the Blu-Ray format is having a more modest acceptance rate that traditional DVD. In 2009, three years after its introduction, Blu-Ray’s penetration of TV households stood at 4.4%, compared to 13.0% for DVDs in 2000. We also find that Blu-Ray [sic] has seen lower numbers of titles shipped per converted household relative to DVD. We don’t see Blu-Ray stemming the decline of physical sales. Read More »

Apple's media strategy: There's an app for that

It’s here. After nearly a year of carefully orchestrated speculation and hype, Apple has finally unveiled: the “iPad,” thus causing millions of women across the blogosphere, in unison, to go, “eewwww.”  (Are there no women in the marketing department at Apple?)

Among the less lunationally sensitive, the verdict has been more mixed, but the rough consensus seems to be that, at this point at least, the iPad is basically an iPod Touch on growth hormones: neat, but not quite overwhelmingly amazing, fantastical and way-cool the way the iPhone seemed when it launched.

Particularly disappointing to some, or at least puzzling, was the relative scarcity of media apps at launch for a device that was billed as revolutionizing the media industry, leading many to wonder what you’re supposed to do with the thing.

I have no doubt those apps will come, however, not only because Apple has already released an iPad SDK but because of what it offers media companies. Read More »

Another strike against three-strikes?

More from the be careful what you wish for files: As The Media Wonk noted in a previous post, there is more to France’s three-strikes law than just three-strikes. One less-discussed provision is the strict regulation of movie release windows by the government, taking a key strategic decision out of the hands of the studios. One early victim of that provision appears to be Twentieth Century-Fox, which has scheduled the release of Avatar on Blu-ray and DVD in France for June 1–several months earlier than ordinary business considerations would dictate but necessary to comply with the law.

That provision isn’t the only booby-trap in the law for content owners, however.

The Creation and Internet law, after all, which went into effect on Jan. 1, wasn’t passed only to crack down on digital piracy. It was also intended to promote the legal availability of “multimedia” content on digital platforms. As it turned out, content owners probably should have paid more attention to that end of the deal.

In the spirit of promoting availability, France’s Minister of Culture, Frédéric Mitterrand, ordered up a commission to study and make recommendations on ways to facilitate availability. To head the commission, Mitterrand named Patrick Zelnik, CEO of Naive Records, which happens to be the label for which French First Lady and pop chanteuse Carla Bruni-Sarkozy records (that’s just the way they do things in France).

The Mission Zelnik, as the commission came to be known, issued its recommendations in early January, and they included a number of surprises. Topping the list was a proposal to implement a collective rights licensing scheme for music on digital linear platforms (i.e. webcasts), in effect a compulsory license. The commission also recommended a “voluntary” collective licensing scheme for non-linear platforms (downloads and on-demand streaming), with the stipulation that if the industry can’t come up with a satisfactory “voluntary” scheme within a year the government should mandate one. Read More »

You say goodbye, I say Hello Music

The artist & repertoire (A&R) reps at a record label are like reporters at a newspaper: a cost center performing an inherently inefficient task that generates no direct revenue of its own but is nonetheless critical to the operation of the rest of the enterprise. Without reporters to gather the news, publishers couldn’t aggregate reader eyeballs to sell to advertisers; without talent scouts, record companies couldn’t break new acts.

The two job descriptions also face similar dilemmas in the digital age: the high profit margins their enterprises once enjoyed, and that subsidized their inefficiency, have been undercut on new digital platforms. But digital technology has done nothing–or at least not enough–to make those functions any less inefficient. Both remain time and labor intensive and you sink a lot of dry holes in each.

That doesn’t necessarily mean digital technology couldn’t do more to make those functions more efficient, however. Or, if not more efficient than perhaps directly monetizable. The problem has been a lack of digital business-to-business tools to facilitate commerce and capture the value that functions like news gathering and A&R create for other enterprises, or for other parts of their own enterprises. Read More »