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 »

This just in: Conventional wisdom on journalism is wrong

The Federal Trade Commission held a two-day workshop last week called How Will Journalism Survive the Internet Age?, which featured the likes of Rupert Murdoch, Arriana Huffington and former Washington Post executive editor Len Downie nattering on about who is to blame for the economic problems of newspapers and whether the government should do something to underwrite the cost of producing “quality journalism.”

Of all the ideas being kicked around about how to save journalism in the Internet age, clearly, getting the government involved seems clearly the worst of them. No good can come of that, for anyone. Nor can any good journalism.

JournalistThe bigger problem with the whole enterprise, however, was its premise. The Media Wonk is hardly the first observer to note newspaper executives’ propensity for conflating newspapering with journalism, and for insisting that if the former goes under, so will the latter (from the title of the workshop, it was clear the FTC is also at least half-way in that same bag, too). But I think  the problem goes even deeper than that, to the whole notion of “quality journalism,” itself, and its unacknowledged relationship to technology.

So much of the process that defines what we generally refer to as “journalism” is really no more than a collection of technologically determined conventions that we have mistakenly and unnecessarily elevated to the status of “principles.”

I’m talking here about the whole package, from the institutional beat structure to the inverted pyramid, to rules about sourcing and the “reached in his bunker for comment Mr. Hitler denied…” approach to balance, to the scoop and the second-day lede.

Most of those conventions are traceable, directly or indirectly, to the high fixed costs long associated with publishing newspapers, and to the particular means of production the technology imposed on publishers.

As in any business, where you have high fixed costs you need a high volume and steady flow of product through the pipeline over which to amortize those costs. That meant hiring a lot of reporters and editors to churn out “news.” High costs and high volume, in turn, create pressure for standardization and routine to insure the quality and consistency of the product.

Most newspaper publishers, moreover, serve two masters: readers and advertisers. And advertisers require predictability (i.e. standardization and routine) in order to make informed buying decisions.

The situation was much the same for news broadcasters when that technology emerged. They didn’t need printing presses but they needed well-equipped studios and transmitters. And they needed affiliates to retransmit their broadcasts to outlying areas. For most of the history of broadcasting, networks paid affiliates to carry their programs, not the other way around as it is today.

Standardization also encouraged the professionalization of journalism. As in law or medicine, the professionals became the keepers of the standards that defined them as professionals. That boosted salaries, which increased costs further, while at the same time erecting a useful barrier to entry for potential competitors.

The cost, labor and effort involved in producing a newspaper (and later a network broadcast) also created pressure to organize the work in a very particular way. In a time before cellphones, email and webcasts, and when newspapers came out once, or at most twice, a day, stationing a reporter full time in the state house, or on Capitol Hill, or monitoring the police blotter, was an efficient way to organize the work.

As with any formalized system, however, over time the system itself become its own subject matter (much as it is in law, for instance). Thus, the instutions to which the reporters were attached–for reasons largely related to costs of publishing newspapers and reinforced by professionalized standards–themselves came to be regarded as the “news,” rather than the substance of what they did or its relationship to institutions that were not part of the system (i.e. most of what made up most readers’ day-to-day existence).

The deployment of reporters also dictated the line-up of stories that went into a newspaper or an evening broadcast: The “news” was what the institution-bound reporters reported.

printing-pressCritically, for most of the past two centuries, most of costs associated with maintaining a professionalized news organization, whether fixed or variable, and which created the pressures toward standardization, routine and institutional bias, were and are related not to the expense of news gathering itself but to expense of owning a printing press or a broadcast network, of paper, ink and setting type, of the cost of  postage and delivery trucks, of maintaining affiliates, and ultimately of maintaining “professional” standards in the first place.

In short, “professional” journalism is expensive because it’s designed to be. So when publishers complain, as Rupert Murdoch did again in a Wall Street Journal op-ed on Wednesday that producing “quality journalism” is expensive, they are speaking the truth. But they are also speaking a tautology, which tells us nothing about the actual substance or value of journlism, but everything about how publishers’ capital is deployed.

Today, digital technology is removing (or has removed) most of the fixed costs long associated with reporting and publishing “news.” And the conventions of “professional” journalism that grew up as a result or in response to those costs, have lost their foundational purpose.

That leads us, inevitably, to ask at least two critical questions: What, then, is their purpose today? and, is that purpose sufficient to warrant extraordinary measures to preserve them?

Having spent the first 25 years of my professional career learning, honing and following those conventions, I certainly understand the impulse to preserve and protect them. But I have to wonder how much of that impulse is mere nostalgia.

Those conventions–the very definition of “professional journalism”–ultimately rested on a technological system that no longer obtains. So if those conventions are no longer necessary for economic and technological reasons, if the definition of “news” and the process of news-gathering is no longer constrained by the mechanical requirements of print and broadcasting, are those conventions still necessary for journalistic reasons? Could a new, equally valid set of conventions and definitions of “news”, in time, emerge to reflect the new technological system?

And should the government, or anyone else, stand in the way of that?

Can TV survive TV Everywhere?

One of The Media Wonk’s day jobs is as an analyst and curator at GigaOm Pro, the subscription-based offshoot of the popular GigaOm web site (to which I also occasionally contribute some blatherings). On Monday, the Pro site is issuing a new report The Media Wonk wrote (subscription required) on TV Everywhere, the effort by leading cable MSOs as well as some cable programmers to make pay-TV content available online to cable and satellite subscribers.

TV-EverywhereFor those of you in the Bay Area, The Media Wonk will also be appearing on some panels at the NewTeeVee Live conference in San Francisco, where the TV Everywhere report will be distributed free to attendees. Come one, come all.

The report is a good read (if I do say so myself) on the nuts, bolts, whys and wherefores of TV Everywhere. But there’s one question I didn’t really discuss in it because anyone professionally interested in TV Everywhere has probably already answered it to their own satisfaction, and it sort of would have obviated the need for the report in the first place.

First proposed by Time Warner CEO Jeff Bewkes and quickly taken up by Time Warner Cable (soon to be a separate company), along with Comcast and Verizon FiOS, TV Everywhere is self-consciously an effort to preserve the traditional pay-TV business model as viewership shifts irresistibly away from  traditional pay-TV platforms.

Multichannel News, earlier this month:

At a National Association for Multi-Ethnicity in Communications Conference general session Wednesday, panelists said operators and programmers need to find a solution quickly, as consumer demand to access content on multiple platforms continues to grow.

Mark Garner, senior vice president of distribution, marketing and business development for A&E Television Networks, said the industry continues to face a challenge in finding the right business model to offer content on multiple screens. The current strategy taken by some networks to offer content free on their Web sites jeopardizes the current affiliate fee-based distribution model with operators that, he says, represents 45% of A&E Networks’ overall revenue.

“There’s a lot of enthusiasm for maintaining the current business model,” Garner said.

And from September:

“TV Everywhere is an all-around win for those of us who love television,” Time Warner Cable chairman, president and CEO Glenn Britt said in a statement. “It will give our customers more control over content and allow them greater access to programs they are already paying for, while enhancing the distributors’ and networks’ robust business model that encourages the creation of great content.”

Fine. But how many cases can you point to in other media businesses wherein the incumbent providers were able to sustain their traditional business models with respect to digital distribution? Not many, I’d venture to say.

Bob-IgerMusic? Fuhgetaboutit. If “record companies” survive in something like their current form (which I would call a long-shot in itself) the single revenue-stream model of selling high margin “albums” containing 10-15 songs will not be how they do it.

Movies? Ask Bob Iger.

Broadcast television? As I wrote last month for GigaOm Pro:

In addition to his Hulu comments, [News Corp. COO Chase] Carey also suggested last week that News Corp. is laying the groundwork for a battle with cable operators over retransmission consent for Fox Broadcasting content. “We need to move that business [broadcasting] to a place where we are getting fair value,” he said, according to a report on the SportsBusiness Daily web site. “You have to have conviction and do what’s necessary to do.”

What’s necessary to do, in Carey’s view, is to get cable MSOs to pay for the right to retransmit free broadcast programming. “It’s about trying to get our business to a place where it can be a healthy, long-term business,” he said. “It starts with making dual revenue.”

Newspapers? Please.

Books? Too early to tell but the pricing structure emerging for e-books suggests publishers are going to need to start thinking in terms of multiple revenue streams.

If the pay-TV companies manage to pull it off it will be notable not just for their own sake but because it would mean they had bucked the tide of both history and technology.

Paying for Hulu is not about Hulu

The Twitter- and blogosphere got a case of the vapors yesterday over a report that News Corp. plans to throw up a pay wall around Hulu. Speaking at an industry event, newly installed News. Corp. president Chase Carey said, “I think a free model is a very difficult way to capture the value of our content. I think what we need to do is deliver that content to consumers in a way where they will appreciate the value.” In case that wasn’t clear enough, he added, “Hulu concurseliza_dushku_hulu with that, it needs to evolve to have a meaningful subscription model as part of its business.”

OMGZ! came the response from Hulu tweeters. “Sell out,” cried the bloggers. Guardian blogger Roy Greenslade saw it as part of a Rupert Murdoch paid-content propaganda campaign.

Maybe. But I suspect it has more to do with cable retransmission consent for Fox than it does with pros and cons of free content. While much of the blogosphere focused on Carey’s Hulu comments, John Ourand of SportsBusiness Daily caught the real news in his report from the same industry event: 

Carey warned that retransmission consent battles may be brewing as his company tries to convince cable operators to start paying to carry the Fox broadcast channel. “It’s not about trying to pick a fight,” Carey said… “It’s about trying to get our business to a place where it can be a healthy, long-term business.” In the past, Fox has used retransmission consent rules to help launch its cable channels, like FX and Fuel. Now, broadcasters want to get paid for their broadcast networks so they can better compete with cable networks. Carey specifically singled out sports rights as “a real challenge,” adding that “it’s not rocket science” to figure out how broadcasters can compete with cable networks. “It starts with making dual revenue.

If you’re looking to start charging cable operators retransmission fees for your free broadcast content, you really can’t be giving the content away for free online.

As Deutsche Bank analyst Doug Mitchelson pointed out in a research note last week:

chase-careyFox is beginning to negotiate its retrans deals including, we believe, one with a top-5 cable operator right now. We expect Fox is asking for $1+/sub/mo given Chase Carey, Newscorp COO and former DirecTV CEO, knows how crucial broadcast carriage is to pay TV operators, especially sports programming (like the World Series), and also given Fox’s success getting about $0.65 for carriage of Fox News. Newscorp certainly has the balance sheet to tolerate ad losses if it has to pull its channel for some time.

[snip]

In exchange for significant affiliate fees, we would expect broadcasters would dramatically expand VOD availability and place greater limitations on free internet availability of their shows. Ultimately, we expect the networks and TV stations to convert to hybrid local/national cable networks (think RSNs paired with programming from a national feed), and then sell or give back the local broadcast spectrum. With 100m pay TV households, $1/sub/mo would be $1.2b of revenue and EBITDA per network per year that could be shared among the networks and station groups (80/20?), making broadcast a viable business model.

 That would be a much bigger pay-off to News Corp. than anything it’s likely to see from Hulu, with or without a pay wall.

Scared hens in the Fox house

Somewhere, Tom Freston is laughing.

murdochRemember when News Corp. was supposed to have figured out this New Media thing way better than the other media empires, and Sumner Redstone was firing Freston for letting Rupert Murdoch snare MySpace? These days, not so much. New Corp., in fact, appears to be getting a bit panicky over the whole New Media thing.

Yesterday, the company announced pretty ugly second-quarter earnings (fiscal Q4), low-lighted by a $403 million impairment charge against Fox Interactive Media, which consists primarily of MySpace, as well as a $228 million “restructuring” charge due mostly to layoffs as MySpace. That’s $631 million in charges for the same “prize” News Corp. snatched away from Viacom for $580 million in 2006.

In the earnings call, Murdoch declared that he intends to start charging people to read all News Corp. newspaper content online, from the Wall Street Journal  to the Page Three girls in the Sun, a sure sign that the company really doesn’t know what it’s doing online. Unless there’s some other strategy for leveraging the network economics of the Internet Murdoch hasn’t told us about yet, simply throwing up paywalls around everything isn’t a business plan. It’s taking your marbles and going home.page3girls

On the same call, newly appointed vice-chair and COO Chase Carey took a whack at Redbox, the $1 a night DVD rental kiosk outfit owned by Coinstar. “I think making our content available for $1 grossly undervalues it,” Carey said.

According to the Journal (sub. required, natch), Fox has told DVD wholesalers like Ingram Entertainment and VPD not to sell its movies to Redbox until 30 days after their initial release, the same anti-competitive-ish stunt Universal pulled earlier this year.

The fact that News Corp.’s No. 2 is spending his time worrying about dollar-a-night rentals tells you all you need to know about how far the studio is from figuring out to respond strategically to precipitously declining DVD sales.

If I were Carey (or Fox video head Mike Dunn) I’d be worrying about why Blu-ray, which Fox championed, hasn’t arrested the massive outflow of consumer dollars from the packaged media business. And I’d be focusing on how to structure my deal with Netflix before it finishes the job of remaking the online video-on-demand business into a non-transactional subscription business and Reed Hastings ends up with all the leverage, rather than risking litigation over my deal with Redbox. The DVD business is term-limited. Getting digital distribution right now will do a lot more for earnings in the long run than bashing a few kiosks to make yourself feel good.

Petulance is not a strategy.