Disruptive Innovation

The Secret to Following Someone

6 May 2014

From Hugh Howey:

One of my favorite movies of all-time is The Zero Effect. If you haven’t seen it, you really should. Absolutely brilliant. One of the best scenes has Daryl Zero (played by Bill Pullman) explaining the trick to following someone without getting caught. It’s simple, he says. You just get where they’re going before they do. The obvious joke here is that it’s impossible to know where they’re going, which is why they need to be followed. But Pullman’s character in the film is a Sherlock-Holmes-sort-of-genius, and he expects that everyone ought to know where everyone else is going at all times. Just as a matter of course.

But we’re not all Daryl Zero. We can only guess at the future. We are resigned to follow.

A few years ago, I put forth a zany idea about where we in the book industry were heading: I thought there might come a day when agents and publishers would scour bestselling self-published books to wrangle in new talent. Doing so would allow them to mitigate risk; it would offload the arduous task of managing the slushpile by crowdsourcing it; and it would allow market research and experimentation to take place on someone else’s dime and time (the self-published authors’ and the readers’).

. . . .

Authors didn’t have a stage for their own gigs until e-books gained wide adoption. Once that happened, the rest was inevitable. Everything that musicians, photographers, comedians, fine artists and the like had been doing for generations was now open to writers. We could see where literature was heading because of the well-trodden path laid out before them.

By being at the forefront of this transition, Amazon has reaped most of the benefit. And not just monetarily, though that’s worth mentioning before we get to the meat of this rambling blog post. Amazon enjoys higher margins on self-published e-books. Before costs, they make 30% – 65% on every sale of a self-published work. For major publishers, their margin on e-books are likely less than 10%.

. . . .

Where Amazon really wins is with the data they collect. When Amazon purchased Goodreads, it seemed to me that they were mostly purchasing the reviewing, buying, and reading habits of its users. Data like that is worth a lot of money. And its value is only going to go up in the future. This data makes it possible to recommend more items that customers will want to purchase. This is the most important trick in retail. It was my job as a bookseller. Keep this in mind, as I’ll get back to it when I posit how someone can win the next revolution in retail.But first, I’d like to digress and point out what might be an equally powerful advantage Amazon wins from their data: Not only are they seeing what customers buy, they’re seeing how authors sell. They see the next big thing before agents and publishers can. In fact, they can often see an author’s career trajectory take an upward turn before the author is even aware of it.

. . . .

Employing hindsight (that clever genius), pundits have pointed out that Random House or a collection of publishers should have gotten into the e-reader device and direct e-book sales game early on. Rather than wait on a competitor to disrupt their business, they should have taken a page from Apple’s playbook and been the ones to disrupt. I’ll go one step further and use the power of hindsight to suggest something even more audacious: Publishers should have been the ones creating FREE self-publishing platforms. They should have created WattPad or their own version of Kindle Direct Publishing. Both offer ways to discover and profit from rising talent. Both offer ways to collect sales data from customers rather than relying on the infrequent and imprecise dribs and drabs of data that they get from retailers.

Link to the rest at Hugh Howey and thanks to David and several others for the tip.

Generational Divide

21 April 2014

From Kristine Kathryn Rusch:

When I was taking classes in the craft of fiction, everyone—from established professional writers to English professors—recommended that a writer never ever say that a character looked like a famous actor. No “he resembled a young Orson Welles” or “she dressed like Claudette Colbert.”

Not only was it lazy writing—the Gurus said—but, more importantly, there was no way for your reader to know exactly what you meant.

You see, kids, back in the days when you walked uphill both ways in the snow to get to your typewriter, when manuscripts were laced with white-out, and copies were made with carbon paper, old movies were hard to find.

. . . .

 But the teachers all had a point. Not only did referencing old movies make it difficult for modern readers to “see” your characters, it also dated the work. Because so much of popular culture back then was available for such a short period of time, and then it was impossible to find without an archive nearby, a good old movie house (with a lot of money), or a lot of late-night television viewing. I often memorized TV Guide, and stayed up until the wee hours to see a censored version of a movie I’d only heard about.

. . . .

 By the early 1990s, I realized I could compare my characters to movie stars, if I wanted to, and people would understand. It’s still lazy if that’s all I say—but if I’m in the point of view of say a major movie buff, it might be a great way to characterize my narrator. The option is open to me.

. . . .

 But we haven’t given much thought to the world we’re moving into. The world that so many people who were born from about 1995 to now will inhabit.

. . . .

Brian Robbins, who runs Awesomeness TV, a provider of YouTube channels (and programming) and which attract (as far as I can tell) at least thirty-one million teens and tweens. About their attitude toward programming, he says,

The next generation, our audience and even younger, they don’t even know what live TV is. They live in an on-demand world.

An on-demand world.

Think about that for a moment. Those of us raised in that blink-and-you’ll-miss-it world had a sense of urgency about everything we loved. If we didn’t schedule ourselves around a TV show, we’d miss it. If we missed the opening weekend to a film, we might not see it. If we weren’t listening to the radio during a baseball game, we might never understand the nuances—we’d have to stick with the reported coverage the next day.

That’s changed. I don’t feel any urgency at all about finding what I love. I just deleted a show to make room on my DVR, secure in the knowledge that I can pick up that series on demand when I’m ready to.

. . . .

We writers take advantage of it when we write in series. Our readers want the next book the moment they finish the previous one. E-books allow the reader to get that book at 4 a.m. on a holiday weekend in a town where there won’t be an open bookstore for another 48 hours (and even then, it’s a crapshoot as to whether or not the bookstore has the title).

But on demand has its other side.

Personally, I love it, although it does make me pickier than I used to be. Faced with the choice of programming or reading material, I can judge what I watch by mood. I need something funny tonight, or maybe I’m in the mood for a detective show, but not urban fantasy with a detective (like Grimm). Back in the day, I had to watch whatever was available on Thursday on Thursday, mood be damned.

. . . .

I think the first metric is how many people want a book within a week of its release. That doesn’t make a book an instant bestseller. It simply shows us—the writer—how many fans we’ve managed to capture.

The next metric is how many copies of the book sell over time. That time should probably be measured in year-long increments. How many copies sell in the first year? How many in the second? How many in the fifth?

Because if the book’s sales increase per year, then something is happening for that book. That something is word of mouth.

We never had a way to measure word of mouth before, because books became unavailable within weeks of their release, and went out of print within months. Now, we can see the growth as more and more people tell their friends about a title.

. . . .

The publishing industry isn’t even talking about new metrics. That idea hasn’t occurred to traditional publishing, and indie (or self) published writers are constantly seeking validation from the old system—trying to figure out ways to game the bestseller lists or to get a fantastic review from somewhere that has old-world prestige.

. . . .

The traditional publishing industry is notorious for not studying anything. What works to promote a book? Who knows. Why should they study that?

But at some point, traditional publishers are going to have to develop new ways to figure out which products sell well and which ones don’t. All of their systems—from sales figures (which measure books shipped not books sold) to bestseller lists to critical acclaim—are based on the old models.

It might take another ten years or more before traditional publishing figures out how to measure success for its various titles. What happens in ten years or more? Members of the on-demand generation will start to step into positions of power at traditional publishing companies (and everywhere else). Those future adults will want metrics that mean something to them, not things that belong to a hot autumn night accompanied by the smell of burning leaves and ancient voices on the radio.

Link to the rest at Kristine Kathryn Rusch

PG had a couple of thoughts while reading Kris’ latest business post.

First, he wonders if traditional publishing will stay around long enough to develop new ways to figure out which products to sell. There will probably be organizations named Penguin Random House, etc., but PG suspects that, like big record labels, they’ll be vastly shrunken and have less money to throw around than they do today. Certainly, they’ll have less influence over authors in general.

Second, he agrees with the suggestion not to say one of your characters looks like a famous actor.

However, that doesn’t mean you can’t use a famous actor as a source of character description.

PG did some acting in college. He was competent, but that’s about it. He did, however, perform with very good actors, including some who went on to have successful professional careers in movies, TV and on stage.

One of the things the very good actors did was always look interesting. Little things were going on with their posture, their faces, their hands most of the time they were on stage. When you were in the audience, your eye was drawn to them even when they weren’t speaking. They weren’t doing big hammy things, just subtle little things that sometimes communicated with the audience on almost a subconscious level.

In movies, really good actors usually do the same kinds of things. (What they have to do on a stage that is 30 yards from some of the audience members  is different than what they do when a camera is shooting a head-and-shoulders shot, but they’re still doing interesting things that you and I wouldn’t do if the camera was pointed at us.)

So, PG’s suggestion is to watch what an actor does when playing a character that is somewhat like a character in your book and take ideas for character descriptions from them. How do they move and what does that tell you about them? What are their mouths and eyes doing? Their hands? Perhaps it might work better with the sound off, but you might also want to analyze what’s going on with the voice as well.

Just a passing thought.

Innovation is in the blood

16 April 2014

From FutureBook:

If there was one dominant theme coming of out the London Book Fair last week it was of an industry taking a pause, drawing in a big deep breath and working out what comes next. At Digital Minds, the author Nick Harkaway said that publishers liked to reach a plateau and then wait for the next innovation to run them down.

. . . .

There isn’t a conversation I have with anyone in publishing these days that isn’t prefaced by a worried shrug, or a slightly nervous glance over the shoulder. Publishing is in confident mood right now, but that confidence is based on some brittle assumptions: that digital continues to not disrupt, and that physical book retail does not close down. Take either of those two pillars away, and all this talk of an orderly transition to digital, will vanish as quickly as a drunken tweet.

The question of what comes next, and how much we can influence that should now be foremost in our minds. Speaking at Digital Minds, Faber’s Stephen Page said it was difficult to lock a group of employees in a room (away from the wider business) and ask them to lose money for six months.

. . . .

Publishing’s other great problem is that its core product isn’t broke. What have we really found out from five years of Kindle? Readers like reading. And generally they like reading in an environment unencumbered by music, video and animation. If publishers don’t feel like their products are going out of fashion, how can we expect them to change them.

. . . .

Publishers innovate constantly but much of it occurs in niche areas, away from the glare of social media. Show me a reader in demand of a new way of reading, and I’ll show you six publishers trying to meet that demand. Show me a publisher innovating and I’ll show you six technologists explaining why they are wrong.

Link to the rest at FutureBook

Big Publishing’s inability to engage in meaningful innovation was encapsulated for PG in, “. . . it was difficult to lock a group of employees in a room (away from the wider business) and ask them to lose money for six months.”

If you’re afraid to lose money, you’ll never do serious innovation. If you think real innovation can happen on a six month time-table, you really don’t understand innovation.

This is a reflection of a classic bean-counter mentality which may be well-suited for optimizing revenue and profit in a stable business environment but practically guarantees the business will be roadkill during a period of change.

The book business is not in stasis and won’t be for awhile. Organizations that do well in a period of disruptive change are typically lead by people who are willing to bet the company on a great new idea. Jeff Bezos has done this over and over with Amazon.

And as for “taking a pause, drawing in a big deep breath,” PG doesn’t expect Amazon to do that any time soon.

Big Publishing has all the wrong people in management positions and probably can’t do anything about it.

Paper vs digital reading is an exhausted debate

2 April 2014

From The Guardian:

The digital revolution is going into a decline, Tim Waterstone told the Oxford literary festival. Well, it’s an attention-grabbing statement, ideally suited to our culture of assertive headlines, but it’s probably not true. That’s not to say that the rapid growth of digital will necessarily continue, either, certainly not in markets that are already saturated with handheld devices.

Why? Because the future is – as William Gibson told us quite a long time ago now – not evenly distributed.

. . . .

There are fewer and fewer venues where digital technology has made no impact – and where there’s a digital device, there are ebooks, at least in potential. They need not be anyone’s primary method of consuming literature, but in some situations they will be the best one. Rather than circling the wagons as other media industries did (to no good outcome, it has to be acknowleged) publishers need to learn the more recent lessons from music and film and consider, for example, providing digital copies as standard with hardback editions.

Digital will continue to grow for a while at least, and continue to exist, because it is becoming part of the world we inhabit at a level below our notice, no more remarkable than roads or supermarkets. Ebooks are here to stay because digital is, and quite shortly we’ll stop having this debate about paper vs ebooks because it will no longer make a lot of sense.

Link to the rest at The Guardian and thanks to Russell for the tip.

Different people adapt to new technologies in different ways. PG has no doubt that somewhere, people still stroll around listening to Walkmans and Diskmans. However, digital music isn’t tied to a particular device and people listen to music on their smart phones or tablets or their Sonos speakers (PG is currently in love with Sonos). Similarly, people watch digital video on a variety of different devices.

PG does think ebooks will replace paper books. For one thing, paper books require industrial-age scale to be sold at a reasonable price and still earn a profit for everyone in the supply chain. Publishers, distributors, bookstores and authors can earn money on a hardcover that costs $3 to print in China. A POD hardcover is going to require a higher price to generate the same profits or, more likely, cut organizations out of the supply chain in order to sell at a reasonable price that’s still higher than the same ebook would cost.

It’s dangerous to extend one’s own preferences and experiences to the rest of the world, but PG rarely buys paper books any more. He received a paper book in the mail yesterday because it was much cheaper as a used book than the ebook was. However, he immediately regretted the impulse purchase because he’s unlikely to read it. He much prefers a featherweight Kindle that doesn’t lose his place if he falls asleep and it slips from his fingers. PG’s stack of very good yet unread paper books is collecting dust.

Disruptive innovation is a double-edged sword

22 March 2014

From the Vancouver Business Journal:

Disruptive technology, more accurately termed “disruptive innovation,” is defined as an innovation that doesn’t just change a product, but an entire market. Classic examples include the automobile assembly line that made cars affordable commodities, and more recently, e-books and online music sharing that are ushering out traditional publishers and stifling the market for CD players.

Such innovation, said Mike Bomar, executive director of the Columbia River Economic Development Council, is a two-edged sword.

“We see disruptive technologies in two ways,” said Bomar. “They can represent major shifts that could shut down industries or make them move elsewhere. But they can also represent an opportunity if we can position ourselves to capture high-growth companies or sectors that could evolve out of the disruptive technology.”

. . . .

Thurston, chief investment officer for Ironstone Group, a venture capital firm that invests solely in disruptive businesses, said 90 percent of startup companies that concentrate on sustaining innovation fail. However, he said those who find ways to provide lower cost, more accessible, easier to use goods and services increase their survival chances to 66 percent.

. . . .

In the retail sector, said Roberts, the Internet is forcing major changes to the traditional brick and mortar business model. Consumers now have easy access to price comparisons and same-day delivery.

Link to the rest at the Vancouver Business Journal

15 Theses About the Digital Future

11 March 2014

From Pew Research:

The world is moving rapidly towards ubiquitous connectivity that will further change how and where people associate, gather and share information, and consume media. A canvassing of 2,558 experts and technology builders about where we will stand by the year 2025 finds striking patterns in their predictions.

. . . .

In their responses, these experts foresee an ambient information environment where accessing the Internet will be effortless and most people will tap into it so easily it will flow through their lives “like electricity.”

. . . .

To a notable extent, the experts agree on the technology change that lies ahead, even as they disagree about its ramifications. Most believe there will be:

  • A global, immersive, invisible, ambient networked computing environment built through the continued proliferation of smart sensors, cameras, software, databases, and massive data centers in a world-spanning information fabric known as the Internet of Things.
  • “Augmented reality” enhancements to the real-world input that people perceive through the use of portable/wearable/implantable technologies.
  • Disruption of business models established in the 20th century (most notably impacting finance, entertainment, publishers of all sorts, and education).

. . . .

The biggest impact on the world will be universal access to all human knowledge. The smartest person in the world currently could well be stuck behind a plow in India or China. Enabling that person — and the millions like him or her — will have a profound impact on the development of the human race. Cheap mobile devices will be available worldwide, and educational tools like the Khan Academy will be available to everyone. This will have a huge impact on literacy and numeracy and will lead to a more informed and more educated world population. — Hal Varian, chief economist for Google

. . . .

A summary of the less-hopeful theses comes from Bob Briscoe, chief researcher in networking and infrastructure for British Telecom, who predicted, “The greatest impacts of the Internet will continue to be the side-effects that tower so high that we do not notice they are continuing to grow far above us: 1) More people will lose their grounding in the realities of life and work, instead considering those aspects of the world amenable to expression as information as if they were the whole world. 2) The scale of the interactions possible over the Internet will tempt more and more people into more interactions than they are capable of sustaining, which on average will continue to lead each interaction to be more superficial. 3) Given there is strong evidence that people are much more willing to commit petty crimes against people and organizations when they have no face-to-face interaction, the increasing proportion of human interactions mediated by the Internet will continue the trend toward less respect and less integrity in our relations.”

. . . .

The ‘ghost of Gutenberg’ reappears and cautions humility in predictions

Jeff Jarvis, director of the Tow-Knight Center for Entrepreneurial Journalism at the City University of New York Graduate School of Journalism, wrote, “You give me no choice but to raise the ghost of Gutenberg and point out that, according to the greatest scholar on the topic, Elizabeth Eisenstein, the impact of the book on society was not fully realized until 100 years after the invention of the press. The book itself did not take on its own shape in form, content, and business model, departing from its scribal roots, until half a century after Gutenberg. The impact of the press — the physical impression of ink on paper — is only now, 600 years later, diminishing.   In the development of the net and its impact on society, we are at 1472 in Gutenberg years. John Naughton, a columnist for London’s Observer, asks us to imagine the good citizens of Gutenberg’s hometown, Mainz, using Gutenberg’s folly to predict the undermining of the authority of the Catholic Church; the birth of the Reformation and scientific revolution; the transformation of education, changing our sense even of childhood; and I would add, upheaval in our notion of nations. Today, we wouldn’t know our Martin Luther if he hammered on our door.   Consider the change brought by the web its first 20 years and now you ask us to predict the next dozen? Sorry.”

Link to the rest at Pew Research

Declarations and forecasts of Great Change in the book business need specificity to be useful and often do not provide it

5 March 2014

From veteran publishing consultant Mike Shatzkin:

The extended discussion in the comment string of the prior post had to do with to what extent publishers serve authors, and to what extent authors are better off eschewing publishers and working on their own. Unless and until publishers turn digital marketing at scale into a clearly compelling proposition, their power to serve authors effectively diminishes with each closing bookstore. The less bookstore- (or brick-and-mortar retailer-) dependent any book is, the less additional benefit in sales and exposure can be delivered by a publisher (although a cash advance and somebody to handle all the business aspects of putting a book out will still be both helpful and persuasive to many authors). Bookstore shelf space, and printed books, seem to be suffering slower erosion over the past year or two than they did in the several years before that. Michael Cader has made a convincing case that we actually know that for a fact. But, even if we accept the fact, whatever erosion continues will affect different books and authors to different degrees.

. . . .

So generalizations about the book business, whether they come from a self-published author or an industry expert like O’Leary, really require us to do a little parsing to make them useful. We’d be steering toward a more constructive conversation if we posed three questions every time somebody posits a Great Change we will see in the book business.

1. Which books, exactly, should we expect to be affected by this particular Great Change? This is necessary to specify now that most people would agree that “books” has become a pretty worthless generalization.

2. How soon can we expect a meaningful change in the perceived utility, and therefore the demand, for the affected books? That is, are we talking about a change that is already happening and evident and having a commercial impact (travel books are suffering and have been for years) or one we expect to see in the future (readers abandoning longer form books for shorter content choices) for which we might have only the scantiest evidence is affecting commercial reality today?

3. How likely is it that whatever the Great Change is going to be that publishers are well-positioned to affect or control or accommodate it? Brian suggested, and I wholeheartedly agree, the answer is “often not”. That being the case, the prediction of the Great Change should not necessarily be accompanied by the prescription that the publisher should change behavior to address it, although it seems to me they almost always are.

. . . .

Could a publisher of travel books have created Trip Advisor? Does the publisher-created Cookstr do the job of digital assistance for a cook better than allrecipes.com or cookbooks.com or betterrecipes.com? It doesn’t take a lot of deep thinking to see that a publisher’s skill sets are not the best match for building an interactive internet business where content is a component of the strategy but everything else about it is different from publishing books.

Over time, I expect the book business is going to get smaller, whether the number of books consumed goes down or not. Among the reasons for that is that, over time, the intrusion of self-publishing entities will be even more disruptive than self-publishing authors have been.

. . . .

Whether “book publishing” or “book retailing” shrinks, disappears, or changes form depends on how widespread across the various silos of interest and utility we call “books” today are the many disruptions that will affect those verticals in different ways and at different speeds. And generalizing about what these changes mean, let alone delivering advice that isn’t informed and bounded by an understanding of how any particular book or author or publishing program fits into the time and scale of any particular change, is as likely to be wrong and harmful as it is to be correct and illuminating.

Link to the rest at The Shatzkin Files

While PG sometimes disagrees with Mike, he usually thinks what Mike says makes sense when viewed from the perspective of an established publisher.

This post is pretty loosey-goosey, however.

What is happening to the publishing business begins with technology disruption – ecommerce and ebooks – and is manifesting itself in a massive restructuring of the publishing business that involves the disintermediation of traditional publishers, distributors and booksellers from readers.

Complaining that the precise boundaries and directions of this tumultuous change are not being forecasted with useful precision sounds a little like a surfer complaining that nobody can specifically describe what the next wave will look like.

One of the reasons disruptive change is interesting is that it’s impossible to forecast with specificity.

If Apple hadn’t rehired Steve Jobs in 1997, the music business would look much different than it does today.

Yes, digital music would exist and portable digital music players would be sold in large numbers, but the contours of the digital music business would not be the same as they are with iTunes, iPods, iPhones and iPads. A Microsoft-driven digital music business would look much different than an Apple-driven digital music business or a record-label driven digital music business.

Likewise, the ebook world would look much different if Jeff Bezos still worked for a hedge fund and Sony had led the market into ebooks.

One thing that is clear is that some individuals and some businesses respond better to disruptive technologies than others do.

So far, in PG’s persistently modest opinion, Big Publishing has been remarkably inept in its responses to ebooks and ecommerce. It’s not a business that is tech-savvy or tech-friendly, for one thing. It’s not a business that really wants to change, for another.

The fact that major publishers are owned by large media conglomerates (another group without a lot of tech chops) is a huge disadvantage in a dynamic and rapidly-changing technology and business environment. No big media conglomerate will allow a large subsidiary to lose money or fail to deliver steady profits like the stock market permits Amazon to do.

Mike and Big Publishing want predictability in a business which has become and will remain generally unpredictable for a while. Too bad they can’t choose a different business.

Konrath’s Publishing Predictions 2014

30 December 2013

From Joe Konrath:

I’ve been looking to the future, wondering what is going to happen next, and I’ve got a few equally wild ideas.

1. The end of Barnes & Noble as we know it. In 2014, paper book sales will no longer be significant enough to sustain the nation’s largest bookstore chain. There may be bankruptcy and restructuring and the selling of assets (like the Nook), but ultimately it will result in many stores closing, and possibly the demise of the brand.

. . . .

4. Indie bookstores will need to start selling self-pubbed books, or perish. Paper isn’t going away anytime soon. But there won’t be enough of a legacy supply that will keep the necessary number of diverse titles on shelves to make indie stores a worthwhile destination for shoppers. If indie bookstores deal directly with self-pubbed authors, and print their own copies to sell in their stores, they can build inventory and cut out the share normally taken by publishers.

. . . .

5. Visibility will become harder. As more ebooks get published, and virtual shelf space expands, it is going to become harder to find eyeballs. Ebooks aren’t a competition–readers buy what they want to, without limits, even if TBR piles become impossible to ever finish within a lifetime. So someone who buys my ebook will also buy yours; there is no either/or. But only if the reader is aware of both.

The future will be about actively cultivating a readership. So far we’ve been lucky. With KDP Select and BookBub, authors have been able to get visible without reconnecting with longtime readers. There have always been enough new readers to sustain sales. But I believe maintaining a fanbase is going to become increasingly more important.

That means having an up-to-date website, making it easy to sign up for your newsletter, staying active in social media, and regenerating your brand with new titles and continued promotions.

My prediction: self-pubbed authors who don’t focus on their current, core readership will see sales diminish.

. . . .

7. Big 5 mergers and layoffs and bankruptcies. As the publishing cartel loses its quasi-monopoly on paper distribution, there will be no way to support its infrastructure. Manhattan rent, in-house employees with benefits, length of time to publish, and the temptation for authors to avoid legacy and self-pub, will bring down the industry. There is too much waste, their share of the pie is getting smaller, and when B&N disappears there will be no way to recover.

Link to the rest at A Newbie’s Guide to Publishing and thanks to Ant for the tip.

A Look Back At How The Content Industry Almost Killed Blockbuster And Netflix (And The VCR)

29 December 2013

From TechCrunch:

In 1977, the first video-rental store opened. It was 600 square feet and located on Wilshire Boulevard in Los Angeles. George Atkinson, the entrepreneur who decided to launch this idea, charged $50 for an “annual membership” and $100 for a “lifetime membership” but the memberships only allowed people to rent videos for $10 a day. Despite an unusual business model, Atkinson’s store was an enormous success, growing to 42 affiliated stores in fewer than 20 months and resulting in numerous competitors.

In retrospect, Atkinson’s success represented the emergence of an entirely new market: home consumption of paid content. It would become an $18 billion dollar domestic market, and, rather than cannibalize from the existing movie theater market, it would eclipse it and thereby become a massive revenue source for the industry.

Atkinson’s success in 1977 is particularly remarkable as the Sony Betamax (the first VCR) had only gone on sale domestically in 1975 at a cost of $1,400 (which in 2013 U.S. dollars is $6,093). As a comparison, the first DVD player in 1997 cost $1,458 in 2013 dollars and the first Blu-ray player in 2006 cost $1,161 in 2013 dollars. And unlike the DVD and Blu-ray player, it would take eight years, until 1983, for the VCR to reach 10 percent of U.S. television households. Atkinson’s success, and that of his early competitors, was in catering to a market of well under 10 percent of U.S. households.

While many content companies realized this as a massive new revenue stream — e.g. 20th Century Fox buying one video rental company for $7.5 million in 1979 — the content industry lawyers and lobbyists tried to stop the home content market through litigation and regulation.

The content industry sued to ban the sale of the Betamax, the first VCR. This legal strategy was coupled by leveraging the overwhelming firepower of the content industry in Washington. If they lost in court to ban the technology and rental business model, then they would ban the technology and rental business model in Congress.

. . . .

While Sony won at the district court level in 1979, in 1981 it lost at the Court of Appeals for the Ninth Circuit where the court found that Sony was liable for copyright infringement by their users — recording broadcast television. The Appellate court ordered the lower court to impose an appropriate remedy, advising in favor of an injunction to block the sale of the Betamax.

And in 1981, under normal circumstances, the VCR would have been banned then and there. Sony faced liability well beyond its net worth, so it may well have been the end of Sony, or at least its U.S. subsidiary, and the end of the VCR. Millions of private citizens could have been liable for damages for copyright infringement for recording television shows for personal use. But Sony appealed this ruling to the Supreme Court.

. . . .

After an oral hearing, the justices took a vote internally, and originally only one of them was persuaded to keep the VCR as legal (but after discussion, the number of justices in favor of the VCR would eventually increase to four).

With five votes in favor of affirming the previous ruling the Betamax (VCR) was to be illegal in the United States (see Justice Blackmun’s papers).

But then, something even more unusual happened – which is why we have the VCR and subsequent technologies: The Supreme Court decided for both sides to re-argue a portion of the case. Under the Burger Court (when he was Chief Justice), this only happened in 2.6 percent of the cases that received oral argument. In the re-argument of the case, a crucial vote switched sides, which resulted in a 5-4 decision in favor of Sony. The VCR was legal. There would be no injunction barring its sale.

The majority opinion characterized the lawsuit as an “unprecedented attempt to impose copyright liability upon the distributors of copying equipment and rejected “[s]uch an expansion of the copyright privilege” as “beyond the limits” given by Congress. The Court even cited Mr. Rogers who testified during the trial:

I have always felt that with the advent of all of this new technology that allows people to tape the ‘Neighborhood’ off-the-air . . . Very frankly, I am opposed to people being programmed by others.

On the absolute narrowest of legal grounds, through a highly unusual legal process (and significant luck), the VCR was saved by one vote at the Supreme Court in 1984.

. . . .

In 1982 legislation was introduced in Congress to give copyright holders the exclusive right to authorize the rental of prerecorded videos. Legislation was reintroduced in 1983, the Consumer Video Sales Rental Act of 1983. This legislation would have allowed the content industry to shut down the rental market, or charge exorbitant fees, by making it a crime to rent out movies purchased commercially. In effect, this legislation would have ended the existing market model of rental stores.

. . . .

As Jack Valenti, president of the Motion Picture Association of America (MPAA), explained before Congress in 1982:

We are going to bleed and hemorrhage, unless this Congress at least protects [our industry against the VCR]. . .we cannot live in a marketplace. . . where there is one unleashed animal [the VCR] in that marketplace, unlicensed. It would no longer be a marketplace; it would be a kind of a jungle, where this one unlicensed instrument is capable of devouring all that people had invested in…

Valenti’s comments were stark and designed to scare Congress to act: “I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.” Jack Valenti even threatened that if Congress didn’t regulate the VCR then movie producers may cut their movie production in half.

. . . .

One year after the Sony case, with the legal issues on less precarious grounds, David Cook opened the first Blockbuster store in in Dallas, Texas, in 1985. Within two years it became one of the top 10 video-rental chains with 67 stores. Blockbuster expanded outside the U.S. with over 1,000 stores in 1989. And by 1992, Blockbuster was the undisputed video-rental leader with over 2,800 stores worldwide.

. . . .

Marc Randolph and Reed Hastings founded Netflix in 1997 with a completely different market model. As Larry Downes explains in the Harvard Business Review:

The scrappy start-up built a distribution model that relied exclusively on mailing DVDs to customers through the low-cost U.S. postal service. It was almost as convenient as a neighborhood retail store but at a fraction of the price—and without the late fees that annoyed Blockbuster customers.

Reed Hastings has explained that the idea of Netflix came to him when he was forced to pay $40 in overdue fines after returning Apollo 13 past its due date.

In 2002 Netflix went public. Early on the bandwagon of streaming video, by 2010, Netflix went from “being the fastest-growing first-class mail customer” to being the “biggest source of streaming Web traffic” during peak evening hours. The old brick-and-mortar-style rental market was being disrupted at an incredible pace, and Blockbuster was ultimately unable or unwilling to adapt. By the time Blockbuster realized these market trends and disruption, it was too late.

Link to the rest at TechCrunch

Target Refuses To Sell Beyonce’s New Album

18 December 2013

From The Huffington Post:

If you were planning on heading down to your local Target to buy the new Beyonce album, think again.

Target has opted out of selling “Beyonce” at its stores once iTunes’ exclusive sale ends after Dec. 18, according to Billboard. Retailers are expected to have the album on shelves by Friday, Dec. 20, but it likely won’t come with any bonus material or exclusive content.

“At Target we focus on offering our guests a wide assortment of physical CDs, and when a new album is available digitally before it is available physically, it impacts demand and sales projections,” Target spokesperson Erica Julkowski told Billboard. “While there are many aspects that contribute to our approach and we have appreciated partnering with Beyonce in the past, we are primarily focused on offering CDs that will be available in a physical format at the same time as all other formats. At this time, Target will not be carrying Beyonce’s new self-titled album ‘Beyonce.’”

. . . .

Back in 2011, Beyonce partnered with Target for the release of “4″ with a deluxe version of the album.

. . . .

This time around, Beyonce’s only target was her fans.

. . . .

“Now … it’s all about the single and the hype,” Beyonce said. “It’s so much that gets between the music and the artist and the fans. I felt like I don’t want anybody to give the message when my record is coming out. I just want this to come out when it’s ready and from me to my fans … I would make my best art and just put it out.”

Link to the rest at The Huffington Post and thanks to Alexei, who thinks there’s a parallel to publishing, for the tip.

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