Silicon Valley Insider
Kindle Milestone: Amazon Sold More Kindle Books Than
Physical Books On Xmas
Henry Blodget | Dec. 26, 2009, 2:26 PM | 7,738 | 16
Dec 29 2009, 05:20 PM EST
Change % Change
Amazon's Kindle hit an important and startling milestone yesterday: On Christmas, the
company sold more Kindle books than physical books.
Yes, this is obviously the result of everyone who got a Kindle for Christmas (lots of
folks) firing it up and ordering a bunch of eBooks on a day in which most physical-book
readers weren't shopping. But it's still important and impressive.
The Kindle's economics are still lousy for Amazon: The company loses money on new
releases and makes only a modest amount on older titles, thus losing an estimated $1 per
That said, Amazon's strategy is clearly to drive "ubiquity," and based on stats like those
above, it is succeeding. The more Kindle books Amazon sells, the more leverage it will
have over publishers when it tries to force them to cut wholesale prices. If Amazon's
Kindle momentum continues, the day publishers have to capitulate will come sooner
rather than later.
And, despite publishers' cries, this is not necessarily bad for publishers: If publishers cut
wholesale prices, Amazon will be able to cut retail prices. If the retail prices are cut to
nominal levels--$2.99 or $3.99 per copy--sales velocity should soar. Publishers and
writers will make less per unit, but the increased volume should make up a lot of the
Amazon's Latest eBook Deal Is A Watershed, Will
Increase Pressure On Publishers
By Rory Maher, CFA | Dec. 15, 2009, 6:10 PM |
This is a report from our premium subscription research service The Internet Analyst.
To subscribe or sign up, please visit www.tbiresearch.com.
Amazon signed an exclusive deal for the eBook rights to two bestsellers by Stephen R.
Covey. This is a watershed deal. The economics are not unusual for Amazon, but--for
once--they are good for the author. By giving writers a way to make more money by
dealing directly with Amazon, the deal could begin to put pressure on other publishers to
change the way they view eBooks.
Specifically, the deal could shift difficult discussions currently being held between
Amazon and book publishers in Amazon's favor since it:
• Sets a precedent for authors owning the digital rights for back titles, which
could lead to writers cutting out the middleman and distributing direct to
• Pays 50% royalties to the author, setting the stage for a very public case in
which an author could make more money selling e-books currently than
WHOLESALE PRICE TO AMAZON IS SIMILAR TO OTHER E-BOOK DEALS
We spoke with someone close to the deal who said that it closely resembles a typical e-
book deal, except for the larger royalty to the author.
Specifically, the wholesale price paid by Amazon to Rosetta Stone books (the publisher)
is likely close to those paid for other comparable older e-book titles. On older books, we
estimate that Amazon nets between $0 to $1 in profit per Kindle copy sold. (Amazon
loses money on new books).
Rosetta, meanwhile, is giving half of the overall revenue to the author, but it should make
a profit since there are minimal production and marketing costs involved.
LEGAL PRECEDENT GIVES SOME AUTHORS ABILITY TO DEAL
DIRECTLY WITH AMAZON
There is an important legal precedent here, one that could give Amazon a huge advantage
in dealing with authors and publishers who published books more than a decade ago. (In
those days, print publishers did not explicitly buy rights to electronic books, whereas they
Rosetta Stone went through a lengthy legal battle with Random House back in 2001 in
which it won the rights to sell e-books on its titles. This precedent will make it difficult
for publishers to successfully sue authors and digital publishing shops for the digital
rights to back titles.
The precedent should give authors the ability to "go direct" and cut better deals with
Amazon. This, in turn, may allow Amazon to acquire the rights to books for less than
they would if a traditional publisher were involved.
Publishers who do sue for electronic rights risk losing leverage in discussions
because they will likely be seen as "the bad guy" suing authors in order to squeeze
more money out of them. A better alternative may be to simply try to negotiate the best
deal possible with authors, assuming many of them don't cut direct deals with e-book
In addition, there is a competitive issue at play as well. If a large battle for e-book rights
ensues in which publishers team up in court to agressively go after digital rights, the case
will likely be led by a single publishing house with the others playing lesser roles in the
legal process. This makes the lead plaintiff look potentially worse to authors than its
competitors which could make it easier for its competitors to sign new authors. So,
publishers could have a difficult time coming together to team up on an issue like this in
AMAZON HAS NOW DEMONSTRATED IT CAN GO IT ALONE
Amazon is the largest e-commerce site in the world and already has a large installed base
of readers buying the print and audio editions of the e-books it sells. If Amazon is able to
succesfully use its massive reach to drive a material amount of book sales off of these
exclusive Covey releases it will have demonstrated to authors that it can sell e-books
directly with Amazon. This will provide more motivation for authors to cut out the
middleman and go direct to Amazon.
None of this will make any difference to the near-term Kindle reality: Amazon loses
money on most books it sells. In order for the Kindle to become the big money-maker
that most analysts expect, traditional publishers will have to cut the wholesale prices at
which they are selling eBooks to Amazon. We have seen no evidence yet that this is
Amazon Making No Headway In Talks With Publishers
About Cutting Kindle Book Prices
By Rory Maher, CFA and Henry Blodget | Nov. 30, 2009, 8:52 AM | 2
This is a report from our premium subscription research service The Internet Analyst.
The Internet Analyst is currently in beta, with a formal launch coming towards the end of
2009. To sign up for a free beta trial, please submit your name and email address here.
Kindle sales and profit forecasts are running wild. Key to the bullish assumptions is the
idea that publishers will soon cut wholesale prices on e-books, allowing Amazon to start
making money on them. In the meantime, Amazon is losing its shirt, selling e-books for
about $1-$1.50 less than the wholesale price it pays.
The negotiations between book publishers and e-reader distributors like Amazon
will determine how large and profitable the e-reader market will become. So we
called a number of book publishers to see how these discussions are progressing.
Here are the key points:
Publishers are showing no willingness to cut wholesale prices for e-books. Thus,
neither wholesale nor retail prices on e-books are changing anytime soon, which means
Amazon will continue to lose money on e-books for the foreseeable future.
Amazon is probably making a small gross profit from older titles like paperbacks -
likely about $0.50 to $1 per book. This is because the wholesale price for these titles is
lower than it is for new books. So the near-term picture for Amazon is slightly less dreary
than we originally thought.
But older books (paperbacks, etc.) only account for about 50% of sales, so Amazon's
average loss per book is likely $1-$1.50.
FOR NOW, NEITHER SIDE IS BUDGING
Industry sources indicate that neither book publishers nor e-book retailers like
Amazon are currently willing to compromise their positions. Amazon is refusing to
raise retail ebook prices, and publishers are refusing to cut wholesale prices. Unless/until
this changes, e-books will be a money-losing business for Amazon.
The book publishers can suggest a retail price, but there is very little point-by-point
negotiations occurring to work out deals that are profitable for both parties.
A group of literary agents recently visited Amazon to convince the company to raise their
retail prices. The argument they made was that prolonged discounts in pricing will hurt
sales for both parties over time because high quality authors will stop writing as much
since their incomes will have been considerably damaged (we go into more detail below).
The meetings went nowhere and both sides left having not agreed on anything.
Most publishers we spoke with believe that Amazon will eventually have to increase
its retail price if the publishers hold their ground. For now, Amazon hasn’t gained
enough leverage through sales of the Kindle to make publishers change their mind
in that regard.
PUBLISHERS ARGUE THAT BOOK QUALITY WILL DECREASE, HURTING
OVERALL BOOK SALES FOR PUBLISHERS AND DISTRIBUTORS
To some degree publishers have their hands tied since they need to compensate authors
enough to keep them writing. Enabling a further decrease in book prices only hurts their
ability to do this since author royalties are paid off of retail sales.
If e-book prices remain low, publishers argue that:
• Royalties to authors will decrease and won’t be able to support books that take
several years to research and write.
• Authors will stop writing quality books since they won’t be able to support
themselves given the amount of time and resources invested in researching and
preparing the books.
• This would lead to fewer people buying books, which would hurt revenue growth
for both publishers and e-readers.
Companies like Amazon are content to wait and see if publishers finally cave and cut
THERE ARE ONLY A FEW WAYS THIS CAN END
Publishers offered a variety of different ways the pricing battle could play out, including:
• Books are sold for less and are commoditized, leading to fewer quality books
• E-books are sold at a discount, but are sold after hardcopies are released, similar
to the way paperbacks are currently released.
• Some kind of model is developed where e-books are sold as part of a hard copy
purchase (not a lot of specifics here).
A more likely result is that Amazon wins and books are sold at lower prices. This
would likely lead to consumers buying more books. In theory, this could lead to
essentially the same amount of overall revenue for publishers, e-readers, and
In theory. But secular trends of declining book readership are continuing, and we don’t
see this trend easing anytime soon. The book, unfortunately, is an outdated format and
VERY FAINT SIGNS E-BOOKS MAY DRIVE INCREMENTAL SALES
The one thing companies like Amazon and book publishers appear to agree on is that
they both hope e-book sales will prove to be incremental, not substitiutional.
Unfortunately, most publishers we spoke with thought e-books would largely be
substitutional, which does not bode well for those hoping publishers will lower their
wholesale e-book prices anytime soon.
We caution that data is limited, but we did hear of a few examples of authors claiming e-
books sales boosted their overall book sales through incremental purchases. These
ranged from modest bumps to a 50% increase.
These were isolated examples and did not include blockbuster authors, but if this trend
continues it would support the case that e-books could drive incremental book sales or
that lowering prices on books across the board could lead to a greater volume of sales.
APPLE HAS HELD PRELIMINARY DISCUSSIONS, BUT NOTHING
Right now competition does not impact wholesale pricing much – each e-book distributor
must pay the same price and most e-book prices are currently similar across the board.
Apple has held preliminary discussions with the trade book publishers, but little contact
has been made the past six months. We believe this is likely because Apple’s tablet
release is not imminent, the company is negotiating with other content providers first, or
that the company is waiting until the last minute to cut content deals in order to avoid any
leaks about the tablet.
Spring Design Strikes Deal With Google To
Bring More Books To Its Alex eReader
by Robin Wauters on January 5, 2010
Spring Design , developer of the dual-screen Alex eReader
, has struck a deal with Google that gives users of the device access to more than one
million Google Books online or downloaded using Alex’s touch-screen browser and
search apps. Spring Design is set to debut its Alex eReader at the Consumer Electronics
Show in Vegas later this week.
The device will feature a Google Android-based platform with full Web browsing
capabilities, Wi-Fi connectivity, audio and video playback and image viewing in a variety
of formats. The Alex eReader will also be able to run a number of Android apps.
The Alex eReader boasts a 6” EPD (Electronic Paper Display) screen which allows users
to browse the Web in full color while simultaneously searching for and reading digital
books. Users can thus click on hyperlinks within online books that lead to relevant
information or multimedia content found online in order to enrich their reading
experience. EPUB digital books can be searched and downloaded using Google API
applications provided by Alex’s eReader.
Spring Design made headlines late last year when it sued Barnes & Nobles for alleged
infringement by stealing trade secrets and copying features from the Alex eReader for its
Nook product. Google, meanwhile, is still caught up in litigation with authors and
publishers over its Book Search product, although preliminary approval of a settlement
was reached on November 19, 2009.
Future Is Here: More E-Reading Apps Debut at CES
Erik Sass, Jan 06, 2010 05:40 PM
New e-reader apps and devices are hitting the market at a furious pace, and this year's Consumer
Electronics Show in Las Vegas is a favorite venue for unveiling new entries. The profusion of free
downloadable software apps, in particular, promises some kind of social and technical shakeout in
the years to come.
The most recent software app announced at CES, Blio, comes from knfb Reading Technology, a
company founded by futurist Ray Kurzweil, the inventor of voice-recognition, and the Federation
of the Blind.
Originating as an app to help people with impaired vision read digital content more easily, knfb is
marketing Blio to mainstream consumers. Blio aims to preserve the visual format of books and
magazines, including layout, type, images and colors, while also enabling an array of digital
media, like online video and interactive Web.
Compatible with desktop and tablet PCs, netbooks, iPhones, iPods and other mobile devices, the
free app allows users to make "notes" by saving additional images, video and voice content
alongside digital content. It also compiles lists of relevant Web references.
Blio offers users access to 1.2 million titles through a partnership with book distributor Baker &
Taylor, Kurzweil said. Like other e-reader services, Blio stores digital editions purchased by the
user in a virtual library, but unlike some other services, the user can access this virtual library by
various means, including mobile devices, desktop and tablets, allowing them to "transfer" the
reading experience between devices.
Kurzweil also touted its color capabilities as a significant improvement over competing services,
which are for the most part limited to monochromatic reproductions of print content, noting the
importance of color to reader experience for content like cookbooks, travel guides, how-to books,
textbooks and children's stories.
On the device front, the Consumer Electronics Association predicts e-reader sales will double this
year, compared to 2009, then again by 2012. Earlier this week, Skiff, LLC previewed its new
Skiff reader at CES. The reader, created at the behest of magazine and newspaper publisher
Hearst, has its own Skiff e-reader app, which should be compatible with content from other
Latest E-Readers Come From Samsung, Lacking a Little
Comes to Market With Google Books, but Promises More Soon
By Michael Learmonth
Published: January 07, 2010
Samsung execs believe that if they make the reader, the content will come.
LAS VEGAS (AdAge.com) -- Does the world need another e-reader? Samsung thinks so.
In addition to the flashy 3-D TVs and Blu-ray players that Samsung rolled out at the
Consumer Electronics Show in Las Vegas, the company has also jumped into the e-reader
fray with two models sporting features such as a stylus pen for writing and the ability to
share content wirelessly.
Both the E6 and bigger E101 ($400 and $700, respectively) will go on sale early this
year, but one key component is missing: content. Initially, Samsung's e-readers will only
have access to Google Books, mostly comprising out-of-print titles and books in the
Why put an expensive reader in the market without content? Samsung execs believe that
if they make the reader, the content will come. Samsung spokesman Jason Redmond said
that with Amazon's Kindle, Barnes & Noble's Nook and Sony's e-readers in the market,
Samsung would be able to reach deals with publishers.
And consumer demand
for devices and e-books
alike seems to be
growing. A new Parks
Associates report says
7% of those with
at home are considering
buying an e-reader in the
next 12 months.
Amazon, which has been
touting the success of
the Kindle but providing
no solid numbers, said
that on Christmas Day
its digital book sales
exceeded physical book
sales -- a first.
Samsung has also
launched its own app store, "Samsung Apps," which now sells applications for TVs and
Blu-ray players but will be adapted to Samsung's e-readers as well, allowing the company
to sell books and deliver them wirelessly.
Mr. Redmond kept mum, however, on the economics; Amazon keeps as much as 70% of
newspaper sales revenue, and publishers are eager to license competitors on better terms.
Last month Plastic Logic and Sony were already spotted cozying up to publishers by
offering better cuts of revenue and more information on consumers.
The Business Insider
Apple Tablet Better Positioned Than Kindle To Go
After Newspaper/Magazine Market
Rory Maher, CFA: firstname.lastname@example.org
January 4, 2010.
Apple's forthcoming tablet is emerging as a much-anticipated competitor to Amazon’s Kindle. The tablet will
likely have two competitive advantages over the Kindle when it comes to selling digital versions of
newspapers and magazines:
• Lower content delivery costs, which should enable Apple to cut deals with newspapers and
magazines that are more favorable for the publishers than Kindle deals.
• Better graphical features
LOWER WIRELESS DELIVERY COSTS WILL ENABLE APPLE TO CUT BETTER CONTENT DEALS
Newspapers and magazine e-reader files are typically a lot larger than book files since they host more
graphics and illustrations (most books are simple text). Therefore, it costs Amazon a significant amount of
money to deliver newspapers and magazines to its Kindle device since Amazon picks up the wireless bill for
content delivery, not the consumer.
An executive from an e-reader company estimates the delivery cost of a single newspaper or magazine
subscription on a wireless device like the Kindle could be as high as $3 per month. That’s a lot when you’re
only selling subscriptions for upwards of $10 a month. Here is how the executive arrives at this estimate:
• Low-single-digit cost per MB data delivery fee
• 4 GB average file size (could be bigger depending on the publication).
• 25 deliveries per month, or 100 GB total data usage per month.
Apple, on the other hand, partners with carriers for its portable devices (like the iPhone/ATT relationship)
and passes the delivery costs to the consumer through unlimited data plans. The lower overhead enables
Apple to cut better content deals with magazines and newspaper publishers, which we’ve heard
Apple has been doing.
We should note that sophisticated computing functionality could consume a greater amount of bandwidth,
which could make it difficult for Apple to pass these costs to consumers.
Industry contacts indicate Apple is offering splits of anywhere from 50/50 to 30/70 in favor of the
publisher and not asking for exclusivity. These terms are much better than Amazon’s, which typically
gives less than half the revenue to publishers.
APPLE TABLET BETTER REPLICATES EXPERIENCE OF READING PRINT MAGAZINES AND
Apple has released no details about its tablet. But, there has been plenty of speculation surrounding its
general features, which we believe are more suited to reading graphical and image-rich newspapers and
magazines than the Kindle is.
• A display size 7” to 10.”
• Full color display with illustrations and graphics.
• Touch-screen technology.
Reflections of a Newsosaur
Musings (and occasional urgent warnings) of a veteran media executive, who fears our
news-gathering companies are stumbling to extinction
Friday, January 08, 2010
Holy Moses! Media need to gear up for tablets
Most media companies are better equipped to deal with the tablets Moses hauled down
Mount Sinai than the dazzling new gizmos coming from Apple, Microsoft and a host of
other technovators. This has to change fast.
As my friend Mark Potts ably noted here, tablets have the capability of
revolutionizing newspapers, magazines, book publishing, television, movies,
communications, applications and gaming. They also will further stress the
tattered advertising and subscription models on which the change-averse legacy
media continue to rely.
Tablets will the rock media as much, if not more, than the Internet, because they
will powerfully combine ubiquitous connectivity, elegant displays, powerful
computing and extreme portability. As the future Swiss Army knife of media
platforms, they have the potential to obsolete not just print, broadcast television
and Filofaxs but also desktops, laptops and smart phones.
Tablets demand a fresh approach to content and advertising that leverages the
capabilities of this new medium in the same way TV required pictures and action,
instead of stiff announcers recycling radio fare.
The first, feeble shot of the tablet revolution was fired on Wednesday when Steve
Ballmer, the chief executive of Microsoft, showed off (video) a trio of pending
products at the Consumer Electronics Show.
Ballmer did little to take the edge off the fevered expectation that Apple will
debut a tablet of its own on Jan. 27. By most accounts, the upcoming iSlate, if
that indeed is the name of the new Apple offspring, will look a lot like an iPhone
fitted with a 9.5-inch diagonal screen vs. the 3.5-inch display on the original,
ground-breaking smart phone.
With the first tablet computers headed to the marketplace, it’s already late for the
slow-poke media companies to begin thinking about how to leverage this new
But starting late is better than not starting at all. They have a limited amount of
time to get it together, because widespread tablet adoption probably will have to
wait until iPhone fanciers can work off the two-year indentures imposed by
To their credit, a few media companies (be sure to see this must-watch video
from Sports Illustrated) have put serious cycles into thinking about tablets. But
even the best of the early efforts appear to have fallen short, because the legacy
media guys are focused – as they were when the web debuted – on repurposing
their existing offerings.
With tablets about to up the ante for the interactive publishing, here are the key
things media companies must do to adapt:
:: Enrich. Equipped with bigger and better screens, faster processors and, one
can only hope, improved network connectivity, tablets will provide dramatic,
multimedia presentation for both news and advertising. While video to date has
been an afterthought, if not to say an unwelcome intrusion, for print media, it will
be de rigueur in the tablet environment. Deeper and easily searchable video
offerings will be necessary for media outlets of every kind. Because tablet readers
will be assimilating information at unprecedented rates, graphics and other
forms of visualization will be essential to inform and engage audiences.
:: Alert. Because tablets will be highly portable, always on and the focal point for
all manner of professional and personal communication, nearly all media
offerings will have to include real-time content delivery like never before. As you
can see by sampling such early experiments in insta-journalism as the beta
versions of Nozzl News or Thoora.Com, this is easier said than done. However,
publishers who cannot efficiently produce continuously captivating news
products will suffer diminished relevance.
:: Personalize. Apart from a few users who attempt to protect their private
activities, almost everything people do on tablets will be tracked: web searches,
sites visited, articles read, videos viewed, phone calls, purchases, restaurants
reviewed, calendar entries and financial information. Owing to global-positioning
systems embedded in every unit, the devices not only will know your precise
whereabouts but also which direction you are headed. Based on where you are
standing, smart-phone applications like Urban Spoon can suggest a place to dine.
Thanks to Loopt, the GPS-enabled social network, you can figure out where to
meet friends or avoid your ex.
:: Assist. The download of more than 2 billion of the 100,000 available iPhone
applications is a powerful demonstration of the potential utility consumers will
find in their tablets. Apps do everything from dictating emails and providing
driving directions to counting calories and organizing expense accounts. There’s
even a Genius app to help you find more apps. While many media companies
have created more-or-less elegant apps to port their legacy content to the iPhone,
precious few have had the good sense to charge for them. Meantime, Mom and
Pop developers around the globe have built six- and seven-figure businesses by
selling games, virtual drum sets, alarm clocks and cocktail recipes for as little as
99 cents a download.
:: Target. By harnessing the above capabilities, publishers can create highly
individualized news and entertainment products that represent highly targetable
advertising opportunities. Putting the right pitch in front of the right person at
the right time is the Holy Grail of advertising. Marketers will reward publishers
handsomely for doing it and will forsake the ones who can’t.
Given the more than 15 years we have been waiting for most legacy media
companies to develop Internet-literate products, there is reason to fear they will
not segue smoothly into tablet computing.
Because tablets represent the last, best do-over for media companies, however,
here’s hoping the continuing erosion of their traditional businesses will impel
them to act before it’s too late.
How The New York Times Should Charge For Content
A storm has been brewing at The New York Times for a while now. Ever since
TimesSelect—the paid digital version of the Times—was canceled back in 2007, the
“content wants to be free” crowd has danced around its proverbial grave, singing the
equivalent of “ding, dong, paid media is dead.”
Now, NYTimes.com is reportedly considering erecting a new pay wall—one presumes a
shiner, prettier one than the last wall, but a pay wall nonetheless. Not to put too fine a
point on it, but this is a bad idea whose time has unfortunately come.
First, let’s look at what NYTimes.com risks by shutting off the free flow of its particular
mix of cultural elitism. For argument’s sake, let’s accept Compete.com’s view of
NYTimes.com at about 15 million visitors per month, compared to the WSJ.com‘s
smaller 11-plus million. It’s safe to assume that traffic will go down, even providing that
some brand-critical content will remain free (please don’t cut off my David Brooks drip,
please). The question is whether the traffic will get cut by 80 percent, as our survey
would indicate, or whether it will end up somewhere less damaged, cut, say, by 30
percent—though with far fewer page views per viewer because the only way to keep site
visits high is to give select content away for free, but that free content has to have a meter
on it that expires after some number of pages, typically five.
As much as I like to pick on media companies when they’re short-sighted, I don’t think
such a complaint applies in this case. In the spirit of helping to rebuild this particular
media company in the digital era, I want to offer a few pieces of advice to the folks
finalizing the details of this shift:
1. Give the highest-profile content away for free. A critical decision will be to
determine just how much content you can give away for free without undercutting
subscription revenue. Look at your sources of traffic—anything that draws dramatic
traffic from abroad is something that builds your international reputation. Give that away.
Any traffic that preserves the egos (and the skilled contribution) of specific personalities
we will avoid naming, should also be free. And, of course, the front page should be
sample-able for free.
2. Make free content sell the value of paid content. But even in these free pages, find a
way to let free readers know there’s more to be had, not just elsewhere, but even on those
free pages. For example, at WSJ.com, comments can be organized to show only those by
paid subscribers, thus eliminating a lot of the idiots who post annoyingly partisan
comments or intentionally confrontational stuff. Some people would pay to become a
commenter whose comments aren’t automatically marginalized. Others would pay to
read only those who are willing to pay that price. Too elitist for you? Um. You’re The
New York Times.
3. Brace for impact. Even if you get the balance between free and paid right, traffic will
fall. WSJ.com has about two-thirds of your traffic, even though it has 600,000 more paid
daily subscribers to its print edition than the Times does. That’s a good metric to shoot
for: a quarter as many paid subscribers as print subs, or about 250,000 in your case, with
traffic somewhere around 9 million uniques a month (using Compete.com’s metrics here,
adjust accordingly). That’s after you rebound from the initial confusion. Of course,
advertisers will still panic. Ironically, the drop in traffic will constrict supply, driving ad
rates up, but over a smaller reader base. The result will be a reduction in ad revenue of at
least 50 percent. Plan for it, send the message internally that there’s no way around this
iceberg but to try to plow right through it.
4. Don’t bet on Apple’s tablet to save you. We all know you’re timing this to coincide
with Apple’s forthcoming announcement about a media-heavy tablet. While it won’t ride
in and save the industry, it can help. Make sure Apple (NSDQ: AAPL) has a way to
enable offline access to your online content so that tablet readers on the subway don’t
suffer from low bars. And whatever you do, make sure your NYTimes.com subscription
is multi-platform—don’t ask readers to pay extra to get the pretty tablet version. Make
that a carrot rather than a stick; even the movie industry is learning that it’s not nice to
double-dip your customer. Content you buy once should be available everywhere, end of
Notice that this advice is directed to NYTimes.com and nobody else. Because there is no
other newspaper that we believe can pull this off at this time, even though a majority of
newspaper editors are considering it. In fact, other papers like the Washington Post and
the LA Times should go on the offensive and try to satisfy as many ad-funded readers as
possible, since they’ll have a shot at boasting as many monthly uniques as
Rebuilding the media isn’t pretty. You can’t satisfy everyone. But you can satisfy
customers with convenient access to good content across multiple platforms. That’s what
people are paying for more and more—in video, in music, in books, and, increasingly, in
James McQuivey is an analyst at Forrester Research, where he serves, and contributes
to the Forrester blog for Consumer Product Strategy professionals.
• New York Times Leaning Toward ‘FT’ Metered Model; Announcement Finally On Way?
• How Berlin In 1989 Is Like The Media Business In 2009
• JANUARY 21, 2010, 10:49 P.M. ET
Apple Sees New Money in Old Media
Steve Jobs's Tablet Device Looks to Repackage TV,
Magazines, Just as iPod Changed Music Sales
By YUKARI IWATANI KANE And ETHAN SMITH
With the new tablet device that is debuting next week, Apple Inc. Chief Executive Steve Jobs is betting he
can reshape businesses like textbooks, newspapers and television much the way his iPod revamped the
music industry—and expand Apple's influence and revenue as a content middleman.
In developing the device, Apple focused on the role the gadget could play in homes and in classrooms, say
people familiar with the situation. The company envisions that the tablet can be shared by multiple family
members to read news and check email in homes, these people say.
Despite its digital legacy, Apple is betting that its Tablet can revitalize television, magazines and
newspapers in the way iTunes changed music. Ethan Smith joins the News Hub panel to discuss.
• News Hub: Apple Looks to Reshape Media
• Apple Tablet on Tap
• Apple's Tablet, as Imagined by Publishers
For classrooms, Apple has been exploring electronic-textbook technology. Apple also has been looking at
how content from newspapers and magazines can be presented differently on the tablet, according to the
people familiar with the situation. Other people briefed on the device say the tablet will come with a virtual
Apple has recently been in discussions with book, magazine and newspaper publishers about how they can
work together. The company has talked with New York Times Co., Condé Nast Publications Inc. and
HarperCollins Publishers and its owner News Corp., which also owns The Wall Street Journal, over content
for the tablet, say people familiar with the talks.
New York Times Chairman Arthur Sulzberger declined to comment in an interview Wednesday on its
involvement in the new device except to say, "stay tuned."
Apple is also negotiating with television networks such as CBS Corp. and Walt Disney Co., which owns
ABC, for a monthly TV subscription service, the Journal has reported. Apple is also working with
videogame publisher Electronic Arts Inc. to show off the tablet's game capabilities, according to one person
familiar with the matter.
• Vote: What price would you pay for Apple's new tablet device?
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Apple's strategy contrasts with how other technology companies are approaching media. Notably, Google
Inc. offers content to consumers largely free on properties like its video-sharing site YouTube, making
relatively little distinction between clips from users and those of professional media companies, although
YouTube this week said it plans to experiment with movie rentals. Web sites like Twitter and Facebook
also provide outlets for user-generated content.
Mr. Jobs has a longstanding strategy of devising new ways to access and pay for quality content, instead of
reinventing the content. Apple's iTunes Store, for instance, became the world's largest music retailer partly
by making it easy for people to buy music, most of it from major record labels, by the song instead of by
the album. Its digital-media receiver Apple TV was also designed so people can buy and rent movies and
Mr. Jobs is "supportive of the old guard, and [he] looks to help them by giving them new forms of
distribution," says a person who has worked with the CEO. "What drives all of these changes is technology,
and Apple has an ability to influence that."
Apple's divide with Google over how it views media content also drives the wedge deeper between the two
companies. Apple's iPhone, for example, currently closely integrates Google's mapping and search
technology, but a person familiar with the matter said Apple was in serious discussions with Microsoft
Corp. to incorporate its Bing search engine into the iPhone as the default search and map technologies.
Microsoft declined to comment. The talks were reported earlier by BusinessWeek.
Details of how Apple charges for the content on its tablet couldn't be learned, but people familiar with the
company's thinking say Apple could change conventional payment structures. One person familiar with the
matter said the company was discussing with the New York Times how it could charge for news through
iTunes. It is unclear how people will access content wirelessly off the tablet.
An Apple spokesman said the company "doesn't comment on rumors and speculation." Mr. Jobs didn't
respond to a request for comment.
Mr. Jobs' effort to repackage and resell more media content isn't without obstacles. He already has faced
resistance from television companies and cable-network providers over Apple's desire to license just their
best content rather than all of it.
Many music executives complain that it has become a powerful gatekeeper between the labels and
customers. What's more, the iTunes Store's music downloads haven't grown fast enough to offset the
decline in CD sales for music companies.
On Monday, Apple sent out an invitation to a media event on Jan. 27 "to see our latest creation." The tablet,
which Apple currently plans to ship in March, will have about a 10- to 11-inch touch screen, say people
familiar with the situation.
Apple CEO Steve Jobs spoke during an event in September 2009.
Apple's tablet foray faces several obstacles. Analysts say demand will depend on its price, which some
believe will be about $1,000. Apple must also convince consumers the product is worth buying in addition
to an iPhone and a laptop computer. And Apple faces competition from cheaper netbooks and other devices
such as Amazon.com Inc.'s Kindle e-book reader.
The tablet's success will depend "on how this product can fit into the user's daily life... and whether you
have enough content to make it important enough to use it," said Henry Lu, senior vice president of
Taiwanese computer company Micro-Star International Co., which failed at selling a tablet computer a few
In the academic arena, Apple could face hurdles wooing universities if the tablet doesn't meet their needs or
isn't compatible with other computing devices that students are using.
Amazon had been hoping to target the market with its 9.7-inch screen Kindle DX e-book reader, for
example, but schools said the device wasn't sufficiently interactive and lacked basics such as page numbers
and color graphics.
One person familiar with the matter said Apple has put significant resources into designing and
programming the device so that it is intuitive to share. This person said Apple has experimented with the
ability to leave virtual sticky notes on the device and for the gadget to automatically recognize individuals
via a built-in camera. It is unclear whether these features will be included at launch.
Apple's content-related efforts heated up in the fall. In October, Apple sent representatives to the Frankfurt
Book Fair, the industry's largest trade fair, according to one person familiar with the matter.
At the same time, Apple pitched media companies on a "best of TV" subscription service to television
networks under which customers would pay a monthly fee for on-demand access to programs from a
bundle of participating TV networks, giving consumers another way to readily access television content.
At a meeting in New York with one network in October, an Apple executive said the company was
specifically looking to access four to six shows per channel, said one person familiar with the meeting.
Apple also has been planning a revamp of its iTunes music service by creating a Web-based version of it
that could launch as soon as June, say people familiar with the matter. Tentatively called iTunes.com, the
service would allow customers to buy music without going through the specialized iTunes program on
computers and iPhones.
People familiar with Apple's plans say a central part of the new strategy is to populate as many Web sites as
possible with "buy" buttons, integrating iTunes transactions into activities like listening to Internet radio
and surfing review Web sites.
In November, Apple hired Tracy Augustine, a former executive at textbook publishers Cengage Learning
Inc. and Pearson Education Inc., as the director of world-wide education. Ms. Augustine is responsible for
"driving global strategy and revenue for the education online store for students," according to her LinkedIn
Ms. Augustine didn't respond to a request for comment.
— Geoffrey A. Fowler
and Russell Adams
contributed to this article.
January 20, 2010
Amazon Unveils New Kindle Royalty Option; Incentive
To Keep E-Book Prices Down
As word spreads of book publishers talking to Apple (NSDQ: AAPL) about a possible
deal for its anticipated tablet device, Amazon (NSDQ: AMZN) is taking a preemptive
strike by offering a plan that gives content owners a greater share of the royalties for e-
books sold through the Kindle. The new option completely reverses Amazon’s standard
70 percent take of the revenue split from Kindle e-books. This new pricing plan will
become available at the end of June. Amazon is clear that this new pricing plan will be
in addition to the standard revenue deal the company offers to authors and
publishers and is not a replacement for it. The e-tailer also points out that e-book
publishers who choose the new option will receive 70 percent of list price, net of delivery
costs. In order to take advantage of the special revenue plan, authors and publishers will
have to adhere to a strict set of requirements on pricing and features.
First of all, the new option covers only those books that are priced between $2.99 and
$9.99. Also, the e-book’s list price must be at least 20 percent below the lowest physical
list price for the physical book. Titles in this plan have to be available for sale in all
geographies where the author or publisher has rights. Most importantly, Amazon will not
allow books that are sold for less in other stores—both physical and electronic—to
participate in the new plan.
Despite these restrictions, the additional royalty option is meant to soften some of the
complaints from publishers who have felt that Amazon’s existing revenue share model is
tilted to far in favor of the e-tailer.
In its announcement, Amazon points out that authors often receive royalties in the range
of 7- to 15 percent of the list price that publishers set for their physical books, or 25
percent of the net that publishers receive from retailers for their digital books. It’s hard to
say what impact Amazon’s plan will have on existing challenges from Sony (NYSE:
SNE) and Barnes & Noble (NYSE: BKS). But it does show that whatever potential threat
is coming from Apple, Amazon is already putting its defense in place. Release
The New York Times
January 21, 2010
Apple Courts Publishers, While Kindle Adds Apps
By BRAD STONE and MOTOKO RICH
SAN FRANCISCO — It’s a formidable high-tech face-off: Amazon.com versus Apple
for the hearts and minds of book publishers, authors and readers.
Amazon’s Kindle devices and electronic bookstore now dominate a nascent but booming
market, accounting for more than 70 percent of electronic reader sales and 80 percent of
e-book purchases, according to some analysts. And on Thursday it will take a page from
Apple and announce that it is opening up the Kindle to outside software developers.
Apple’s much-anticipated tablet computer, which is widely expected to be announced
next Wednesday and go on sale this spring, will be a far more versatile (and expensive)
device that will offer access to books, newspapers and other reading material through
Apple’s popular App Store on iTunes.
Book publishers, who rail against the dominance of Amazon and its insistence on
discounting new releases to $9.99, are now playing the tech titans against each other.
In the process, they may be rushing from the clutches of one tenacious chief executive,
Jeffrey P. Bezos, into the arms of another, Steven P. Jobs, whose obstinacy over pricing
has given the music industry similar paroxysms of anxiety.
“Will Kindle pricing trump Apple sex appeal? Isn’t that the question, really?” said
Richard Charkin, executive director of Bloomsbury Publishing in London, who has been
watching developments in e-book sales with keen interest. “I haven’t the faintest idea. All
I would say is, great. The more people that are out there marketing books in digital or any
other format, the better.”
There are now almost daily tactical moves by various parties in the business, with no end
In its announcement Thursday, Amazon will say that it is letting programmers create
what it calls active content — similar to applications — for the Kindle and keep 70
percent of the revenue from each sale after paying for wireless delivery costs.
Amazon will release a set of programming guidelines that other companies — including
publishers of books and periodicals — can use to create and sell applications for the
Until Amazon introduces more advanced models of the Kindle, developers will be
limited by its slow-to-refresh black-and-white screen.
Ian Freed, vice president for the Kindle at Amazon, said he expected developers would
devise a wide range of programs, including utilities like calculators, stock tickers and
casual video games. He also predicts publishers will begin selling a new breed of e-
books, like searchable travel books and restaurant guides that can be tailored to the
Kindle owner’s location; textbooks with interactive quizzes; and novels that combine text
“We knew from the earliest days of the Kindle that invention was not all going to take
place within the walls of Amazon,” Mr. Freed said. “We wanted to open this up to a wide
range of creative people, from developers to publishers to authors, to build whatever they
The move may also represent a shift in Amazon’s relationship with newspapers and
magazines that make digital editions for the Kindle. Many executives at those
organizations have expressed dissatisfaction with their 30 percent cut of subscription fees
on the Kindle and lack of a direct relationship with those subscribers.
With a Kindle app store, those media companies will be able to sell more profitable
Kindle applications, and present news that is updated throughout the day.
Amazon may be rushing to change the rules of its Kindle platform with an eye toward the
fanfare that will no doubt greet Apple’s long-awaited tablet. The devices, to be sure, are
fundamentally different: Amazon has positioned the Kindle as the ultimate reading
device, easy on the eyes and slow to deplete its battery. Analysts say that to buyers of an
Apple tablet, playing video or video games may be more important than reading.
But for book publishers, Apple’s introduction provides a potentially golden opportunity:
the chance to counter Amazon’s control over the e-book market and regain some leverage
over sensitive matters like pricing.
Apple representatives have been in New York this week talking to the largest trade
publishers, according to industry executives. They said Apple had proposed an
arrangement under which publishers would get to set the price of their books, with Apple
taking a 30 percent commission and the publishers keeping the rest. Steve Dowling, an
Apple spokesman, declined to comment on what he called “rumors and speculation.”
Depending on whether Apple sets an upper limit on pricing, its model could be much
more appealing to publishers, who resent how Amazon has aggressively discounted their
books. Typically, Amazon charges $9.99 for new releases and best sellers, a price that
other e-book vendors, including Sony and Barnes & Noble, have effectively been forced
While Amazon pays publishers a wholesale price typically equivalent to half the list price
of a print book — meaning that Amazon generally sells new e-books at a loss —
publishers fear that Amazon has accustomed buyers to unreasonably low prices. They say
that if Kindle were to maintain its dominant position, it could force publishers to lower
their wholesale prices.
The probable entry of Apple and its tablet into the e-book market gives publishers hope
that they might gain some leverage in negotiations with Amazon. They could, for
example, delay the release of e-books in the Kindle store while selling more expensive
versions for the Apple tablet.
“There’s a battle going on for what is the value of a digital book,” said a publishing
executive who did not want to be quoted by name because of the delicacy of discussions
with Apple. “In that battle, Apple has put an offer together that helps publishers and, by
extension, authors.” Some publishers warn that Apple’s terms can be restrictive in other
ways, and that a model that looks good in theory may not be as attractive in practice.
And Amazon has moved to counter Apple’s appeals as well. On Wednesday it announced
it would improve the royalty terms for authors or publishers who publish e-books directly
onto the Kindle — essentially beckoning authors and their agents to split off e-book
rights and sell them directly to Amazon.
Under the new terms, Amazon says it will offer authors and publishers who set e-book
prices below $9.99 a royalty rate of 70 percent of the digital list price (after delivery
costs, typically about 6 cents a book) — an obvious echo of Apple’s offering.
But publishers can anticipate another high-tech heavyweight entering the business:
Google, which has pushed its own plans to begin selling e-books.
“The more companies that control consumer transactions, the more important the
publishers’ role will be,” said Mike Shatzkin, chief executive of Idealog, which helps
publishers develop digital strategies. “If Apple enters this market, and in three months
Google follows, we may be looking at a completely different e-book world in the next
Silicon Alley Insider
'Canvas' A 'Perfect Name' For Apple Tablet, Says Apple
God John Gruber
Dan Frommer | Jan. 22, 2010, 3:40 PM | 3,294 | 18
Tags: Gadgets, Apple, Big Tech, John Gruber, Apple Tablet
AAPL Jan 25 2010, 05:20 PM EST
Change % Change
What is Apple going to name its tablet computer? iSlate? iPad? Slate? iBook? MacBook
touch? iPod touch HD?
How about Canvas? (Or iCanvas?) That's one of the potential names emerging from the
Apple nerd camp, via Daring Fireball blogger John Gruber.
Why? Because the invitation Apple sent to reporters -- splashed with paint blotches --
looks like it could be the canvas for a kid's preschool art project.
Gruber writes today, "Even without considering the invitation design, I love this name. It
looks good, it sounds good, and it evokes the right feelings and ideas: thin, light, clean,
crisp, blank, the thing great artwork is made upon. It’s a perfect name."
Click here to see 20 Apple tablet design concepts →
January 28, 2010
With Its Tablet, Apple Blurs Line Between Devices
By BRAD STONE
SAN FRANCISCO — After months of feverish speculation, Steven P. Jobs introduced
Wednesday what Apple hopes will be the coolest device on the planet: a slender tablet
computer called the iPad.
For all the hoopla surrounding it, however, the question is whether the iPad can achieve
anything close to the success of the iPhone, which transformed the cellphone and forced
the industry to race to catch up.
Apple is positioning the device, some versions of which will be available in March, as a
pioneer in a new genre of computing, somewhere between a laptop and a smartphone.
“The bar is pretty high,” Mr. Jobs acknowledged. “It has to be far better at doing some
Half an inch thick and weighing 1 1/2 pounds, the device will vividly display books,
newspapers, Web sites and videos on a 9.7-inch glass touch screen. Giving media
companies another way to sell content, it may herald a new era for publishing.
But the iPad, costing $499 to $829, also lacks some features common in laptops and
phones, as technology enthusiasts were quick to point out. To its instant critics, it was
little more than an oversize iPod Touch. A camera is notably absent, and Flash, the
ubiquitous software that handles video and animation on the Web, does not work on the
Another thing missing is an alternative to the AT&T data network, which is already
buckling under the strain of traffic to and from iPhones. Some versions of the iPad can,
for a monthly fee, use a 3G data connection like cellphones, but the only carrier
mentioned was AT&T.
The event, in typical Apple style, was tightly scripted and heavy on theatrics and
hyperbole. But the success of the iPhone, and the hive of rumors and leaks surrounding
the iPad, raised expectations and made this perhaps Mr. Jobs’s most highly anticipated
product unveiling yet.
It was one that he clearly cared deeply about. Mr. Jobs, a consummate showman,
presented the iPad to an enthusiastic crowd of around 800 employees, business partners
and journalists, some of whom shoved their way in when the doors opened to grab the
best seats. It was only his second public appearance since a leave of absence for health
reasons last year.
Mr. Jobs posited that the iPad was the best device for certain kinds of computing, like
browsing the Web, reading e-books and playing video.
The iPad “is so much more intimate than a laptop, and it’s so much more capable than a
smartphone with its gorgeous screen,” he said in presenting the device to a crowd of
journalists and Apple employees here. “It’s phenomenal to hold the Internet in your
One question Apple faces is whether there is enough room for another device in the
cluttered lives of consumers.
“I think this will appeal to the Apple acolytes, but this is essentially just a really big iPod
Touch,” said Charles Golvin, an analyst at Forrester Research, adding that he expected
the iPad to mostly cannibalize the sales of other Apple products.
Mr. Golvin said book lovers would continue to opt for lighter, cheaper e-readers like the
Amazon Kindle, while people looking for a small Web-ready computer would gravitate
toward the budget laptops known as netbooks.
But other analysts say they have heard similar criticism before — once aimed at the
iPhone, which has now been bought by more than 42 million people around the world.
These believers say Apple’s judgment on the market is nearly infallible.
“The target audience is everyone,” said Michael Gartenberg, vice president for strategy
and analysis at Interpret, a market research firm. “Apple does not build products for just
the enthusiasts. It doesn’t build for the tens of thousands; it builds for the tens of
Apple says the iPad will run the 140,000 applications developed for the iPhone and the
iPod Touch, but the company expects a new wave of programs tailored to the iPad.
One of the most significant applications for the iPad may be Apple’s own creation, called
iBooks, an e-reading program that will connect to Apple’s new online e-bookstore.
Mr. Jobs said Apple so far had relationships with five major publishers — Hachette,
Penguin, HarperCollins, Simon & Schuster and Macmillan — and was eager to make
deals with others. Publishers will be able to charge $12.99 to $14.99 for most general
fiction and nonfiction books.
Apple’s announcement that it was diving into the growing e-book business put the
company on a collision course with Amazon. Mr. Jobs credited Amazon with pioneering
e-readers with the Kindle but said “we are going to stand on their shoulders and go a little
John Doerr, a Silicon Valley venture capitalist who serves on Amazon’s board and is also
an adviser to Apple, said there could be room for both companies, noting that Amazon
sells many books to iPhone owners who use its Kindle application, which will also work
on the iPad.
“I don’t think Jeff Bezos is going to leave the e-book business,” he said, referring to
Amazon’s chief executive, “and I don’t think it will be confined to the Kindle.”
Three models of the iPad, $499 to $699, will connect to the Internet only via a local Wi-
Fi connection. Three other versions will include 3G wireless access and will be available
later in the spring, costing an additional $130 and requiring a data plan from AT&T.
Owners of the iPhone who already pay at least $70 a month to AT&T will not be getting
Other companies have sold tablet computers for years, but they never caught on with
consumers. In 2001, Bill Gates predicted at an industry trade show that tablets would be
the most popular form of PC sold in America within five years.
“The fact that he and Microsoft didn’t deliver is surprising,” said Tim Bajarin, a longtime
industry analyst. “It has taken Apple to bring this to consumers and make it work.”
Apple has been working on a tablet computer for more than a decade, according to
several former employees. Improved technology has helped the company to finally bring
a model to market, as has the ubiquity of wireless networks.
The success of the iPhone and its cousin, the iPod Touch, have shown a path for tablets.
People have been willing to pay to customize those devices with applications, turning
them into video game machines, compasses, city guides and e-book readers.
The iPad will be a big opportunity for software developers, said Raven Zachary,
president of Small Society, an iPhone development company based in Portland, Ore.
“Although I think some of us were a bit surprised we only have 60 days until it launches
to develop for it.”
Jenna Wortham contributed reporting from New York.
Does Apple's IPad Take a Bite Out of Web Advertising?
Media Will Work Great on the the Device, but Your Ads May Not
By Ian Schafer
January 27, 2010
We've known for quite some time about the iPhone's inability to render Flash content
within the mobile Safari browser, and based upon Apple's announcement of the iPad
today, it looks like that device isn't going to do it, either.
Touted as a savior for the publishing business, this device will potentially revolutionize
the delivery and commercialization of content.
But most publishers are publishing their content to the web. Via websites. And for those
that don't yet have paywalls, they support their websites with advertising. Those ads are
almost 100% rendered in Adobe's Flash. So when people use the iPad's web browser to
visit their favorite newspaper (as Steve Jobs did in his keynote; see photo at right,
courtesy of Engadget), they won't see the ads at all. That either means advertisers will
need to stop building ads in Flash (no chance) or publishers will need to build app
versions of their publications upon the iPad SDK (software development kit), resulting in
a lot more work, a lot more time, a lot more resources.
Now, creating a parallel platform to the web may be the right thing to do if a $499 tablet
becomes as ubiquitous as the iPod, but this is another classic example of Apple making
development and distribution on their platforms more proprietary. It also makes
publishers more reliant upon, in all likelihood, Apple's own ad-serving platform which
was created through the acquisition of Quattro Wireless.
Whereas the iPhone created a marketplace for new content (apps), the iPad seeks to
revolutionize existing ones (content publishing). If the company that owns the platform
also owns the ad network, the ad format, and the ad tracking, is that too much control?
Now, this is all speculation at this point. I'm sure this will all play itself out as we get
deeper in the SDK, and into the device itself, but this is definitely something to be
discussed at your next ad sales meeting if you're a publisher. Media planners are going to
have to get up to speed with a whole new platform. And creatives are going to have to
learn to build in formats that take advantage of multitouch gesturing, video and a whole
slew of other new possibilities without using Flash.
And maybe HTML 5 just got a whole lot more important.
Home > Online & Technology > E-Media Tidbits
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Watching Kindle, iPad and e-Readers?
Openness is Key
Posted by Dorian Benkoil at 11:27 AM on Jan. 28, 2010
Dorian Benkoil Even before the launch of the Apple iPad, pundits were declaring it the
Kindle killer, and hours after its unveiling others were adding their
A group voices. But I smelled trouble for Amazon's e-reader weeks earlier.
the intersection Though I own a Kindle and have also read its books on my iPod Touch,
of news & the last three or four e-books I've bought were from Barnes & Noble and
technology O'Reilly publishing.
The reason? It's not that I own B&N's Nook or some other e-reader (yet);
rather, those e-books come in formats that enable me to consume them
on many devices, share them with friends and even grab portions to send
to the world. The lessons, I think, are instructive for publishers and
others who make their content available on digital devices.
I predict we'll start to see market share of non-Kindle e-readers
increasing, and not only because those manufacturers are working to cut
deals with publishers that are more favorable than the what one analyst
calls Amazon's "wolfish" shares of revenues and restrictive terms.
As consumers discover the flexibility they have to consume e-books on a
PC, a Mac, a BlackBerry, and an iPhone, iPod Touch or iPad, as well as
other devices that can read PDF, .mobi, Android or ePub files, I predict
they'll gravitate toward the more open formats.
Because the open formats also allow cutting and pasting with ease, e-
books published that way also have a better chance of catching on via in
social media and blogs. And links in books, magazines, newspapers or
other media can easily take users to relevant Web pages. Even when the
function does work on the Kindle, the Web surfing experience is less
Some open publishing formats allow the purchaser to share a book with
one or more people at a time. Some allow customization of colors,
background, fonts and other visual elements that a) allow a consumer to
read the way her or she likes rather than one that's imposed or b)
appreciate the e-book's artwork, coloring and typeface. This morning,
publishers are saying they look forward to getting their art books on the
Reading on a Kindle can be absorbing, but it can also be a flat, gray, text-
laden experience that makes it hard to consume graphics and charts.
For a final pièce de résistance, open formats let users mark up the text
and use speech synthesis applications to have a book read aloud by a
computer -- something I've done many a time while cooking, doing
laundry or washing the dishes.
Again, I'm not saying that publishers should eschew the Kindle. I
negotiated a deal to get a blog network on the device because there was
no exclusive arrangement, and any additional revenue from subscribers
was essentially free, with no additional work required once we created an
appropriate feed. Plus, the Kindle now has a large embedded base, and
publishers who want as large a readership as possible should publish
their works in the Kindle format for years to come. Kindles have also
proven a decent way to promote unheralded authors.
Looking at it from Amazon's side, I can understand the business model to
milk its first-mover advantage after building the first device that
seamlessly integrated a readable screen, portability, long battery life,
easy navigation and, perhaps most important, a big library of books (and
other material) purchased easily and accessed wirelessly. Amazon was
able to create a closed device, and a constrictive business model, because
it provided so much that others hadn't matched.
But, as I've written before, there are a lot of
other features the Kindle doesn't have: the
ability to look at the books on multiple
screens (it was manna from heaven when "iPad includes iBooks
its e-books were made available on the app, may be Kindle
iPhone/iPod), share and blog, and more. killer," by Damon
(OK, the uber-geeks in the room might Kiesow, Mobile Media
raise their hands and say you can do most
or all of these things with a Kindle. Indeed, I have unscrewed the back of
the device, installed an SD card, transferred material to the card, plugged
it into a reader, manually converted the text into a manipulable format,
and then sent it along. But how many people will go through that
We'll see if the iPad takes hold and how much it is able to cut into the
Kindle's base. The device can reportedly use the iPhone/iPod app that
enables users to read Kindle books, and if it can also display other
formats, it may instantly make all the other e-readers obsolete. The iPad
also can play video and music, which gives it and publishers a powerful
competitive weapon. Apple has a store that can compete with Amazon's,
If users can also cut and paste, blog and otherwise manipulate their
media, the iPad will have yet more ways of knocking pure e-readers to
Whatever happens with the iPad, though, publishers need to pay attention
and provide material on any popular digital platform, and customize that
content when possible to make the experience on each platform as
positive as it can be. Amazon is apparently courting developers to help it
stave off the iPad threat, and I wouldn't be surprised to see others follow
suit. All of that will benefit consumers, and perhaps publishers. Note how
much better smartphones have gotten as makers rush to seize momentum
created by the iPhone.
As I wrote in another recent column, digital media is not and never will
be a one-platform or one-device game for long. Openness to multiple
platforms will ultimately win the game.
Silicon Valley Insider
Steve Jobs Says Book Publishers Hate Amazon's Kindle
Jay Yarow | Jan. 29, 2010, 8:49 AM | 9,026 | 38
Steve Jobs told Walt Mossberg that Amazon's e-book prices are likely going higher than
After Steve presented the iPad, Walt Mossberg managed to talk with him briefly while
people were testing the iPad. Kara Swisher filmed them.
Walt asks Steve, "Why should she buy a book for $14.99 on your device when she can
buy one for $9.99 from Amazon or Barnes & Noble?"
Steve responds somewhat knowingly, "That won't be the case."
Walt says, "You won't be $14.99 or they won't be $9.99?"
Steve says knowingly, "The prices will be the same."
Then the video cuts, then Steve says, "Publishers are actually withholding their books
from Amazon because they're not happy."*
Steve also tells Walt the iPad does 140 hours of continuous music playback, and battery
life will not be an issue on the iPad.
Says Steve, "Ten hours is a long time, you're not going to read for 10 hours."
It's cool to watch the video to see Steve Jobs interact with Walt, he's much taller, as he
rocks back and forth nervously. The action starts around 1:45 in the clip below.
*We originally heard Steve say "pull their books" from Amazon when we listened to it
the first four times with headphones, but the fifth time we listened on speakers and heard
it as "withholding."
January 31, 2010, 11:37 pm
Why the iPad Web Demo Was Full of Holes
By NICK BILTON
apple.com A still from a video demo of the iPad on Apple’s site. Note the missing Flash
element in the middle of the Web page.
Adobe’s Flash will probably not come to the iPhone, iPod Touch or iPad, but for many
people with these iProducts, this may prove to be a nonissue, as I report in Monday’s
While Apple may not make an official statement on the topic of its lack of interest in
supporting Flash, its actions speak louder than words.
Think back to the Apple keynote last week. Here’s Steven P. Jobs, master of ceremonies,
the wizard in front of the curtain, sitting on a stage before hundreds of technology
reporters, and he quite happily pops around the Web on the iPad, showing Swiss-cheese
holes in pages where the Flash player can’t be displayed.
Apple’s iPad demo was coordinated down to the second. Teams of Apple perfectionists
practiced every aspect of this, meticulously organizing everything down to the color and
angle of the armchair on stage. Mr. Jobs knew what we would all see as he navigated to
nytimes.com: a blank square instead of a Flash video player. Apple could have picked
any Web site without Flash, but instead it practically sent out a press release stating its
stance on the topic: Flash will not work on the iPad.
To help push this point further, as PC World reported on Saturday, all of the demos on
Apple’s site for the iPad now show missing holes where Flash player videos would
appear in a normal browsing experience. The Web-page mockups in earlier versions of
the demos showed images of Flash content.
It’s been over three years since Mr. Jobs stepped on stage and demonstrated the first
iPhone, and since then there have been upgrades to the iPhone’s memory, processing
speeds, software developer kits and everything in between, but no mention of Flash
With over 60 million iPhones and iPod Touches in the marketplace, content providers
have been given two choices: either stand with Adobe and stick with Flash or make the
switch to non-Flash technologies and reach this huge audience, most of whom don’t
really care about a format war — they just want to get the content.
Numerous developers and executives that I interviewed for my article said there was a
trend toward offering users an alternative to Flash video, the predominant video standard
online, in the form of HTML5, an open standard.
Senior-level managers from many of the top video sites online, including YouTube,
Vimeo, Blip.tv and Flickr, all agreed that video online is starting to splinter, and as some
test out HTML5 for video distribution, many will begin offering both formats as the iPad
makes its way onto the market.
Andrew Pile, vice president of product and development for Vimeo, said, “Some people
rightly or wrongly blame Flash for poor video performance on the Web, and although
HTML5 has its limitations, too, we will most likely create a version of the site using
HTML5 for the iPad.”
Douglas Alexander, general manager of Flickr, said he planned to start experimenting
with HTML5 video in the coming months. And Justin Day of Blip.tv said he had an
HTML5 player in the works that the company plans to introduce soon.
As John Gruber of the Mac blog Daring Fireball aptly explained on Saturday, developers
and the Web will go where the users are. Mr. Gruber writes:
What’s Hulu going to do? Sit there and wait? Whine about the blue boxes? Or do the
practical thing and write software that delivers video to iPhone OS? The answer is
obvious…. Hulu isn’t a Flash site, it’s a video site.
So what can Adobe do? One option would be to completely open-source Flash, but based
on my talks with Adobe employees, this is highly unlikely. Or, if it wants to continue
selling software for building Flash Web sites, it can continue to innovate along its current
path, allowing developers to output their work in both Flash and non-Flash formats.
In a recent blog post, Lee Brimelow, an Adobe “platform evangelist,” said his company
was not “against” HTML5. “On the contrary, we see it as an exciting development for the
Web,” he said, adding that Adobe planned to introduce tools to help people use it. Sounds
like a wise move on Adobe’s part, given that things don’t seem to be moving in Flash’s
January 29, 2010
Steve Jobs and the Economics of Elitism
By STEVE LOHR
The more, the better. That’s the fashionable recipe for nurturing new ideas these days. It
emphasizes a kind of Internet-era egalitarianism that celebrates the “wisdom of the
crowd” and “open innovation.” Assemble all the contributions in the digital suggestion
box, we’re told in books and academic research, and the result will be collective
Yet Apple, a creativity factory meticulously built by Steven P. Jobs since he returned to
the company in 1997, suggests another innovation formula — one more elitist and
This approach is reflected in the company’s latest potentially game-changing gadget, the
iPad tablet, unveiled last week. It may succeed or stumble but it clearly carries the taste
and perspective of Mr. Jobs and seems stamped by the company’s earlier marketing
motto: Think Different.
Apple represents the “auteur model of innovation,” observes John Kao, a consultant to
corporations and governments on innovation. In the auteur model, he said, there is a tight
connection between the personality of the project leader and what is created. Movies
created by powerful directors, he says, are clear examples, from Alfred Hitchcock’s
“Vertigo” to James Cameron’s “Avatar.”
At Apple, there is a similar link between the ultimate design-team leader, Mr. Jobs, and
the products. From computers to smartphones, Apple products are known for being
stylish, powerful and pleasing to use. They are edited products that cut through
complexity, by consciously leaving things out — not cramming every feature that came
into an engineer’s head, an affliction known as “featuritis” that burdens so many
“A defining quality of Apple has been design restraint,” says Paul Saffo, a technology
forecaster and consultant in Silicon Valley.
That restraint is evident in Mr. Jobs’s personal taste. His black turtleneck, beltless blue
jeans and running shoes are a signature look. In his Palo Alto home years ago, he said
that he preferred uncluttered, spare interiors and then explained the elegant craftsmanship
of the simple wooden chairs in his living room, made by George Nakashima, the 20th-
century furniture designer and father of the American craft movement.
Great products, according to Mr. Jobs, are triumphs of “taste.” And taste, he explains, is a
byproduct of study, observation and being steeped in the culture of the past and present,
of “trying to expose yourself to the best things humans have done and then bring those
things into what you are doing.”
His is not a product-design philosophy steered by committee or determined by market
research. The Jobs formula, say colleagues, relies heavily on tenacity, patience, belief and
instinct. He gets deeply involved in hardware and software design choices, which await
his personal nod or veto. Mr. Jobs, of course, is one member of a large team at Apple,
even if he is the leader. Indeed, he has often described his role as a team leader. In
choosing key members of his team, he looks for the multiplier factor of excellence. Truly
outstanding designers, engineers and managers, he says, are not just 10 percent, 20
percent or 30 percent better than merely very good ones, but 10 times better. Their
contributions, he adds, are the raw material of “aha” products, which make users rethink
their notions of, say, a music player or cellphone.
“Real innovation in technology involves a leap ahead, anticipating needs that no one
really knew they had and then delivering capabilities that redefine product categories,”
said David B. Yoffie, a professor at the Harvard Business School. “That’s what Steve
Jobs has done.”
Timing is essential to make such big steps ahead. Carver Mead, a leading computer
scientist at the California Institute of Technology, once said, “Listen to the technology;
find out what it’s telling you.”
Mr. Jobs is undeniably a gifted marketer and showman, but he is also a skilled listener to
the technology. He calls this “tracking vectors in technology over time,” to judge when
an intriguing innovation is ready for the marketplace. Technical progress, affordable
pricing and consumer demand all must jell to produce a blockbuster product.
Indeed, Apple designers and engineers have been working on the iPad for years,
presenting Mr. Jobs with prototypes periodically. None passed muster, until recently.
The iPad bet could prove a loser for Apple. Some skeptics see it occupying an uncertain
ground between an iPod and a notebook computer, and a pricey gadget as well, at $499 to
$829. Do recall, though, that when the iPod was introduced in 2001, critics joked that the
name was an acronym for “idiots price our devices.” And we know who had the last
laugh that time.
February 1, 2010
Publisher Wins Fight With Amazon Over E-Books
By MOTOKO RICH and BRAD STONE
After a weekend of brinksmanship, Amazon.com on Sunday surrendered to a publisher
and agreed to raise prices on some electronic books.
Amazon shocked the publishing world late last week by removing direct access to the
Kindle editions as well as printed books from Macmillan, one of the country’s six largest
publishers, which had said it planned to begin setting higher consumer prices for e-books.
Until now, Amazon has set e-book prices itself, with $9.99 as the default for new releases
and best sellers.
But in a statement Sunday afternoon, Amazon said it would accept Macmillan’s decision.
On Friday, Amazon removed “buy” buttons from thousands of titles published by
Macmillan, including recent best sellers like “Wolf Hall” by Hilary Mantel and “The
Gathering Storm,” by Robert Jordan and Brandon Sanderson. Customers who wanted to
buy print editions could do so only from third-party sellers. Digital editions made for
Amazon’s Kindle device disappeared.
In a strongly worded message on its Web site on Sunday, Amazon said that while it
disagreed with Macmillan’s stance, it would bow to the publisher’s plan.
“We have expressed our strong disagreement and the seriousness of our disagreement by
temporarily ceasing the sale of all Macmillan titles,” Amazon said. “We want you to
know that ultimately, however, we will have to capitulate and accept Macmillan’s terms
because Macmillan has a monopoly over their own titles, and we will want to offer them
to you even at prices we believe are needlessly high for e-books.”
The face-off had set the already anxious publishing industry on edge. “I think everyone
thought they were witnessing a knife fight,” said Sloan Harris, co-director of the literary
department at International Creative Management. “And it looks like we’ve gone to the
As of Sunday evening, the “buy” buttons had not yet been restored to Macmillan titles on
Amazon. In a statement to Publishers Marketplace, an online industry newsletter, John
Sargent, chief executive of Macmillan, said: “We are in discussions with Amazon on how
best to resolve our differences. They are now, have been, and I suspect always will be
one of our most valued customers.”
Under Macmillan’s new terms, which take effect at the beginning of March, the publisher
will set the consumer price of each book and the online retailer will serve as an agent and
take a 30 percent commission. E-book editions of most newly released adult general
fiction and nonfiction will cost $12.99 to $14.99.
Those terms mirror conditions that five of the six largest publishers — Hachette Book
Group, HarperCollins Publishers, Macmillan, Penguin Group and Simon & Schuster —
agreed to with Apple last week for e-books sold via the iBookstore for the iPad.
For more than a year, publishers have been fretting about the price of digital books,
which Amazon, as the dominant player in the fast-growing market, had effectively been
able to set.
Last Thursday, Mr. Sargent flew to Seattle to explain the pricing and new sales model to
Amazon. He said Amazon could continue to buy e-books on the same terms it does now
— allowing the retailer to set consumer prices — but that the publisher would delay the
release of all digital editions by several months after the hardcover publication.
Amazon buys and resells e-books in the same way it handles printed books, by paying
publishers a wholesale price that is generally equivalent to half the list price of a print
edition. Because Amazon has discounted the price of most new and popular e-books on
its Kindle e-reader to $9.99, it loses money on most of those sales.
Amazon’s goal has been strategic: it aims to establish a low price for e-books that will
have the ancillary benefit of helping it sell more Kindle devices.
Amazon’s decision is also a victory for Apple’s chief executive, Steven P. Jobs, who first
pitched the idea of selling e-books under the agency model to book publishers earlier this
year. Now Apple, whose iPad tablet is due in March, can compete on fairly equal footing
Book publishers, meanwhile, are volunteering to limit their digital profits. In the model
that Amazon prefers, publishers typically collect $12.50 to $17.50 for new e-books.
Under the new agency model, publishers will typically make $9 to $10.50 on new digital
Apple’s stance in allowing publishers to set their own e-book prices (albeit within a
limited range) is also a bit of a reversal. That is precisely the kind of arrangement it
declined to offer TV networks and music labels, which have long railed against the 99-
cent price of songs in iTunes.
Analysts say Amazon, which accounts for 15 to 20 percent of domestic book sales,
probably realized it could not compete with Apple if it wasn’t offering the same range of
content. “Amazon figured out pretty quickly that this was a battle they could not win,”
said Mike Shatzkin, the chief of the Idea Logical Company, a consultant to publishers.
Amazon may still hope to play one asset to its advantage. Loyal Kindle users routinely
give low ratings to books they perceive as too costly, or whose digital editions are
delayed past the publication of the hardcover edition. These consumers could ostensibly
reject costlier e-books.
February 1, 2010
IPad Can’t Play Flash Video, but It May Not Matter
By NICK BILTON
Where was the Flash?
Web designers — and a fair number of Web users — noticed something missing from
Steven P. Jobs’s demonstration of the Apple iPad Wednesday. On some of the Web sites
he displayed on the tablet computer’s screen, blank squares appeared where video or
animated content would normally be displayed.
The holes, observers correctly assumed, meant that the iPad would not display videos,
animations or any other features created using Flash, a type of multimedia software made
by Adobe. Flash is one of the world’s most ubiquitous applications, appearing on 98
percent of all computers. YouTube videos run on it. It is what animates millions of
graphics and advertisements on Web sites around the world. Adobe says the technology
supports nearly 75 percent of video on the Web and 70 percent of online gaming sites.
But Apple’s support for Flash has been flagging. While Flash is present on nearly every
Apple desktop and laptop computer, the company decided that Flash would not be used
on the iPhone. Apple has argued that the Flash technology is too slow and unduly taxes
laptops and netbooks. The company also has concerns over Flash’s vulnerability to
viruses and other malware, as well as the way Flash-based content can voraciously
consume battery life.
Adobe, unsurprisingly, disagrees — and has its own theory about why Apple remains
hostile to Flash. Adrian Ludwig, group manager for the Flash platform product at Adobe,
said he believed Apple’s opposition was a way for the company to control its iTunes
system. “I think it’s pretty clear that Apple wants to regain control of the content
consumers see online and the content Apple offers for their devices,” Mr. Ludwig said.
But concerns over the lack of Flash in the iPad and iPhone may be short-lived. Many
online video sites have been experimenting with a new Web language that can support
video, called HTML5. Unlike Flash, which is a downloaded piece of software that can
interact with a computer’s operating system, HTML5 works directly in a Web browser.
And although this new video format does not work in all browsers, it will allow iPhone
and iPad users to enjoy more Web-based video content.
YouTube announced this year that it was testing the new format for select videos. In the
past, YouTube videos were encoded in Flash, but were re-encoded for the iPhone.
The popular video-sharing site Vimeo.com is also experimenting with new platforms,
based on comments from its online community. “We received a tremendous amount of
feedback from our users saying that they wanted to have HTML5 as an option for their
videos,” said Andrew Pile, vice president for product and development at Vimeo, an
online video service. Mr. Pile does not see this new format replacing Vimeo’s Flash-
video inventory, but will instead offer it as an option for its viewers.
Other video sites, including Blip.tv and Flickr.com, Yahoo’s photo and video-sharing
Web site, also hope to start experimenting with alternatives to the Flash video platform in
the coming year.
But migrating the entire Web to the new format will not be fast, or easy. Flash has all the
advantages any entrenched technology enjoys and remains the standard multimedia
language for a vast majority of developers and programmers. And while HTML5 may
help standardize Web video, it does not necessarily address the needs of other types of
online content created in Flash, including animated advertisements and online gaming.
Andrew Frank, research vice president at Gartner, believes it is impossible for Apple to
maintain a walled garden around the content and advertising people consume on the iPad.
Mr. Frank said, “I think we’re a long way from the iPad having enough influence on the
advertising market to affect the decisions and process around online display advertising.”
But even if the standoff between Apple and Adobe continues, these advances in Web-
based video mean that iPhone and iPad users will start to see fewer blank squares online.
This article has been revised to reflect the following correction:
Correction: February 3, 2010
An article on Monday about the absence of the multimedia software Flash in Apple’s new
iPad tablet computer referred incorrectly to the Web language HTML5. While HTML5
can support video, it is not itself a video format. The article also misstated the ownership
of HTML5 patents. HTML5, like other versions of Hypertext Markup Language, is open
source; it is not owned by a group of companies, including Apple. (Many Web sites that
are starting to use HTML5 are using a particular video encoding program called H.264,
which has shared patent pool, of which Apple is a part.)
February 1, 2010
The Media Equation
To Deliver, iPad Needs Media Deals
By DAVID CARR
Short of landing in a flying saucer and having a tablet teleported into his hands, there was
no way that Steve Jobs could have lived up to the hype before last Wednesday’s iPad
But he came pretty close. By the time the bells, whooshes and clicks died down, I
couldn’t say the future had arrived, but I’m pretty sure we can see it from here.
“It was like someone came back from five years into the future and handed this to us,”
said John Gruber of Daring Fireball, a respected tech blog.
The iPad’s promise was hinted at before Mr. Jobs hit the stage. The set was dominated by
a large, comfy chair. Since the birth of the personal computer, we have been hunched
over, squinting at screens — great big terminals, laptop displays, tiny screens on PDAs.
With the iPad, the screen has come to us as we lean back in ease.
Critics who suggested that Apple unveiled little more than an iPhone that won’t fit in
your pocket don’t seem to understand that by scaling the iPhone experience, the iPad
becomes a different species. Media companies now have a new platform that presents
content in an intimate way.
“Looking at it through the lens of whether or not it has new features and applications
misses the point,” said Craig Moffett, an analyst at Bernstein Research. “It is nine times
larger than an iPhone, and that is fundamentally a new application.”
That application isn’t work, not without a keyboard (touch-typing with all fingers on a
virtual keyboard is miserable) or a camera. This is a device for consuming media, not
creating it. So are the media providers ready to deliver?
Yes and, sadly, no. The iPad’s glories as a media consumption device open up a whole
new frontier for developers and publishers. But they also raise large questions about the
business models that will drive that content to the screen.
For gaming, the iPad manages to be both a remarkable display device and a large,
engaging controller, and the App Store from the iPhone should accommodate a new
generation of games played on a bigger field. But when it comes to other dynamic media
like television and movies, the iPad is running into the familiar trouble.
Apple has limited agreements with movie studios, so movies received very little play last
Wednesday. The movie “Up,” a fancy piece of software produced by Pixar, looked great
during the presentation, but most studios have yet to come to terms with how their work
will be monetized and displayed on the iPad.
The iPad won’t play Flash, the Adobe software which powers a great deal of animation
and interactivity on the Web, so for the time being, iPad’s utility as a surfing device is
significantly compromised. You can’t, for example, watch Hulu, the popular site that
offers a free buffet of network TV shows.
Apple and many others have problems with Adobe’s Flash because they don’t control it,
but it also means that people who want to see those shows on their iPad will have to pay
for them on iTunes rather than watch them free on Hulu. (And according to The Financial
Times, just before Apple introduced the iPad, the company pressed television studios to
cut the iTunes prices for their programs in half.)
Of all media, books had the most real estate in the presentation — with good reason. The
reading interface on the iPad is almost as sexy as the gaming, with no waiting for e-ink or
pages to load. Readers can literally page through books in an interface that replicates the
tactile romance of reading. And the forthcoming iBooks marketplace means that Amazon
no longer has absolute authority on the price of electronic books (an authority Amazon
tried to impose on Friday by refusing to sell books from Macmillan after the publisher
insisted on pricing similar to the iPad; Amazon backed down Sunday night, saying it
would “capitulate and accept Macmillan’s terms.”)
But the book industry seems ill-prepared to take advantage of many of the new worlds
the iPad opens up. Although five of the top six publishers signed on, there was little
indication that they would use some of the muscle the device displays. Readers on the
iPad should certainly expect that when they buy a cookbook, building in cooking demos
would be a no-brainer, but it may be a long while before the industry has the ability to
produce books that incorporate multimedia.
Newspapers and magazines will have far less trouble changing the wheels on the car as it
goes flying down new roads. Martin A. Nisenholtz, senior vice president for digital
operations at The New York Times, took a turn on the Apple stage with a demonstration
that displayed the new flexibility and range of the iPad.
But many people could not help but notice that no magazine companies were involved in
Wednesday’s presentation. “I saw iBooks today, but no iMagazine,” said Sara Ohrvall of
Sweden’s Bonnier Corporation, which owns a number of American magazines. And
many magazine companies have been working on prototype applications for a device that
would seem to be a dream come true.
Writing on the Pentagram blog, the designer Luke Hayman said the iPad will
“revolutionize the way we read magazines.” (Tell that to Condé Nast, which just put the
finishing touches on a prototype of a gorgeous digital magazine — in Flash.)
But there’s a sticking point here, too. The consumer side of both newspapers and
magazines is in the database business, trying to expand their base of credit cards and
information about consumers. In a world of applications, a share of the revenue will go to
publishers, but the information about customers mostly belongs to Apple. The big
question for publishers is, will Apple allow them to develop their own relationship with
Despite that doubt, Terry McDonell, editor of Sports Illustrated, liked what he saw, in
part because the product that was unveiled fit nicely with a prototype that the magazine
“I saw the Mac demo’ed by Steve Jobs in 1984 in the offices of Newsweek, and I knew at
the moment it was going to change everything because of its capabilities for desktop
publishing,” he said. “I felt the same way watching this presentation. There are huge
potential gains for us here.”
Even as business models have yet to evolve, the iPad is clearly a next-generation media
consumption device. The iPad is less gadget than pure frame on content. During the
hands-on demo, I was so intent on what was on the screen that I all but forgot I was
holding a piece of technology.
A lot of things are clearer in this gorgeous new environment, except that part about
turning the iPad into a cash register for media companies.
Comparing E-Readers | January 2010
How Do E-Readers Stack Up With iPad In The Mix? Use Our
Chart As A Guide
Amazon Amazon Plastic Logic
Apple iPad & Noble Daily
Kindle 2 Kindle DX Que proReader
Link iPad Kindle 2 Kindle DX Nook Daily Que
Available Now Now Now Now Mid-April
Price $259 $489 $259 $399 WiFi/3G/8GB:
8 x 5.3 x 7.7 x 4.9 8.13 x 4
.5 inches 10.4 x 7.2 x 8.5 x 11x .33
Size 0.36 x 0.5 x 19/32
thick 0.38 inches inches
inches inches inches
Weight 1.5 lbs. 10.2 oz. 18.9 oz. 12.1 oz. 12.75 oz. 17 oz.
Screen Size 9.7 inches 6 inches 9.7 inches 6 inches 10.5 inches
Backlit IPS Grayscal
Display Grayscale Grayscale e reading, Grayscale
Yes/Yes No/Yes Yes/No Yes/Yes Yes
7 days with 7 days
Battery Life 11 hours wireless 10 days N/A
16GB; 2GB/Yes es
32GB; 2GB/No 4GB/No (microSD(Memory 4GB; 8GB/No
64GB/No ) Stick
keyboard Virtual Touchscreen/Vir
Input Keyboard Keyboard tual
(wireless keyboard tual Keyboard
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250MB, (Whispernet/ (AT&T)/ (AT&T)/ (AT&T)/WiFi/B
$15; Sprint) WiFi WiFi luetooth
No deals 3G
International yet; 3G Roaming No No N/A
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Formats Audible; (AZW), (AZW), eReader, PDF, GIF, JPEG,
Kindle TXT, Native PDF, PDFs, JPEG, PNG, BMP,
(through Audible TXT, MP3s, BBeB, ePub, and TXT;
app); (formats Audible JPEG, TXT, Will work with
iTunes;addi 4, Audible (formats 4, GIF, RTF, Office, HTML
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formats NA (AAX), Enhanced BMP. PNG,
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books, 400,000-plus sale,
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access to 350,000 books
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Archive Apple Amazon Amazon Sony Plastic Logic
This chart was first published Jan. 29 and was last updated at 10:30 p.m. ET Jan. 31. //
Edited by Staci D. Kramer. Based on manufacturer information, additional reporting.
The Business Insider
Amazon's Big Kindle Cave Could Threaten Its eBook
By Rory Maher, CFA | Feb. 1, 2010, 9:26 AM
Amazon has caved to Macmillan's demands that it raise the prices it charges for Kindle
books to as much as $15.
What does this mean for Amazon?
In the short-term, it is actually positive: The move will increase the profitability of
the Macmillan books Amazon sells for the Kindle. Amazon had previously been
losing an average of about $1.50 per $9.99 e-book it sold so it should make a modest
profit if it sells Macmillan titles for anywhere from $2 to $5 more than it had been.
However, the move also sets a precedent that puts Amazon's current stranglehold
on the e-books business at risk. If other publishers follow in Macmillan's footsteps (and
why won't they?), Amazon will lose the pricing advantage it enjoys over other ebook
sellers. This could lead to it losing market share in ebooks and slower sales of Kindle
Currently, Amazon sells 90% of all e-books sold. This is in part the result of the Kindle's
early lead in the market and in part the result of Amazon's being willing to sell Kindle
books at a loss.
This dominance in turn has strengthened Amazon's leverage in negotiating the best terms
with publishers who have been loathe to sell e-books at much lower prices than hard
copies. Publishers are desperate to reduce this leverage and maintain high per-unit profits
on book sales, which is why Macmillan insisted that Amazon raise prices.
Now that Amazon has caved in this instance, other publishers will likely demand
that Amazon raise ebook prices. This will reduce the value of Amazon's Kindle
platform (the books will cost the same on all e-readers) and reduce the value
proposition of e-readers in general.
The idea that e-book prices should be the same as hardcover physical book prices (with
associated printing and shipping costs) is ludicrous, and we expect that publishers will
eventually be forced to acknowledge this reality.
In the near term, however, Macmillan's demand will mean higher prices for consumers
and a smaller opportunity for Amazon. It may also provide an opportunity for other e-
readers, such as Apple's iPad, to make a dent in Kindle's monopoly market share. The
move is therefore a potentially big negative for Amazon.
February 3, 2010
Some News Outlets Ready to Try Charging Online
By RICHARD PÉREZ-PEÑA
Extracting payment from online readers has been called everything from the next great
folly of print journalism to its salvation, but to get a glimpse of how it really looks, head
to Lancaster, Pa.
Specifically, head to the offices of The Intelligencer Journal-Lancaster New Era, one of
the first handful of news outlets to acknowledge in interviews that it intends, in the next
few months, to start using a software system developed by the entrepreneurs Steven Brill,
L. Gordon Crovitz and their partners, which they are calling Press+. Others interested
include The Fayetteville Observer in North Carolina and GlobalPost, a news site based in
A very small number of news organizations, including The Wall Street Journal, The
Financial Times and Newsday, already charge online readers, each with a system
developed largely in-house, and The New York Times announced recently that it planned
to do the same. But with advertising plummeting, many other publishers eager for a new
source of revenue are considering making the switch, despite the risk of losing audience
Last year, Mr. Brill and company seized on that interest, founding their operation,
Journalism Online, with the aim of developing a highly flexible system that would
become the industry standard, and keeping 20 percent of their client’s online revenue as
They say they have worked with potential clients from around the world, most of whom
they will not name, who operate more than 1,300 news sites. The News Corporation,
owner of The Wall Street Journal, is also marketing an online pay system to publishers,
but industry executives say that it has made little headway.
So if it turns out that Lancaster is in the vanguard of a mass movement — and there are
plenty of skeptics who say that charging could be a short-lived experiment — then
Press+, if it works well, could be the movement’s chief organizer.
But in their first extended interview in months, Mr. Crovitz and Mr. Brill, while offering
a look at how the system works, also cautioned against high expectations and said they
had urged their clients to take small steps. It will take years before charging Internet users
significantly changes the economics of a deeply troubled industry, they said.
As newsprint becomes a smaller part of the business, “you want to establish the notion
that it’s worth something online,” Mr. Brill said. “What we have convinced people of is
they don’t have to make a drastic decision. You can experiment.”
For those who have signed on, such lowered expectations are part of the appeal.
“We’re starting small, so if this really turns people off, we’re not playing with a huge
chunk of our readership,” said Ernest J. Schreiber, editor of the Lancaster paper’s Web
site, LancasterOnline.com. The site has been using and adapting the Press+ software for a
while. He said it would go into effect in a month or two.
At the outset, the paper, owned by a local company, Steinman Enterprises, will charge
only readers outside its immediate area and only for reading obituaries, with a little green
Press+ logo next to each headline covered by the system. It will allow a reader to see a
certain number of obituaries free before a box pops onto the screen demanding a flat fee
to keep reading, but the paper has not yet decided what that number will be, or how much
it will charge.
“We have news that no one else has, like these obituaries,” Mr. Schreiber said. “We
would eventually take other sections of our online content into the system. I’m thinking
local sports, perhaps.”
The system may generate only a few hundred thousand dollars a year in revenue, he said,
but “that’s enough to pay for a few reporters.”
Philip S. Balboni, president and chief executive of GlobalPost, a year-old site that focuses
on international news, said it would take a different approach to using Press+. Frequent
users will see messages urging them to join and pay, but it will be voluntary; there will be
levels of membership with different prices, and those who do pay will be able to suggest
topics for articles and have access to premium content. Those who do not join will still
have access to most of the site.
“We anticipate rolling it out by the end of March,” and hope to have tens of thousands of
paying readers by year’s end, he said. “By Year 2, it would become a very significant
contributor to our total funding, but advertising I anticipate would still be No. 1.”
Mr. Crovitz is a former publisher of The Wall Street Journal, where he oversaw its online
pay system, and began to develop a new version of that system.
Mr. Brill has a long record of starting ventures in untested waters, some more successful
than others. He founded The American Lawyer magazine and the Court TV channel,
which succeeded, and Brill’s Content, a magazine about media, which did not. He also
founded Verified Identity Pass, whose system, called Clear, allowed frequent travelers to
speed through airport security, but he severed ties with the company before it ceased
operation last year.
Their partners in Journalism Online include Leo Hindery Jr., a former top executive at
Tele-Communications Inc. and the YES Network, and Ken Ficara, who helped develop
and run The Journal’s Web site.
“We are quite a ways from widespread adoption of paid content, so it’s too soon to tell
how successful they’ll be,” said Rick Edmonds, a media business analyst at the Poynter
Institute in St. Petersburg, Fla. But most publishers will not want to develop their own
software systems, he said, and assuming Press+ works well, its chances of catching on
“look pretty good.”
“The way they have set it up, letting the publishers mix and match and design their own
system, I think that’s a good fit because we’re in a period where newspapers are going to
begin to experiment with all sorts of approaches,” Mr. Edmonds said.
A move to charge for content means not a single decision, but dozens. Sites can let
nonpaying readers see the top of an article, while only paying readers see the whole
thing; they can allow unlimited reading of certain articles, while charging for others; they
can charge by the month or by the click; they can limit free reading to a certain number of
articles a month; they can treat readers differently depending on their location; they can
charge a single price or have a tiered system; they can give print subscribers free access
or charge them, too.
Press+ is meant to accommodate all approaches, collect data on how they work and share
the results with clients. As with e-commerce systems like PayPal, a consumer who
already has a Press+ account will be able to use it to gain access to additional sites
without re-entering a credit card number.
“One of the things they’re paying for is convenience and certainty,” Mr. Crovitz said.
Mr. Schreiber said he and his colleagues in Lancaster have no fear of playing guinea pig.
If charging online turns out to be a mistake, the paper will just move on to the next
Given the industry’s troubles, “doing nothing is not an option,” he said. “The sooner we
can do it, the sooner we can find something that works.”
February 2, 2010, 7:44 pm
Rosensweig Lands At Textbook Renter Chegg.com
By MIGUEL HELFT
Veteran Silicon Valley executive Dan Rosensweig is leaving his job as president and
chief executive of Activision Blizzard’s Guitar Hero franchise to take the same title at
Chegg.com, a well-financed start-up that is applying the online rental model pioneered by
Netflix to college textbooks. Previously, Mr. Rosensweig served as chief operating
officer of Yahoo under its then-chief executive, Terry Semel.
Mr. Rosensweig spent just 10 months leading Guitar Hero, the top gaming franchise,
during a difficult year for the entire industry.
Mr. Rosensweig is taking over a fast-growing company. I wrote about Chegg.com, the
leading player in the fledgling online textbook market, last summer. Since then, the
company has raised an additional $112 million in debt, credit and equity financing,
bringing its total to nearly $150 million. It counts marquee Silicon Valley firms like
Kleiner Perkins Caufield & Byers among its investors.
“Textbook rental is a great concept,” Mr. Rosensweig said in an interview. “It is just a
great business model.”
Mr. Rosensweig declined to discuss Chegg’s sales, but said that the company grew about
sevenfold in the last year. He said it did as much business in January 2010 as in all of
Chegg has rented more than 2 million books to students on 6,400 campuses. Mr.
Rosensweig said that Chegg will use much of the money it has raised to buy books, not to
finance its operations. “The faster we grow, the more capital we need to acquire books,”
But Chegg.com has also had some hiccups. Its former chief executive, Jim Safka, who
had joined after a stint as chief executive of Ask.com, left in September after just four
months on the job. He handed the reins on an interim basis to Osman Rashid, the co-
founder and chairman.
“We are thrilled that Dan is joining us as our president and C.E.O.,” Mr. Rashid said in a
statement. “We know he is the right person to lead Chegg.com through the next phase of
Activision said that David Haddad, the chief operating officer of Guitar Hero, will
assume operational responsibility for the unit.
Amazon's In Luck: Some Major Publishers Not Sold On
Kindle "Agency" Model, So Amazon Can Still Undercut
Apple On Price
By Rory Maher, CFA | Feb. 9, 2010
Amazon is currently in talks with book publishers Macmillan and Hachette about selling
e-books via an "agency" model, in which the publisher sets the price and Amazon takes a
Analysts are worried that if the whole publishing industry goes this way, Amazon's ebook
dominance (and revenue) will suffer, because publishers will keep ebook prices high to
protect physical book sales.
However, one major book publisher we spoke with sees no reason to shift to that
model right now or anytime in the near future.
The reason is that book publishers make less money from the agency model than they do
from the traditional wholesale model (in which Amazon buys a book license at the full
wholesale price, and then sells each copy for whatever it wants, often losing money on
the sale). The agency model, therefore, also leaves publishers less money to pay authors
According to one executive we spoke with, it's also still unclear if Amazon will continue
to command its dominant 90% share of the e-book market, so there isn't much reason to
set a precedent by adopting a model that makes everyone less money per book.
The skepticism about the agency model is bad news for Apple since it means for the time
being Apple won't have every major publisher on board with high ebook prices and a
70%/30% revenue split for its iPad e-reader bookstore. This could allow Amazon to
undercut Apple significantly on price and, thereby, limit Apple's sales.
For Amazon, meanwhile, the publisher's position is helpful in that the whole publishing
industry isn't likely to quickly shift to the agency model. Thus, Amazon can continue to
sell some e-books at a lower price than competitors, which should help it maintain strong
market share. However, since Amazon is already caving to two major publishers, the
agency model precedent will have been set to some degree and it will lose its pricing
power for some of its books.
Amazon's Big Kindle Cave Could Threaten Its eBook Monopoly
Here's Why Amazon Will Win The eBook War: Kindle Already Has 90% eBook Market
Kindle Fantasies Are Running Wild -- But, For Now, Amazon Is Losing Its Shirt
A Century Foundation Group Blog
February 09, 2010
With Thanks to John Sargent
by Peter Osnos
John Sargent is the CEO of Macmillan, the U.S. companies of the Georg von Holtzbrinck
Publishing Group, a venerable enterprise based in Stuttgart, Germany. The American
imprints include Farrar, Strauss and Giroux, Henry Holt, and St. Martin’s Press, among
others. Sargent is what in another age might be called a scion of a publishing family. His
father ran Doubleday and Company in the 1960s and 1970s, its glory days.
What makes Sargent notable now is that he has taken a firm position on behalf of
Macmillan with Amazon about who would control the price of e-books, and the Internet
behemoth acknowledged that “ultimately” it would have to “capitulate.” To the
consumer, that a big publisher wants to charge more for its books may not immediately
seem like a big breakthrough for the world of letters, but it almost certainly is that (about
which, more in a moment).
Moreover, this is not the first time that Sargent has taken a leadership role on behalf of
publishers grappling with the complexities and enormous potential of the digital age. As
chairman of the Association of American Publishers, Sargent joined other publishers and
the Authors Guild in a lawsuit to forestall Google’s intention to digitize millions of books
without regard to copyright. The suit was settled in 2008 and Google agreed to pay $125
million to establish a system for registering digital use and to pay royalties to authors and
lishers going forward. Predictably, that agreement has its critics as well as its admirers.
The concept of giving Google so much of a head start in the creation of a vast digital
library still makes many in the book universe, including potential competitors and the
Justice Department, unhappy. Another hearing on the Google accord is scheduled for
But the main point about the Google settlement and Macmillan’s confrontation with
Amazon is that the publishers, significantly, again with the support of the Authors Guild,
are stepping into the fray to represent their interests despite the popular and commercial
dominance of these great Internet-based companies and the momentum they have in
setting new terms for distribution of information and entertainment. What Sargent did on
behalf of Macmillan—there is no evidence that he was acting in consultation or
collaboration with other publishers—is challenge Amazon’s policy of offering e-book
bestsellers at $9.99. Based on the publishers’ list price, these were loss leaders designed
to boost the sales of the company’s proprietary reading device, the Kindle, which retails
for $259. The publishers’ concern was that Amazon was preparing to declare that it
would no longer accept a loss on each sale and would insist that books be made available
to it at lower cost. The result would be a precipitous drop in revenues for everyone—
What Sargent told Amazon, he said in a statement addressed to “authors/ illustrators and
the literary agent community,” is that, in early March, Macmillan would begin selling to
Amazon at prices it set and would pay the retailer a 30 percent commission on what is
known as the “agency” model. The seller is, in effect, paid a fee for its services. Amazon
immediately retaliated by deactivating direct sales of Macmillan books on its site, even
withdrawing sample chapters that had already been sent to consumers. But after forty-
eight hours, Amazon relented, accusing Macmillan of punishing consumers with higher
prices (a few dollars), yet acknowledging that eventually it would have to go along or
lose the sales altogether. Negotiations on these new conditions continued through the
week, and the final terms have not been disclosed.
Amazon plainly was influenced by the fact that Apple is preparing to accept the agency
model for book sales on its new iPad and that Google, also preparing to launch a book
retailing site later this year, has now said publishers will set the prices. The Kindle’s
overwhelming share of the digital book market is no longer assured.
To be clear: the price of most books on Amazon and on the Kindle will not be affected by
this dust-up. On EarlyWord, a blog for librarians, Nora Rawlinson wrote that of “the nine
titles with full reviews in the current New York Times Book Review, only one is available
in a $9.99 Kindle edition. Three are not available at all and the rest were just $1.13 to
$2.83 less than the hardcover price.” The underlying issue is that Amazon’s strategy of
driving prices down (while reaping the lucrative reward of selling Kindles) meant that
publishers and authors would find it increasingly difficult to generate the revenues
necessary to sustain their businesses as the percentage of e-book sales rose compared
with higher-priced print books. Despite the apparent outcome of the Macmillan case, that
tug-of-war is certain to continue with other publishers, perhaps, or over other conditions.
And the same goes for the Google settlement. Whatever the judge decides will almost
certainly lead to challenges by one party or another.
So John Sargent’s demarche with Amazon and his role in the Google accord by no means
assure the future of publishing. What they do mean is that, in the frenetic pace of change
for book distribution, publishers are taking a stand and even holding their own. For that,
John Sargent deserves thanks.
All Things Digital
Book Publishers Beware! At iTunes, Expensive Music
Equals Slower Sales.
by Peter Kafka
Posted on February 9
After years of complaints, last year the music labels finally got what they wanted from
Apple–the ability to raise prices on their songs. Last April, iTunes introduced a “variable
pricing” scheme, which gave the labels the ability to move prices from 99 cents a song to
$1.29 (and for some tracks, down to 69 cents).
The result? Music sales are slowing.
Warner Music Group (WMG) said this morning that it has seen unit sales growth at
Apple’s (AAPL) iTunes decelerate since the price increase: Industrywide, year-over-year
“digital track equivalent album unit growth” was at five percent in the December quarter,
down sequentially from 10 percent in the September quarter and 11 percent in the June
And since iTunes sales make up the majority of Warner’s digital revenue, growth is
contracting there, too. In the last quarter, digital revenue at the label was up eight percent
compared with a year earlier, when that number was 20 percent.
The positive spin here is that music downloads are a “mature” business anyway. So by
raising prices, the labels are simply extracting whatever value they can.
And indeed, Warner CEO Edgar Bronfman Jr. argued that the pricing change has been a
“net positive” for Warner. But he also suggested that in hindsight, perhaps it wasn’t a
great idea to raise prices 30 percent during a recession.
So here’s the question for the book industry, which has been working very hard to boost
the price for its digital goods: Which lesson do you learn from this?
My gut is that the industry will see this parable the way Bronfman apparently does: If you
can move prices up early in the digital adoption cycle, you’re much better off.
During the earnings call, Bronfman sounded a bit wistful as he noted the book industry’s
apparent success, with the help of Apple, at raising prices above the $9.99 floor Amazon
(AMZN) had set. “It’s interesting that the book publishing industry, on the iPad, has
much more flexibility than the music industry had,” he noted.
The counter here is the one that seems obvious to everyone else: Lower prices and you
can sell more stuff. Looks like we’ll be getting another real-world test of this economics
Facebook's New Payments System Is Increasing Virtual
Goods Sales By An Impressive 25%
By Rory Maher, CFA | Feb. 9, 2010
The CEO of one of the larger gaming companies on Facebook says that Facebook's
recently-released payment platform is increasing sales of virtual goods in games by
20% to 25%.
This sales lift is enough to make up for the higher commissions paid to Facebook for the
service (Facebook takes 30% of a sale, versus less than 10% for most of the competing
According to the game company CEO, there are two factors likely driving the platform's
• Facebook is a known, trusted brand so gamers feel more comfortable using it to
make purchases versus independent companies.
• Facebook has accumulated a massive amount of credit card info through its gift
store, so many users can buy goods in games without having to enter any personal
The early results are obviously excellent for Facebook, which should drive more high-
margin revenue from its payment business. They are also encouraging for gaming
companies using social networks to drive virtual goods revenue. The higher fees will
pinch profit margins, but if the increased activity continues, game publishers could make
more money due to the greater volume.
In addition, continuing to grow its database of consumer information like credit cards will
help Facebook in its efforts to expand its payment system beyond Facebook and across
third-party sites. At this point, of course, PayPal has a huge lead, and Facebook is likely
a few years from meaningfully pushing its broader payment initiative anyway.
Why You Need a Strategy for Social Media
FEBRUARY 10, 2010
Planning and organization no longer optional
Social media has matured to the point where marketers are no longer asking whether it
should be part of their marketing mix but how and where they should participate. A clear
strategy for the channel is now necessary.
“The low cost of social media can lull marketers into improvising solutions,” said Paul
Verna, eMarketer senior analyst and author of the Insight Brief “Five Reasons Why
Marketers Need to Have a Social Media Strategy.”
“But taking account of the time spent debating, formulating, managing and executing
social media campaigns—not to mention creating content—makes it clear that money is
at stake and a well-thought-out plan is needed,” Mr. Verna said.
“Instead of researching the best ways to engage, many businesses create accounts across
multiple social networks and publish content without a plan or purpose. However,
businesses that conduct research will find a rewarding array of options and
—Brian Solis, founder and principal, FutureWorks, in a blog post on Mashable, January
A strategy is also critical because social media users will expect companies to be savvy in
the social space. That includes making sure social marketing initiatives are in line with
other brand marketing strategies.
“As increasing numbers of companies immerse themselves in social marketing, the
sophistication level rises for all,” said Mr. Verna. “That creates an environment in which
only the most organized can compete.”
A critical part of marketers’ planning is determining how to integrate social media into
their companies. In the Insight Brief “Where Does Social Media Fit Within an
Organization?” Mr. Verna analyzed how marketers are weaving social media into the
larger corporate fabric.
Most companies find social media useful as a marketing and communications tool, but
many companies also use social channels for sales, customer service, IT and more.
Although companies may use social media for several discrete business purposes, they
should work toward integrating social media expertise into functional teams. Silos of
expertise should be avoided.
“A Facebook promotion is only as good as the information that it feeds back to the sales,
CRM, marketing or senior management executives who can turn it into a business gain,”
said Mr. Verna.
“Five Reasons Why Marketers Need to Have a Social Media Strategy” and “Where Does
Social Media Fit Within an Organization?” are part of a series of eMarketer Insight Briefs
focused on social media marketing. Available exclusively to Total Access subscribers,
the seven briefs, along with a PowerPoint slideshow, answer the most common and most
pressing questions that businesses have about social media marketing.
Wednesday, February 10, 2010
Wednesday, February 10, 2010
Digital Shift in Marketing Budgets
According to a recent Econsultancy survey, conducted in association with ExactTarget of
more than 1,000 marketers, the shift of marketing budgets from traditional channels to
digital channels will continue to rise in 2010. 46% of companies plan to increase their
marketing budgets in 2010, says the study, and 66% will increase their investments in
digital marketing channels. A crosstab analysis on the changes in overall budgets
compared to changes in digital budgets shows that 28% of marketers are shifting at least
some of their overall marketing budgets from traditional to digital channels, says the
Plan To Increase Marketing Budgets In 2010
Overall Budget Digital Budget
Increase budget 46% 66%
Keep the same 42% 30%
Decrease budget 13% 4%
Source: Marketing Budgets 2010: Effectiveness, Measurements and Allocation Report,
ExactTarget, February 2010
Highlights from the marketing budgets 2010 study, as shown in the study report:
1. 28% of marketers are shifting at least some of their overall marketing budgets from
traditional to digital channels:
• At least part of the reason for the shift to digital marketing is that marketers find it
easier to track the impact these channels have on hard financial metrics.
Marketers tend to take a more "scientific" approach to their allocation of digital
marketing budgets than they do when allocating traditional marketing budgets.
34% of marketers said digital marketing budgets are allocated based on "more
science than art" compared to only 20% who allocate traditional marketing
budgets based on "more science than art."
2. Marketers who focus on "brand reputation" as a measure of marketing effectiveness
are the most likely to be shifting budgets from traditional to digital channels:
• Marketers who focus on this metric are more likely to be increasing their
investments in social media such as Facebook and Twitter. They're also more
likely to be increasing investments in online display and mobile marketing, and
less likely to be increasing investments in Search Engine Optimization (SEO),
affiliate marketing, and acquisition-based email (i.e. email to rented lists). These
increased investments in retention-based email marketing (i.e. email to registered
customers) is on par with other marketers.
3. Marketers have the most difficulty measuring ROI in social media and mobile
• Ironically, says the report, these channels are most likely to get budget increases
in 2010, despite marketers' inability to measure the effectiveness of this emerging
media. The study found that the ability to measure ROI is not the primary factor
in budget increases across digital channels. But while 34% of marketers plan to
increase paid search budgets in 2010, 13% will decrease spending in this area.
4. 64% of marketers plan to increase SEO budgets while 54% will increase retention
email marketing budgets. Only 3% of marketers plan to decrease budgets in each of these
• The majority of marketers are able to effectively measure these established digital
marketing channels. When it comes to digital marketing budgets, marketers feel
confident increasing their investments when efforts can be linked directly to their
5. In addition to examining how marketers plan to allocate their marketing dollars in
2010, this study also highlights some of the challenges that exist in digital marketing:
• While company respondents cite restricted budgets (40%) as the biggest barrier to
additional digital marketing investments, agency respondents cite lack of
understanding about digital marketing (48%) as the biggest impediment to
6. Lack of staff to make the most of any digital investment was cited by 35% of both
company and agency respondents as an additional barrier:
• While marketers are increasingly optimistic about the opportunities digital
channels provide, lack of training may limit an organization's ability to take full
advantage of these opportunities. One respondent report that, "with the last year
being tough financially, training and investment have been cut."
Additional budgeting highlights:
• 70% of responding companies plan to increase their budgets for off-site social
media (i.e. Facebook, Twitter)
• Only 17% of respondents are increasing their print media budgets, compared to
41% who are decreasing spending. 15% of companies are increasing their radio
budgets, but 36% are spending less
• More than half of companies plan to increase their budgets for mobile marketing
(56%), email marketing (54%), and paid search (51%)
Please visit Econsultancy here for additional information and access to the complete
Wall Street Journal
Apple Is in TV-Pricing Talks
February 11, 2010
By YUKARI IWATANI KANE And SAM SCHECHNER
Apple Inc. is in discussions with television networks to lower the price of downloaded
TV shows when the company begins selling its new iPad tablet computer, people familiar
with the talks said.
One of these people said Apple has already been testing a price of 99 cents—half the
price of standard-definition TV episodes—for certain shows on its iTunes service and
wants to finalize a deal to offer that price more broadly along with the iPad, which is
expected to go on sale in late March.
A search on iTunes showed, for example, that episodes of MTV Networks' comedy show
"Wonder Showzen," Viacom's "Celebrity Paranormal Project" and Warner Bros.
Entertainment Inc.'s "Children's Hospital" drama series are currently on sale for 99 cents.
Some episodes of selected television shows have also been available for free.
The people familiar with the talks said the new pricing has not been finalized yet. A
spokesman for Apple declined to comment.
News Hub: Apple Tests 99-Cent Movie Sales
Apple is testing a price of 99 cents for downloaded TV shows when the company begins
selling its new iPad tablet computer. WSJ's Sam Schechner has the details in the News
The Financial Times reported on Wednesday that Apple could begin offering 99-cent
pricing for TV shows along with the iPad.
The discussions are part of Apple's broader strategy to overhaul its iTunes service. The
Cupertino, Calif., company acquired music-streaming service La La Media Inc. late last
year as part of a plan to offer consumers more ways to access and manage their music
On the video side, it has been in serious discussions with television networks since last
fall to come up with more compelling pricing packages for consumers.
Apple currently offers TV shows for $1.99 for standard-definition episodes and $2.99 for
high-definition episodes. For an entire season, consumers might pay $49.99 in high-
definition for a popular television series. Several executives at media companies have
acknowledged in recent months that Apple's prices for video on iTunes are extremely
high, but it's also one of the reasons why media companies and cable operators have not
felt threatened by the offerings.
As The Wall Street Journal previously reported, Apple's initial discussions with the
networks centered on a monthly subscription plan for a selection of TV shows.
People familiar said those talks appear to have stalled, though one of those people said
that Apple hasn't given up on that idea as an additional offering.
Beefing up its content offerings is crucial for the success of the iPad, which Apple Chief
Executive Steve Jobs has touted as the pre-eminent media and entertainment device.
One person familiar with the talks said that Apple met with at least one network as
recently as last week to discuss the pricing. This person said the company was trying to
"ignite the video part of iTunes," which has been a small contributor to the service's
revenues so far.
In its quarter ended Dec. 26, Apple reported $1.16 billion in iTunes Store sales, iPod
services and accessories.
Pollice Verso: Google Buys Awesome iPhone Email
App; Kills It
by MG Siegler on Feb 17, 2010
As you might have heard earlier today, Google made another acquisition — the email
search startup reMail . While its topical description may make it seem like an obvious
buy, there’s another layer that makes this really interesting. reMail isn’t just any email
search startup, it’s a startup working to perfect email search on the iPhone. Or rather, it
Here’s the key part of reMail founder Gabor Cselle’s post about the acquisition today:
“Google and reMail have decided to discontinue reMail’s iPhone application, and we
have removed it from the App Store.” Yep, it looks like this may be another battle in the
Apple-Google mobile war.
While you might assume this was a pure talent acquisition, there’s something odd: Cselle
has already worked for Google in the past. On Gmail. While I’m sure Google is happy to
have him back, I’m betting they’re just as happy to kill off what is hands down one of the
best email applications on the iPhone — much better than the iPhone’s native email app.
As an advisor for this year’s Microsoft BizSpark Accelerator startup competition at
SXSW this year, I had a chance to take a good look at reMail recently. Not surprisingly,
it was chosen as one of the finalists (though I’m sure that will change now). It’s sad that
other iPhone users won’t get a chance to check out this app now that Google is killing it.
But all’s fair in love and war, I suppose.
And make no mistake, this is war.
February 8, 2010, 12:34 pm
Job Postings Hint at Amazon’s Plans for the Kindle
By NICK BILTON
It looks as if color screens and Wi-Fi might be the next additions to Amazon’s Kindle.
Emmanuel Dunand/Getty Images Jeff Bezos holding a
Last week, Brad Stone and I reported that Amazon had acquired the New York based
multitouch screen company Touchco to integrate into Lab126, the Kindle hardware
This move sends one clear message: Amazon is not going to back down from a fight with
Apple and its iPad. But it does leave open a plethora of new questions, one in particular:
Will the next Kindle be solely an e-reader or a full-fledged computer?
Robert Brunner, founder of the design company Ammunition, worked with Barnes &
Noble to create the Nook e-reader and says he believes that the Kindle will actually
become two Kindles. “I think they are going to have to split their line. They can’t
abandon E Ink screens, but they will need to create a color device too,” said Mr. Brunner.
“Where it gets interesting is, do they just do a device that’s a color Kindle or is it a full
One thing is certain, the company is looking at color for its device. You can take a look at
the over 50 job listings on Amazon’s Lab126 career board and see a range of new
positions that suggest more about the next Kindle.
One job opening in particular, for a Hardware Display Manager, tells the applicant that
“you will know the LCD business and key players in the market.” The key point here is
the word “LCD,” which means the Kindle is possibly exploring color (unless they are
hiring an LCD manager to simply gain an understanding of the color-display market).
Other job openings include Wi-Fi specialists (the current Kindle has only a 3G wireless
connection), and openings for someone to “lead the software development teams that
develop and maintain the applications.” The applications division could signal a move to
create more apps for the Kindle, or someone who will manage the latest app store
developments after Amazon announced a new software development kit was released last
month to independent programmers.
But if this is true, and if the next generation of the Kindle will be full color, full
multitouch, with Wi-Fi and apps, then what about the operating system?
There the crystal ball is murkier. Brian Jepson, a senior editor at O’Reilly Media who
programs extensively for Google’s Android, makes the point that building a operating
system to handle multitouch and color on an LCD Kindle might not be the best use of
resources and time. “It’s a question of necessary versus new,” Mr. Jepson said. Amazon
could go through the difficult job of baking touch into their current OS, he said. “But is it
necessary to do all that when you could just grab the Android OS and use that instead?”
Using an existing platform, like Android, that already comes with thousands of
applications would allow Amazon to focus on selling content and customer relationships
— two areas where they clearly excel. Mr. Brunner said Amazon should be less
concerned with creating something new just for the sake of it and “rather than just take a
book and drop it on the Kindle, they could work with publishers to create content for
Robert Fabricant, vice president for creative at Frog Design, believes Amazon could even
offer a better experience than Apple when it comes to purchasing content. “Part of what
Amazon could offer is a device that is a entrance into a store, into a richer experiences for
you,” Mr. Fabricant said.
“One way to think about it, one of things that seemed backwards about the iPad was that
dorky bookshelf that was like something from the mid ’90s,” Mr. Fabricant said. Amazon
doesn’t “just put products on a shelf, they create experiences around the products.”
Either way, Amazon’s Kindle team have their work cut out for them as they try to stay
relevant as e-readers evolve quickly. Even for a company that doesn’t specialize in
hardware, it’s clearly not over yet. As Mr. Fabricant put it, “If people buy a phone from
Google, why won’t they buy a media device from Amazon.”
Silicon Alley Insider
iBooks App Won't Come Standard With The iPad
Jay Yarow | Feb. 11, 2010
AMZN Feb 12 2010, 10:50 AM EST
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AAPL Feb 12 2010, 10:50 AM EST
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Apple will not be shipping iPads with the iBooks application as a built-in app, notes John
Gruber at Daring Fireball.
To get the iBooks application, iPad users will have to download it themselves.
"The iBooks app is a great new way to read and buy books," Apple says on a promotional
Web site. "Download the free app from the App Store and buy everything from classics
to best sellers from the built-in iBookstore."
Depending on how Apple promotes the iBooks app in the App Store, this is a nice
opportunity for Amazon's Kindle app to pick up market share.
If iPad users don't know Apple has the iBookstore, which is possible, they might search
for and download the Kindle app instead.
John speculates that Apple didn't include the app as a standard, because it's easier to
update it if it's an independent app. The apps that are bundled with the iPhone -- Stocks,
Weather, etc. -- are only updated when the iPhone OS is updated.
Silicon Alley Insider
Amazon Wants To Give A Free Kindle To All Amazon
TechCrunch | Feb. 12, 2010, 7:26 AM | 1,224 | 5
From TechCrunch: In January Amazon offered select customers a free Kindle of sorts –
they had to pay for it, but if they didn’t like it they could get a full refund and keep the
device. It turns out that was just a test run for a much more ambitious program. A reliable
source tells us Amazon wants to give a free Kindle to every Amazon Prime subscriber.
Just as soon as they can work out how to do it without losing money.
Silicon Valley Insider
CHART OF THE DAY: Yahoo Still King Of Display
Dan Frommer | Feb. 15, 2010
Yahoo is farming out its search business to Microsoft to focus on display advertising.
That's probably the right idea, as Yahoo is still the largest display-ad publisher in the
industry, by a considerable margin.
Yahoo delivered 521 billion ad impressions in the 12-month period ending last
November, according to comScore, beating out Fox Interactive (including MySpace) at
368 billion and Facebook at 330 billion.
And things finally seem to be picking up: During Yahoo's Q4 earnings call, CEO Carol
Bartz said display ad revenue grew 26% from Q3. That was the strongest sequential
growth the company had seen since 2006.
To stay on top, Yahoo will have to keep traffic to its homepage portal strong -- which
could mean a major upgrade to its Mail service -- and fend off rising players like
Facebook and AOL.
By Staci Kramer, December 3, 2009
Hearst’s Skiff Plans To Set Sail Next Year With E-
Reader Platform, Devices—And Sprint Deal
Forget First Paper. The incubated startup Hearst is looking to as a digital content savior is
now Skiff, LLC, although the better name might be “Swiss Army E-Reader Ink” given all
that it’s trying to do. Skiff, led by Gilbert Fuchsberg and headquartered in NYC with
offices in Palo Alto, promises a 2010 launch with a “complete” digital content solution
that can handle it all but will specialize in magazines and newspapers via a platform that
can be used across devices and its own dedicated devices to be sold at retail. It also
promises a business model that respects publishers’ needs.
It’s unclear where the Hearst startup fits in with the digital magazine consortium Time
Inc’s John Squires is working on and that we expect to be officially announced any day.
Hearst is part of that consortium along with Time Inc., Conde Nast and Meredith (NYSE:
MDP). Ken Bronfin, the president of Hearst Interactive Media, told the WSJ, which first
reported about Skiff’s plans late Thursday (the formal announcement is planned for
Friday morning), that he hopes the consortium will work with Skiff. Hearst confirmed to
the Journal that it already plans to offer some of its own publications, including the San
Francisco Chronicle along with titles from unidentified other publishers.
The company provided us with details; Skiff.com is also live. On the dedicated device
side, Skiff says it has a multi-year deal with Sprint (NYSE: S) to provide 3G service for
the dedicated devices—and to sell them at its 1,000-plus retail outlets and on Sprint.com.
It’s not an exclusive but Skiff says it won’t announce other deals until next year. Under
its FirstPaper moniker, the company said last month it is working with chipmaker
Marvell (NASDAQ: MRVL) Technology group on its integrated Armada 166E for e-
readers designed to render high-res PDFs “ultra fast,” save power, extend battery life and
support ePaper in thin formats and a variety of screen sizes.
On the platform side, Skiff promises “visually appealing layouts, high-resolution
graphics, rich typography and dynamic updates” that make it easier for publishers to
migrate premium content to e-readers while allowing them to maintain their own design
sensibilities. No names but Amazon’s Kindle, for instance, essentially reduces everything
to the same greyscale, flattened format. The Skiff Store promises “a rich selection of
newspapers, magazines, books, and blogs.”
Among other aspects, the business model includes optimizing for advertising by blending
the “impact” of print with digital technology. Skiff’s partners on this front include
Nielsen and comScore (NSDQ: SCOR) for media planning and analytics.
In addition to Fuchsberg, who led the interactive services division for Interpublic Group,
Skiff’s execs include vets from Sony’s Digital Reader launch, Intel (NSDQ: INTC),
Microsoft (NSDQ: MSFT) and Apple (NSDQ: AAPL).
Hearst Previews Skiff E-reader
Erik Sass, Jan 05, 2010 05:53 PM
The 2010 Consumer Electronics Show at Las Vegas got a first look at Hearst's Skiff e-
reader, long the subject of speculation since the magazine publisher first revealed its
plans for the device early last year.
The device is produced by an independent company called Skiff, LLC, in collaboration
with Hearst, Time Inc., Conde Nast, Meredith and News Corp. It is intended to become
an electronic platform for media and personal content, as well as advertising, specially
tailored for magazine and newspaper content -- an area where other e-readers are said to
The e-reader, which must compete with a host of competitors from Amazon, Sony,
Plastic Logic and others, got generally positive reviews, winning praise for its large, thin
"e-Paper" touchscreen and high resolution: a quarter-inch thin, 11.5-inches on the
diagonal, it has a resolution of 1,200 by 1,600 pixels (for a total 1.92 million) and weighs
less than one pound.
The "e-Paper" materials consists of a metal foil produced by LG Display, which allows
Hearst to dispense with a glass shield on the display. It also consumes a relatively small
amount of power, lasting up to a week without needing to be recharged.
Skiff is designed to receive a variety of content via Sprint's 3G wireless service as well as
WiFi, which users can navigate via the interactive display, including magazines,
newspapers and books. It can also store personal documents.
According to Hearst, the device will be sold at over 1,000 Sprint retail locations and
online at Sprint.com, among other venues. No details on the price of the device or content
subscriptions had been made available so far.
The Skiff device will run on a new Skiff e-reader service developed by Skiff, LLC and
Hearst, which will also be compatible with smartphones and other mobile devices as a
downloadable app. Like the device itself, the e-reader service is designed to deliver print-
focused media content in a configuration that is intuitive and easy to use for readers and
also conducive to advertising.
It allows publishers to update content dynamically; presumably, it offers advertisers
measurability comparable to other mobile devices and media apps. As of December, Skiff
LLC had deals to incorporate a Skiff "chip" into Netbooks and e-readers from EnTourage
Systems, Spring Design and Plastic Logic.
Hearst first revealed plans to create an e-reader device in early 2009; in October it was
further revealed to be cooperating with other major magazine and newspaper publishers
to create a device compatible with multiple publishers' content. The project was led by
Time Executive Vice President John Squires, Hearst EVP/GM John Loughlin, and Conde
Nast President of Consumer Marketing Robert Sauerberg.
A recent study from Mediamark Research & Intelligence found that people who own
electronic book readers are better educated and more affluent than the average American
adult. E-reader owners are 11% more likely to own their own home, 87% more likely to
have an annual household income over $100,000 and 111% more likely to have a
bachelor's or post-graduate degree. In keeping with their tech-savvy reputation, MRI also
found they are more likely to be heavy Internet users.
February 18, 2010
Apple’s Prices for E-Books May Be Lower Than
By MOTOKO RICH
Maybe e-book prices won’t be rising so much after all.
Since Apple announced plans to sell digital books on its forthcoming iPad, it has been
cast as something of a savior of the publishing industry for allowing e-book prices to go
above the $9.99 that Amazon charges for e-books on its Kindle device, a price that
publishers say is too low to sustain their business.
But as more details come to light of the actual negotiations between Apple and
publishers, it appears that Apple left room to sell some of the most popular books at a
When Steven P. Jobs showed off the iPad last month, he announced agreements with five
of the six largest publishers to offer their content through a new iBooks application.
Those publishers — the Hachette Book Group, HarperCollins Publishers, Macmillan, the
Penguin Group and Simon & Schuster — agreed to terms under which they would set e-
book prices and Apple would serve as an agent to sell the books to consumers. Apple
would take 30 percent of each sale, leaving 70 percent for publishers to split with authors.
Publishers indicated that e-book editions of most newly released adult general fiction and
nonfiction would sell in a range from $12.99 to $14.99, under a complicated formula that
pegs e-book prices to the list prices of comparable print editions. Publishers liked Apple’s
deal because it resulted in a marked increase above Amazon’s $9.99 price for most new
But according to at least three people with knowledge of the discussions, who spoke
anonymously because of the confidentiality of the talks, Apple inserted provisions
requiring publishers to discount e-book prices on best sellers — so that $12.99-to-$14.99
range was merely a ceiling; prices for some titles could be lower, even as low as
Amazon’s $9.99. Essentially, Apple wants the flexibility to offer lower prices for the
hottest books, those on one of the New York Times best-seller lists, which are heavily
discounted in bookstores and on rival retail sites. So, for example, a book that started at
$14.99 would drop to $12.99 or less once it hit the best-seller lists.
Moreover, for books where publishers offer comparable hardcover editions at a price
below the typical $26, Apple wanted e-book prices to reflect the cheaper hardcover
prices. These books might be priced much lower than $12.99, even if they did not hit the
Tom Neumayr, an Apple spokesman, declined comment.
While e-books still represent a relatively small proportion of total book sales, they are the
fastest-growing part of the industry. How they are sold and priced has become a matter of
fierce debate within the publishing industry.
For Amazon, the $9.99 price on new and best-selling e-books helped it market the Kindle
device — which now sells for $259 — and build market share quickly. But Amazon has
effectively lost money on each sale at that price because it buys and resells e-books as it
purchases printed books, by paying publishers a wholesale price generally equivalent to
half the list price of a print edition. That means that on a $26 hardcover book, Amazon
would typically pay the publisher $13, losing just over $3 on a digital edition it sells for
Under the agreements with Apple, both the publishers and Apple should make money on
each book sale.
App for That: Magazines Forge New Vision of Digital
Consumers May Not Pay for Content Online, but They're Happy to
Purchase for Mobile
By Nat Ives
: February 22, 2010
NEW YORK (AdAge.com) -- Everybody knows digital media's arrival hasn't exactly
been easy on magazines. Ad rates on the web couldn't match their levels in print, many
magazines struggled to build compelling websites, new competition strove to steal
readers' attention, and the web itself engendered an attention-atrophied reading style that
undermined readers' very ability to settle down with a good, fat print issue.
But as mobile devices added capabilities, app stores took off and the dawn of e-readers
and tablet computers finally arrived, magazines have pushed aggressively to participate,
experiment and hopefully make money from the new opportunities presented. And with
an emerging economy of app "stores," they may have found a way to get consumers to
pay once again.
Despite some stragglers, it seems like nearly everyone has an app out by now, at a
minimum reinforcing readers' relationships with their brands. But magazines' push into
paid digital content, in the form of apps that carry price tags, is looking even more
Condé Nast Publications, which has taken heat for focusing too much on traditional ad
pages, was the first to deliver issues as apps, starting with GQ's December issue. By mid
February, it had sold 6,835 copies of the December app and 15,068 copies of the
February issue at $2.99 each. That's small potatoes compared with the magazine's print
circulation, which averaged 193,440 single-copy sales per issue over the second half of
last year. But Condé calls it a start, a play to get in position for the iPad, and probably a
net positive in any case, arguing that many of the app purchases will come from people
who don't buy GQ in print already.
"We still be studying carefully both through research and analysis and the data we have,
but we suspect it's going to be a mix," said Condé Nast Digital President Sarah Chubb.
"Maybe a newsstand buyer who bought it on a newsstand sometimes but maybe someone
who'd been interested in the GQ brand but for whatever reason never picked it up."
Into the routine
It can be labor-intensive to render issues as apps, too, but now Condé Nast is working
with Adobe to not just build an app version of Wired but to fold the creation of these
digital editions into the day-to-day creation of each issue. It's also planning to get Vanity
Fair and other titles available as apps.
Hearst's Esquire issue app followed soon after GQ. "We wanted to learn how to do it
because clearly there is a multiplicity of devices that we're going to be designing for,"
said David Granger, editor in chief of Esquire. "The second reason is even though the
revenue stream doesn't seem to be particularly significant, if I can get 50,000 or 100,000
people paying $3 a month, after a while those three dollars add up."
Maxim came next, becoming the first title to offer subscriptions to its issues-as-apps. And
meanwhile Zinio, which has been selling digitized magazine editions for display on
computer screens, just introduced a free app that optimizes the digital editions for
iPhones. About 20,000 people downloaded the new Zinio app within its first few weeks;
on Feb. 12 it was the No. 1 news app, having toppled The New York Times from the top
spot, and was receiving prominent promotion in the App Store.
Many publishers, from Time Inc. to Martha Stewart Living Omnimedia, are selling apps
that don't replicate or enhance regular issues but instead offer practical advice on
nutrition, instruction on workouts or updates on celebrities. Rodale apps have been
downloaded hundreds of thousands of times, about half the time at some cost to the
consumer, according to the company. "And I'm not talking about 101,000 apps, either,"
said Sean Nolan, VP-online operations at Rodale. "We're well in the hundreds of
Pricing on the Men's Health and Women's Health apps, which comprise the bulk of
Rodale's app portfolio, range from free, for Women's Health Best Foods for Women, to
99 cents for a Smoothie Selector, the cheapest app, to $4.99 for Eat This, Not That, an
extension of the Rodale book of the same name.
There's also the interesting precedent of Rodale's workout apps that let consumers buy
new workouts within the apps themselves. One in three people who bought one of those
apps subsequently bought additional content from within it, according to Mr. Nolan.
"This is not like the widget craze of a few years ago," he said, referring to the push to
build little branded modules that might live on outsiders' sites such as Facebook or
MySpace. "There's a real opportunity here."
Nobody's forgetting the potential, moreover, for new advertising sales. Advertisers'
requests for proposals increasingly come with the question: Do you have an app where
our advertising can appear?
And perhaps most strikingly, the industry is just not letting each competitor go it alone.
Before Apple's iPad was more than a rumor, four big magazine publishers joined with
News Corp. to create Next Issue Media, a joint venture that plans to build a storefront to
offer digital editions of magazines tailored for whatever devices come along. "We really
believe that it's going to be immersive, it's going to be friendly to brand-building and it's
going to have incredible impact against consumers, plus some really great metrics," said
John Squires, the longtime Time Inc. executive who left to lead the venture while a
search for a permanent CEO got underway, in an interview as the joint venture became
official last December. "We're thrilled by the opportunity to do what existing print
properties do well and what the web does well together."
eTextbooks Could Finally End The Great College
Bookstore Extortion Scheme
By Rory Maher, CFA | Feb. 26, 2010, 9:53 AM
The growth of e-textbooks may finally spell the end of an extortion scheme that has
infuriated college students (and their parents) forever: Sky-high prices on textbooks that
students are forced to buy to avoid flunking out.
Widespread adoption of e-textbooks is still a ways off, because current e-reader
technology leaves much to be desired when it comes to reading and studying textbooks.
However, significant discounts on e-textbooks by publishers should accelerate the use of
e-textbooks on college campuses even before the perfect reader is built. This should
save college students money, boost profit margins for textbook publishers, and
hammer Barnes & Noble and other private companies that currently make a killing
in the college bookstore racket.
Calls with publishers, universities, and surveys of textbooks in bookstores and e-
commerce sites reveal that:
• Publishers, students, and universities are fed up with large markups by private
college bookstores on print textbook sales.
• Publishers are especially unhappy since many students turn to used books that
cannibalize profitable new edition sales.
• Large discounts on e-textbooks amount to big savings for students who are
increasingly strapped for cash.
• Unlike trade publishers, textbook publishers can set their own e-book prices on
As a result, with the exception of college bookstores, all stakeholders in the sale of e-
textbooks are aligned to keep prices low - from publishers to online distributors to
consumers. This should lead to accelerated adoption of e-textbooks at universities.
TEXTBOOK PUBLISHERS UNHAPPY WITH BOOKSTORE PRICING -
SETTING MUCH LOWER PRICES ON AMAZON
Textbook publishers have long been unhappy with large markups at college bookstores
that in some cases can be as high as 100%. This is a big reason Wiley & Sons negotiated
hard with Amazon to set its own prices in a deal struck during Q409.
Textbook publishers are equally upset that students and faculty blame them for the high
prices when the stores determine the markup. The National Association of College stores
estimates the average textbook profit margin at 22%, but it should be noted they represent
A review on Amazon indicates that e-textbooks cost anywhere from 10% to 40% less
than print textbooks.
THE SHIFT TO E-TEXTBOOKS COULD ALSO LEAD TO HIGHER PROFIT
Unlike trade publishers, textbook publishers aren't overly concerned that lower e-
book prices will cannibalize print sales and profits. This is because the used book
market is cannibalizing new-textbook print sales far more severely.
Used book sales account for anywhere from about 30% to 40% of overall textbook sales,
according to data provided by the Book Industry Study Goup. This compares to only 5%
to 10% for trade books according to research firm Ipsos.
New print textbooks have become so expensive that many students would prefer to buy a
used, older version versus a new updated edition in order to save money. We've even
heard of students sharing textbooks because they are so expensive. Publishers do not
receive money from used book sales.
As a result, e-book profit margins could be higher than print profit margins for
many textbook publishers since it's likely they would sell more new editions at the
MANY COLLEGE BOOKSTORES ARE PRIVATE, FOR-PROFIT COMPANIES
Many wonder why colleges don't cut their students a break and set reasonable textbook
prices. The answer is that many college bookstores are privately-run companies that are
looking to boost profit margins.
For example, Follett Corp. operates 800 college bookstores in the US, and Barnes &
Noble operates 600. Combined, this is about 30% of all college bookstores in the US.
There are many smaller companies that also operate college bookstores under licensing
agreements. We believe when these are taken into account privately-owned college
bookstore penetration is likely over 50%.
Budget cuts are driving more colleges to license the management of their bookstores to
private companies, which should only increase the price of textbooks further in the
coming years. We've found that college-owned stores do not mark-up the prices of their
textbooks as much as privately-run stores.
For example, one university we spoke with with a student body of 20,000 needs to cut its
budget by $15 million next year due to a pullback in state funding. The university was
told that these cuts would be permanent. We believe many universities are facing similar
budget cuts given the weak economy.
Cuts like these are causing colleges to enter into licensing agreements with private
companies that eliminate the operating risk while returning a percentage of revenue.
These deals typically give the university about 5% to 10% of gross revenue with a
guaranteed minimum. This illustrates why:
• Colleges find privately-run bookstores a great risk-free alternative to operating
their own store.
• Bookstores feel pressure to keep prices high in order to maintain profit levels.
eTEXTBOOKS PROVIDE HUGE SAVINGS FOR COLLEGE STUDENTS
We surveyed Amazon and a number of college bookstores and found that e-textbooks can
cost anywhere from 10% to 40% less than print textbooks.
With about 18 million college students in the US spending about $300 per year on
textbooks, this would represent anywhere from $30 to $150 in savings per student
annually and between $500 million and $2 billion in savings across the country.
ONE MAJOR OBSTACLE TO ADOPTION RATES - RIGHT NOW STUDENTS
Students at universities we spoke with currently do not like e-books, primarily citing poor
navigation features and only very basic functionality to take notes in margins and mark
certain pages as you would when you fold over the corner of a print page.
However, if prices are low enough the potential savings may cause students to take
another look. In addition, publishers are working to enhance the interactive features of e-
textbooks. The next generation of e-readers could make e-textbooks as functional as
print textbooks. And that, finally, would spell the demise of one of the extortion scheme
known as textbook selling.
February 26, 2010, 2:09 pm
When It Comes to Content, Amazon’s Kindle Won’t Be
By NICK BILTON
On Jan. 27, Steven P. Jobs was still standing on a stage in San Francisco, presenting
Apple’s new iPad, when the phones started ringing. Senior managers from Amazon.com
were calling newspaper, magazine and book publishers trying to glean any information
possible about the deals Apple was offering them to supply content for its new reading
Amazon, which pioneered the e-reader category with its Kindle devices, is determined
not to be out-priced by Apple or any other rival.
Since December, Amazon has been pushing publishers to sign a new round of legal
agreements that would guarantee that the Kindle price for their content is always the
same or lower than the price on other electronic reading devices, such as the iPad or the
Sony Reader. The clause, a variation of a legal concept known as “most favored nation,”
would guarantee that Amazon’s customers would always get the best price for electronic
versions of magazines, newspapers and books.
As an incentive, Amazon is offering some publishers a bigger cut of revenue than they
currently get for content they sell on the Kindle. (Book publishers are a bit different.
They are actually pushing Amazon to adopt Apple’s model, which gives them less
revenue in exchange for more control over retail pricing.)
The Amazon talks were described by executives and employees at several different
newspapers and book publishers who requested anonymity due to confidentiality
agreements and the continuing legal negotiations.
Amazon declined to comment on its discussions with publishers.
Many e-publishing contracts with Amazon are still in a month-to-month cycle as the
publishers negotiate to try to gain more revenue or more control over their content.
Amazon’s negotiations with newspapers and magazines have been more complex. Those
industries have long complained about the tiny slice of revenue they get — typically
about 30 percent — from Kindle content sales.
In addition, the black-and-white E Ink screen on Amazon’s Kindle is less advanced than
the color screen on the iPad. Apple’s device is alluring to publishers in part because it
allows them to include photography, video and other rich multimedia.
However, to avoid losing their current subscribers on the Kindle, some publishers are
considering signing the new Amazon contract now and offering a free, limited
application for their content on the iPad. At a later date, when an Amazon product can
display richer types of media, publishers could release a paid product that looks and
works the same across multiple devices.
As one publishing executive put it to me, in the digital realm, it feels like we’re at the
beginning of a multiyear war over pricing and product features.
Silicon Alley Insider
Apple Stacks The Deck Against Amazon's Kindle App
Jay Yarow | Feb. 26, 2010, 11:00 AM | 5,925 | 34
AAPL Feb 26 2010, 05:20 PM EST
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When Apple's iPad goes on sale in a few weeks, its iBookstore will have a distinct
user-experience advantage over e-book competitors like Amazon's Kindle App.
That is, the iBookstore will let you seamlessly buy books from within the iBooks reader
app, with the iTunes account it's already aware of.
Meanwhile, rivals like the Kindle app and Barnes & Noble e-reader will require you to
boot up their apps, then click a button to boot up the iPad's Web browser, shop for e-
books in a Web store, sign in and pay with a non-iTunes account, relaunch the e-reader
app, and sync up your new e-book. Not as elegant.
It's not a huge difference, but it's the kind of small simplicity advantage that has helped
Apple's iTunes music store maintain a lead over its rivals, including Amazon.
People who use the Kindle app on their iPhones today will know that this isn't a new
thing: Since the Kindle iPhone app launched last March, users have had to leave the app
to buy e-books.
Amazon didn't built the app this way from the beginning. We have learned that when
Amazon first submitted its Kindle application for the iPhone to Apple, Amazon included
its own payment system within the app, so customers could just pay for e-books and
download them right in the app.
When Apple spotted the payment system, it told Amazon to get rid of it, according to a
source familiar with Amazon's operations.
Why? It's a rule Apple smartly instituted at the App Store's beginning, forbidding third-
party e-commerce of digital goods within apps.
That is, it's okay to use an iPhone app to buy physical goods -- as you can in Amazon's
main iPhone app, or the Fandango app, etc. And developers are welcome to use Apple's
in-app purchasing system -- and give a 30% cut of revenue to Apple -- to sell digital
goods within apps.
But Amazon, Barnes & Noble, and other vendors are prohibited from using their own e-
commerce systems within apps for virtual goods. Thus the trip to the Safari browser to
It's obviously a rule Apple itself is allowed to break -- it's Apple's iPhone, and it can do
whatever it wants, as we've seen recently with Apple's recent raids on thousands of sexy
apps. But it does put competitors like Amazon on uneven footing.
Obviously, Amazon is never going to want to give Apple a 30% cut of e-book sales, so
it's not going to implement Apple's in-app purchasing system. So it's indefinitely stuck
sending its customers into the browser to make purchases. (Meanwhile, on the new
BlackBerry Kindle app, you can buy e-books directly within the app.)
Assuming the iBooks app and the iBookstore have similar selection, pricing, and e-reader
features, this one simple step could give Apple a substantial advantage over Amazon.
March 1, 2010
Math of Publishing Meets the E-Book
By MOTOKO RICH
In the emerging world of e-books, many consumers assume it is only logical that
publishers are saving vast amounts by not having to print or distribute paper books,
leaving room to pass along those savings to their customers.
Publishers largely agree, which is why in negotiations with Apple, five of the six largest
publishers of trade books have said they would price most digital editions of new fiction
and nonfiction books from $12.99 to $14.99 on the forthcoming iPad tablet —
significantly lower than the average $26 price for a hardcover book.
But publishers also say consumers exaggerate the savings and have developed unrealistic
expectations about how low the prices of e-books can go. Yes, they say, printing costs
may vanish, but a raft of expenses that apply to all books, like overhead, marketing and
royalties, are still in effect.
All of which raises the question: Just how much does it actually cost to produce a printed
book versus a digital one?
Publishers differ on how they account for various costs, but a composite, and necessarily
simplified, picture might look like this, according to interviews with executives at several
On a typical hardcover, the publisher sets a suggested retail price. Let’s say it is $26. The
bookseller will generally pay the publisher $13. Out of that gross revenue, the publisher
pays about $3.25 to print, store and ship the book, including unsold copies returned to the
publisher by booksellers.
For cover design, typesetting and copy-editing, the publisher pays about 80 cents.
Marketing costs average around $1 but may go higher or lower depending on the title.
Most of these costs will deline on a per-unit basis as a book sells more copies.
Let’s not forget the author, who is generally paid a 15 percent royalty on the hardcover
price, which on a $26 book works out to $3.90. For big best-selling authors — and even
occasionally first-time writers whose publishers have taken a risk — the author’s advance
may be so large that the author effectively gets a higher slice of the gross revenue.
Publishers generally assume they will write off a portion of many authors’ advances
because they are not earned back in sales.
Without accounting for such write-offs, the publisher is left with $4.05, out of which it
must pay overhead for editors, cover art designers, office space and electricity before
taking a profit.
Now let’s look at an e-book. Under the agreements with Apple, the publishers will set the
consumer price and the retailer will act as an agent, earning a 30 percent commission on
each sale. So on a $12.99 e-book, the publisher takes in $9.09. Out of that gross revenue,
the publisher pays about 50 cents to convert the text to a digital file, typeset it in digital
form and copy-edit it. Marketing is about 78 cents.
The author’s royalty — a subject of fierce debate between literary agents and publishing
executives — is calculated among some of the large trade publishers as 25 percent of the
gross revenue, while others are calculating it off the consumer price. So on a $12.99 e-
book, the royalty could be anywhere from $2.27 to $3.25.
All that leaves the publisher with something ranging from $4.56 to $5.54, before paying
overhead costs or writing off unearned advances.
At a glance, it appears the e-book is more profitable. But publishers point out that e-
books still represent a small sliver of total sales, from 3 to 5 percent. If e-book sales start
to replace some hardcover sales, the publishers say, they will still have many of the fixed
costs associated with print editions, like warehouse space, but they will be spread among
fewer print copies.
Moreover, in the current print model, publishers can recoup many of their costs, and start
to make higher profits, on paperback editions. If publishers start a new e-book’s life at a
price similar to that of a paperback book, and reduce the price later, it may be more
difficult to cover costs and support new authors.
Another reason publishers want to avoid lower e-book prices is that print booksellers like
Barnes & Noble, Borders and independents across the country would be unable to
compete. As more consumers buy electronic readers and become comfortable with
reading digitally, if the e-books are priced much lower than the print editions, no one but
the aficionados and collectors will want to buy paper books.
“If you want bookstores to stay alive, then you want to slow down this movement to e-
books,” said Mike Shatzkin, chief executive of the Idea Logical Company, a consultant to
publishers. “The simplest way to slow down e-books is not to make them too cheap.”
In many ways, the $12.99-$14.99 price bracket for e-books is an experiment. With it, the
publishers seem to have beaten back, for the moment, the $9.99 price that Amazon has
offered for Kindle versions of most new releases and best sellers, but it remains to be
seen whether consumers will tolerate that.
Music prices, for example, have come under significant pressure in the digital age: from
2000 to 2009, the price of audio discs, tapes and other media, which includes digitized
music, fell a little more than 3 percent, according to the federal Consumer Price Index.
Prices of so-called recreational books, meanwhile, have increased just over 6 percent
during that same period.
Certainly, publishers argue that it would be difficult to sustain a vibrant business on much
lower prices. Margins would be squeezed, and it would become more difficult to nurture
new authors. “Most of the time these people are probably not going to make huge sums
of money the first time they publish,” said Carolyn Reidy, chief executive of Simon &
In fact, the industry is based on the understanding that as much as 70 percent of the books
published will make little or no money at all for the publisher once costs are paid.
Some of these books are by writers who are experimenting with form or genre, or those
who just do not have recognizable names. “You’re less apt to take a chance on an
important first novel if you don’t have the profit margin on the volume of the big books,”
said Lindy Hess, director of the Columbia Publishing Course, a program that trains young
aspirants for jobs in the publishing industry. “The truth about this business is that, with
rare exceptions, nobody makes a great deal of money.”
For many authors, pricing is a thicket of confusion. “None of us know what books cost.
None of us know what kind of profits hardcover or paperback publishers make,” said
Anne Rice, the author of “Interview With a Vampire” and the “Songs of the Seraphim”
She said she did not know whether publishers had struck the right price for e-books. “For
all I know, a million books at $9.99 might be great for an author,” Ms. Rice said. “The
only thing I think is a mistake is people trying to hold back e-books or Kindle and trying
to head off this revolution by building a dam. It’s not going to work.”
E-Readers’ Price May Fall to $150 With New Chip,
By Ian King
March 1 (Bloomberg) -- Freescale Semiconductor Inc., whose products power about 90
percent of electronic book readers, said a new chip will help drive down the price of the
devices to less than $150 this year.
Freescale, a former division of Motorola Inc., will soon begin offering samples of a new
processor that takes on the functions of other chips and thereby reduces e-reader costs,
said Glen Burchers, a marketing director.
Amazon.com Inc. and Sony Corp., both Freescale customers, dominate the market for
electronic tablets, which the companies predict will eventually replace paper books. Sales
in 2010 are on course to double from last year’s 4 million units, Burchers said in a phone
interview from Austin, Texas, where the company is based.
“There’s a big unsaturated market out there, and price is a big factor,” Burchers said.
“We do see the price of e- readers coming down this year, and Freescale is trying to
facilitate that. That’s a lot of what this chip is doing.”
Freescale’s new chip eliminates features that aren’t used in e-readers and adds the ability
to control their unique display technology, Burchers said. That alone brings a cost
reduction of about $30 per unit, he said. The company also makes chips for mobile
phones and cars.
Amazon, Sony E-Readers
Amazon’s Kindle readers carry retail prices of $259 and $489, while Sony’s three models
range from $199.99 to $399.99. Burchers declined to comment on when his customers
might begin selling devices based on the new Freescale chip. It usually takes about six
months from sampling a chip to a finished product going on sale, he said.
Apple Inc. plans to introduce its iPad tablet later this month. The device, which partly
functions as an e-reader and will retail for $499 to $699, runs on an Apple-designed chip
rather than Freescale semiconductors.
Amazon’s and Sony’s readers use E Ink Corp. technology in their displays, which are
designed to replicate the look of ink on paper. The displays are currently controlled by
separate chips, adding extra cost and slowing down the rate at which pages can be turned.
Freescale’s faster processor will reduce the lag in turning a page from more than 2
seconds currently to less than half a second, Burchers said.
A group led by Blackstone Group LP, Carlyle Group, Permira Advisers LLP and the
former Texas Pacific Group acquired Freescale in a $17.6 billion private-equity deal in
To contact the reporter on this story: Ian King in San Francisco at