Category: Distribution

Digital Distribution issues

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Business & Marketing Distribution

When you lose your monopoly, business has to change

Seth Godin has written a reprise of an old article of his called Monopolies, seven years later, which I heartily recommend.

The recording industry once had an important role that justified its monopoly, as did Broadcast Television stations and other limited outlet industries. But inevitably the monopoly is broken – by legal fiat in some cases, but by technology in a whole lot more cases.

It’s hard for a monopolist to give up the position because monopolies are very, very profitable. Sad to think that a company that was once raking in multiple millions of dollars every year, for many years, suddenly has to compete on the quality of their offering in a completely changed market where they are no longer a monopoly. This is why the music industry (concert tickets, merchandise etc) is doing very well while the recorded disc business is slowly fading away.

Some of the time monopolists don’t realize what business it is that they are in. Railroad companies apparently thought they were in the railroad business, rather than the transport business, so when their long-haul monopoly was threatened by trucking, they didn’t respond fast enough, and faded in importance to society. Record companies think they’re in the disc business, when they’re really in a promotional business. That’s probably the only role left.

Other times, industries lose relevance because technologies bypass them. This is the position that broadcasters and cable channels are facing right now: they had an effective monopoly (mandated by the government in the case of broadcasters) because they had access to limited resources – broadcast licenses and access to cable distribution. However when we don’t need those limited resources to get entertainment “out there” to the viewer, what role is left? Finance company? There’s lots of competition there.

And finally, industries lose out when they focus on the wrong customer. Broadcasters and cable programmers have the wrong focus. They believe that their customer is the advertiser, and they are correct in an advertising supported entertainment model. However, the producer’s customer is the viewer and is often in conflict with the broadcaster’s customer.

Losing a monopoly is inevitable. You can avoid fading into irrelevance by focusing on the core value of your business to the customers and to keep focused on the customer’s needs. Unfortunately, the more broadcasters do that, the faster they’ll fade from relevance because they are unnecessary in an unmediated marketplace.

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Distribution

The real reason Broadband TV/IPTV isn’t exploding

There’s a couple of reasons why viewers haven’t turned to online video as a mainstream Television replacement: lack of selection, DRM and restrictive viewing windows among them, but the real reason it’s not taking off is that it is, simply put, grossly overpriced. The networks and studios, on behalf of program producers, are unrealistically pricing themselves out of a market they don’t want to succeed, because it would challenge their existing business.

Putting aside the stupidity of refusing to adapt to changing business conditions, and the inevitable problems that will cause them in the long term, the way that iTunes, NBC, et al are pricing for downloads or rentals, is completely out of whack with the revenues received from existing distribution.

So when NBC complains that Apple wouldn’t let them increase the already usurious $1.99 per TV show (or about 68c for the limited number of shows available with a Multipass that actually discounts from the $1.99 rate) it shows just how out of touch NBC’s Zucker really is.

So what is the “real” pricing? What is a nominally 30 or 60 minute TV show worth? Market economics tells us that it’s worth whatever the market will pay, but as the existing power players are competing with free and the marginal cost of the goods is close to zero, traditional market economics do not come in to play. As I’ve pointed out before NBC has taken $50 million in income from the iTunes store from paying customers, even while every program on the ntwork has been available free via various bittorrent sources. Without commercials. That’s $50 million they would not have had without a relatively simple distribution method like iTunes.

That’s $50 million of over-priced content. At $1.99, based on available information, Apple takes about 20% to cover the iTunes store, payment processing and content delivery leaving $1.60 for the program owner. Or for a 22 minute Multi-pass purchase of The Daily Show at 68c, Comedy Central takes 55c a show. Why is this unreasonable?
If I were to subscribe to Cable or Satellite Comedy Central would get about 60c – $1 per month for my subscription to that service. That’s less than $1 a month for 168 x 4 hours of programming, not one episode of The Daily Show. OK, Comedy Central also get advertising revenue, and they certainly don’t produce 672 hours of original programming a month, but I’ll address both those issues later in this post.

So what is a fair price? First, let’s consider a case study: my TV viewing habits in October. I’m far from typical for two reasons: we watch relatively little Television and we get it all through the Internet. We have no cable connection, no satellite dish and no over-the-air antenna. Walking the talk, so to speak.

In October 2007, we watched 86 shows, including one movie that we haven’t watched before. Because these came via the Internet they were without commercials so the 36.85 hours of actual viewing time, equates to about 50 hours of regular, advertising filled, Television. (I haven’t included the benefit to me in 13 hours extra time in the month, but it has to be substantial, but peripheral to this discussion.)

Looking at the iTunes Store, where most of the programming is available, and interpolating prices where it was not, the “rack rate” would be $155.26. Taking advantage of Multipasses for The Daily Show and The Colbert Report (the only shows that actually gave a discount for multiple show purchases) that drops to $112.55. For less than 2 hours TV viewing a day. This is against a US average of between 4.5 and 8 hours a day (depending on which source you ask). Scaling up the numbers to match the 4.5 hours a day viewing, would make the “best price” replacement cost for cable or satellite a mere $303.27!!!

Compare that with 100 channels for $55 as a previous Dish Networks customer, where (theoretically) I had access to 24 x 7 x 30 hours of content a month should I want it. Buying individual programs is 6x more expensive for an average viewer than a cable or satellite subscription. Something is definitely “out of whack” here for sure.

One way to compare would be to work on an average cost per minute of programming. While some content is definitely premium, and disposable content like The Daily Show probably should be priced at a discount to the average, it would balance out over a month, so a per minute average is, I think, useful.

My ‘best price’ buy averages slightly over 5c a minute based on 2211 minutes and $112.55 cost.

Dish Networks, watched 24/7 would be 0.15c/minute.

Dish Networks watched 1.67 hours a day would be 1.83c/minute. At average viewing of 4.5 hours a day 0.7c/minute.

This is all for content with commercials and calculating with commercials in place. I am prepared to pay a slight premium for no commercials but I’m not prepared to be charged more than 7x the price! We do have another data point in Premium Cable channels that run shows without commercials.

Assuming 8 hours a week of new content on, say, HBO, and a $12 a month subscription fee for that content, then we’re at around .5c/minute for premium Television content. That’s a long way from 5c/minute.

What’s Fair
Over the time I’ve been running the “Internet TV only” experiment I’ve generated a feel for what I’d be prepared to pay for certain content and it basically works out at an average of a penny a minute: still nearly double what I could get Television for via more conventional means. At that rate my monthly spend would be $23.94 and that would be $23.94 more than the networks and studios are making from me now because I won’t be raped on pricing just to watch TV. (I would prefer to pay this fair price to those creating the content if there was a system available to do that.)

More relevant though, is how this would compare to what the Networks are getting now (and presumably smaller cable networks are getting less). Typical revenues from advertising per viewer per show are between 25 and 65 cents per viewer for the whole show. The absolute best advertising revenue per show is 95c per viewer from this year’s “Big Game” broadcast in early February.

At 25c per viewer for a 22 minute “half hour” show, we’re around that penny-a-minute mark. At 65c per 44 minute show, around 1.5c/minute but that would be for high-value premium content. Lesser shows on smaller networks are probably closer to the 0.5c/minute in advertising revenue per customer.

Long term, I believe the real cost of content will trend toward an average of a penny-a-minute with many shows being priced below that because they have no repeat viewing value, and premium shows that bear repeating slightly above average.

And that would be fair.

Categories
Distribution

LA Final Cut Pro User Group Presentation (October 2007)

The presentation I gave at the October 24 meeting on Preparing for Online Distribution is now available for download. This is an Apple Keynote file compatible with Keynote 4.

The presentation is also available as Preparing for Online Distribution is now available for a PDF

Categories
Apple Distribution

NBC Points gun at own head, Apple pulls the trigger

In case anyone missed it, there has been a war of words this week between Apple and NBC Universal that ended with Apple refusing to put any new NBC shows in the iTunes store because NBC are withdrawing from the store at the end of the year. That’s all we really know to be factual, although Apple asserts that NBC wanted to “double the price” of their TV shows to force a “$4.99” per episode show, force bundling of shows, and insisting on beefed up DRM.

Could NBC be more idiotic and go more against the obvious trends? Is the management of NBC as Fake Steve Jobs points out:

They’re all buffed and polished and about a hundred and fourteen years old. They look like cadavers who’ve been done up by the world’s best funeral home makeup artist. A lot of them are just GE lifers who did time in plastics and then airplane engines and then somehow got dropped into the TV group.

That whole article, actually penned by Senior Editor at Forbes, Daniel Lynons who writes Fake Steve Jobs, is well worth a read. He says it better than I can. I think it’s reasonable to assume that none of the executives or board at NBC watch their own network as broadcast or have ever downloaded shows from the iTunes store and are really, really out of touch with changes in digital distribution. Otherwise they would not have moved 180 degrees contrary to every trend!

Let’s consider the three points that supposedly lead to the falling out between Apple and NBC. Because I want to address pricing in most detail, I’ll go in reverse order. It’s worth noting that NBC denied that they pushed the “$4.99” pricing, but in a very carefully worded press release, that really does little to deny the accusation.

More DRM

Allegedly, NBC wanted Apple to “beef up” DRM beyond Apple’s Fairplay. Now, I’m no fan of DRM because the concept of “keeping honest people honest” is so stupid that no-one with intellectual integrity could possibly hold that thought in their head without it exploding. You actual, paying customers, are the very people who are honest: didn’t they just pay real money for the product? DRM does not prevent piracy (otherwise why would every NBC show, including those they don’t sell on iTunes, be available much more easily on bittorrent sites?). Even with free content available, customers chose to pay money, so why treat them like potential criminals?

Commercial piracy is a crime and deservedly so. Content creators need to be compensated for their work. That’s a given. What is fundamentally stupid is adding more and more egregious DRM that simply does not prevent piracy. See above – everything is already available free, and yet in 18 months NBC has taken $50 million in income from the iTunes store from paying customers. DRM does not prevent piracy. DRM causes all sorts of complications for customers and devalues the content. To even contemplate adding more DRM is counterproductive at best.

To do what NBC allegedly were pushing Apple to do – to ONLY allow DRM’d content on an iPod – is mind numbingly, absolutely, without doubt the most stupid idea to come out of a dinosaur’s mouth since the advent of mammals. Have these people not heard of “Fair Use Rights“? (BTW, Defend Fair Use is a new website by the Computer & Communications Industry Association, which is backed by Google, Yahoo, Microsoft and others.)

What about family videos or personal recordings or podcasts? NBC would want Apple to ban all from iPods? Legitimate, legal rips of purchased CDs would also be banned? Yeah, right. If that’s what NBC were asking for, see comments above about levels of stupidity never before experienced by mankind!

Bundling

I guess I can understand why NBC might think bundling was a good idea. After all it’s the only business they know! They bundle shows together and sell advertising against it. That’s been the Broadcast Television model since it started. However, it’s over. Gone. Finished. The Television Mk II era of VCR/Tivo/PVR/many channels appointment television (watch it at our schedule or not at all) is going the way of the dodo.

Increasingly we’re moving toward a program-oriented model. I’ve said it before: people watch programs, not channels. At a time the FCC are pushing for unbundling of cable channel packages NBC wants to go the other way and push packages of programs when customers want their own choices?

See above comments on levels of stupidity!

Increased pricing for TV shows on iTunes

At least now we can get away from blind stupidity and get to egregious greed! At $1.99 per show Television shows are grossly overpriced. Even the season pass price is on the high side. If I were to buy all the programs we watch via the iTunes store, my TV viewing bill would be around $200 a month. Compare that to Cable or Satellite at $55 a month (my most recent Satellite bill.)

NBC are simply being greedy. Networks like NBC look to get 25-65c per viewer per show in advertising revenue. Even the most popular show on American Television, the Super-Bowl, brings in only about 95c per viewer. Let’s say the average is 50c per viewer (on the high side – my research suggests 35c per viewer is a more likely average) from advertising revenue. For the networks to receive the same revenue per viewer for their premium content sold through iTunes, then that 50c would translate to about 75c per show. That assumes that Apple make the same percentage gross margin on TV shows as they do on music, out of which they pay the credit card processing costs and the cost of bandwidth for delivery.

So, at $1.99, a TV show is already over-priced. There’s another benchmark to consider and thanks to John Gruber for pointing this out: TV shows released on DVD average out to around $2 an episode but for that you get a physical disc, packaging, liner notes, extra content and marginally higher quality. You also have a tradable asset thanks to the First-sale Doctrine. You get none of that with DRM-infested digital downloads, so the purchase is of much lower value.

Another way of looking at price is to compare buying two shows – The Daily Show and The Colbert Report – from iTunes on Season Passes (20 shows each) when the total for these two Comedy Central shows is $19.95 per month. Subscribe to cable or satellite and Comedy Central will get 60c to $1 from your Basic Cable subscription, at best. Sure, there’s advertising support but that Basic Cable subscription gets you access to view (and record) the entire month’s content on Comedy Central. Not just two shows! Sure, the Daily Show and Colbert Report are advertising supported on Comedy Central – not only do you have to pay to get the cable channel but you have to also pay with attention to commercials (or not).

What would be “fair” for those shows? Exact numbers are a little hard to come by, but even taking Jon Stewart’s reportedly $5 million a year salary, it’s hard to imagine that each episode having a budget over $60,000 an episode. (Mr Stewart’s salary breaks down to around $32K an episode based on 40 weeks of shows a year, 160 shows, New York studio with crew $10K a show and correspondents with production crews and writers account for the rest – feel free to correct me in the comments.)

At 10c per episode (this is disposable television – watch it once and it’s done) and an audience variously estimated at 1.3 to 1.7 million (1.5 used for simple math), that’s $150,000 an episode. Bandwidth and Apple’s margin might add another 10c to that (although 20c is incredibly hard to charge using conventional methods, allow me the conceit for the moment) for a retail price of 20c that would return the producer (or Comedy Central) a very tidy profit over the current budget and cost less than 1/3 the cost of a season pass.

Does NBC need Apple more than Apple needs NBC?

I’m certainly not claiming that Apple would be happy losing 30% or so of their iTunes TV content, and at least one analyst thinks it will hurt Apple more than NBC. Given the general level of accuracy of analysts in the tech sector, I’m always skeptical of such “analysis”. Almost all the rest of the writing on the subject reflects my own feeling that “NBC Could Not Have Screwed This iTunes Thing Up Any Worse“. Do they expect that the unreleased hulu which is also touted as a competitor to YouTube, or are they relying on the spectacularly unsuccessful Amazon Unboxed?

My prediction is that within 18 months NBC will be back in the iTunes store, with much less favorable conditions than they have now because they’ll have come back with tail between legs.

And here’s some other opinions. I think the headlines alone will give you a feel for “the wisdom of the crowds”.

From Cnet – NBC says bye to iTunes, hello to piracy and lost revenue

After this new PR campaign is complete, NBC executives–obviously without any grasp on reality–will sit there and expect their assistants to bring them financial numbers that show exploding growth in programming sales. With cigars firmly in place, the big shots will open up the revenue reports and come to one damning conclusion: revenue from programming has gone down, yet piracy has increased tenfold.

From iLounge – An Open Letter to NBC re: Leaving Apple’s iTunes Store

Let me explain something to you, because you don’t seem to understand it already. Your TV shows are available every day, every week, and every month of the year for free. They fly through the air (and travel through cables) at no a la carte charge to customers.

From blogger Thomas Hawke – iTunes Store To Stop Selling NBC Television Shows, Who the Hell Cares (not safe for those of delicate dispositions)

Who in the hell would pay five bucks for a TV show? Especially when all you have to do is hop on over to that old bittorrent thingy and just borrow a copy for free. …Nice move NBC. Way to go from being mostly irrelevant to entirely irrelevant.

From Podcasting News – NBC Betting On Losing Strategy

Proprietary portals, like Hulu, also have a long history of failure. NBC would be better off keeping its content in iTunes and working with other networks to create open standards for commercial video downloads. This would create a competitive environment for digital video sales and increase competition among portable media manufactures.

For a very satirical view, Phil Ryu describes an alternative universe: Zuckerland! – bizzaro reverse world where NBC’s decision makes sense.

In Zuckerland, customers on iTunes pay $4.99 per episode for NBC shows, which, though it may sound ludicrous at first, actually makes perfect sense within this fantasy world, because in Jeff Zucker’s mind, this is war with Apple, and wars cost a lot of money. So he’ll need some funding from all those hardcore customers on iTunes for the effort.

And someone should perhaps remind Jerry Zucker that, according to Angela Bromstead, Executive VP, NBC Studios, (yeh, she works for Zucker) The Office should have been cancelled but thanks to sales through iTunes it’s now a hit for NBC. Likewise sales through the iTunes store probably gave 30 Rock an extra season, and influenced the extension of Studio 60 on the Sunset Strip to a complete season. Would that have happened if “Studio” didn’t have just the slightest traction on iTunes? (Four episodes placed recently in the iTunes top 50.)

Perhaps it’s true, as Michael Gartenberg of Jupiter Research (yes another analyst so treat with caution) says:

Sometimes I think God put video content guys on the planet to make the music guys look progressive and visionary.

The last word goes to some intrepid photoshop artist who previews how NBC shows are going to be distributed in the future.

Categories
Distribution Random Thought

The Principles of Television 3.0

1. There is an open, unmediated marketplace between producers and viewers where viewers compensate producers directly.

2. Production values do count: at a minimum they make the communication visible, audible and so the editing won’t make the target audience nauseas.

3. High production values are not the be all and end all, there will be outstanding product that breaks all the rules and makes a fortune because it’s popular.

4. Prices paid for content will trend down.

5. More people will earn a living from this new model of Television, overall more money than is earned now by the existing ‘Television Producers’. This likely means that fewer people will get mega rich but more people into a “middle class” of producers, making a good income meeting their market.

6. It can be profitable to meet the entertainment, education (or a mixture) needs of audiences from 250,000 to 1 million, which is the new mass market. Smaller audiences can be profitable if they serve a niche well.

7. Simplicity and convenience can compete with free. It can compete particularly well in open marketplaces where otherwise trends downward in revenues would unfortunate.

8. There is a role for non-television, done-for-the-fun-of-it with no expectation of profit, but for the fame of it. Production values will count less, and poor production values would never stop a video going viral.

9. The rise of the citizen journalist with easy visual verification tools – still and video cameras everywhere – makes for more openness and honesty in the political and social realms. Citizen Journalists form a new line in the defense of Democracy and the US way of life from those who would subvert. They form a Fifth Estate, behind Executive, Legislative, Judiciary and Press.

10. Programming styles will evolve outside the constrains of parallel programming and “half hour” or “hour” programming blocks. If programming is viewed on viewers’ schedules it can be whatever duration serves the story of that episode.

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Distribution

If not advertising, what?

Reading in the Business of Online Video blog earlier in the week (the blog of StreamingMedia.com) I came across an entry Video Content Creators Like Rocketboom Can’t Survive On Advertising, which kind of reflected some of my own thinking.

Rocketboom should serve as a wake-up call to those who think that simply having traffic equals revenue and a sustainable, growing business model. Or to those that think online video advertising alone is going to generate a lot of revenue in today’s market.

Rocketboom I should point out is one of the “success stories” of Internet video, with an average of around 250-300,000 downloads per show and revenue from advertising of $210,000 in 2006 according to co-founder Andrew Baron. Recently they’ve introduced a $3000 per episode sponsorship deal, with YouTube taking up the first sponsorship. Now, frankly $210,000 a year, spread over the co-founder, presenter and presumably cameraman/editor (the latter two probably part time) is a reasonable middle-class income, but according to Dan Rayburn that isn’t enough.

Well, if Rocketboom is a success story, what about the other headline shows in this consumer generated video world? Goodnight Burbank is still without a major sponsor, although it has been a useful platform for its participants to be noticed and get “better” offers. (Rumor is that creator Hayden Black is working with HBO on a project not yet officially announced). This is a pretty common trend, where similarly Mr Deitycreator Brian Dalton is in negotiations with “a big company” for the second season of 10 episodes.

That’s one benefit of getting exposure, but how have some other high profile projects faired? Well Scott Kirsner gave some interesting statistics in a presentation at the Apple Store in San Francisco last Tuesday (during WWDC week).

Evolution of Dance has had 50 million views to date and generated no revenue for its creator.

Extreme Coke and Mentos Experiments has had 7.5 million views and generated $35,000 in shared revenue from the time they’ve had the videos on Revver. That’s well under half a cent per viewer.

The very clever Matrix for Real has managed 5.25 million views and made $26,000 from advertising revenue share at Metacafe. That’s about the same half-cent-per-viewer.

405 The Movie was before the modern video sharing era and the 5.3 million views of that short got the young men involved started in a visual effects career, but no direct revenue.

The ever-funny and ever-baffling Ask an Ninja made just $20,000 in shared advertising revenue from Revver in 2006 across the more than 20 episodes they created.

Scott mentions The Landlord, a program I’m not familiar with, that has amassed an incredible 34 million views with no apparent revenue.

And so it goes. Now these are short pieces, all under 10 minutes so the “35c per viewer” guideline that network likes to work on for advertising revenue doesn’t apply, but surely they’re worth something? If it’s worth watching isn’t it worth a penny to the creator? If it’s not, why would you bother to watch it?

Of course, we don’t currently have a mechanism for that type of micropayment and attempts in the past have been anything but easy (RIP BitPass). But if we are to make a business out of new media then revenue has to flow to the creators. Let’s run those shows again, at just a penny a view:

Evolution of Dance                               $500,000

Extreme Coke and Mentos Experiments     $75,000

Matrix for Real                                     $52,500

405 The Movie                                      $53,000

Mr Deity with an average of 500,000 viewers per episode would bring in $5,000 per episode for what takes Brian Dalton “four days work” (according to an Interview on the Digital Production BuZZ). Of course his co-stars deserve a share of that, but it’s still likely to be a reasonable return on the time invested. Frankly, I’d be happy to pay 5c or 10c per episode to download and own (they’re worth watching more than once). Extrapolate the revenue accordingly and a decent income is possible. (At 5c, $250,000 gross for 40 days work is decent.)

But it’s not happening and great talent has to either lose control of their career by turning their fame into a traditional media deal, or continue to have creative freedom and control and make a living doing something else.

If producers and performers can’t get a return on their effort, that at least affords them a living wage, there is no revolution here folks. There a just a lot of very talented people with a very public hobby.

Categories
Distribution

Thoughts from a VC on the future of Media Distribution

One of the best (i.e. I agree with) statements on the future of Media Distribution comes from Steve Kalifowitz on Venture Capitalist, Noah Brier’s blog on A Vision for the Future of Media Distribution. Money quote:

In this altered universe I’ve imagined, consumers will have ultimate reign, and artists will have way more freedom. The portals will at once offer two-way access from content creators to the smallest niche audiences, and the largest mass-markets. There will no longer be a studio boss, or book publisher who instructs an artist to change their art in order to distribute it. If an artist can afford to make something on their own, they can, and won’t need a distributor to reach their desired market. Artists will be free to display their work, and get paid fairly for it. The most successful artists will be picked by mass appeal, rather than by “payola” systems which enable the distribution companies to shove whatever they want down our throats.

Maybe it’s because the article strongly resonates with my own thinking, but it’s closest to the model I have in mind for the future from all the reading I’ve done so far. In the optimistic future, we have an Open Television Network, which is an open marketplace between producers and viewers (without hard distinctions between the two).

Categories
Distribution Random Thought

CBS is caught in 1975

In an article at Ars Technica today , Nina Tassler, the president of CBS Entertainment, told the New York Times

“…that if fans want the show to live, they need to watch the broadcast because that’s how the money gets made. Stressing that live viewing is “of primary importance,” Tassler said that “We want them to watch on Wednesday at 8 o’clock… and we need them to recruit new viewers who are going to watch the broadcast.”

If CBS believes that only “appointment television” matters my best advice is to short sell Viacom. Appointment Television is dying. Every single trend points to the move away from Television of the 50’s and 60’s with limited channels where the family sat down together to watch.

But since then, Television has moved on to place more and more choice and control in the hands of the viewers. If CBS and it’s cousins at the other networks don’t see that as their future, they are dead. Short them!

Categories
Business & Marketing Distribution

Can you compete with free?

On the Digital Production BuZZ show of February 15th the BuZZ in Depth segment (50 minutes into the show or use the chapter mark) was on Competing with Free where I drew heavily from a Techdirt article Saying you can’t compete with free, is saying you can’t compete, Period.

The Techdirt article and discussion on the show revolved around the thought that the price of everything ends up competing at the marginal cost of producing the good. The way to add value, and therefore make profits even when the marginal cost is zero with digital distribution, is to differentiate with branding, convenience or service.

Then today an email list discussion that’s been ongoing about the need/no need for DRM. Naturally opinion is somewhat divided. However one of the examples chosen to highlight the “need for DRM” cited a proposed book in the UK written by chef and personality Jamie Oliver. A draft of the book got leaked by pdf and appeared on the Internet. The entire projected run of 200,000 books was cancelled because bookstore owners cancelled pre-orders because they thought they could not compete with free.

And yet, Cory Doctorow, who is an opponent of DRM, practices what he preaches.

“I’ve been giving away my books ever since my first novel came out, and boy has it ever made me a bunch of money.”

In the Forbes Magazine article he tells of his first novel Down and Out in the Magic Kindom published by Tor Books in January 2003. Since then the book has had six printings – a serious commercial success in a publishing world where few books make it to a single reprint. During this same period more than 700,000 copies were downloaded from his website, free.

Don’t fall into the trap of saying that those 700,000 “freeloaders” would have been potential sales. That would be to fall into the same trap as the IRAA and MPAA! This author is smart enough to realize that an eBook download is not a lost sale.

Most people who download the book don’t end up buying it, but they wouldn’t have bought it in any event, so I haven’t lost any sales, I’ve just won an audience. A tiny minority of downloaders treat the free e-book as a substitute for the printed book – those are the lost sales. But a much larger minority treat the e-book as an enticement to buy the printed book. They’re gained sales. As long as gained sales outnumber lost sales, I’m ahead of the game. After all, distributing nearly a million copies of my book has cost me nothing.

It’s not just books. By the time they released their album Barenaked Ladies Are Me in Q3, 2006 they’d been offering the album as unprotected MP3 files at 196 Kbits/sec. BNL offer the album for $9.99 as an MP3 and $12.99 for lossless quality. And yet, in the week following the official album release, BNL grossed $970,000 from “intellectual property” sales. Selling direct, the artists are getting a much better deal, about $5 an album and much better than the 4.5 cents/download that artists like Cheap Trick and the Allman Brothers reportedly get from each download of their material under their contract with the record company. Nearly a million dollars in gross revenue and yet the same material was available free. (It should be noted that BNL get income other than from digital download sales that would fall into the “Intellectual property” category.)

Also consider the example of The Shins, who had never been higher on the Billboard 200 than 86 prior to the last week of January this year. That week Wincing the Night Away” sold 118,000 copies, a career best for The Shins. What makes this remarkable is that the album had been widely available on file-sharing networks since October, three months earlier!

An independent study by economists Felix Oberholzer-Gee and Koleman Stumpf concluded…

there is likely no effect of downloading on US store sales.

Clearly you can compete with “free” when the product is differentiated again. The UK booksellers clearly do not believe in the value of their product – the book – and their shopping experience – the bookstore. Had they not blinked Jamie Oliver might have had his best-selling book ever: the opposite to what happened because of a lack of insight.

Edit: Apparently the book did get published and is called Cook with Jamie and it sells in Australia for Au$49.95 (about US$39.25) and is differentiated from the PDF by being in a splash-proof vinyl cover, fabric tape marker and great visual and physical appeal. I’d love to know how it has sold compared with the original prediction.

Categories
Distribution Random Thought

What makes Television, Television?

I’ve been thinking a lot about what exactly is television? It seems slightly odd to continue to define television by the very limiting factor it’s being liberated from: broadcast and cable gatekeepers.

We could define Television as something that we watch on the screen in the corner, and that’s probably as reasonable a definition as any, but a little shallow. The announcements of devices like Appletv, along with similar devices from Sling Media, Netgear and announced features for Microsoft’s Xbox 360, mean that, by this definition, every contribution to YouTube is Television? I don’t think so.

Getting Internet-delivered Television back on the familiar screen is certainly an important step toward Television 3.0 but the addition of user generated content reopens the question of what is Television. After thinking about it I’ve come to the conclusion that there are two factors that define Television other than by the distribution channel.

To my mind, Television is the business of creating entertainment or educational content on a regular schedule with attention to the craft skills of production.

Television is a business. Consumer generated media is a hobby. (A worthy, worthwhile hobby by all means.) People work in Television production because they like the work but it is just that: their work. Companies produce shows in the hope of making more income than they spent making the program. Networks and Cable channels pay producers for programs hoping to get more revenue from advertising than the program cost them. And so on.

The other part of the equation: the careful application of craft skills, is harder to pin down. Call it professionalism or craft skills, but there’s a certain something about well crafted Television (across a range of budgets for sure) that sets it apart from “consumer generated content”. Not to be complacent, there’s an increasing amount of that consumer generated content that’s demonstrating professional craft skills.