Consumption of online movies passes physical movies for the first time

If physical DVDs and Blu-Ray discs aren't dead, they're certainly in the process of shuffling off this mortal coil. According to Broadband TV News, IHS Screen Digest forecasts that legal, paid consumption of movies online  in the U.S. will reach 3.4 billion views in 2012 from 1.4 billion last year, while views from physical media (Blu-Ray and DVD) will decline to 2.4 billion from 2.6 billion last year. Online views will grow 135% year-over-year.

IHS forecasts that 2012 will be the crossover point, when online viewing of movies (including video-on-demand) will first exceed rental and purchase of physical media for watching movies. 2.4 billion views on physical media is nothing to sneeze at, of course, and it'll be years before DVDs and Blu-Ray discs become insignificant. Nevertheless, the handwriting is clearly on the wall: Consumers are getting comfortable with renting and watching movies online.

There are three reasons why online viewing won't grow even faster:

• Redbox's $1.20/day rental fee and huge installed base of kiosks makes its service both cheap and convenient for consumers, 
• Renting and buying physical media enables consumers to use the millions of DVD and Blu-Ray players they already own, and
• Movie studios are still holding back most of their recent releases from Netflix and other services.

New devices, such as Roku's "streaming stick", will make adding streaming Internet video to millions of HDTVs even easier than it is today. It's entirely likely that physical media will be obsolete before the end of this decade, especially if movie studios make more of their releases available for early streaming.

Nikon's D800 DSLR: A serious digital cinematography option

For DSLR digital cinematography fans, Nikon has been a continual source of frustration: Their DSLRs are superb still cameras, but video has always been an afterthought for the company--more an item on a marketing checklist than a well-implemented feature. However, Nikon's new D800 might change that. EOSHD reports on one of the first D800 video samples, footage shot at a temple in Taiwan. The video is gorgeous--far better than video shot on Nikon's D4, and with much more detail than video from Canon's new 5D Mark III, which has been roundly criticized for the softness of its images.

For its part, DxO Labs tested the D800 and said that its imager is the best that it's ever tested, with a rating of 95 out of 100. It had extremely accurate color rendition, the best dynamic range they've ever measured (14.4 stops) and excellent low-light performance (the ability to go to 2853 ISO without compromising image quality). They said that the D800's imager is about as close as you can get to medium-format performance in a DSLR imager. This performance is especially impressive given the 36.3 MP resolution of the D800's imager. In general, for a given imager size (such as APS-C), the higher an imager's resolution, the worse its low-light performance will be. Nikon has managed to combine excellent low-light performance with very high resolution.

DxO didn't test the D800 in video mode, but the video found by EOSHD suggests that the quality of the D800 is very good. However, Nikon still hasn't figured out a way to do 60P in 1920 x 1280. 60P is only supported at 1280 x 720 resolution; 1920 x 1280 supports 30P and 24P. Also, the D800's very high resolution could result in rolling shutter and moire problems; much more testing of the camera's video mode is needed. In short, I wouldn't rush out and place an order for a D800 yet, but the camera is shaping up to be a serious option for digital cinematography.

Library eBooks: A simple solution to a difficult problem

Whether school and public libraries should have access to eBooks depends on what kind of a publisher you are. If you're a smaller general or specialty publisher, it's not an issue--your company most likely already supplies eBooks to libraries. However, if you're one of the Big 6 trade publishers, there's a 66% chance that you don't offer eBooks to libraries at all. Only HarperCollins and Random House offer their eBook titles to libraries, and both companies apply significant restrictions: HarperCollins titles can only be checked out 26 times before they have to be repurchased, and Random House recently tripled the cost that libraries pay for their eBooks. Penguin, which once sold eBooks to libraries, has pulled out of the market, and Hachette, Macmillan and Simon & Schuster don't sell eBooks to libraries at all.

Publishers that either don't sell to libraries or sell with restrictions argue that library eBook lending cannibalizes potential sales of both eBooks and print. They say that it's as easy to borrow an eBook as it is to purchase one from Amazon or Barnes & Noble. Print books require patrons to visit their local library in order to check-out and return them, and publishers want libraries to implement a similar kind of "friction" when lending eBooks (although publishers generally won't go on the record about which kinds of "friction" would be acceptable.)

A variety of solutions have been suggested, from forcing patrons to physically visit a library in order to check-out eBooks, to slicing and dicing collections and parceling out different pieces at different times to libraries. In my opinion, forcing patrons to visit libraries in order to check-out eBooks completely negates the value of the Internet and online access. It takes the progress of library access back almost 20 years. As for making available different batches of titles at different times, that's likely to become a formula for patron confusion. Consider two titles, published by the same publisher on the same day. One could be available for lending immediately, but the other might not be available for months, if ever. Who will explain that to patrons? Librarians, of course, who have better things to do with their time.

I'd like to suggest a simpler, easier approach to the entire problem for those Big 6 publishers who are afraid of what libraries will do to their businesses: Delay the release of their eBooks to libraries. If your street date for a title is X, release the eBook version to libraries at X plus 90 or 120 days. That enables the retail channel to absorb the initial demand, and those consumers who have to read the title right away will buy it. The technical name for this approach is windowing, and it's been done by the motion picture industry for decades. In the movie business, there are many windows (for theaters, pay-per-view, DVD/Blu-Ray, streaming, pay cable, free cable/broadcast, airlines, etc.), but a single window for library eBooks would be much simpler to understand and explain.

If publishers are serious about supporting libraries and aren't looking for ways to discourage eBook borrowing by making it as difficult and confusing as possible, a single library eBook window would be the best way to protect publishers' financial interests (at least until eBooks become the primary book format) while providing library access to all eBooks in a reasonable amount of time.

"This American Life" and the Daisey affair

You may have heard that the public radio program "This American Life" retracted an entire episode that it aired last January based on portions of Mike Daisey's one-man show "The Agony and Ecstasy of Steve Jobs". The radio program focused on a visit by Daisey to Chinese plants that manufacture Apple's iPhone and iPad, and the allegedly bad work conditions he found. I won't rehash the entire story, but Daisey lied about a number of key events that he either witnessed or participated in during his trip to China.

After the "This American Life" episode aired, Rob Schmitz, the China correspondent for the public radio show "Marketplace", became suspicious about the story. He tracked down and interviewed Daisey's interpreter, who said that many of the things that Daisey told "This American Life" and said in his one-man show were partial or complete fabrications. For his part, Daisey lied to the host and a producer at "This American Life" about the name of the translator, and said that he could no longer reach her mobile phone number.

Here's an incomplete list of Daisey's alleged or acknowledged fabrications:

• Daisey said that the guards at the entrance to the Foxconn plant were armed; both Schmitz and Daisey's interpreter said that only the military and police are allowed to carry guns in China, not security guards. Daisey's interpreter said that the guards were unarmed.
• Daisey claimed that he spoke with a Foxconn worker who admitted that she was underage--13 years old--and that other workers he spoke to at the same time were 12 years old. The interpreter said that some of the workers who Daisey interviewed might have looked young, but that none of them were underage or admitted that they were underage. For his part, Daisey sticks by his story, but in his defense, he said that one or more of the workers spoke fluent English to him, a statement that his translator denies and that Rob Schmitz found to be extremely unlikely.
• Daisey claimed that he spoke with a group of workers who had been exposed to n-hexane, and that every person in the group was shaking from nerve damage. His interpreter said that the meeting never happened, and Daisey admitted under questioning that he fabricated the entire incident.
• Daisey said that he spoke with a man who was so injured by repetitive work building iPads that his hand had become claw-like. His interpreter said that Daisey met the man, but the man had never worked building iPads, and the entire episode where Daisey showed him a working iPad for the first time never happened.
• Daisey said that he visited Foxconn worker dormitories and saw bunk beds stacked nearly to the ceiling and security cameras inside dormitory rooms. His interpreter says that Daisey never visited dormitory rooms. Daisey claims that he did visit the dorms without his interpreter, but that the security cameras were in the halls, not in the dormitory rooms. Given that Daisey doesn't speak Chinese and, as discussed above, it's extremely unlikely that the workers Daisey encountered spoke English, how could Daisey have visited the dormitories without his interpreter?
• Daisey claimed that he was told by a group of workers protesting working conditions at Foxconn that they met at Starbucks to discuss their strategy; Schmitz said that was as likely as a group of United Auto Workers organizers in Detroit meeting at a Chinese tea room.
• Daisey also said that he was shown a government "blacklist" of people who would not be hired by Shenzhen manufacturers because they had protested working conditions; his interpreter said that the document didn't have any government stamps or seals, and was most likely a fake.

No one denies the work conditions at Foxconn and other manufacturers--they've been widely reported and have been documented by Apple's own audits. However, the most interesting parts of Daisey's allegations--that he actually spoke to underage workers, to workers injured by exposure to n-hexane, and with a man so injured by repetitive work building iPads that his hand had become claw-like--were all acknowledged or likely fabrications.

Ira Glass, the host of "This American Life", has repeately said that when Daisey told him and his producer that his interpreter could not be found, he should have killed the story. However, so much of the story checked out that they believed Daisey. When the story aired, Glass went out of his way to say that the story had been extensively fact-checked by "This American Life" before it was aired, which raises the question: Why did Glass stand behind the story when the interpreter, the only independent witness to everything that Daisey claimed happened, had "disappeared"?

Rob Schmitz of "Marketplace" said that it was very easy to find Daisey's interpreter--he simply entered the name that Daisey used for the interpreter during the radio show (Cathy Lee), and the words "interpreter" and "Shenzhen", into Google, and she came up as the first link. Couldn't the "This American Life" team have done the same thing? Finally, the authenticity of some of Daisey's monologues has been questioned in the past, including by the New York Times. Shouldn't that have raised "red flags" with the "This American Life" team?

Even though the theater where he's performing his one-man show says that the show will continue, Mike Daisey's credibility has been destroyed. The question now is, given how many errors got into this "This American Life" story, how many other bogus stories have gotten on the air?

Sony's new A57 brings high-end features to low-end DSLRs

Sony's new Alpha SLT-A57 is Sony's most important entry-level DSLR (yes, it's actually an EVIL design, but in a DSLR-like body) to date. Here's some of the new camera's features:

• A 1.44 megapixel LCD viewfinder
• 10 fps continuous shooting mode with autofocus
• Autofocus built into the body rather than the lenses
• 1920 x 1080 video at 60P or 24P (50P and 25P in Europe), with AVCHD 2.0 compression
• A bigger battery, the same as the A65 and A77

The A57, with a kit 18-55mm F3.5-5.6 lens, will have a suggested list price of $799. The body alone will cost $699. As Digital Photography Review points out, the A57 is a slightly feature-reduced version of the A65 with a 16 MP imager instead of the 24.3 MP imager in the A65, for $300 less. It's going to be a serious alternative to Canon's T3i and Nikon's D5100, especially for videographers. It's also a better value for the money than Sony's own NEX cameras, although it's considerably larger.

Digital Photography Review has a site where you can compare images from the A57 with those from a variety of other cameras side-by-side. Click here to visit their site.

What would you rather have: A monopoly or price-fixing?

Last week, The Wall Street Journal reported that the U.S. Justice Department has warned Apple and five of the "Big 6" trade publishers (Macmillan, Penguin, Hachette, HarperCollins and Simon & Schuster) that it's planning to file suit against them for price-fixing as a result of their implementation of agency pricing for eBooks. Here's a brief overview (and a disclaimer: I'm not a lawyer, and this isn't legal advice):

Until 2009, virtually all publishers in the U.S. sold their books (both print and eBooks) to resellers under the wholesale model. Typically, books would be sold by publishers to resellers at 50% of their suggested list prices--the prices printed on the book covers. Resellers were then free to resell the books at any price they desired. This was the model (along with co-op payments for display locations at the front of bookstores and preferred positions on bookshelves) that Barnes & Noble and Borders used to drive hundreds, if not thousands, of independent booksellers out of business with discounting. In many cases, the "big box" booksellers sold books for less than the price that independent booksellers paid to buy them.

Amazon used the same model to launch its entry into the eBooks business. Amazon's strategy was to sell all its eBooks for $9.99 or less, even if that meant selling them below the wholesale price. Amazon quickly controlled as much as 90% of the U.S. eBook market.

In 2009, as part of its entry into the eBook business, Apple proposed a different model to the Big 6 publishers (all of the companies under investigation plus Random House), which became known as agency pricing. Under agency pricing, booksellers don't actually purchase the books that they sell to customers--instead, they act as "agents" for the publishers and take a commission on each sale, which Apple set at 30%. Since the booksellers don't own (take title of) the books, the publishers can set the prices, and the booksellers are obligated to sell the books at that price. Five of the Big 6 publishers implemented agency pricing for their eBooks (Random House waited a year before it implemented agency pricing, which is why it's not under investigation.)

The five participating publishers went to their resellers at approximately the same time, and told them that, regardless of when their existing distribution contracts were to expire, their contracts would be immediately amended to require agency pricing of eBooks. Any reseller who refused would have their supply of eBooks cut off. The first skirmish was between Amazon and Macmillan--Macmillan implemented agency pricing and Amazon briefly stopped sales of all Macmillan titles, but soon relented. That opened the floodgates, and Amazon agreed to agency terms from the four other publishers (although it has refused to accept agency terms from any additional publishers except for Random House).

So far as consumers are concerned, the net result of agency pricing is that prices of eBooks from the Big 6 publishers have gone up substantially, from $9.99 to as much as $16.99. eBooks from the Big 6 were once less expensive than paperbacks; now, in many cases, they're more expensive. In some cases, eBooks are even more expensive than the discounted price of hardcovers.

Both the U.S. Justice Department and the European Union are investigating Apple and the five publishers for price-fixing. The external evidence is that all five publishers implemented the same pricing policies at the same time, and all five threatened to cut off supply to any reseller who refused to agree to the new terms. In Walter Isaacson's biography of Steve Jobs, Jobs is quoted as saying:

"We told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway.' 

Jobs continued, "They went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books."

That certainly gives the appearance of an organized effort to raise prices, orchestrated by Apple and executed by the five publishers. Publishers and their defenders argue that agency pricing is necessary to prevent Amazon from getting a monopoly in the eBook market, which, while only 20% or so of the "Big 6" publishers' sales, is likely to become 50% or more in a few years. A monopoly would give Amazon control over pricing. Advocates of the government's position say that the actions of Apple and the five publishers have substantially increased consumer prices for eBooks, and that it's hypocritical for companies like Barnes & Noble to support agency pricing when they used wholesale pricing to wipe out their independent competitors.

One of the most important things to understand about U.S. antitrust enforcement is that it's illegal to be a monopolist, but it's not illegal to have the potential of becoming a monopolist. At the time that Amazon had a 90% eBook market share, the eBook market was new ("nascent") and both small in units sold and dollar volume.  The Justice Department almost never goes after a monopoly in a nascent market. Today, Amazon has between 60% and 65% of the U.S. eBook market--a big share to be sure, but not a monopoly. If agency pricing went away tomorrow and Amazon went back to its old pricing strategy, it's very unlikely that the millions of people who own Nooks and eBooks from Barnes & Noble, Apple and other resellers would throw away their eReaders, tablets and eBook collections and start buying from Amazon. So, Amazon didn't have a monopoly, doesn't have a monopoly now and isn't likely to have one in the future.

On the other hand, price-fixing is illegal, and it doesn't even require a formal agreement among the parties to prove that price-fixing exists. There's no question that agency pricing has raised priced for consumers, at least for titles from the "Big 6". (Statistics rolled out by some defenders of agency pricing that show that eBook prices have dropped also include titles from self-publishing authors, some of whom sell their eBooks for as little as $0.99.)

Publishers argue that Amazon is a very difficult company to do business with, and all the evidence I've seen supports them. However, tough bargainers are a fact of life: Wal-Mart has made the lives of vendors miserable for years while pursuing an "Always the Lowest Price" strategy, but vendors have learned to live with it. Taking illegal action to prevent a company from becoming a monopoly is still illegal.

Staples calculates how fast you read

For whatever reason, Staples has put a reading and comprehension speed test on its website. Click below to take the test:

Source: Staples eReader Department

Boom goes the dynamite: It's "The Klemfarb Report"

My consulting company just launched a new free weekly newsletter called The Klemfarb Report, covering the week's most important eBook industry announcements and most interesting analysis articles. I'll be editing the Report, but it won't replace The Feldman File, which I'll continue writing. If you'd like to see a sample of The Klemfarb Report, click here. You can subscribe directly from the newsletter page, or you can click here to subscribe.

There's always a compromise

Andrew Chen has written a great blog post about a recent visit he made to Pixar's Emeryville headquarters. Matt Silas of Pixar invited him to tour the facility, and at the end of the tour, Chen asked Silas what his favorite Pixar film is. Here's how Silas replied:

“This is such a tough question, because they are all good. And yet at the same time, it can be hard to watch one that you’ve worked on, because you spend so many hours on it. You know all the little choices you made, and all the shortcuts that were taken. And you remember the riskier things you could have tried but ended up not, because you couldn’t risk the schedule. And so when you are watching the movie, you can see all the flaws, and it isn’t until you see the faces of your friends and family that you start to forget them.”

The lesson that Chen drew is that developers will always think that their product is s**t, no matter how good it actually is. The lesson I take is that every product, every service, every work of art, is a compromise. Pixar is arguably the most successful movie studio of the last 30 years--with the exception of the recent "Cars 2", Pixar has had a nearly unbroken streak of both critically and financially successful motion pictures, starting with the original "Toy Story". And yet, even Pixar has to compromise in the production of its films. Team members sometimes have to take shortcuts and avoid changes that might have improved the films in order to stay on schedule.

"Supercar" manufacturers like Ferrari, Lamborghini, Rolls-Royce and Bentley like to say that they build "no compromise" automobiles, yet of course there are compromises: Their cars can cost upwards of $300,000 and get eight miles to the gallon. The compromise for their "no compromises" cars is to spend a huge amount of money when you buy, drive and service them (not to mention buy insurance for them). Buyers and reviewers regularly complain about the compromises made in the design of DSLRs and camcorders: Why is the imager's resolution so low (or so high)? Why doesn't it have a 1080P/60 mode? Why does it have a limited slow-motion capability (or none at all)? Why did they use a HDMI interface instead of SDI?

Every manufacturer has to make compromises in its products. Some are made because they have to keep the price of the product under a certain amount. Some are made to protect the profits from other product lines. (For example, if a new $10,000 camcorder is just as good and does everything that the company's $30,000 camcorder does, customers would be crazy to buy the $30,000 model.) And some impose compromises on the buyer: For example, if you want a true cinema lens, you'll need to spend several times as much for it as for a lens designed for still photography.

Product developers know that there's never enough time or money to make their products perfect. They work to make their products the best they can under the constraints that they have to live with. Even with software and services that can be continuously modified, they have to ship at some point. They may ship with a minimum viable product and then improve it from there, but they have to ship. That's why there are always compromises.