Apple's iPad goes mass market

Last week, Bernstein Research announced that the iPad has become the fastest-selling consumer electronics product in history, and an analyst from Ticonderoga Securities who spoke with one of Apple's component suppliers said that the company is gearing up to sell 45 million iPads worldwide next year. Apple's putting in place a distribution channel that will be able to sell that many iPads. By the end of this month, Apple will have at least tripled the number of stores selling the iPad in the U.S. since it was first launched earlier this year, and one of the new distribution deals is a harbinger of much bigger deals to come:

• Starting today, iPads will be on sale at Wal-Mart and its sister warehouse store chain Sam's Club, both in-store and online (although online customers will have to go to their local Wal-Mart or Sam's Club to take delivery)
• Target, Wal-Mart's biggest competitor, started selling iPads earlier this month
• Best Buy, the largest consumer electronics retailer in the U.S., started selling iPads a few months ago
• AT&T will begin selling iPads in its stores by the end of the month, and will offer services to help businesses develop their own iPad apps and integrate iPads into their operations
• Perhaps the most important news is that Verizon will also start selling iPads in its stores by the end of October, but with an interesting twist. Apple doesn't have CDMA-compatible iPads avalable (CDMA is the mobile standard that Verizon and Sprint use), so Verizon will sell WiFi-only iPads in a bundle with its MiFi mobile hotspots, at exactly the same price as the equivalent 3G GSM iPads already on sale. Like AT&T, Verizon will offer the iPad/MiFi bundle contract-free; users can sign up for wireless data service on a month-to-month basis, at rates that are the same or better than AT&T's. The Verizon bundle is even more flexible because the bundled MiFi can be used as a WiFi hotspot for other devices as well.

Verizon's iPad/MiFi bundle is clearly an interim solution until Apple can start delivering a CDMA-compatible version of the iPad. More importantly, this announcement means that the rumors of a forthcoming Verizon iPhone are almost certainly true. Apple's January announcement is going to be extremely interesting.

Radio Shack to operate mobile centers within Target stores

Earlier today, Target announced that it will partner with Radio Shack to open Target Mobile centers within 850 of Target's stores in the U.S. by the end of this year and virtually all Target stores by the end of next year. This is a direct move to counter the increased emphasis on mobile at Best Buy and Wal-Mart. In particular, it looks very similar to Best Buy's partnership with Carphone Warehouse, the U.K.'s largest independent mobile phone retailer. In order to increase its mobile retailing expertise, Best Buy acquired 50% of Carphone Warehouse in 2008, and the two companies together developed the Best Buy Mobile centers that are now located in all Best Buy stores, as well as 77 free-standing Best Buy Mobile stores.

Radio Shack has been rumored to be in play for acquisition, but it seems very unlikely that Target would partner so closely with a company that might be purchased by a competitor. Therefore, it's likely that Target is in the running to acquire part or all of Radio Shack. If the in-store Target Mobile centers are successful, this could lead to some Radio Shack stores being rebranded as Target Mobile stores.

Blio finally coming to market; Ray K babbles about distribution deals

According to The New York Times, the Blio software eBook reader is finally going to start shipping. Blio, from KFNB Reading Technology, maintains page fidelity (eBooks look like, and are paginated like, their print equivalents.) Ray Kurzweil, the founder of KFNB, said that a variety of distribution deals are coming soon, including one with Wal-Mart, which Wal-Mart refused to comment on and was probably unhappy about.

Kurzweil points out that Blio's ability to maintain page fidelity is great for "cookbooks, how-to guides, schoolbooks, travel guides and children’s books" He also is quoted saying “The publishers will not give things with complex formats to these e-reader makers. They destroy the format.” What he doesn't say is that Adobe's PDF also maintains page fidelity, there are PDF readers from Adobe and many other vendors, and by and large, they're also free. He also doesn't mention that Blio uses a proprietary format that only his reader supports. So if you buy eBooks in the Blio format, you can only use them with Blio readers. Using a proprietary format may not be a big problem if your name is Amazon.com, but it's a bigger problem when you effectively have no distribution and are completely dependent on other companies to adopt and sell your product.

He also misspeaks about the reason that publishers haven't made graphically rich titles available in eBook formats. It's not that they don't like the available readers, it's that in many cases, they're simply not yet marketing their children's or specialty titles as eBooks.

I've played with the Blio reader, and it has a lot to recommend it. Its text-to-speech and translation capabilities are particularly good--what you'd expect given Kurzweil's experience with readers for the visually disabled. However, introducing a new, proprietary format is a retrograde move. KFNB could have done everything it wanted to do with PDF, but decided to invent its own format. That's bad for customers, bad for publishers and bad for the eBook industry in general. The eBook industry needs fewer formats, not more.

The independent filmmaker's paradox

Several years ago, I ran a DVD distribution business. I didn't do a very good job, but sometimes you learn more from your failures than your successes. We were looking to license the home video distribution rights for a number of feature films, and worked with a company in Los Angeles that keeps track of all the independent films that are in production or completed and are looking for distribution. This was a few years ago, but there were more than 4,000 independent films produced each year without committed distribution deals. That's an enormous number by any measure. According to the Motion Picture Association of America, there were 610 movies released in the U.S in 2008. That's about the capacity of the U.S. theatrical exhibition system; they could of course show more films, but it probably wouldn't be profitable for either the exhibitors or the distributors.

Home video used to be a good outlet for a lot of titles that couldn't find theatrical distribution, but independent movie rental stores are all but dead, Blockbuster is "circling the drain", and the other leading rental chains are nearing, in or just existing bankruptcy. Home video is being driven by Netflix and Redbox; Netflix with a huge selection, and Redbox with a very small selection but low rental prices. DVD sales have dropped off due to the economy, and Blu-Ray is nowhere near picking up the slack. The big-box retailers like Wal-Mart and Best Buy no longer discount the new releases as heavily as they once did, slowing sales even further.

For an independent movie producer, the "conventional" outlets are becoming less and less viable. When shelf space is determined by how many discs can fit into a vending machine, the chances for small feature films to get distribution, let alone get noticed, drop to almost zero.

The Internet is seen by many as the savior of independent film, but that's where the filmmaker's paradox kicks in. You can produce and edit a movie today for less money than ever before. Distribution via the Internet is less expensive and more democratic than any method ever available to filmmakers. However, there's very little chance of making enough money from the Internet to cover the production costs of even a small independent film. So, even though it costs less to independently produce and distribute a movie than it ever did, it's no easier to turn a profit.

For decades, independent film financing has relied on an ever-changing assortment of starstruck investors, government agencies offering tax breaks and the families of filmmakers who want to help them make their dreams come true. Every year, there's a new set of players: One year there's money from South Korea, and the next year Germany becomes the big player. Canada and Louisiana compete to see which one can offer the most tax subsidies and the lowest overall production costs. Nothing, however, changes the fact that independent film funding is a sucker's game for the vast majority of investors. Subsidies allow you to save money, but you usually have to make some in order to get the benefits.

So what's the solution? It's attitudinal rather than structural. The Internet is not going to change into a profitable distribution channel any time soon. If you're making an independent film with the intention of making money, you're very likely to be disappointed. In you invest in an independent film with any expectation of making a return on your investment, you're also likely to be disappointed. The trick is to make and invest in independent films with no expectation of getting your money back. Make them because you want to tell a story, because you deeply believe in a subject, or you just want to pal around with actors and directors you admire. Take advantage of the lower costs of production and distribution to make films that otherwise would never have been made.

The Search for Value Creates New Leaders

Earlier today, I was sitting in a local Dunkin' Donuts, drinking coffee and watching CNN on a Samsung television. It wasn't that long ago that Samsung was all but unknown in the U.S.; now they're one of the market leaders in flat-panel TVs, DVD players, cellphones and other products. Samsung got where they are by offering high-quality products that could rival Sony, Panasonic, Sharp, Nokia, Motorola and others, at highly competitive prices.

Earlier this week, U.S. auto sales for January were reported, and only three companies reported improved year-to-year sales: Subaru, Kia and Hyundai. Hyundai grew more than 14%, not by offering ever-larger cash-back deals and financing discounts, but by simply agreeing to take back cars in the first year after purchase from buyers who lose their jobs.

Through a combination of good value and innovative marketing, these Korean companies are coming out ahead...as is Dunkin' Donuts, which is kicking Starbucks' butt with good coffee at a lower price. It seems that people are willing to trade off comfy chairs and cachet to save some money. And, Wal-Mart is just about the only retailer that's continuing to grow; it's taking even more market share away from competitors with its low-price strategy.

It's impossible to say whether these trends will hold once the economy recovers, but it seems unlikely that we'll go back to "business as usual". Consumers will continue to demand more value for their money, and the companies that can't, or won't, provide it won't be around much longer.