Friday, December 30, 2011

Curation: Publishers' most important role

Book publishers perform many functions (some better than others, but that's a topic for another post). Some people believe that the most important thing that publishers do is edit manuscripts--both giving direction to the author and copyediting once the manuscript is complete. Others focus on sales and distribution--getting bookstores to carry their titles, and making co-op payments to bookstores in order to get display space at the front of their stores, along with better facings on the shelves. However, my opinion is that the single most important thing that publishers do is curation--selection of which titles to publish.

Yes, publishers often select and underwrite titles for a variety of reasons that have little to do with quality. They buy up the rights to titles (that are usually ghostwritten by professional writers) from celebrities and jump into hot markets with "copycat" titles, such as the endless stream of vampire-related books that followed the success of the "Twilight" series. However, they also impose basic quality standards on their writers, and they (usually) have standards about what they will and will not publish. To a knowledgeable consumer, seeing the Random House or Farrar, Straus and Giroux name on the spine (to take two examples) says that they're likely to get a well-written, well-edited book that's not going to be a waste of their time or money.

In the new era of self-published books and eBooks, most of the functions of publishers can either be farmed out or are irrelevant. Editing, copyediting and cover/book design can be contracted out or done by an experienced writer. eBook conversion can also be done by the writer or by a contractor. Printing can be done by any of a variety of companies. Distribution can be done by the author for eBooks; distributing print titles is more difficult, but can still be done through companies such as Ingram's Lightning Source, which deals with most of the world's major booksellers.

However, the one thing that neither a self-publisher nor companies that assist self-publishers does is curation. The writer of a book is the last person who can make an objective judgement about its quality--for better or worse, most authors are either far too hard on themselves or are deeply emotionally invested in their work. Self-publishing services companies are concerned with generating as much revenue as possible from self-publishers. That means not turning away any manuscript, no matter how poorly written, so long as the author can pay for their services. About the only thing that will keep a title out of Amazon's and Barnes & Noble's self-published eBook collections is if it's proved to be largely or wholly plagiarized, and even that doesn't happen very often.

Amazon and Barnes & Noble (and other booksellers) claim that their customer reviews provide a curation service for customers, but the reviews can be gamed:

  • Authors can encourage their friends and acquaintances to post positive reviews, or they can pay people to do so.
  • Consumers sometimes give extremely low ratings to books because they believe that they're priced too high (often, the consumers giving the ratings have neither purchased nor read the books).
There are also book curation websites, but none of them are widely popular, and they can be gamed the same way as the eBook retailers' sites. That leaves the tasks of curation and quality control to the publishers. To the extent that publishers abandon those roles, or de-emphasize them in favor of chasing celebrity and copycat titles, they'll give away their biggest advantage over self-publishers.

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Wednesday, December 28, 2011

DRM: The product that (almost) nobody wants

A few years ago, I was an industry analyst covering the IPTV (Internet Protocol Television) industry--the video delivery technology used by Verizon (FiOS) and AT&T (U-Verse) in the U.S., and many other companies worldwide. One of the hardware segments of IPTV that I tracked was Digital Rights Management (DRM). When I came on-board, the retiring analyst whom I replaced warned me that the DRM vendors would probably cause me ten times as much grief as those in any other segment. He was right.

DRM is an unusual business: The companies that demand that DRM be used aren't the ones that pay for it. You can't distribute television shows or movies from any of the major television networks or studios unless you have an acceptable DRM system in place. The same is true if you want to distribute eBooks from most of the major publishers (O'Reilly is the biggest fact, O'Reilly demands that its eBooks be distributed without DRM.)

The movie studios, television networks and publishers often specify which DRM systems are acceptable, but they don't pay for them. That cost is borne by cable and IPTV operators, over-the-top video distributors (such as Netflix and Amazon) and eBook distributors. For their part, cable and IPTV operators have their own conditional access systems, and a nearly foolproof way of keeping unauthorized users from getting their content--in the worst case, they can send out a truck and disconnect the pirates from their network. However, that's not good enough for the movie studios and television networks, who want to make sure that their content can not only not be viewed by the wrong people, but that it also can't be copied.

Over-the-top video and eBook distributors are less concerned about piracy than they are about making their services extremely easy to use, in order to stimulate sales. They already require usernames and passwords in order to download content, which helps to insure that only those customers who are authorized to access their content can get it. They want DRM, but they don't want it to make their services hard for average consumers to use. The more hoops that consumers have to jump through in order to purchase, download and use content, the less likely it is that consumers will continue purchasing from those vendors.

Apple and Amazon developed their own DRM systems, which were designed to protect content while making access as easy as possible for consumers. Most other companies don't have the ability to develop their own DRM systems, and that's where third-party vendors come in. Content distributors want the cheapest DRM systems they can get that are acceptable to their content suppliers, because DRM adds no value for the consumer (it actually subtracts value), and it adds cost for distributors while offering little or no value. The only parties that it serves are the content providers, who don't pay for the DRM systems, implement them or deal with customer complaints.

This has created a field of third-party DRM vendors who are fairly paranoid. DRM vendors regularly compete on price, but some companies have chosen other approaches. Widevine, which was acquired in 2010 by Google, had several patents on its DRM technology and would threaten (and sometimes file) patent infringement lawsuits against competitors who were undercutting it on price. Widevine used the same tactics against market research and industry analyst companies that didn't report on the company the way that it wanted, or that put its competitors in a positive light. In the case of the company I worked for, Widevine demanded that we lower the installation counts that we had compiled for some of its competitors. When we refused to do so, it threatened to file suit against us. We easily could have prevailed in any litigation (simply going public with their threat would have been sufficient to destroy their credibility), but the owner of my company caved in and removed Widevine's name from our report, replacing it with "Anonymous". Shortly after, Widevine signed a consulting contract with us, hoping to have more influence over our reporting. When a subsequent report had installation counts for competitors that Widevine disagreed with, they again threatened to file suit, and my company's owner again caved into their demands. I demanded that the company take my name off the report and resigned shortly after, because I didn't want my reputation to be sullied. 

Another company, NDS (owned by News Corporation) refused to give us any numbers for its installed base, but after each report we issued, they would complain loudly that our numbers were inaccurate. When we said that we would be glad to adjust the numbers if they gave us installed base numbers that we could confirm, they said that they were under no obligation to give us any information. Given that they were unwilling to provide any evidence to support their complaints, we stuck with our numbers.

In short, DRM is a product that (almost) nobody wants, where the companies that want it don't pay for it, and most of the companies that are forced to pay for it don't really want it. That would be enough to make just about anyone a little paranoid.
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Sunday, December 25, 2011

My year-end waste of time: Predictions for 2012

I've decided to participate in one of the most potentially embarrassing annual blogging rituals: Predictions for the coming year. So, for what it's worth, here are my predictions for 2012, in no particular order:

eBooks and Publishing

  • Both the European Commission's Directorate for Competition Law and the U.S. Justice Department will file suit against Apple and five of the "Big 6" trade publishers (Lagadere's Hachette publishing group, News Corporation's Harper Collins, Holtzbrinck's Macmillan, Pearson's Penguin Group and CBS' Simon & Schuster) for eBook price-fixing under the agency pricing model. Bertelsmann's Random House most likely won't be charged, because it joined in agency pricing long after the other five publishers. All the companies charged will strongly deny any conspiracy to fix prices, but they'll all eventually agree to a consent decree (and the European equivalent) before the cases go to court. The settlement will require Apple and the publishers to make cash payments for consumer damages, and the agency model will be discarded. eBook distribution will go back to the wholesale model.
  • There's also a possibility that the U.S. government and European Union will use the antitrust litigation as a lever to force the Big 6 to make their eBooks available to libraries on commercially reasonable terms. Currently, only Harper Collins and Penguin make their titles available for library lending, and both companies impose significant restrictions.
  • eBook sales in early 2012 will follow the same pattern as the last few years--there will be a huge burst of sales in January and February as millions of consumers who received eReaders and tablets as holiday gifts stock up on titles. However, the year-to-year growth rate in eBook sales will drop, due both to the increased share of eBooks as a percentage of all book sales and higher prices from the Big 6 publishers.
  • Even though the growth of eBook sales will slow, print sales will continue to decline. Independent booksellers in the U.S. won't pick up the slack from the closure of Borders, nor will they make big strides in increasing their overall share of U.S. book sales.
  • The Big 6 publishers' pricing policies will continue to encourage sales growth for smaller publishers and self-publishing authors, as consumers experiment with less-expensive titles and find that many of them are just as good as titles from the top publishers.
  • While the number of titles from medium, small and self-publishers continues to grow, the Big 6 will continue to cut back on the number of titles that they release, focusing even more on pre-sold authors and titles, series and backlist titles that are reissued with a variety of value-adds.
  • The "eSingle revolution" (short eBooks, no more than 50,000 words and typically 30,000 words or less) will grow, with more conventional book publishers offering titles. In addition, more media companies from other fields (magazines, broadcasting, cable and the web) will enter the eBook market with eSingles, either by themselves or in partnership with established book publishers.
  • $99 will become the top-end price for dedicated eReaders sold in the U.S.; someone (probably Amazon) will go to $49-$59 for an entry-level model. The ad-supported/no-ads issue will become moot, as consumers show that they're perfectly happy with a cheaper, ad-supported eReader.
  • The tablet market in 2012 will look very much the same as the market at the end of 2011: Apple will continue to dominate the high end of the market, with two lines of tablets: A new "iPad 3" (although I'm not sure that'll be its name) at the current iPad 2 prices, and the existing iPad 2, possibly with fewer storage and broadband options, at $100 or so below its current prices (for example, $399 for a 16GB model). At the low-end, a variety of tablets will compete in the $149 to $249 range, led (at least for the first few months) by Amazon. I wouldn't at all be surprised to see Barnes & Noble drop prices of both the Nook Color and Tablet by $50, to $149 and $199 respectively.
Cameras & Camcorders
  • We're almost certain to see new cinema camera models from Canon in 2012. The prototype cinema camera based on the EOS body will be launched, as well as at least one new model in the C3XX range, with improved electronics including auto-focus, auto-aperture and auto white balance and 10-bit log output. The new EOS model could be announced as early as NAB in April, and the new C3XX model is likely to be shown at IBC in September.
  • Panasonic's AG-AF100/101 is getting a little "long in the tooth", so I expect a refresh of the model in time for NAB in April. I also expect the GH3 to be announced in the first half of the year.
  • Given all of Sony's 2011 EVIL, DSLR and camcorder announcements, I don't expect any big announcements from Sony in 2012.
  • AVCHD 2.0 (also called AVC Progressive) will become ubiquitous on all new cameras and camcorders supporting AVCHD.
Motion Pictures
  • We'll see major consolidation at the U.S. movie studios, like what we've already seen at Paramount, with even deeper cuts. Studios will become even more conservative about which titles they greenlight for production, continuing to focus on remakes, series and pre-sold titles (very much like the big publishers). This risk minimization strategy will lead to even more boxoffice and home video revenue declines.
  • Online movie rental services such as Netflix and Amazon will continue to increase their share of home video revenues, but what could have been a huge win for Netflix will be a much more competitive market, due to Netflix's self-inflicted wounds from 2011.
  • Studios will rethink the value of 3D given audiences' rejection of the format, and will put more effort into using 3D well on a smaller number of "event" titles. That means that 2D-to-3D conversion, which has never worked well, will go away. Studios will have to come to grips with the fact that 3D, like Blu-Ray before it, will not be their financial savior. Even well-done 3D won't save movies that audiences don't want to see.
  • UltraViolet, the "online digital locker" system supported by most of the major studios, will fail to get significant market share, although the studios won't give up on it in 2012. Consumers will find it too hard to use, not worth the effort and not a compelling reason to go back to buying DVDs and Blu-Ray discs.
  • With an handful of exceptions, independent films will reach audiences through VOD and online streaming services, not through theatrical exhibition or sales of physical media.
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Friday, December 09, 2011

Rifles vs. shotguns: The GoPro advantage

The rule over the years for camera and camcorder manufacturers has been to make a model for every need and every price point. Canon, Nikon, Sony and Panasonic sell everything from inexpensive point & shoots to DSLRs. All but Nikon do the same with camcorders--prices run from around $100 for YouTube-focused models to upwards of $100,000 for digital cinema cameras.

The "model for every purpose and every pocket" approach means that, as a manufacturer, you won't miss a sale because you don't have a model that a customer can afford or can use, but it has some significant downsides. One is that it's expensive to develop new camera designs, both in terms of money and time. Canon's new C300 digital cinema camera took two years to develop, and that was considered a "fast track" project that required adapting the electronics from an older camcorder design in order to meet its deadline. In addition, as development budgets get strained, it's necessary to "milk" designs by releasing cameras that are minor variations on each other. Not to pick on Canon again, but the T2i, 60D and T3i DSLRs are very similar to each other, with minor differences in areas such as LCD mountings and video settings.

There's another side-effect of having so many models--features are deliberately left out of some lower-priced models in order to avoid cannibalizing sales of more-expensive ones. Sony is famous for this; for example, a big reason that the FS100 only has a HDMI output instead of HD-SDI is to avoid cannibalizing sales of the F3 camcorder. There's no technical reason why the FS100 can't have HD-SDI--the less-expensive Panasonic AF-100 has it, and it was introduced a year before the FS100.

Some companies practice another approach--build a limited number of models (or even a single model) of camera or camcorder, with a very specific target market or application. That brings us to GoPro, a camcorder company based in Half Moon Bay, California. GoPro only sells two models: The HD Hero and the new HD Hero2. Physically, the two cameras are almost identical to each other, but the Hero2 has improved electronics and optics. There's about $60-$70 difference between the two models, and none of them sell for more than $300. According to company founder Nick Woodman, GoPro initially built ruggedized cameras for use by surfers and skiers, but they were designed to be used by two people--one to surf or ski, and the other to shoot the action. Woodman's revelation, and the core principle behind everything that GoPro sells, is that athletes want to take video or still pictures of themselves in the act, or from their point of view. That meant that GoPro's cameras needed to not only be ruggedized--they had to be tiny, operate automatically, and be mountable just about anywhere.

GoPro sells a suite of mounting kits that allow its cameras to be mounted anywhere from the exterior of a race car to a surfboard. The company has a library of incredible footage shot underwater, on skydivers, mountain bikes, snow skis, skateboards, even as the payload for a weather balloon at the edge of space. It also has accessories to make the cameras easier to aim, extend their battery lives, transmit their video via Wi-Fi and gang two cameras together for 3D video. Yet all of it is based on the same camera design, for the same fundamental application.

I was amazed by how crowded the GoPro booth was at the NAB conference last April. This is a under-$300 camera, yet broadcast professionals were packed into the booth. GoPro's cameras are used for shooting the contestants' points of view on reality game shows, for recording experiments on Discovery's "Mythbusters", and for use almost anywhere danger is involved. Two thoughts went through my mind:

  • Someone is going to buy Woodman Labs, the parent of GoPro, and
  • Surely one of the big Japanese camera or camcorder makers will jump into the market.
I certainly hope that Woodman Labs isn't sold--the scariest example of what could happen is what happened when Cisco acquired Flip Digital. Before the acquisition, Flip was the leader in the market for inexpensive, simple-to-use camcorders. Earlier this year, due both to competition from smartphones and mismanagement, Cisco shut down Flip completely. Whenever a big company buys a small, focused company, it's usually the small company that suffers. As for the second possibility, a Japanese competitor could try to copy GoPro's ideas, but they'll stumble on their need to be all things to all people. To build a viable competitor, you need to understand GoPro's markets and applications as well as GoPro does, and that's hard when you're also trying to build cameras for every possible market and application.

Had GoPro tried to enter the general-purpose camera or camcorder markets, it would have had its head handed to it. Instead, it dominates the point-of-view market, which it can effectively defend. There's a lesson there, not just for other small companies but for the big camera makers as well. It may be time to focus on a few markets instead of trying to compete in all of them.

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Wednesday, December 07, 2011

Blackmagic Design acquires Teranex, slashes prices

Earlier today, TV Technology reported that Blackmagic Design has acquired Teranex, a digital image processing company, from Jupiter Systems for an unreported price. Teranex has had some excellent technology for years, especially for standards conversion, video denoising and upscaling/downscaling, but it's never been part of a company that was focused on broadcast technology. Teranex started in 1998 as a spin-off of Lockheed Martin, which invested more than $100 million in real-time video processing. Lockheed Martin, of course, was primarily focused on defense-related business, not broadcasting. In 2004, Teranex was acquired by Silicon Optix, which focused primarily on semiconductors and consumer-grade video scalers. Silicon Optix sold Teranex and most of its other products to Integrated Device Technology in October 2008, and IDT sold Teranex to Jupiter Systems, a video wall manufacturer, in June 2009. And now, 2 1/2 years later, Jupiter Systems has sold it to Blackmagic Design.

When a company has been bought and sold as many times as Teranex, it's very difficult to retain employees or to focus on long-term product plans. As a result, it's hard to know exactly what Blackmagic Design is getting. Teranex has some very interesting 3D software that enables two of its video processors to convert 2D to 3D and output 3D in a variety of formats. Combined with Blackmagic Design's ATEM production switchers, the Teranex products give the company much more extensive real-time image processing capabilities. However, many of Teranex's hardware designs are several years old, and could probably benefit from Blackmagic's abilities to redesign the products using current LSIs for lower cost and higher performance.

Update, December 14, 2011: StudioDaily reports that Blackmagic Design has slashed the price of Teranex's top-of-the-line VC100 universal frame synchronizer and format converter from $90,000 to $19,995. In addition, Blackmagic added additional features including dual-channel 3D support, so that it no longer requires two converters to handle 3D. Existing owners of VC100s can get the new features with a $3,000 upgrade. Even without redesigned hardware, Blackmagic has managed to reduce the price by almost 80%,

In short, the acquisition is certainly a good move for Teranex, which is finally partnered with a parent company that knows what to do with its technology. Depending on how much it cost Blackmagic Design and how old Teranex's technology is, the acquisition might or might not be such a great idea for it. We'll know more at NAB 2012, when we see the first displays of Teranex products in the Blackmagic Design booth.
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