Apple's WWDC announcements--the 60,000-foot view

At Apple's Worldwide Developers Conference keynote today, the company completely refreshed its notebook computers and introduced an important new model, got OS X Mountain Lion ready for release next month, and previewed iOS 6. Rather that dig deep into all the new products' features and functions, I'm going to focus on a high-level view:

• The future of Apple's notebooks: Apple announced its MacBook Pro with Retina Display, which represents the future direction for all of Apple's notebooks. It's slightly thicker than a MacBook Air, yet it has as much or more processing and graphics power than the top-of-the-line "classic" MacBook Pro, which remains in the product line. It also has a 15.4" Retina Display with 2880 x 1800 resolution, four times as much as the "classic" 15" MacBook Pro.
• Hard drives are dead: Every MacBook model now comes with flash memory rather than a hard disk, with a minimum of 256GB on most models to a maximum of 768GB on the new Retina Display model.
• USB 3 is in, Thunderbolt is still around, and FireWire is on the way out: All MacBooks now have USB 3 interfaces, which are backward-compatible with USB 2. There are far more USB 3-compatible peripherals on the market than Thunderbolt-compatible models, and they're less expensive. On the other hand, the handwriting is definitely on the wall for FireWire: The MacBook Pro with Retina Display drops both FireWire 800 and Gigabit Ethernet interfaces. Instead, Apple is offering Thunderbolt to FireWire 800 and Gigabit Ethernet adapters. 
• OS X is looking more and more like iOS: Mountain Lion includes integration with iCloud, a notifications center, and Messages, Reminders and Notes apps, all of which were first implemented in iOS. Dictation is built into Mountain Lion and works in all apps, much like dictation in the new iPad. Links, images and video can be shared with a new share button in every window, much like Android. The updated Safari browser has a unified "smart search" field, like Chrome, and a Tabview feature, taken from Mobile Safari.
• "Fix Siri, integrate Facebook, replace Google Maps, and clean up everything else": From today's presentations, those seem to be the central goals that Apple has for iOS 6. Siri is going to be more tightly integrated into iOS 6 and will become a key component of integration with automobile telematics systems, so it has to work much better than it currently does. Facebook is going to be integrated as completely into iOS 6 as Twitter is. Google Maps will be replaced with Apple's own Maps application, including real-time traffic, turn-by-turn navigation, Siri integration and Flyover mode, with 3D renderings of cities around the world. Other features, such as FaceTime and phone calling, will be improved.
• With today's announcements, Apple is sanding off the remaining rough edges of its operating systems, and keeping its hardware at the leading edge. The true innovations, if they arrive, will come later this year, not at WWDC.

Ingram presentation shows the impact of eBooks on print book category sales

Publishers Lunch Deluxe reports on a presentation made by Ingram's Phil Ollila at last week's Publishers Launch Conference, which was held parallel with BEA. Perhaps the single most important slide in Olilla's presentation was this one, showing the impact of eBooks on categories of print book sales:

Sources: Publishers Lunch Deluxe and Ingram

The bubbles below the line are print categories that have decreased as eBook sales have grown; those above the line have grown along with eBooks. The size of the bubbles indicates the magnitude of growth or decline:

• Fiction print sales have taken by far the biggest hit, followed by Business & Economics, Political Science, Self-Help, and to a lesser extent, House & Home. These are text-heavy categories that work well with today's eReaders.
• The print categories that have increased tend to be image-heavy, including Art, Photography, Design, Antiques & Collectables and Architecture. Somewhat surprisingly, however, sales of Reference works, Bibles and Study Aids in print have also increased, even though they're text-heavy.
• The obvious problem for brick & mortar retailers is that the most popular categories are the ones shifting the fastest to eBooks. Specialty stores focusing on art and related categories can work in some markets, but these categories aren't going to support independent booksellers in general.

Bill will end discounting of new books in Israel, set minimum royalties

The Jerusalem Post reports that the bill under consideration in Israel to limit discounting of new books is now on track for passage. The Ministerial Committee on Legislation approved a draft of the law on Sunday, and the Prime Minister's office has said that it will approve it. Under the draft law, it will be illegal to sell books for less than list price for the first 18 months after publication, except during Hebrew Book Week and for a few weeks around Rosh Hashanah and Passover, where discounts of up to 10% will be permitted.

Royalty terms for authors will also be enforced by law: For the first 18 months after a title is published, authors will receive a minimum 8% royalty on the first 6,000 books sold, and royalties of at least 10% for all books sold above that number. The article also states that publishers will be obligated to pay authors at least 16% royalties on profits from their books, but it doesn't make clear how the two royalty schemes will work together.

Google settles some French book scanning lawsuits

Bloomberg reports that Google has settled the remaining lawsuits with the Syndicat National de l'Edition (SNE, the French Publishers Association) and the SGDL Society of Authors (it previously settled with Hachette Livre and La Martiniere Group.) The settlements will allow Google to begin to sell out-of-print titles in France, although no financial terms were released. Google will also sponsor a school-reading program run by the SNE, and will financially support development of a database of book authors and rights-owners by the SGDL Society of Authors.

Tablet use by mobile phone users almost quadrupled in one year

comScore has released some findings from its forthcoming TabLens report on the U.S. tablet market. Here's a summary from the press release:

• Mobile phone users (ages 13+) who also use a tablet almost quadrupled from April 2011 (4.7%) to April 2012 (16.5%). 
• Smartphone users who use tablets increased from 9.7% in April 2011 to 23.6% in April 2012. 
• Feature phone users who use tablets increases from 2.3% in April 2011 to 10.4% in April 2012. 
• Women are slightly heavier users of tablets (50.8% vs. 49.2% for men,) while men are slightly heavier users of smartphones (51.6% vs. 48.4% for women.) 
• Tablet users tend to be significantly older than smartphone users: The heaviest concentration of users of both devices is between the ages of 25 and 44, but tablet users were 28% more likely to be ages 65 and over, and 27% less likely to be ages 18 to 24. 
• 56% of tablet users have an income of at least $75,000/year, compared to 49.3% of smartphone owners. 
• Tablet owners are nearly three times as likely to watch videos on their devices as are smartphone owners--20% of smartphone users said that they'd watched a video on their device in the month of the survey, compared to 53% of tablet owners, and heavy video watchers were more than three times as likely to have watched a video every day on tablets (9.5%) than on smartphones (2.9%).

Adding my eBook posts to the Feldman File blog

I've been publishing a weekly newsletter with eBook and book publishing industry news for a few months. In order to get the stories to a wider audience, I've decided to discontinue the newsletter with the next edition (scheduled for Friday, June 15th,) and instead post the articles to this blog. The advantage for readers is that articles will be posted each day, instead of waiting as long as a week to include them in the newsletter. However, that also means that I'll be adding a lot more stories to The Feldman File each week, so if it gets too much, please let me know by posting a comment or emailing me at len (at) klemfarb (dot) com.

I'll continue to cover DSLRs, video and new media--in fact, I'm hoping to be able to write more posts about those subjects once I discontinue the newsletter.

eBook Wars: Browser Wars All Over Again

At the IDPF Digital Book 2012 Conference earlier this week, Michael Tamblyn, who's Kobo's Executive Vice-President for Content, Sales and Merchandising, gave a status report on his company's market success and progress in implementing an EPUB 3-compliant eReader. Mr. Tamblyn said that because there are "a half-dozen ways to do anything in EPUB 3," it's essential that his developers test Kobo's EPUB 3 prototype using live samples, but his company is having difficulty getting enough document samples for testing. He also said that some publishers are waiting to actually get commercial EPUB 3 readers in-house, so that they can develop their documents to use the features actually implemented by eReader developers.

The next day, I spoke to a manager from a document conversion and app development company on the BEA show floor. He said that his company recommends to publishers that they use EPUB 3  as the basis for creating eBooks. I asked, "But what about Amazon? They don't use EPUB 3." The representative said that Kindle Format 8 is "very close" to EPUB 3, and that Amazon might adopt EPUB 3 in the future. In any event, he said, it's fairly easy for his firm to convert EPUB 3 to KF8.

The era of "Browser Wars"

I came back from New York with a bad case of déjà vu. Anyone who was involved with the Internet from 1995 on remembers "Browser Wars," the battle between Netscape and Microsoft to dominate the web browser market. The engineering team that developed Mosaic, the first graphical web browser, at the University of Illinois, moved to Silicon Valley and wrote a new browser, code-named Mozilla, that became the Netscape browser. Netscape quickly became the most popular Internet software ever released to that date. Then, Microsoft licensed the original Mosaic code from the University of Illinois and released its own browser, called Internet Explorer.

Early on, Netscape introduced new tags and functionality to its browser at a fast clip. Some of these tags, such as frames, gave web designers more options for creating web page layouts, but the tags were implemented without being adopted by the World Wide Web Consortium (W3C,) the international standards-setting body for the Web. Microsoft adopted some of Netscape's tags and added many of its own. However, even when it adopted a Netscape tag, it would often adopt a different set of attributes (the settings that tell the tag what to do.) There were also variations in how browsers rendered tags: The exact same web page, using the same HTML tags and attributes, in two browsers that supported all the tags and attributes used in the page, could look different in the two browsers. For example, in one browser, the page might be displayed with a background color that bled all the way to the edges of the window, while in another browser, the same page might be displayed with a white border around the edges.

It wasn't only HTML that got "innovated" to pieces. The same scripting language got two different names--JavaScript at Netscape (where Brendan Eich invented it), and JScript at Microsoft. As with HTML, the two companies' implementations were different in subtle (and sometimes not so subtle) ways. This was the era of "Looks best in (Browser X)" and "We prefer (Browser X)". In some cases, web pages wouldn't even open in some browsers, and the user would be told to use or install a different browser.

Browser developers encouraged these differences in order to lock customers in, but they were a nightmare for website designers, who had to design different versions of their sites for different browsers, and even for different versions of the same browsers. Pressure from designers and software developers on browser vendors and standards organizations reduced, but to this day still hasn't completely eliminated, the requirement to do things in different ways for different browsers. The W3C took charge of defining new versions of HTML and pushed vendors to stop implementing their own new tags until they'd been reviewed and accepted by the W3C. The W3C also adopted Cascading Style Sheets (CSS,) which over the years have made it easier to tightly define the layout of web pages that work across browsers. Ecma International (formerly the European  Computer Manufacturers Association) took over standardization of JavaScript, and changed the name of the standardized version to ECMAScript.

However, even with all these standardization efforts, supported in some cases by companies whose annual revenues exceed those of the entire book publishing industry, there are still incompatibilities among browsers, and even among versions of the same browsers. For example, Mozilla has JavaScript in its Firefox browser, and Microsoft still has JScript in its Internet Explorer. Both are compatible with ECMAScript at a basic level, but both have additional features that are incompatible with each other.

From Browser Wars to eReader Wars

eBook designers have a variety of formats that they have to work with: Amazon's .AZW (based on the Mobipocket format acquired by Amazon) and Kindle Format 8 (based on HTML5 and CSS with extensions), EPUB 2.X, Apple's iBooks (EPUB 2 .X with Apple's extensions), Kobo Color Content (EPUB 2.X  with Kobo's extensions,) Nook Digital Replica Plus (EPUB 2.X with Barnes & Noble's extensions,) EPUB 3 (HTML5 and CSS3 with the IDPF's extensions) and PDF.

To eBook designers, the word "extensions" is a synonym for "incompatibilities." Two different eReaders may perform the same functions, but if the tags or attributes that tell the eReaders what to do are even slightly different, eBook designers will have to either design around the differences or not use the functions.

Can we draw lessons for the eBook industry from the Browser Wars years? I think that we can:

1. Incompatibilities among eReaders from different vendors, and even among different generations of eReaders from the same vendor, are inevitable and won't go away.
2. Amazon will adopt EPUB 3 48 hours after Apple provides full support of Flash in iOS. In other words, it'll never happen. Amazon's eBook formats are strategic technologies for the company, and it won't allow any competitor or group of competitors to dictate how a strategic technology must work.
3. Despite the best of intentions, browsers' implementations of HTML5, CSS3 and JavaScript are still incomplete, although they're much less incompatible than they once were.
4. EPUB 3 is based on HTML5 and CSS3, and most eReader developers will either base their software and devices on an existing web browser to avoid "reinventing the wheel," or will use the customer's existing web browser and then support the EPUB 3 extensions with JavaScript. Either case makes EPUB 3 subject to lesson 3 above.
5. In order to minimize time and cost, eBook designers and developers will inevitably gravitate to a "lowest common denominator" approach, where they'll either only use features supported compatibly by the largest number of eReaders, or will design eBooks so that features that aren't supported by a particular eReader are either simulated or ignored without crashing.

EPUB's developer takes sides in the Justice Department's eBook price-fixing case

I just returned from Book Expo America in New York City. While I was there, I attended the International Digital Publishing Forum's Digital Book 2012 Conference. On the first day of the event, the IDPF apparently took sides against the Justice Department's eBook price-fixing case, and it did so in a particularly cowardly and damaging way.

First, I'll briefly describe the charter of the IDPF--it's the organization that develops the specifications for the EPUB format (the current version is EPUB 3.0.) I’m a member of two large, well-recognized international technical standards organizations: The Society of Motion Picture and Television Engineers, and the Audio Engineering Society. Despite the many political and legal battles that the movie, television and recording industries have found themselves in over the years, to my knowledge, neither group has ever taken a position on legislation, litigation or political issues. Standards organizations maintain their credibility by taking a neutral stance on everything except the technical standards that they accept and manage. That's what made the IDPF's actions on Monday so surprising.

At the start of one of the morning sessions, a panel discussion that included Madeline McIntosh from Random House (the only Big 6 publisher not charged by the Justice Department,) Bill McCoy, the Executive Director of the IDPF, told the audience that questions about the Justice Department's case, agency pricing and related topics would be off limits. That made perfect sense, and suggested that the IDPF was going to take a "hands off" approach.

However, after lunch, McCoy introduced Paul Aiken of the Authors Guild. Aiken took the stage and launched into an unscheduled 30-minute-long screed against Amazon and the Justice Department's case. I've written extensively about the Authors Guild's position--suffice it to say that Aiken added nothing new and did no better a job than other Authors Guild representatives of explaining how higher eBook prices from the Big 6 are good for consumers, or under what grounds the five publishers in the original case were justified in taking allegedly illegal action in order to prevent what they saw as Amazon establishing a monopoly in eBooks. There was no subsequent presentation of any alternative points of view, and McCoy led the audience to believe that the IDPF concurred with the Authors Guild’s position.

I confronted McCoy after Aiken's presentation to find out why the IDPF had chosen to take sides and refused to allow any discussion of other viewpoints, but he brushed me off and refused to answer any questions until the conference ended. In any event, should Mr. McCoy not believe it beneath him to respond to an industry analyst and blogger, I’d be happy to update this post with his response.

If Mr. McCoy does respond, here are the questions that he should answer—the same questions that I tried to ask him on Monday:

* Why was Mr. Aiken added to the schedule at the last minute?

* Did Mr. McCoy know that Mr. Aiken was going to talk about Amazon and the Justice Department?

* If Mr. McCoy didn't know about what Mr. Aiken was going to say, was misled by or didn't agree with Mr. Aiken, why didn't he make it clear at the end of his presentation that the opinion presented was that of the Authors Guild and not the IDPF?

* If Mr. McCoy did know, at least in general terms, what Mr. Aiken was going to say, why didn’t he give supporters of the Justice Department’s case an equal opportunity to present their side of the story to the conference’s attendees?

In short, the IDPF's role shifted last Monday from a standards-setting body to an industry advocacy organization, thanks to an exceptionally poor decision by Bill McCoy or his board. Companies that don't agree with the IDPF's position are even less likely to adopt or support EPUB than they were before Monday, which will result in further marginalization of the EPUB format, which is already a shambles due to incompatible extensions and DRM schemes that make it impossible to read supposedly "EPUB-compatible" documents on supposedly "EPUB-compatible" devices.

Internet multichannel video services go on the offensive

According to The Hollywood Reporter, Aereo, the Internet-based multichannel video service backed by Barry Diller, faced off against ABC, CBS and NBC yesterday in Federal Court in New York. The broadcast networks are asking for a preliminary injunction again Aereo. In an unusual move, the judge is allowing both sides to call witnesses--an opportunity that wasn't afforded to either ivi or FilmOn in previous cases. (The Second Circuit Court of Appeals began oral arguments about ivi's injunction yesterday.)

Part of yesterday's testimony centered on the damage that Aereo's service could do to broadcasters, since the networks have to demonstrate both a likelihood of prevailing on the merits of the case and irreparable harm if Aereo continues in operation in order to get a preliminary injunction. Martin Franks, CBS' Executive Vice-President of Planning for Policy and Government Affairs, was asked whether Aereo is more or less damaging to broadcasters than DVRs, and Franks replied that he didn't know. Michael Elkin, one of Aereo's attorneys, pointed to a deposition that Franks had given, in which he suggested that DVRs were more damaging than Aereo's technology, even though broadcasters have accepted DVRs as a "fact of life."

The comparison with DVRs is interesting, and it might well help Aereo avoid a preliminary injunction. However,  it's probably not going to be a major factor in the trial for a permanent injunction. Broadcasters want to be able to require Aereo to pay for retransmission rights, as cable, satellite and IPTV operators are required to do by law.  Aereo claims that its system is the same as reception through a roof-top antenna--the antenna is simply located across the open Internet--and that it's thus not bound by the same rules as other multichannel video programming distributors (MVPDs.) Broadcasters are concerned that if Aereo is allowed to continue to operate, it will lead to a flood of low-priced, over-the-top video distributors copying Aereo's model. Consumers will move to the new Internet-based distributors, and the revenues that broadcasters get from cable, satellite and IPTV providers will decline.

The FCC is considering whether to add over-the-top Internet video services like Aereo to the definition of MVPDs. That would partially address the issues in this case, since Aereo would be required to pay for broadcasters' programming. However, the broadcasters could still refuse to license their programming to Aereo, leaving the company without the content it needs to operate.

What's ultimately needed is a requirement that broadcasters make their programming available to all MVPDs at equitable prices. That would allow Internet-based MVPDs to compete on an even footing with other companies, but wouldn't penalize established MVPDs. It would also insure that broadcasters get retransmission revenues from all distributors.

A television EFP van in your...motor scooter?

Last year, Newtek got a lot of attention by turning a Mini Cooper into a tiny EFP vehicle, equipped with one of its Tricaster systems, camcorders, tripods and microphones. KiBAN International, a Japanese eLearning vendor, has just announced an even smaller EFP vehicle--well, actually, an EFP scooter.

The Panda Bird combines Blackmagic Design's electronics and a Honda Gyro Canopy three-wheeled scooter. It incorporates Blackmagic Design's ATEM Television Studio video switcher, HyperDeck Studio Pro dual-deck SSD video recorder and SmartView Duo dual 8" display, along with two camcorders, tripods and additional electronics. Camcorders are connected wirelessly to the ATEM Television Studio, and its built-in H.264 encoder can be used for live streaming from the Panda Bird directly to Ustream. The electronics package fits into 6RU, is powered by 12 volts and can be removed from the scooter for indoor use.

As you can see, there's no room to carry lighting and sound equipment; from the picture, it might not even be possible to fit in the camcorders and tripods. So, the Panda Bird is more an interesting exercise than a self-contained mobile production system. However, it does suggest that Newtek no longer has the miniature video production system business to itself.

If publishers hate Amazon so much, why do they sell to them?

I haven't been able to wrap my head around the fact that the Big 6 publishers hate Amazon so much that they were willing to risk antitrust prosecution, yet they still sell their books to the company. If Amazon is truly such a threat to publishers, there's a simple solution: Stop selling to them. I'm not a lawyer, and I don't claim to be an expert on U.S. antitrust law, but my understanding is that sellers can refuse to deal with a class of customers, so long as they uniformly apply their standard to all applicable customers. That means that publishers could refuse to sell to online-only retailers. That wouldn't prohibit online sales, but it would require that retailers also sell their books through physical stores.

Imposing this standard would mean that the publishers would no longer sell to Amazon, Apple, Kobo, Sony and other online-only book retailers. Of course, it would make Barnes & Noble a de facto monopoly for online book sales in the U.S.; publishers may find over time that B&N becomes just as demanding and difficult to work with as Amazon was. On the other hand, it would strengthen independent booksellers, which would no longer have to compete with Amazon.

The ball is in publishers' courts--they can cut off Amazon if they want to. The real question is, why haven't they already done so?

Be your own role model

I was browsing at my local Barnes & Noble last night, and I noticed that the Business section seems to be getting its own "Steve Jobs" department: In addition to Walter Isaacson's biography, there's "The Presentation Secrets of Steve Jobs," The Innovation Secrets of Steve Jobs," "The Steve Jobs Way," "Steve Jobs: The Man Who Thought Different," "Insanely Simple," and on and on. There's clearly a big market for books about Steve Jobs, reflecting a great deal of interest. Does that mean that you should model yourself after him?

Consider that when Steve Jobs first started Apple with Steve Wozniak, the leading company in Silicon Valley was Hewlett Packard. Company founders Bill Hewlett and Dave Packard, and their "HP Way", were the models for many technology companies in the Valley and beyond. Wozniak had even worked at HP's calculator division for a time. Yet, Jobs and Apple didn't try to emulate HP. Jobs had his own philosophy about how a company should be run and how his employees should be treated. The signature companies that were founded in HP's model, Tandem and ROLM, no longer exist.

Founders' personalities and their companies are very much a matched set--either the combination works or it doesn't. Trying to emulate a successful founder's personality rarely works; trying to model that style and then impose it on a different organization almost never works. The most successful people follow their own path; they take lessons from others, but they don't try to emulate them. That's why slavish mimicking of how Steve Jobs thought, or how he ran Apple, is doomed to failure. The best that you can possibly be is a second- or third-rate imitation of Jobs. You're much more likely to be successful by being a first-rate version of yourself.

What are eBooks doing to the publishing industry?

We’ve now had a couple of quarters of earnings reports from the Big 6 publishers and some other large, publicly-held publishers, and two patterns have emerged:

1. Overall revenues (sales) are down, but earnings (profits) are up.
2. Print book sales are down, but eBook sales are up.

Overall revenues are down in part because consumers are substituting less-expensive eBooks for print books, and because total demand for books is declining (I’ll discuss that latter point in a moment.) Earnings are up because it’s less expensive to “manufacture” and distribute eBooks (the costs for editing and designing eBooks and print books are comparable and overlap to a great degree.) Folks are arguing all over the Internet as to whether or not eBooks are cheaper to produce than print books, and if it even matters. The fact is that eBooks are cheaper to produce, and it does matter. Here’s an abridged list of all the costs that print books require that eBooks don’t:

• Printing
• Binding
• Shipping
• Warehousing
• Acceptance of returns
• Inspection, warehousing and shipping of salable returns
• Recycling or destruction of unsalable returns

Publisher margins are up because consumers are substituting lower-cost eBooks for higher-cost printed books, and heavy book buyers are buying more eBooks. However, printing and binding costs are extremely sensitive to quantity, so as eBooks comprise a bigger and bigger percentage of overall book sales, book manufacturing costs will start to rise. That’s one of the reasons why the Big 6 publishers have been raising prices for their eBooks—the increased profits they earn on eBooks are being used in part to subsidize the manufacturing cost of print books.

There will come a time when eBook profits won’t cover increases in print book manufacturing. At that point, publishers are going to have to make some very hard choices:

• Raise print prices to reflect the full cost of manufacturing and risk an even faster decline in sales,
• Adopt Print-on-Demand (POD) technologies, which allow manufacturers to control costs and minimize inventories but require dramatic changes in how books are manufactured, warehoused and distributed, or
• Stop supplying printed books.

eBooks aren’t the only reason why demand for print books is declining. For many years, the average number of books read by each person has been dropping. The number started declining before eBooks became a major factor. The primary reason is that there are so many more ways for people to entertain and inform themselves. Consider that in the 1960s, when Random House co-founder Bennett Cerf was a regular panelist on the U.S. prime-time television game show “What’s My Line?”, there were three commercial television networks and, in most markets, three television stations. In most cities, you’d have one or two daily newspapers. Radio was an option, but it had been declining since the advent of television. There were movies, and of course there were books. Those were your choices.

Today, there are literally hundreds of thousands of additional media choices, most of which are available whenever and wherever you want via the Internet. There are video games and casual games available on game consoles, PCs, smartphones and tablets. Social media provides ways to get information and interact that weren’t thought possible in the 1960s. The result is that while the total media “pie” is getting bigger, each media choice is fighting for a smaller and smaller share of the pie.

Books haven’t fared well in the battle for attention, but eBooks may be slowing down the decline. Heavy book readers have been the most enthusiastic adopters of eBooks—they’re buying more titles, because the cost per title is less with eBooks than with print. Medium book readers’ use of eBooks is catching up with heavy readers, but they’re buying about the same number of eBooks as they did print titles. Light book readers are also light adopters of eBooks, and it’s unclear if they’ll buy or read any more eBooks than they do print books.

Even with eBooks, overall book sales will continue to decline—but they’re certainly not going to zero. In some countries, it’s entirely possible that eBooks will result in overall sales growth, as expensive, hard-to-distribute print books are replaced by less-expensive eBooks. (This is particularly true in markets such as India that still have primitive distribution infrastructures but fast-growing mobile phone availability.)

eBooks are changing publishers’ cost structures, redefining how print books are manufactured, reshaping channels of distribution and reeducating consumers about how much books “should cost.” However, they’re not changing the competitive environment in which publishers find themselves today, and at the end of the day, competition for consumers’ time and money may have far more impact on the publishing business than eBooks could ever hope to have.

The tablet makers' dilemma

Last week, DigiTimes wrote that "Android 4.0-based tablet PCs will be the dominant products in the segment in the third quarter of 2012 as most brand vendors will not rush to launch Windows 8-based models until the fourth quarter." The reasons for holding off on introducing Windows 8 tablets are fairly clear:

• Microsoft had been expected to release Windows 8 in Q2, but it's now looking like it won't be released until Q3 or possibly even Q4. 
• It will take time for vendors to test Windows 8 and related products for their tablets. 
• Vendors are suspicious of Microsoft's intentions with the Barnes & Noble deal--is B&N going to become Microsoft's "preferred" tablet vendor in the same way that Nokia is favored for Windows Phone 7 smartphones?
• Vendors see no reason to rush Windows 8 tablets to market. 

But, will Android 4.0 products be "dominant" in Q3? Not likely. According to Google's Android Developers site, all versions of Android 4 constitute less than 5% of the active Android installed base. That number overstates Android 4's true share because Google bases its installed base numbers on usage of the Google Play website, which only "authorized" devices can access. If the Kindle Fire and Barnes & Noble Nook Tablet and Nook Color were included, Android 2.3.3 to 2.3.7 would have even more market share than the 63.9% reported by Google.

That leaves tablet vendors other than Apple, Amazon and Barnes & Noble in a quandry. Should they continue to invest in Android tablets when, to date, Google hasn't been able to provide a version of Android for tablets that's compelling to consumers? How much hope should they place in Google getting it right with Android 5? Should they follow Amazon's model and fork a stable version of Android with their own user interface, perhaps even going back to 2.3.X?

Is Windows 8 the solution? Possibly--the Windows Phone user experience is superior to that of Android, and both Windows Phone and Windows 8 uses Microsoft's Metro design language  However, Windows 8 is the "floor wax/dessert topping" of operating systems. It's designed to be used for both touch-oriented tablets and keyboard-oriented personal computers, and as a result, it has compromises that iOS and Android don't have. The "tablet" portion of Windows 8 looks like its usability will be competitive with iOS, but there are likely to be very few apps available for it at launch, compared to more than 600,000 for iOS. The "personal computer" portion of Windows 8 looks and works almost identically to Windows 7, which means that it has nothing to do with the tablet apps.

One the one hand, computer companies can't afford to concede the tablet market to Apple. On the other, it's clear that Android, at least the stock version offered by Google, isn't competitive with iOS. Windows 8 is likely to be better, but as a tablet operating system, it's starting where Android was more than a year ago. So what should tablet vendors do? The safest approach is to wait and see: Develop prototypes of Android 5 and Windows 8 tablets that can be taken into production quickly, but let competitors test the waters first. Don't commit the resources to production or distribution until one of the operating systems proves that can compete with iOS. Another option is to fork and skin Android in order to improve its user interface--riskier, but possibly  the only way to make Android a viable alternative to iOS.

Did Apple and the book publishers get what they wanted?

With all the Sturm und Drang surrounding the eBook price-fixing charges against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster, and the counter-charges that their actions prevented Amazon from establishing an eBook monopoly, a fair question to ask is: Did Apple and the publishers get what they were after? The short answers are "no," "yes" and "don't forget the Law of Unintended Consequences."

Apple: It may have hoped to become a major bookseller by getting the publishers to force all its competitors to sell eBooks at the same price, but if that was its hope, so far it's failed. Apple's eBook market share in the U.S. is, at best, in single digits, while Amazon still controls around 60% of the market and Barnes & Noble has approximately 25% market share.

The publishers: They wrested pricing control for their eBooks away from Amazon and were successful in getting Amazon to raise its prices. They also, at least in part, enabled Barnes & Noble to become a viable competitor to Amazon in the eBook market (although a good part of the credit should also be given to B&N's own strategies, including selling and supporting its Nook tablets and eReaders in its stores.)

The unintended consequences:

1. Amazon moved quickly to develop a supply of titles that are beyond the control of the Big 6 publishers, first by strengthening its self-publishing efforts with the Kindle Direct Publishing program, and then by entering the publishing business itself with Amazon Publishing. Amazon is now competing directly with the Big 6 for contracts with top authors and licenses for popular backlist titles. Had the publishers not taken away Amazon's pricing power, the company probably would have gone much slower in building up its own publishing business.
   
2. Price-fixing lawsuits have been filed in the U.S. by the Federal government, 16 state governments and private individuals, and in Canada by private individuals. Lawsuits are being considered by the European Commission and Australia. These lawsuits have the potential to cost Apple and the publishers hundreds of millions of dollars in damages and legal costs, not to mention years of management distraction, reputational damage and constraints on how they do business. Hundreds of millions of dollars may be negligible to Apple, which has $110 billion in cash and equivalents, but the cost is much more significant to the publishers. 

Given Apple's inability to turn the deal into significant market share and the publishers' inability to keep Amazon from maintaining control of a majority of the U.S. eBook market, it's hard to argue that Apple's and the publishers' actions were worth the cost.

Apple's potential defense: The publishers didn't need us to collude on pricing

I've been wondering about Apple's apparent resolve to fight the eBook price-fixing charges leveled against it by the U.S. Justice Department, states and private individuals. Apple's defense and decision not to settle have, so far, made no sense to me. The relative cost and inconvenience of settling with the Justice Department and states would be minimal compared to the potential distraction of Apple's management and reputational damage resulting from years of litigation. So, why is Apple holding out? Keep in mind that I'm not a lawyer, but here are some thoughts:

The publishers wouldn't possibly have been stupid enough to talk directly with each other about adopting uniform agency terms and pricing. Apple would have had to serve as the "switchboard", acting as an intermediary between the various publishers. The problem is that if the Justice Department charges are correct, the publishers did meet face-to-face multiple times to discuss business issues including "the Amazon problem," and also had myriad communications between each other by phone and email. Years ago, when I took a Business Law course in college, my professor said that such contacts between competitors simply shouldn't happen. Even if all the parties do nothing more than talk about the weather, the very fact that the meetings took place can be used as evidence of collusion among competitors. That may explain why, according to the Justice Department, there were never any corporate counsel at the face-to-face meetings held by publishing CEOs in various Manhattan restaurants.

The CEOs could never agree on how to take on Amazon and force the company to increase its selling prices for eBooks; it took Apple to propose first agency terms, and then a "Most Favored Nation" clause that would guarantee that Apple would always have the lowest eBook prices. The publishers could have come up with a similar scheme and worked the details out among themselves. It was convenient for Apple to do the work for them, but Apple wasn't necessary to either create or further the collusion.

The problem for Apple is that the Justice Department appears to have evidence that the company did, in fact, act not only as a "switchboard" between the publishers, but that its role was essential to getting the five publishers on board with exactly the same terms and conditions. There's also evidence that Steve Jobs himself intervened to try to convince Random House to join the other five Big 6 publishers in implementing agency terms. That may be enough to prove that Apple was integral to the conspiracy.

Adobe is onto something with Creative Cloud

Adobe has started accepting pre-orders for CS6 Creative Cloud, its software subscription program. Everything that's been in Adobe's previous Creative Suites, plus a number of new applications that are either being released from or are still in Adobe Labs beta, and all of Adobe's tablet apps, are included in one monthly subscription. Month-to-month subscriptions are $75/month; annual subscriptions are $49.99/month. Prior purchasers of any version of Creative Suite from 3 or above qualify for a discount on the first-year subscription, which brings the price down to $29.99/month.

There were many complaints when Adobe first announced its plan to move to subscription pricing. The fear was that subscriptions would cost more than purchasing software outright--and in some cases, the fears were well-placed: Upgrading from CS5.5 Master Collection, which is the equivalent of Creative Cloud, costs $525, less than the $600 annual price of Creative Cloud before the first-year discount. However, if you skipped version 5.5 and stayed with version 5, the upgrade price is $1,049.00. Upgrades from earlier versions of Creative Suite are even more expensive.

The $29.99/month discounted first-year subscription price is a powerful incentive for Creative Suite users to switch to Creative Cloud. Adobe hopes that it can convince enough people to switch to Creative Cloud that eventually, it will no longer be economic for people to upgrade their packaged software. There's nothing keeping Adobe from raising prices once they get a critical mass of CS users to switch, of course. However, it looks like Adobe is willing to take a chance that lower prices will result in more total users. In addition, the company may be counting on the psychological benefit of a fairly low monthly payment versus a one-time big purchase to get into or upgrade Creative Suite. A completely new Creative Cloud user will get the equivalent of  $2,599 worth of software for a first-month payment of $50 on the annual plan.

My bet is that Adobe's pricing is going to bring in many more users, and it's going to put additional pressure on Avid, and especially Apple.

When "something for everyone" may be too much

On the cover of the current issue of "TWICE" (This Week in Consumer Electronics,) there's an ad for Nikon's cameras with the tagline "There's a Nikon for Everyone." It got me thinking about something I noticed at the Sony and Panasonic booths at last week's NAB conference. These companies have so many different camcorders and cinema cameras that even the people selling them can't keep track of all of them. For example, when I was in the Sony booth, I couldn't find the 35mm cinema cameras (NEX-FS100, FS700, F3, etc.) I asked one of Sony's salespeople where they were, and she said that all of the company's cameras were on display in the huge circular "camera pit" at the center of the booth. I'd walked around the entire pit and hadn't seen the 35mm cameras, so I went around again but didn't find them. It turned out that the 35mm cameras were in a completely separate section of the booth.

There are so many products that they overlap each other in price and functionality. The same is also true for still cameras from Canon, Nikon, Sony and others, and smartphones from Samsung, HTC, LG, Motorola, Nokia, etc. Makers of notebook and desktop computers have the same problem--just look at the proliferation of models at HP, Dell and Acer. Manufacturers make so many models in order to avoid losing a sale, but they wind up confusing potential customers. Each of these products costs a significant amount of money to develop, manufacture and support. Resources that could be used to develop entirely new products are instead used to create minor product variations to fit into every conceivable price point.

Apple is a great example of a better approach to the problem. At any one time, Apple has a single line of smartphones, tablets, and notebook, all-in-one, mini and full-sized desktop computers, each of which is refreshed once a year. Apple continues to sell a single version of the previous year's tablet and smartphone (two years in the case of phones) at lower prices. Each computer line has four or five models, which vary by display size and processor. When a new computer line is launched, the previous line is discontinued. It covers all the price points, yet it's simple for consumers to understand and for Apple to sell. It also works well with Apple's strategy of making product announcements into newsworthy events.

Sony lost $6.4 billion last year; Panasonic lost $10.2 billion. They no longer have the money to invest in endless product proliferation--which might explain the relatively paltry number of new products shown by Panasonic at NAB. They, and companies like Canon, Nikon, Samsung, etc., would be well advised to focus on fewer, better products that are clearly differentiated from competitors and from each other.

David vs. Goliath? How about Goliath vs. Goliath?

In the U.S. Federal, state, and private eBook price-fixing lawsuits against Apple and five of the Big 6 publishers, some observers have equated the battle to David vs. Goliath. The defendants are David and Goliath is Amazon, which, they argue, would have monopolized eBooks and wiped out the publishers if they hadn't imposed agency pricing. The problem with both the analogy and the rationalization is that most of the Davids are actually Goliaths. Here's a rundown:

• Apple: Until recently, it was the most valuable company in the world, with $100 billion of cash and equivalents on its balance sheet and profit margins that Amazon, and the other defendants, would kill for. 2011 revenues: $108.25 billion.
• Hachette: The second-largest publisher in the world, and a division of Lagardère Group, which owns magazines including ELLE and Paris Match, a variety of television broadcasters in Europe, a network of duty-free shops, and 7.5% of EADS, which is the parent company of Airbus. Parent company 2011 revenues: $10.02 billion.
• HarperCollins: A division of News Corporation, which owns Fox, The Wall Street Journal (which has been one of the most vocal critics of the Justice Department's lawsuit,) the New York Post, a bunch of newspapers in the U.K. (which are embroiled in an ever-widening phone hacking scandal,) newspapers and broadcasters in Australia, 39.1% of British Sky Broadcasting, and a lot more. Parent company 2011 revenues: $33.4 billion.
• Macmillan: A division of Georg von Holtzbrinck Publishing Group, owner of Macmillan Education, Nature, Scientific American, several German publishers and the newspaper Die Zeit. Privately held; parent company 2010 revenues: $2.98 billion.
• Penguin: A division of Pearson PLC, the world's largest education and trade book publisher; owns Pearson Education, the Financial Times and 50% of The Economist. Parent company 2011 revenues: $9.45 billion.
• Simon & Schuster: A division of CBS Corporation, which owns the CBS television network, multiple television and radio stations in the U.S., Showtime, CBS Television Distribution (which used to syndicate Oprah and still syndicates Dr. Phil and other shows,) and CBS Interactive (which owns CNET among other Internet properties.) Parent company 2011 revenues: $14.2 billion.

Amazon is certainly no slouch; its 2011 revenues were $48 billion. However, that compares to total revenues of the defendants of $178.3 billion. Even if you leave Apple out of the comparison, the parents of the five publishers had revenues of $70 billion. You can argue that publishing is only a small portion of the revenues of some of the parent companies, but books only represent a small portion of Amazon's revenues as well. In 2011, Amazon's media sales, which include books. music and video, were $6.01 billion--12.5% of the company's total revenues.

In short, the conflicts between the five publishers and Amazon aren't David vs. Goliath--they're actually Goliath vs. Goliath. When Apple is added into the mix, it's Amazon that could justifiably be called David.

Blackmagic Design crashes the cinema camera party

Last year at NAB, when I spoke with Blackmagic Design's CEO Grant Perry and Director of Marketing Americas Terry Frechette about the company's new video production switchers, I noted that they sold just about everything for video except cameras. This year, they corrected that oversight. The new Blackmagic Cinema Camera shown at NAB was a huge surprise--to my knowledge, there were no rumors that Blackmagic was working on a cinema camera, especially one as "out of the box" as this design. It looks like a simplified, trapezoidal DSLR with mounting points on both the top and the bottom of the case. It should work with a variety of cages and mounting systems from companies such as Redrock Micro and Zacuto.

The Blackmagic Cinema Camera has a 2.5K sensor (2432 x 1366) with an active area of 15.6 x 8.8 mm—bigger than Super 16mm but smaller than Micro Four Thirds. The company claims 13 stops of dynamic range. It supports Canon's EF-format lenses, including Canon's autofocus lenses, as well as Zeiss's EF-compatible ZE mount lenses. The camera can output RAW using Adobe's 12-bit open-source Cinema DNG format at full 2432 x 1366 resolution, as well as compressed video in Apple's ProRes and Avid's DNxHD formats, at 1080p/23.98, 24, 25, 29.97 and 30 fps. It saves onto a SSD using a built-in recorder and outputs through both 3Gbps HD-SDI and Thunderbolt interfaces. (A 256GB SSD can store 30 minutes of RAW footage or more than two hours of video in ProRes or DNxHD format.)

Virtually all interaction with the camera is through a built-in 5" 800 x 480 touchscreen display that comes with a snap-on hood--there's no separate viewfinder. A handful of buttons are used for recording (buttons on both the front and back of the camera), automatic iris, focus, transport control, bringing up the menu and power. Audio in is via standard stereo mic/line inputs. The camera can run on 12V to 30V DC and has a built-in battery. And, I forgot one important thing: Its list price is $2,995 (U.S.). That's not a misprint--it's priced less than $3,000. The Cinema Camera is scheduled to ship in July.

According to Blackmagic's representatives, the company learned from customer feedback that, while cinematographers love the price and video capabilities of today's DSLRs, they're tired of working with cameras that were designed for still photography first. That includes small LCDs designed more for changing menu settings than for accurately judging image framing and quality, limited recording time, no built-in support for industry-standard video recording formats and HDMI outputs that are useless for live recording.

The Cinema Camera fixes all these problems, drops all the still photography-oriented features, and sells for $2,995. It also comes with a full copy of DaVinci Resolve software for color correction on Windows and OS X PCs, and Ultrascope for monitoring output--the software alone costs $995 when purchased by itself. Of course, the camera's not perfect--it's not 4K, the imager is small, the compressed output is 10-bit 4:2:2, there's no 60p mode, slow motion or ND filters--but it's $2,995, which covers a bunch of complaints.

As I always say when new cameras are released, you'd be smart to hold off on placing an order until good third-party reviews of the Cinema Camera are released, along with sample footage. (Australian John Brawley was the first cinematographer to get his hands on a prototype camera for in-field testing. He's posted footage on Vimeo.) However, I suspect that there are lots of people who aren't going to wait--they want to be among the first to get their hands on it. 

It's On: U.S. Justice Department sues Apple and five publishers for eBook price-fixing, settles with three of the publishers

The long-rumored eBook price-fixing lawsuit against Apple and five of the Big 6 publishers (Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster) was filed in Federal court in New York today by the U.S. Justice Department. In addition, the Attorneys General from Texas, Connecticut, Ohio and Pennsylvania are filing their own lawsuits today in Federal court in Texas. Here's a summary of U.S. Attorney General Eric Holder's remarks:

• Hachette, HarperCollins and Simon & Schuster agreed to a settlement, which must be reviewed by the court, with the following terms: 
• The publishers will go back to the wholesale model and allow retailers to set their own prices for eBooks.  Update: Publishers Lunch Direct has clarified the situation (and given the actual verbiage in the settlement, I use the word "clarified" advisedly.) The three publishers will be allowed to continue to offer agency contracts, and they can use variable commissions and discounts to encourage resellers to limit their discounting of eBooks to consumers. However, they can't prohibit resellers from offering discounts. Publishers Lunch Direct claims that this clause prohibits resellers from selling eBooks below the retail price less commission set by the publishers, but I don't read it that way: Resellers can sell eBooks at any price they choose and take as much of a loss as they want. In addition, resellers can refuse to purchase on agency terms, but publishers can refuse to sell to them.
• They will terminate their "Most Favored Nation" agreements with Apple, Amazon, Barnes & Noble and other eBook retailers. 
• They're prohibited from placing constraints on resellers' ability to offer discounts on eBooks for two years. 
• They're prohibited from conspiring or sharing competitively sensitive information with their competitors for five years. 
• They must implement a strong antitrust compliance program. 
• Justice charges that the defendants held regular, near-quarterly meetings to discuss confidential business and competitive matters as part of a conspiracy to raise, fix and stabilize retail prices. 
• They also mutually agreed to seize pricing authority from resellers, agreed to pay Apple a 30% commission on eBooks sold through the iBookstore (and to impose the same 30% on other resellers,) and used most-favored-nation provisions to guarantee that no reseller could sell their eBooks at a price lower than Apple's. 
• According to the statement, "...one CEO allegedly went so far as to encourage an e-book retailer to punish another publisher for not engaging in these illegal practices." 
• Acting Assistant Attorney General Sharis A. Pozen quoted from the complaint as follows: "One executive said that, 'the goal is less to compete with Amazon as to force it to accept a price level higher than 9.99.' And yet another said, 'we’ve always known that unless other publishers follow us, there’s no chance of success in getting Amazon to change its pricing practices.' Our complaint also quotes Apple’s then-CEO Steve Jobs as saying, 'the customer pays a little more, but that’s what you [he’s referring to the publishers here] want anyway.' As you can see, we allege that these executives knew full well what they were doing. That is, taking steps to make sure the prices consumers paid for e-books were higher." 

The "Most Favored Nation" landmine

Reuters is reporting that the U.S. Justice Department could file suit against Apple and one or more publishers for eBook price-fixing as early as Wednesday. I won't rehash the details of the case; you can read this or this for background. In this post, I want to discuss one of the sticking points in the case--the "Most Favored Nation" clause. Apple's "Most Favored Nation" clause requires publishers to price eBooks that they supply to Apple at least as low as the lowest price offered by any other reseller. If the publisher or one of its resellers lowers the price for a title below that of Apple, Apple has the right to drop its sale price to maintain the lowest price.

It's very important to understand that Apple isn't the only eBook retailer with a "Most Favored Nation" clause; both Amazon and Barnes & Noble have them as well. In fact, Amazon is far more aggressive at exercising its clause than the other two retailers. Amazon regularly scans the prices for eBooks at competitive websites and will automatically drop the price of any title that it finds lower at another site, without giving notice to the publisher (or, for a self-published eBook, the author.)

The effect of Amazon's "Most Favored Nation" clause is magnified by another clause the company demands: For non-agency titles (in other words, titles that Amazon purchases to sell under the wholesale model,) Amazon reserves the right to set and change the price as it sees fit, although it will still remit the same wholesale amount back to the publisher or author. If Amazon drops its price for a title below that of Apple or Barnes & Noble, even without the knowledge of the publisher or author, Apple and Barnes & Noble have the right to match Amazon's price.

You may already see where this is going. If, either by design or error, the price of an eBook drops at one retailer, the others have the right to drop their prices. Any pricing mistake can quickly cascade. Is it possible that the price could go to zero? Self-publishers have been giving away some of their eBooks to encourage customers to buy others, so finding a title priced at zero wouldn't necessarily be flagged as an error. In at least one case, Amazon mistakenly found a self-published eBook priced at zero at another retailer, and dropped its price on the title to zero.

Okay, so what happens when the price accidentally goes down to zero? All the publisher or author needs to do is make a phone call or send an email to the retailers in order to fix the problem, right? That assumes that they can figure out who to contact at the retailer, and that the retailer takes action quickly to correct the problem. So let's say that you're an author whose eBook is, through no fault of your own, now priced at zero. You contact Amazon, Apple and Barnes & Noble, and they all agree to correct their prices. Amazon goes first, and you're back at, say, $4.99. Then, before the other retailers have a chance to change their prices, Amazon's scanner checks Barnes & Noble's website, sees that their price is zero, and sets Amazon's price back to zero. Then, Barnes & Noble corrects the price, until the Barnes & Noble price scanner sees that Amazon is selling your eBook for zero, at which point Barnes & Noble also sets its price back to zero.

There are two big takeaways:

1. "Most Favored Nation" clauses suck for everyone except retailers, and
2. Just getting Apple to get rid of its "Most Favored Nation" clause without doing something about Amazon and Barnes & Noble isn't going to fix the problem.

Update. April 30, 2012: According to The New York Times, Apple selected "After Friday Night Lights" to be part of its "Pick of the Week" promotion that allows Starbucks customers to get a free copy of the eBook. Amazon saw the promotion as a giveaway and dropped its price for the eBook to zero. Then, Byliner, the publisher of "After Friday Night Lights," withdrew the eBook from Amazon until the conclusion of the Apple/Starbucks promotion on May 1st.

Apple: Don Quixote de Cupertino?

Update, April 11, 2012: Bloomberg is reporting that the U.S. Justice Department filed suit this morning against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster for eBook price-fixing; Hachette, HarperCollins and Simon & Schuster settled with the Government.

Bloomberg reported that Apple, Penguin and Macmillan are unlikely to agree to a settlement with the U.S. Justice Department over eBook price-fixing accusations, and are preparing to go to court. The three other publishers in the case, Hachette, HarperCollins and Simon & Schuster, are said to be very close to agreeing to a settlement with the Justice Department.

Regular readers of my blog know my opinion on the subject: There's very strong evidence, even if circumstantial at this point, that the publishers imposed agency terms on all of their resellers at almost exactly the same time, including the exact same commission rate, and that all of them threatened to stop supplying eBooks to any reseller who refused to agree. Apple's precise role in the scheme isn't clear, but it's known from Steve Jobs' own words that Apple proposed the scheme to the publishers and knew that it included the part about refusing to sell eBooks to any reseller (including Amazon) that didn't agree.

Apple may believe that it didn't coordinate the actions of the publishers (or that it's covered its tracks well enough that the Justice Department can't prove that it did coordinate their actions.) It may also not want to agree to a settlement for fear of its impact on the civil price-fixing case underway in New York. However, in my opinion, Apple is taking a huge risk by not settling the case before it goes to court.

As it looks now, Hachette, HarperCollins and Simon & Schuster are close to a settlement. If they settle, they'll enter into what's called a consent decree, which doesn't require them to assume guilt for the charges. They'll be required to change their business practices, possibly pay a fine, and agree to court supervision for a limited period of time. The pain and reputational damage will be over quickly. For Apple, Penguin and Macmillan, however, their senior executives are in for months of depositions, they'll be required to provide many thousands of documents as part of the discovery process, and the court trials and appeals will likely take years to play out.

In addition, the Justice Department will be able to compel Hachette, HarperCollins and Simon & Schuster to testify against the other three companies. They'll have immunity as a result of their settlement, and they'll have no reason to protect their competitors or Apple. This is a standard part of most price-fixing cases: One or more defendants cut early deals with the Justice Department and gain immunity, and then they provide evidence against the other players in the price-fixing scheme.

The worst possible outcome for Apple would be for it to lose in court, even if it eventually wins on appeal. All they have to do is look at Microsoft to witness the damage that could be done. That case was eventually settled with a consent decree, but Microsoft was under court supervision for ten years. The company could no longer pursue the aggressive tactics that it had used in the past to suppress competition. Most importantly, it became a convicted monopolist, which changed both the public's perception of the company and the stakes for any future litigation. (When Bill Gates eventually passes away, stories about his philanthropy will have to share time with the videos of his depositions.) The press was no longer afraid of retaliation by Microsoft's public relations department for running negative stories, and Microsoft lost control of its messages.

Apple is unafraid of litigation, as witness its myriad lawsuits against Android licensees. In Walter Isaacson's biography, Steve Jobs clearly saw Android as not only a theft of Apple's intellectual property by Google, but a personal betrayal by Google Chairman Eric Schmidt, who served on Apple's board of directors for years. Jobs swore that he would spend Apple's entire cash horde, if necessary, waging "thermonuclear war" on Google and Android.

Unfortunately for Apple, its cases against Samsung, HTC and Motorola have been far from the "slam-dunks" that Jobs thought they would be. Apple has estranged perhaps the most important component supplier for its mobile products, Samsung, and it's being forced to bring alternative vendors up to its quality and deliverability standards. For example, Apple had planned to launch the new iPad with three LCD vendors, LG, Samsung and Sharp, but only Samsung was able to meet Apple's quality requirements and ship in the necessary quantities in time for the launch. In addition, some of Apple's own patents are being challenged and could be invalidated.

Apple, like Don Quixote in Cervantes' novel, enjoys its battles. Unlike Quixote, however, Apple's opponents fight back, and are likely to hurt Apple much more than Apple hurts them.

Sony's new NEX-FS700: 4K, Super Slo-Mo, Under $10,000

Engadget has a press release with details about Sony's new NEX-FS700, the follow-on to the FS100, which I expect to remain in Sony's product line. Here's a summary:

• The good: The FS700 has a 4K Super 35mm Exmor sensor, and it has a variety of slo-mo modes, including 120 fps in a 16-second burst at 1080P and 240 fps in an 8-second burst, also at 1080P. If you're willing to settle for lower resolution, the FS700 also has 480 and 960 fps modes. It uses E-mount lenses and can support all the usual E-mount adapters. It also has built-in ND filters and a 3G HD-SDI output in addition to HDMI.
• The bad: The FS700 has the same "Lego blocks" form-factor as the FS100. There have been many complaints about handling the FS100 in the field, including poor placement of controls; it remains to be seen if the FS700 will remedy at least some of these problems.
• The unknown: Sony's press release quotes the price of the FS700 as "under $10,000 (U.S.)." Leaked reports on the camcorder had it priced at $9,000 or even $8,000. We'll probably know the real price in a few weeks at NAB. In addition, even though the FS700's sensor supports 4K, the camera will require a firmware update at some unspecified time in the future in order to output 4K over 3G HD-SDI to a Sony recorder. Will Sony charge for the firmware update, or will it be free for registered owners of the FS700? Again, we'll most likely learn the details later this month.

Given that the Scarlet-X is already shipping at a $9,000 base price, the FS700 isn't likely to be a game-changer, although it will be considerably less expensive than a fully-equipped Scarlet-X or Canon C300. Canon has a new cinema camera announcement scheduled for NAB, so they may already be preparing to compete in the "4K for under $10K" market. The company that I'm surprised that we haven't heard anything from yet is Panasonic: The AF100 is getting old. Will they have anything new to show at NAB?