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Go Read This | How in-app purchase is not really destroying the games industry | Sealed Abstract

On the face of it this is just a piece about the gaming industry, though a fascinating one. In fact this article raises issues for all content industries from games, to books, to newspapers, magazines and music.

It covers the gamut, the explosion of content, the role of market makers (in this case Apple – though to a lesser mentioned extent, Google), the use of price as a lever and the challenges of making money in markets that have become so large, diverse and saturated.

I’m reminded of two realities most forcefully when reading it, firstly that while digital unleashes greater freedom to create and make content of all kinds available, thus empowering the creator relative to the middlemen and women of the previous era, it also (in its current guise by power of platform) shackles them to the power of another middle-person (for books, mostly Amazon) AND makes a sustainable career even less likely because of the huge increase of content such freedom unleashes. Secondly, I am reminded of just how little information is publicly available to those looking at the book trade. Consider the information in this article about the nature of games sales in the iOS store and ponder how different our conversations might be about ebooks if these facts were more openly shared (some notable exceptions on that front would be Smashwords who share quite a lot of data).

Getting people to play your game in a market of 150,000 alternatives requires a different kind of marketing. For example, if the user can choose to pay $0.99 for your app, or pay zero for another app that’s probably just as fun, they’ll pick the free one. The result follows: 90% of apps are free in 2013 when weighted by monthly average users. And when you look only at those apps that use an experiment/test/data-driven approach for their pricing, you see a strong upward trend in more free apps. So the pricing experiments that these developers are running (you know, actual flipping research, not just speculating baselessly in an HN comment) are telling them it’s better to go free.

via How in-app purchase is not really destroying the games industry | Sealed Abstract.

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Go Read This | Tesco tablet expected on 23 September

Tesco-LogoIt has been clear for some time that probably only full-scale retailers have the capacity to respond to Amazon, Google, Apple and other digital giants. They have the advantages of scale, access to capital, direct customer interaction and customer inertia working in their favour.

Of course, those advantages are threatened by online retailers like Amazon and by the shift to digital consumption of media. It makes sense then that really forward-looking retailers will attempt to move into the digital distribution and retail space. Many of them have been offering online grocery shopping effectively for some time, long before Amazon or other newer entrants. Tesco has been making what look like smart moves in digital media for a while. It will be intriguing to see if this forthcoming tablet play works.

Success, however, cannot be measured by units sold alone. A good sign of it working would be of the company sells lots of tablets AND signs lots of people up to its digital content services. At the kind of price point the articles on the tablet are talking about, content sales and customer acquisition for the digital services are the goal in the short and medium term.

The question that arises for me is what’s the longer term play for Tesco? How can it build on success in the UK (if it materializes) and can it compete with the giants even if it does succeed in the UK. The costs of such competition can be quite hefty, as B&N has learnt to its cost:

Tesco might be able to hit the £99 price using a cashback-style promotion, Wood suggests: “I can see Tesco using substantial discounts on other services such as bundled media from Blinkbox, or vouchers for discounts on petrol or groceries through its ClubCard loyalty scheme.”

The tablet would take on competitors from the likes of Apple, Google and Amazon, and will be tailored to online shopping and video viewing – both areas where Tesco is looking to capitalise on its position.

via Tesco tablet expected on 23 September – and may be very low-priced | Technology | The Guardian.

Go Read This | iPod eclipse — Benedict Evans

Lurking in a seemingly not related post about how the iconic Apple product is slowly becoming less important to Apple, is a great few lines about the nature of the music business and, more generally, the content business at a meta level:

One could argue that trying to charge a little extra and make more profit is more trouble than it’s worth for Google or Apple (or even profit-hungry Amazon) – better to offer it at cost or thereabouts to enhance the value of the broader platform, which is where the real money comes from (advertising and devices respectively).

The same thing is happening in books and video – content is a condition of entry to the platform game that you provide at cost. This obviously makes life pretty tough for startups – it’s hard to try to build your own ebook store or download-to-own music store right now when any device your customers might use probably already has an at-cost service built-in. The one place this might be different is in video, since in that business it is actually possible to have unique content – but of course this is very expensive.

via iPod eclipse — Benedict Evans.

These issues are of concern to everyone in the content business, from authors to publishers. That doesn’t mean we’ll be impacted equally!

 

 

 

Go Read This | Like Dropbox For TV, Chromecast Changes The Game | LinkedIn

Interesting and smart stuff:

In the same way that making automobiles smartphone-compatible has proven to be vastly superior (and more cost-effective) than reinventing smartphone functionality and building it into every car’s dashboard, the television set paradigm has just shifted. Why pay extra for expensive technology built into your screen when you can bring your own bell and whistle to any screen you want?

That’s exactly what Google is saying with Chromecast.

While an arms race among television makers has been mustering over the development of “smart TV” that lets people use the Internet on the biggest screen in the house, Chromecast is like Dropbox for TV. Everywhere you go, you can have your stuff, on any screen, doesn’t matter if it’s “smart”, dumb, big, or small. And you can use your frigging phone or mouse instead of a remote. I think it’s one of the smartest moves the company has made in some time.

via Like Dropbox For TV, Chromecast Changes The Game | LinkedIn.

Go Read This | The loneliness of the overvalued publisher

Really nice post from Philip Jones over on FutureBook:

Yet I can’t help feel that the BBC is being unfairly pilloried, partly because it overpaid, and partly because it was, well, the BBC, and therefore unable to complete its vision. We do not see the financial performance of LP, but it won’t be pretty given what the write-down says about its costs, and the decline in the travel-book market, even though LP remains the market leader. But we do know that it was making the transition to digital, through its e-books, apps, and most importantly via its website. When it was bought by the BBC LonelyPlanet.com said it received 4.3 million visitors a month, that figure has since trebled.

Most crucially, though we may baulk at how it played out, the vision of putting the BBC and LP under one virtual roof still looks compelling. Combining the BBC’s digital know-how, its wealth of content, historical and up-to-date reports from across the globe, with Lonely Planet’s brand, its publishing nous and its reach, still looks unbeatable. The entity could have offered a true unbiased constantly updated window on the world, powered by trusted content and embellished by social interaction from the many travellers and observers attracted to such a portal. Were Google to pull off something similar, we would all be applauding.

via The loneliness of the overvalued publisher | FutureBook.

How Capital Is Behind Large Publishing Mergers

One of the least explored and analysed questions of the Random House/Penguin merger is why? Why did these two giant publishers feel combining and increasing their scale was so important? Because scale is the key to understanding the merger, just not the scale you think.

Scale is not always good, at a certain point scale can actually create its own problems, especially when scale attracts regulatory attention and increased oversight. Scale also creates management problems and scale created through mergers offers the possibility of management turf fights as rival teams deal with the inevitable right-sizing of the new combined entity. So why merge at all? What scale was being sought?

To Battle The Tech Giants

The most regular suggestion offered was that the companies wished to brace for the forthcoming battles with tech giants like Amazon, Apple, Google and others. I find this somewhat plausible but not really convincing, any alliance between publishers would still be in the ha’penny place with regards to those giants.

Even more though I think publishers are not in Amazon’s business (despite Amazon’s efforts to in fact be in everyone’s itself which you can take seriously or treat as a very clever distraction tactic), nor Apple’s, nor Google’s nor do they have the resources internally to be in those businesses. Barnes & Noble have shown us just recently what happens when you try to compete in a business you don’t know, it can be costly even when you do it very, very well. So scaling to compete in a field you don’t really have skill or abilities for would be exceptionally foolish.

To Save Money

Another possibility floated was that by combining they could make savings and that has more justification  Sales teams will surely be slimmed down where there is duplication, IT infrastructure can surely be streamlined and cost savings made. All that has value, but equally the risk of not being able to carry off those savings, of instead finding it difficult and failing is pretty high. Many a merger has fallen down on the lack of delivery on the promise. I think if they merged just for savings then the merger will probably be a disappointment.

Where does that leave us? Well we know, from subsequent actions, that Pearson was keen to move further into educational publishing and services and keen to shift its trade publishing assets. I wrote about this urge some time ago. That explains one side of the deal, but not the other and even then we might expect Pearson to seek the highest bidder rather than a merger or alliance. Still not getting very far along the road, are we?

Assume Intelligence

Let’s assume that the leadership at Random House and Penguin (or Bertelsmann and Pearson) are smart capable folks who can to some extent look at the future trends and sense where their industry might be going. One important aspect of those trends is for content that plays well across platforms. Not just a book, but an app that does something interesting maybe even a casual game based on the book and, if everything looks right, a movie.

The cost of developing such content (at that point intellectual property or IP is probably a better term) is dramatically higher than the cost of publishing books. Developers, designers, producers and a host of other skilled and expensive staff are required just to get the IP to market in salable form. This is not an attack on editors or narrative books in general, just that on average the cost of developing a book is predictable within a certain range. Obviously some books are more expensive than others but few require the scale of investment a well thought through app or game requires.

Combined with this rising cost of creation, the cost of acquiring content from authors, as I mentioned earlier in the week, is increasing especially for those with proven market power. The more likely a property or an author’s work is to translate across platforms, the more expensive it is likely to be.

Marketing To Everyone

Finally in cost terms, marketing across platforms is also expensive. This is a double pronged problem. On the one hand different platforms have different demands for marketing and different costs too. What works for a book will not always work for an app or a game. The second problem is that the cost of production being higher means that revenue expectations for a product will be higher too, hence the audience required to generate that revenue is larger meaning that niches probably won’t suffice(1) and marketing to a wider audience becomes much more important.

These kinds of projects can have lucrative pay-offs when they strike the big time. Harry Potter, The Hunger Games, The Twilight Saga and Fifty Shades of Grey have all moved beyond being simple books and into the realm of media franchises each with a different set of products on offer.

While I don’t yet have the evidence of it, I believe that these franchises are but the early examples of the trend towards bigger and more lucrative hits that will see publishing become an even more hit driven business than it currently is*.

If I’m correct about this shift I expect to see large publishers shedding distractions and concentrating more on their top brands or their brands with the most potential (occasionally producing titles/IP with prestige status). I’ve written before about the kinds of changes publishers must make and as Mike Shatzkin writes, they are beginning to make those changes:

Both Hyperion and Wiley are showing us what the publisher of the near future is going to look like. They will be more focused. They will be shedding overheads so they can expand or shrink their offerings more readily to respond to opportunities and circumstances. They will be less dependant on the trade bookstore and book review trade networks. And Hyperion’s decision says something more about the future that Wiley’s doesn’t: book publishing will increasingly be an activity operating in tandem with or in service of other objectives of the owning organization.

But how does this relate to the merger? The biggest and most obvious demand that the increased costs suggests to me is for a significantly larger capital base to secure, fund, manage and protect IP projects that require much larger creation and marketing costs. Seen in that light the Penguin/Random House deal is not a defensive move designed to protect publishing from the technology sector but an offensive move that places the new entity as a leader of equal if not larger scale to the movie studios like Sony, Time Warner, Disney, NBC/Universal and the like.

Transmedia Takes Capital

As transmedia and cross-platform content becomes more important the real rivals of publishers are not the platforms that enable them to reach their customers** but the creators of content which might be chosen by those very consumers in the place of their own. In short the book publishing industry is facing convergence with other forms driven by digital distribution and consumption.

In that world, where all content is now in competition with all other content, publishers need to increase their firepower to enable them to acquire, create and market the best content they can and in so doing enable them to charge the highest price they can, all the time facing down their rivals trying their damnedest from the other direction.

That to me explains why Penguin and Random have chosen to combine. In short, it’s all about the money, but for investing in projects rather than profit (that will come later when they get some hits). I fully expect other publishers to do the same, we might even seen publishers combine with other major content creators be they games developers, movie studios,  I could be wrong of course, but I hope I’m right.

Money
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(1) To be clear, I don’t rule out the viability of certain niches, nor the ability of some publishers to thrive as more modest sized entities publishing across several different niches or indeed solely focused on a single niche, but this piece is about larger publishers.

* With the obvious caveat that not all books will be hits and not all writers and publishers will be able to compete in that pace. But that’s okay, some writers and some publishers will make a decent living in the space below, perhaps many perhaps few, that is yet to be determined.

** Of which I have long believed anyway there is only one, The Internet!

In Search Of The Number

There is a number I’d like to know, if I knew it, I think it would help me explain some things that currently seem inexplicable to some and unclear to me.

I know the number exists because I can phrase questions to which the number is the answer (maybe numbers is more accurate, but it’s got less impact). Those questions can be expressed two ways:

– the first; at what £/$/€ spend does a primarily print book reader become a primarily ebook reader?

– the second; at what number of books read does a primarily print book reader become a primarily ebook reader?

It has a follow on question:

– Which indicator is more reliable, ie: is a reader more likely to shift formats because they become comfortable reading ebooks or because they have managed to spend a certain amount of money on ebooks?

I strongly suspect that the answer to the follow on question is that a reader shifts when they become comfortable reading which happens after X (where X is the number) ebooks read. That point obviously changes for different types of readers and is probably very individual. However, there’ll be an average number of books, an average I guarantee that Amazon knows, that B&N certainly knows and that Kobo, Apple, Google and Sony know (or suspect).

If I’m right, and it is about making a print reader comfortable with ebook reading, then conversion is a case of making the offer compelling enough until the formerly print dedicated reader has shifted format without really realizing it.

When you think like that, and you think about 20p ebooks, which seems to have confounded and angered so much of the industry (though to me, just lacked a clear logic that I was aware of, it HAD to have a logic, even if the logic was wrong) they start to make an awful lot of sense. Once you’ve converted the print reader to ebooks (and especially if you shift them to your ecosystem) there’ll be loads of time to drive up the revenue you earn from that consumer. The lost revenue before they convert is simply customer acquisition cost.

See why the number is important to know?
Eoin