Media, Money, Entertainment

What's New at End-of-Quarter?

2010-06-30T17:37:00.003-04:00

With mid-year upon us, here are updates on a couple of ongoing stories:

Hulu finally announced its long-rumored pay service, Hulu Plus. For $9.99 a month, you can get rolling access to full seasons of many new shows, as they air. And you also get access to more complete seasons of older (sometimes "classic") programs. How many people will pay for this in addition to their cable bills, which often include DVR service, which can duplicate the current-season offering on Hulu Plus? And how will the "classic" series offering compete with Netflix? Time will tell.

Brad Stone reports in today's New York Times that Google will be helping independent bookstores when it launches Google Editions, its foray into the e-book market. A deal is apparently near between Google and the American Booksellers Association, which would make e-books available on the websites of independent bookstores via Google Editions. One staffer at Powell's Books in Portland is quoted as saying he thinks this will be a positive thing for bookstores, and that Google won't actually compete with them; though he adds, "I wonder how naive that is at this point. We'll have to see." Indeed. That Google embrace could become stifling.

And, with that stifling Google embrace in mind, I'll note that we are still awaiting Judge Chin's decision on the amended Google Books settlement. I continue to hope he'll force more changes, in order to eliminate Google's unfair monopoly. Again, time will tell.

Waiting On The E-Book Best Seller

2010-05-03T12:12:00.001-04:00

When you’ve been in the content business as long as I have, you know that much of what’s seemingly “new” is really old-hat.

Take the current battle between authors and publishers over e-book rights. Until 15-20 years ago, publishing contracts didn’t mention e-books, because they didn’t exist (outside of science fiction). Publishers now claim that contract language granting them rights to publish books “in all forms” includes e-books. Authors say “balderdash”. Random House took the issue to court a few years back and lost in that circumstance.

So it’s interesting to note that Random House this week gave up e-book rights to the estate of William Styron. This despite CEO Markus Dohle’s letter to agents last year which said authors were “precluded from granting publishing rights to third parties” for e-books. Random spokesman Stuart Applebaum said this week that, “The decision of the Styron estate is an exception to these discussions. Our understanding is that this is a unique family situation.” Perhaps Styron’s contract has specific language to give Random House lawyers pause.

This reminds me of some of the rights battles I witnessed in the home video business.

[read the rest of my column at digitay:DAILY]

Windows Proliferate for DVDs

2010-04-26T14:53:00.003-04:00

Following on their recent agreement with Warner Bros, Redbox has now settled with both Fox and Universal.

Under the agreements, Redbox will not rent Fox or Universal DVDs from its $1 rental kiosks until 28 days after the films are released on DVD. Redbox also agrees to destroy the DVDs at the end of their rental life, rather than sell them on the used market.

In return, Redbox gets better financial terms from the studios, and guaranteed access to greater quantities of DVDs.

This makes a higher-price rental "window" (for the likes of Blockbuster) common now across the majority of major releases, followed by the lower-price Redbox rental window. The studios also, of course, hope for increased sales of DVDs during this window, since they profit more from sales than from rentals.

Thus, the home video rental window has now been sliced in two. How many more windows will we see as movies make their way online?

End-of-Quarter Updates

2010-03-31T21:47:00.002-04:00

With the end of the quarter upon us, here's a review of where we stand with some ongoing stories:

Just days before Apple launches its iPad and associated iBook store, Amazon agreed to stop discounting the prices of e-books from two more major publishers. As The Wall Street Journal reports, both Simon & Schuster and HarperCollins will set their own prices under the "agency" model. This mirrors the deals at the iBook store, as well as those that Amazon had previously set with other publishers. Now we need to wait and see what the iPad does for/to e-books.

While we're waiting on the iPad, we continue to wait on the Google book settlement. Judge Chin is presumably still pondering the possibilities, and we can but hope he will continue to be harsh on Google, demanding further improvements in the now-revised proposed settlement.

And in good news for theater owners, audiences (so far) are willingly paying much higher ticket prices for 3D movies. As Variety reports, the upcharge for 3D tickets at many theaters is now as much as 50% of a regular 2D ticket price. Will audiences tire of a 3D "fad", and decide that movies are no longer the most-economic family entertainment option (as the industry has promoted itself); or will 3D become the new standard, as sound once replaced silent pictures, and color offed black-and-white? Only time will tell.

Reading Into The Vudu That Wal-Mart Do

2010-02-25T09:36:00.001-05:00

It’s a lot more fun to Wal-Mart watch than it is to Wal-Mart shop. When you shop there, you have to worry about supporting a venture that is dicey at best for the greater economic good. When you Wal-Mart watch, you get to hypothesize about its complete lack of fear when it comes to using its size to squeeze impossible deals out of suppliers.

My latest Wal-Mart watching has to do with that hammerlock leverage. Wal-Mart just announced it’s buying Vudu, a startup which supplies movie rentals and purchases over the internet. Vudu has deals with all the major studios, including a large library of high-definition movies.

[read the rest of my column at digiday:DAILY]

Redbox accepts delayed access to Warner DVDs

2010-02-17T12:07:00.004-05:00

As I wrote in an earlier post, the movie studios have been battling Redbox and its $1 DVD rental machines. Lawsuits ensued.

Warner and Redbox have just announced the settlement of their legal battle. The agreement delays Redbox's access to Warner DVDs until 28 days after initial release, creating a "window" for higher-priced consumer DVD rentals. In exchange, Warner reduces the price Redbox pays for DVDs, and also guarantees the larger quantity of discs Redbox sought.

Thus, just as consumers can buy a hardcover book early or wait for a cheaper paperback, consumers now have the choice of renting from higher-priced outlets like Blockbuster on the day of release or waiting 28 days for a cheap rental. Of course, Warner hopes that some consumers will choose to purchase the DVD instead, which would give Warner a greater profit.

That 28-day window also gives Warner an opportunity to try to build up the market for video-on-demand, online streaming, and digital downloads -- all of which have the potential to provide larger profit margins than DVD rentals.

Although not mentioned in the press release, PaidContent and the New York Times (via AP) are reporting that Redbox has also agreed to destroy all Warner DVDs when demand drops for rentals from their kiosks. Until now, Redbox had been selling off used inventory at low prices, further diminishing demand for new DVDs.

Will Justice Be Done In the Google Books Case?

2010-02-10T12:39:00.001-05:00

So which is it? Either (a) the geniuses at Google really don’t get it, or (b) they’re just playing dumb and hoping we don’t notice. Which do you think is more frightening?

The first version of the proposed Google book settlement received a scathing critique by the US Department of Justice, in which the DOJ told the Court to reject the settlement. So Google, the authors, and publishers crafted version 2, an amended settlement agreement ("ASA"). Last Thursday, the DOJ issued its critique of the ASA, asking the Court to push for additional changes, for many of the same reasons. [read the rest of my column, including some pithy quotes from the DOJ, at digiday:DAILY]

"Avatar" gross surpasses "Titanic". So what.

2010-01-28T20:15:00.002-05:00

As dutifully reported by Michael Ceiply in the New York Times (and many other media outlets), the global box office gross on Avatar has now surpassed that of Titanic. Aside from giving Fox and James Cameron bragging rights, does this matter? And what do they really have to brag about anyway?

Ignoring for a moment the 3-D surcharge on Avatar tickets, let's look at how things have changed from December 1997 to December 2009:

The average US movie ticket has gone from $4.69 (per the National Assoc of Theater Owners) to $7.46 (per the referenced NYT story). That's a 59% increase.

For comparison, the cost of first-class postage went from $0.32 to $0.44, a 38% increase.

The value of the Japanese Yen has gone from $0.00784 to $0.0111 (historical exchange rates per OANDA), an increase of 42%. And the value of the French Franc (since subsumed into the Euro, but you can do the math) has gone from $0.168 to $0.219, a 30% increase. Note that any increase in the price of tickets in Yen, Frans, or Euros would be in addition to the noted exchange rate fluctuations.

So we have the usual problem: even if a movie sold only the same number of tickets in 2009 as an older movie sold in 1997, the total box office gross would likely be up 40-60% (factors such as matinee pricing, child/senior pricing, and so on aside). Given that Avatar is up only1% from the Titanic box office, it has certainly sold far fewer tickets...not much to crow about, is it?

The NYT story says that Fox stated that 72% of worldwide sales came from 3-D screens, which tack a surcharge onto each movie ticket. This further decreases the number of tickets sold, putting Avatar far behind Titanic.

Why do I care about this? I don't. Except that I'm tired of the constant drumbeat every year, as mega-budget movies open and "set new records". The records are in inflated dollars, inflated exchange rates, and (in this case) 3-D surcharges. If the movie studios would report the number of tickets sold, we could track some version of "popularity". The dollar comparisons are nearly meaningless.

Ursula K. Le Guin on the Google book settlement

2009-12-30T17:08:00.003-05:00

Ursula K. Le Guin recently resigned from the Authors Guild over the Google book settlement -- she says of the Guild, "you have sold us down the river." Her complete letter appears below:

18 December 2009

To Whom it may concern at the Authors Guild:

I have been a member of the Authors Guild since 1972.

At no time during those thirty-seven years was I able to attend the functions, parties, and so forth offered by the Guild to members who happen to live on the other side of the continent. I have naturally resented this geographical discrimination, reflected also in the officership of the Guild, always almost all Easterners. But it was a petty gripe when I compared it to my gratitude to the Guild for the work you were doing in defending writers’ rights. I went on paying top dues and thought it worth it.

And now you have sold us down the river.

I am not going to rehearse any arguments pro and anti the “Google settlement.” You decided to deal with the devil, as it were, and have presented your arguments for doing so. I wish I could accept them. I can’t. There are principles involved, above all the whole concept of copyright; and these you have seen fit to abandon to a corporation, on their terms, without a struggle.

So, after being a loyal if invisible member for so long, I am resigning from the Guild. I am, however, retaining membership in the National Writers Union and the Science Fiction and Fantasy Writers of America, both of which opposed the “Google settlement.” They don’t have your clout, but their judgment, I think, is sounder, and their courage greater.

Yours truly,

Ursula K. Le Guin

If I Ran the Google

2009-12-02T11:15:00.008-05:00

(with apologies to Dr Seuss)

It's a pretty cool place, said young Kenny McDougal¹,
This place that they've given the wacky name Google.

They search and they scan, pulling info together,
You find what you wanted, no matter the weather.

They copied some books, then they copied some more,
But permission is first what they should have asked for.

They didn't, you know, ask permission from writers,
Who made so much noise that they sounded like fighters.

Then lawsuits went flying, from publishers too,
Shocked, Shocked were the Googlers, "oh what did we do?"

First, Settlement One², it raised quite a ruckus,
Alarming the judge and Department of Justice.

Then, Settlement Two³, even longer, appeared,
But it didn't do much, as we certainly feared.

Can Settlement Three⁴ be much further behind?
We'll see what the Copyright Register finds.

If McDougal ran Google, now what would he do?
Well first he'd admit that we made a boo-boo.

Not asking permission, now that wasn't right.
Lest doing real evil⁵ be the Googler's plight.

A selfish monopoly isn't for me,
We need competition, which we can all see.

With Google Books fixed, I could say, "This is groovy,"
Then move on the way to start scanning a movie?

The studios would squawk, as all Googlers should know,
This time ask permission ere you enter the show.

But lots of films out there are orphans you know,
Abandoned by owners whom nobody knows.

They're sitting in archives, these stories on reels,
Preserved for the future, but making no deals.

Jon Stewart made fun, on his show, of the archives⁶,
Dissing good folks making sure film survives.

Then work with the Congress to pass legislation,
To make films like these, maybe, wards of the nation.

The Google McDougal would thus make amends,
By being more open and acting like friends.

---------
¹ The Dr. Seuss book "If I Ran the Circus" features young Morris McGurk who starts the Circus McGurkus, and "If I Ran the Zoo" features young Gerald McGrew who starts the McGrew Zoo. So I needed a last name to rhyme with Google and a first name...a variation on mine

² The initial Settlement was tabled by the judge, after complaints from many parties including the Department of Justice, the Register of Copyrights, and yours truly.

³ The Amended Settlement, which made its midnight appearance this past Friday the 13th, made some adjustments; but still leaves Google with an insurmountable monopoly in orphan books.

⁴ Don't be surprised to see a Revised Amended Settlement in the future.

⁵ Google's motto (as you probably know) is "Don't be evil."

⁶ On the November 11, 2009 edition of "The Daily Show," Jon Stewart did an extended riff belittling professional archivists. If he hopes for any sort of legacy, he’d best be sure some professionals are taking care of his footage.

[first published in slightly different form at digiday:DAILY]

Google's Failed Midnight Confession

2009-11-16T16:10:00.002-05:00

Minutes before the Friday midnight deadline, an amended Google settlement was offered in New York City, and on further review...it's not enough. Anyone involved in copyright, digital publishing rights, and the apparently unchecked run of Google toward owning what it wants without compromise in this plan had to be disappointed, if not surprised, by Google’s minimalist revision in its new filing, especially given its somewhat dramatic timing. Basically, the key point of contention was not changed. Google still wants to maintain a monopoly on the right to "orphan" books, the digital scans it makes of all books, and the right to sell subscription licenses to its library of digital books. These monopoly rights remain a huge problem, and they still appear to be an end-run around copyright law. [read the rest of my column, including a few good changes by Google, at digiday:DAILY]

Revenge of the Format Wars

2009-11-05T09:00:00.002-05:00

I’ve seen more than a few format wars. Now I’m watching another one coming at the burgeoning category of e-readers and it astonishes me that businesses still have trouble learning a basic precept: Listen to your customer. Customers want simplicity, and a clear path to upgrades, and the comfort that they are not buying into a dead-end technology.

It’s not hard, is it? So why can’t businesses get it right? They have their own history to instruct them. [read the rest, including Beta vs VHS and HD-DVD vs Blu-ray, at digiday:DAILY]

Step away from the eBooks and no one gets hurt

2009-10-18T12:01:00.003-04:00

I've got a column over at digiday:DAILY about how Google's Sergey Brin is trying to scare us into giving in to Google's book demands. Check it out. (And thanks to the folks at digiday:DAILY for the great headline, which you see above.)

More on the soon-to-be-revised Google book settlement

2009-10-07T14:14:00.006-04:00

The judge overseeing the Google book settlement has set November 9 as the deadline for a revised settlement, taking the previously-proposed settlement off the table. But that won't stop me from a round-up of recent differing views on the settlement.

It was nice to see Lewis Hyde's essay in last Sunday's New York Times Book Review. He makes many of the same arguments I've been making against the proposed settlement: effective monopoly by Google, the payment of monies collected from orphan books to authors of other books, and more.

Over at Slate, Tim Wu recently made his argument in support of the settlement. Wu argues that any monopoly obtained by Google would only be on books that are "unpopular" (orphan and/or out-of-print books), and therefore we should have no worries. In fact, an effective monopoly on orphan books would make Google the only source for a complete research library of books. Why search anywhere else, when you know Google has the only complete set of data? Google's expenditure on scanning "unpopular" out-of-print books is effectively a loss-leader (or charity?), almost disguising its grab at another monopoly.

In his final paragraph, Wu says, "It is Google's monopoly on Internet search that is valuable and potentially dangerous, not a quixotic project to provide access to unpopular books." What Wu misses is that the proposed settlement would give Google another "valuable and potentially dangerous" monopoly, this time in book search.

Finally, in today's New York Times, Miguel Helft reviews many of the objections to the Google book settlement. A highlight is a quote from Lawrence Lessig, author of Free Culture and Remix (among others), professor at Harvard, and a former supporter of the Google book settlement who now opposes it:

"I've seen these big powerful companies filled with people who drank the Kool-Aid. I really get the sense in which these people feel they are doing good. But I am always surprised by their failure to recognize how they will be perceived outside."

Copyright panics and name-calling

2009-09-30T22:53:00.002-04:00

William Patry has a new book, Moral Panics and the Copyright Wars, which is driving me crazy. I disagree with so much of it (only one chapter in so far), I barely know where to start.

Patry is a recognized copyright expert, having published an apparently well-regarded multi-volume reference work on the subject. He drafted copyright laws while working in the US House of Representatives, and he's now Google's chief copyright expert.

He begins the book having already decided that the "copyright industries" (movie studios, record labels, book publishers, etc) are stupid, badly-managed, and don't deserve to survive.

He spends several pages discussing the "framing" of arguments, and how word choices affect the way people respond to arguments. He despises the use of terms like "pirate" or "theft" when talking about online file-sharing, as he believes that the use of such terms causes people to jump to the wrong conclusions.

Perhaps. But...

In the course of his first chapter, he likens the "copyright industries" to the old Soviet Politburo. And he compares the wisdom and actions of the "copyright industries" to Mao's ill-fated Cultural Revolution.

So it seems we should have no compunction about using the terms "pirate" and "theft".

Patry also spends several pages quoting Theodore Levitt's classic "Marketing Myopia" article, and arguing the stupidity of "push" marketing these days, when he says the internet has changed everything, and anyone with any brains gives consumers exactly what they want via "pull" marketing.

He says consumers want to download single tracks, while the record labels offered only albums on CDs, so it was only right and fair that consumers took matters into their own hands.

Let's see just what this means...

Say I want to buy just a single egg for a recipe, and the grocery wants me to buy a dozen. Should I feel justified in stealing the egg?

I know, some readers will object that the egg is a physical object, with inventory value, and that my theft would deprive the store of that value.

Well then, what about this one? I want a nice crisp hundred-dollar bill, but the bank won't give me one. Instead of stealing one, I could borrow a hundred from a friend, and make a copy at my own expense. Would that be OK? Like a consumer copying music files? It's not as though a single hundred would affect the economy, right?

Isn't theft still theft?

If I want to buy a single short story, but the bookstore has only a single-volume collection on the shelf, can I demand that they tear out and sell me just the one story that I want?

Of course not.

Just because the internet makes it possible to do something does not mean that it is right to do so.

Just because Patry (and many many others, of course) think that the record labels are badly managed by stupid people, to the point that Patry seems to think said companies should not even exist, does not make it right for a consumer to take matters into her own hands.

I'm curious to see if later chapters of Patry's book show clearer thinking.

Copyright Office and Dept of Justice critique Google book settlement

2009-09-23T16:13:00.008-04:00

Two weeks ago, Marybeth Peters, the US Register of Copyrights, harshly criticized the proposed Google Book Settlement in testimony before the House Judiciary Committee. That same day, David Drummond, Google's Chief Legal Officer, testified with a combination of verbal sleight-of-hand, obfuscation, and apples-to-kumquats comparisons. Last week, the US Department of Justice filed its critique with the judge overseeing the Settlement.

The critiques highlight a key point I raised earlier -- that unclaimed royalties for "orphan" books will ultimately be distributed to those authors and publishers who sign up with a newly formed Book Registry. In fact, the DOJ argues that this creates a schism between the owners of claimed and unclaimed books, thus rendering the "class" which claims to have filed the class-action suit invalid.

The critiques also make clear (as I have argued) that the settlement is a boon for Google in that it grants an effective monopoly on orphan books. No other company could obtain the same access without following in Google's footsteps: wholesale unauthorized scanning, followed by a lawsuit, followed by a settlement. Google actually seems to agree with this, stating "nothing in the settlement prevents anyone from doing what we have done." Google then attempts to evade the "monopolist" term by noting that the proposed Book Registry could "license to third parties to the extent allowed by law" [my emphasis]. Note, however, that what Google would gain from the Settlement is not "allowed by law," so that Google's monopoly is written into the settlement.

Google claims to be a new entrant to the book market with "zero market share". While Google may not yet be selling books, it is certainly selling ads placed next to book excerpts, which is how Google makes money in the first place. Google also claims that it would be too expensive and time-consuming to track down the owners of unclaimed books and negotiate with them; but it's hard to accept that Google's genius engineers and billions of dollars couldn't resolve this problem.

Google also claims that the proposed book registry's job "is to go out and find rightsholders." But that is certainly not the case. The registry has no incentive to find rightsholders. In fact, it has a dis-incentive: the fewer rightsholders who register at the registry, the more unclaimed money there will be; and that unclaimed money will first be used to pay expenses of the registry, and then the remainder will be distributed to those who did register. As the DOJ puts it, "The greater the economic exploitation of the works of unknown rightsholders by Google and the Registry, the stronger the incentive for known rightsholders to retain the unclaimed revenues for themselves."

Some choice quotes from Ms. Peters:

"We realized that the settlement was not really a settlement at all... Instead, the so-called settlement would create mechanisms by which Google could continue to scan with impunity,well into the future, and to our great surprise, create yet additional commercial products."
"the proposed settlement would give Google a license to infringe first and ask questions later"
"To allow a commercial entity to sell such works without consent is an end-run around copyright law as we know it."
"The question of whether a book is in-print (generally, in circulation commercially) or out-of-print (generally, no longer commercially available) is completely inconsequential as to whether the work is entitled to copyright protection under the law."
"certain provisions of the proposed settlement dramatically compromise the legal rights of authors, publishers and other persons who own out-of-print works."

And a few from the DOJ:

"The Proposed Settlement seeks to implement a forward-looking business arrangement rather than a settlement of past conduct"
"[the Proposed Settlement allows] the control of prices for orphan books by known publishers and authors with whose books the orphan books likely compete."
"Under the Proposed Settlement, competing authors and publishers grant Google de facto exclusive rights for the digital distribution of orphan works."
"only Google would have the ability to market to libraries and other institutions a comprehensive digital-book subscription."

I'm shocked, shocked to find that the studios and Youtube are talking

2009-09-05T13:19:00.002-04:00

It would have been a dereliction of duty by the executives at the studios and YouTube were they not talking. How can this possibly be a surprise? Why was it played as signficant "news" in the Wall Street Journal and the New York Times this week?

Of course YouTube is desperate to have legitimate big-name programming -- they need it in order to charge for advertising and/or charge for viewing. They have certainly been talking to (or trying to talk to) the studios for some time now.

And the studio execs are not stupid (having been one, and worked with them, I can vouch that many of them are actually very smart). They know YouTube has a huge audience, and they would of course love to monetize that audience. So it's reasonable to assume they've been talking as well.

So, given that we assumed they're already talking, is there actually anything to report? Are the talks leading to anything? Well, as the Times put it, "One studio executive... said the issues still to be resolved were pricing and the timing of YouTube releases." Right. This is like saying that the only unresolved issue remaining between Flat-Earthers and NASA is the shape of our planet. Come on, people.

And it took three reporters at the Journal and two reporters at the Times to bring us this "news".

(By the way, if any readers don't get the reference, the "I'm shocked, shocked..." quote comes from Casablanca, when Claude Rains' character, Capt. Louis Renault, feigns surprise at something he knew full well was going on.)

Disney, Marvel, and Howard the Duck's pants

2009-08-31T21:05:00.005-04:00

It was announced today that Disney is acquiring Marvel Comics (subject to a Marvel shareholder vote and various regulatory reviews). Key result? At long last, Howard the Duck may be able to take off his pants.

You don't know Howard the Duck? I refer not to the best-ignored, misbegotten George Lucas movie of that name, but to the brilliant comic book series, originally written by Steve Gerber.

In the 1970s, some execs at Disney raised concerns that consumers might confuse Howard the Duck (a cigar-chomping, jacket-and-tie wearing, wise-cracking duck) with Donald Duck (a sailor-shirt wearing duck). The Disney lawyers threatened Marvel, who agreed to make some changes, key among them being that Howard would henceforth wear pants.

Now that Disney will control both Howard and Donald, maybe Howard can finally remove those confining pants and re-expose his tail feathers in all their glory.

Hollywood battles discounted DVD rentals

2009-08-17T19:22:00.003-04:00

In my recent post about the pricing of e-books, I mentioned that 20th Century Fox (among other studios) has concerns about the $1 per night DVD rentals offered by Redbox kiosks devaluing their movies in consumers' eyes. Fox proposed withholding their DVDs from Redbox until 30 days after the initial release of a DVD. Two additional chapters in this story (as reported by PaidContent):

1) In response, Redbox sued Fox.

2) And, going a step further than Fox did, Warners now proposes a similar delay in providing DVDs to Netflix.

Expect more battling lawsuits as each party tries to assert its power and control over pricing and availability.

The first-sale doctrine allows the purchasers of copyrighted works to dispose of them as they see fit: sale, rental, gift, garbage. That is what originally allowed stores to rent video tapes.

Thus, some Redbox employees are now buying DVDs at retail outlets in order to stock their vending machines. Warner and Fox have no recourse over this tactic; but, given the price-points, this is not a long-term solution for Redbox.

I'm all for the efforts to keep the prices of movies and books from dropping. After all, I've made my living in the entertainment and media business for decades. And I'm writing a book.

But I do see the arguments (especially in this economy) for making some prices somewhat lower.

Anti-trust and other regulations prevent the studios, publishers, and retailers from getting together in a room to discuss this. So we'll continue to see individual companies pursing various tactics, until an unofficial consensus is reached.

Pricing atoms vs bytes: paper vs e-books

2009-08-12T12:47:00.003-04:00

Book publishers list the official retail prices of their e-books the same as their newly-published hardcovers (for example, $25.95 for The Girl Who Played with Fire by Stieg Larsson). Retailers pay roughly 50% of the retail price for their books (the actual discount varies based on volume and other factors). While Amazon and Barnes & Noble compete to offer lower prices on the hardcovers (now $14.27 to $16.86 for Larsson's book), they don't lose money on them. With e-books, they take a different tack: the price is $9.99 at both Amazon and B&N, meaning that they lose money on every sale. (That's only $2 more than the list price on the mass-market paperback, which won't be published until March 2010.)

In effect, Amazon and B&N are turning an old marketing ploy on its head -- they are giving away the blades to try to sell more razors.

While publishers collect the same wholesale price regardless of the ultimate retail selling price of the e-books, they are not happy about the e-book pricing. For decades, books have appeared first in hardcover, followed many months later by a cheaper paperback. If you want the book immediately, buy the expensive hardcover; if you can wait, buy the cheaper paperback. With Amazon and B&N e-book pricing, it is now possible to buy a brand-new book at nearly the paperback price.

The publishers' concerns are two-fold: (a) the $9.99 price will devalue books in the eyes of consumers, and (b) at some point Amazon and B&N will tire of losing money on e-books, and will then pressure the publishers to reduce the "official" retail prices on them to the price consumers have come to expect.

There is a reasonable argument to be made that the price of an e-book should be somewhat lower than the paper book, because there are no manufacturing or distribution costs. On the other hand, the consumer is still buying the ability to read the book, regardless of the format. Some have argued that the paper versions remain much easier to read, with crisper type and higher contrast; others point to the convenience and lightness of the e-book reader device. On the whole, there may be balance here.

I suspect that publishers would not be averse to a small reduction in the price of e-books, perhaps in the range of $2-$5 off the retail price of the hardcover. However, this would also cut into the royalties payable to the author of the book -- author royalties are typically a percentage of the retail price-point.

From the book-buyers' point-of-view, the publisher and the retailer are middlemen, standing between the reader and the author. Perhaps if the savings in "manufacturing" e-books could lead to an increase in author royalties, then book-buyers would be more amenable to the limitations inherent in the e-book format?

Note of Interest: The movie studios are facing a somewhat similar problem now, as several of them are refusing to provide DVDs to Redbox, which offers $1 DVD rentals from its vending machines. The studios are concerned that the $1 price would devalue the movie in consumers' eyes. 20th Century Fox, for example, is proposing a delay of 30 days after a movie's release on DVD before it would be available for Redbox $1 rentals.

Pixar 10, Wall Street 0

2009-07-10T10:07:00.002-04:00

A few months back, I chastised Wall Street analysts (who were unable to mind their own store) for trying to become movie critics by predicting that Pixar's Up would be a flop.

They were wrong. Again. But at least one has apologized for the error.

As Brooks Barnes reported in yesterday's New York Times, analyst Richard Greenfield of Pali Research admitted to being "dead wrong" in predicting that Up would flop.

If only Wall Street were as forthcoming about all its mistakes.

The NCAA is like Google? Unfairly profiting on the backs of others

2009-07-04T16:34:00.005-04:00

Over the weekend, Katie Thomas reported in the NY Times that several college athletes have filed lawsuits against Electronic Arts (EA) over the use of their likenesses in video games. (While the video games don't actually use the players' names, the games utilize the players' numbers, hometowns, height, weight, and other stats. Eventually, a judge or jury will likely decide whether these data points constitute a recognizable "likeness".)

The NCAA has endorsed the games and shares in their profits. At the same time, the NCAA also imposes rules preventing college players from profiting from their own celebrity.

This strikes me as remarkably similar to one of my complaints about the proposed Google Books settlement -- that the libraries, whose work made Google Books possible, get nothing from the proposed settlement. In fact, the libraries weren't even allowed at the negotiating table.

In the same way, the NCAA negotiated deals with EA, allowing use of the athletes' likenesses. And the athletes were prohibited from the negotiating table.

This doesn't seem fair either, does it? Note that I am not critiquing specific details of the deals (I do not know any details of the NCAA / EA deal). I am critiquing the fact key parties in each case were not allowed a seat at the table.

On the issue of fairness, I was recently asked whether some Hollywood movie deals were "fair". If the actor/writer/talent/creator had a seat at the negotiating table, odds are that I would deem the deal to be "fair" -- they had a chance to either negotiate a "better" deal, or walk away from the deal if they didn't like the terms.

Two successful mystery writers dealt with the situation differently. At the time that Sara Paretsky sold Disney the movie rights to her heroine V.I. Warshawsky, Paretsky was quoted as saying she knew she might never see money beyond her advance, and that she would have minimal input on the movie...but that the advance meant she could realize her dream of becoming a full-time writer. On the other hand, Sue Grafton has refused from the beginning to sell the movie rights to her Kinsey Millhone series, because she was afraid of what Hollywood might do to her characters. [Note: I cannot find online citations for these, but my recollections are quite clear.]

Both Paretsky and Grafton had a seat at the table, and they made their own informed decisions. If only the libraries and the college athletes had that same opportunity.

My cable company does something (almost) right

2009-06-28T14:16:00.002-04:00

You may recall my rant last month about the cable company forcing me to pay even more for sports channels I don't want, just so I could keep Turner Classic Movies (TCM). Well, now I need to thank the cable company for doing something (almost) right.

Flipping channels one recent evening, we discovered that we now receive TCM in high-definition (HD). This was completely unannounced, essentially a stealth "upgrade". I'm very happy to have TCM HD, but why not trumpet this fact? Or at least announce it in a mailing?

Even the TCM website has no info (at least on the homepage) about being available in HD. Granted, the films sampled so far don't appear to be new HD transfers; but the picture quality is improved over the regular TCM channel.

Wouldn't you think that when a company gives its customers something for "free", they would at least alert their customers to it? (I put "free" in quotes in that sentence, because I expect the cable company to force me to pay somehow; if so, a new rant will be warranted.)

2% of Gross better than 50% of Net

2009-06-03T17:52:00.004-04:00

You may have wondered how a movie that generates hundreds of millions of dollars at the US box office (let alone box office from overseas, DVDs, TV sales, etc) can show zero dollars for those who receive a piece of the "net". You probably think, "why would a major movie studio keep pouring huge sums into producing movies if they don't turn a profit?"

And there's the rub: "profit" and "net" are two very different things.

In a "gross" deal, an actor or director (the "participant") would receive a percentage of the "Gross Receipts" collected by the studio. That term Gross Receipts is always defined by the contract between the studio and the participant. It ordinarily represents most of the cash received by the studio from distribution of the movie, with a few exceptions. The biggest of these exceptions is that money collected by the studio from sale of DVDs is ordinarily reported at 20% (this figure dates from when VHS and Beta video-cassettes were "new media" back in the 1980s).

Note also that while movie theaters may collect $100 at the box office, they typically pay about half of that to the studios; the half kept by the movie theaters goes to cover their rent, electricity, salaries, etc. (Movie theaters keep all of the money they collect from popcorn and candy; none of that goes to the studios.)

In a "net" deal, a participant would receive a percentage of the "Net Proceeds" of the movie. Note that the term Net Proceeds is often used (and defined in the contract) to differentiate it from something else which may be called "profits".

The amounts paid to the participants are referred to as "participations".

Contracts differ tremendously, but Net Proceeds are typically defined as Gross Receipts less the following items:

Distribution Fees -- these fees vary from around 10% to 50% of the Gross Receipts from each of theatrical, DVD, and TV.
Distribution Expenses -- the costs incurred by the studio to market and advertise the movie, plus the costs of the film prints shipped to theaters.
Negative Cost -- the costs to produce the movie, the final result of which is the completed negative of the movie (from which positive prints will be made). This includes salaries for cast & crew, the costs of sets, special effects, travel to locations, costumes, music, etc.
Interest -- this is charged by the studio at a contractually-defined rate, and is applied to Negative Costs, and often to Distribution Expenses as well.
Participations -- this would certainly include Gross participations, and may also include Net participations paid to others

Note that items 1 and 4 above are not actually cash costs paid by the studio. When the studio looks at its "profits", they do not charge themselves Distribution Expenses; and they will often not have a per-movie line-item for interest either.

Distribution Fees and Interest can be very large numbers on hit films, and they (along with the 20/80 split of DVD receipts) are much of the difference between "Net Proceeds" and "profits".

Regardless of the perceived success of a movie, it is very rare for "Net Proceeds" actually to be reached.

The moral of the story is that 99.999% of the time, you are better off with a single-digit percentage of Gross Receipts than you are with a double-digit percentage of Net Proceeds.

More unfairness from Google book settlement

2009-05-15T12:14:00.005-04:00

A few more thoughts to add to my recent post about the proposed Google books settlement:

Libraries are incurring significant unreimbursed costs as they provide books for scanning. Rick Prelinger (a board member of the Internet Archive) recently pointed out to me that it costs several dollars per book for librarians and conservators to inspect books, OK them for scanning, and reshelve them upon return. He says large libraries are running up costs in the millions, and some libraries are unlikely ever to agree to similar deals in the future. Thus, not only are our tax dollars and donations further supporting Google in their efforts, the fact that these costs are never recovered means that Google's effective monopoly is even more entrenched.

I noted in my earlier post that authors and publishers will receive a share of the revenues derived from books which were written and published by others. You might ask "why" or "how can this be"; both are good questions which deserve to be addressed in more detail.

The answer to "how" is fairly simple: for all books still under copyright protection, Google will report and remit revenue to a yet-to-be-built Book Registry. Authors and/or publishers of books under copyright must register their books with the Registry in order to receive their fair share of revenues. Any books still under copyright but not claimed by any author or publisher comprise what have become known as "orphan" books. Google will report and remit monies derived from orphan books, along with other books; in fact, Google may not even know which books are orphans. Any money that is derived from orphan books will first be put toward defraying the Registry's operating costs; any remaining "orphan" monies will be split between suitable charities and all registered authors/publishers by some "fair" formula. Thus, authors and publishers will receive funds for books to which they have no relation at all.

The answer to "why" is not so simple, except that the authors and publishers were the parties who filed the class-action suit. Libraries were not a party to the suit, so they're effectively left out.

Given that (a) the libraries (as supported by our tax dollars and donations) have preserved the books for decades to make scanning possible, and (b) given that the libraries have spent significant amounts of their own money preparing and shipping the books for scanning, doesn't it thus seem fair that the libraries ought to get a chance at the revenue stream? Perhaps a share of the "orphan" book money? Or a small (single-digit) percentage of all the money flowing into the registry? After all, without the work of the libraries, none of this new revenue-stream would have been possible.

Help! I'm being held hostage by cable sports channels

2009-05-04T21:15:00.005-04:00

I'm a movie fan. Decades ago, in college, I learned to run 35mm projectors (we also ran 70mm, and we had variable-speed controls for silent pictures...but that's another story). As a kid, I borrowed 8mm versions of classics from the library, and ran them on the home-movie projector. I'm not (too) embarrassed to admit that I still have a library of LaserDiscs at home (LaserDiscs were effectively the 8-track tapes of the video business, a format that never caught on).

This is all to explain why I had no choice but to "upgrade" my cable package, because that was the only way I could keep Turner Classic Movies (TCM), the best channel around.

I didn't want the extra half-dozen sports channels that came with this "upgrade". I never even wanted basic ESPN, let alone the various ESPN spin-offs that are part of the new package. But I'm now paying much more, mostly for channels I don't watch and didn't want, just so I can keep TCM.

Why can't we buy cable channels a la carte? (I know the standard argument, and I'll get to it shortly.) Why can't I drop ESPN, which charges cable operators roughly $3 per cable-subscriber whether we watch or not? If I could drop ESPN, I ought to be able to cut my monthly bill by at least $3, perhaps more. If I could drop all the other sports channels, maybe I could save another $10-15.

I would happily pay $10 per month for TCM, if I could simply add it on the cheapest basic cable package.

The arguments about why a la carte pricing will inevitably lead to ruin for everybody run along these lines : The practice of "bundling" allows cable operators to use the popular channels to subsidize the less popular channels. Without bundling, only the popular will survive, the niche will die, and there will be fewer choices for all.

Maybe. Maybe not.

I'm sure there are far more households that would want ESPN than would want TCM. But maybe the way to balance this out is to charge variable pricing. If I want just one channel in addition to the basic package, maybe I pay $10 for it. If I want 5 channels, maybe they're $4 each. If enough fans of a "niche" channel are willing to pay more for it, perhaps it can survive.

None of the analyses I've seen considers variable pricing. Ardent fans of a channel could pay more (note that some tests of "free" song downloads with a price of "pay what you want" have actually generated significant amounts of money). And the price per channel could vary based on number of channels, similarity (or difference) of channels, any number of variables.

Until we see some tests and hard data on this, I'm not convinced that a la carte is a bad thing.

And the ability to stopped getting fleeced for a dozen sports channels I never watch would be fabulous!

Google gets richer thanks to your tax dollars

2009-04-27T17:26:00.003-04:00

For some time now, Google has been scanning millions of books, with the goal of making the contents available as part of its search results. The vast bulk of the books were provided by libraries, largely university libraries (both public and private). A group of publishers and authors filed a class-action suit against Google for copyright infringement (which the legal eagles at Google must have expected). Google, the authors, and the publishers have reached a proposed settlement agreemen t. (It runs over 130 pages, plus attachments which bring the total to well over 200 pages. I've slogged through it to bring you some highlights.)

Note that the libraries are not parties to the proposed settlement. The libraries, which have preserved the books in question for decades (with the help of our tax dollars), get very little out of this deal. Each library will be allowed to receive and keep one digital copy of any hard-copy book of theirs that Google scanned. And they can make this one copy available via only one single computer at the library. That's it. The libraries cannot provide the digital copy to a potential competitor of Google; nor could the libraries even use their digital copies to create their own consortium digital library.

The settlement allows Google to sell access to these digital books on a subscription basis; so the libraries can buy access to digital copies of their own books, to be made available on more than one computer.

Money that Google collects for access to digital books will be shared with authors and publishers. BUT money will be shared only if the author or publisher of a book still under copyright actually registers the book with a newly created Book Registry. Funds collected for use of un-registered books will be allocated amongst those authors and publishers who do register their own books. Thus, the vast corpus of "orphan" books (books still under copyright, but effectively abandoned by their author and publisher) will be generating money for Google, and for the publishers and authors of other books.

The libraries get nothing from this.

And Google will be able to sell access to public domain books (those whose copyrights have expired), without the need to share receipts with anyone (which is the way public domain books should be treated). BUT a rare public domain book, a hard-to-find book, which may exist in only a couple of libraries...well, shouldn't the library get something for their time and efforts in protecting and maintaining that book?

Shouldn't we, the taxpayers who supported those libraries and made the preservation of the books possible, get something from this?

Instead, Google gets a free pass to profit from the decades of work by librarians. The libraries and library-patrons get next-to-nothing.

Oh, and by the way, Google effectively has a monopoly on all those digital books. The only way for competition to appear would be for some other company to start scanning books, get sued by authors and publishers, and then settle with the authors and publishers.

Wall Streeters can't mind own store, so become...film critics???

2009-04-07T23:06:00.009-04:00

Brooks Barnes reported in yesterday's New York Times that Wall Street analysts, who were unable to prognosticate the downfall of their own businesses, are now acting as film critics. They are down-grading their ratings on Disney because they don't believe the movie Up will be a hit. (Up is produced by Pixar, which Disney acquired for billions a few years back.)

And these folks are to be believed why?

Even the experts producing the movies have difficulty in forecasting the success of a film. Back in the mid 1970s, every studio in Hollywood turned down Star Wars. Fox finally took it on, but never truly believed in it; Fox was sure their big hit for 1977 would be Damnation Alley (which I'm sure you all remember). They distributed Star Wars just to have something to ride the sci-fi wave that Damnation Alley would create for them. In fact, Fox was so sure there was no future for Star Wars, they negotiated a deal that let George Lucas retain all merchandise rights and all sequel rights. We all know how that ended up. Similar stories could be told about many blockbusters and many flops.

Barnes also suggests that Wall Street is worried because Pixar seems not to care about the marketplace. Barnes reports that Pete Doctor, the director of "Up", has said that the film's commercial prospects never crossed his mind. And that Pixar co-founder John Lasseter regularly says that marketability is not a factor in deciding what pictures to produce.

And Wall Streeters really believe that? Pixar has yet to produce a flop. The Pixar folks seem to have an inherent sense of what will sell, which is primarily a good story with intriguing characters. The Pixar folks don't have to think consciously about marketability, because it seems to be ingrained. Remember, "marketing" is figuring out what the public needs or wants, and providing same to them. If the public wants stories and characters, then the Pixar folk are right on the ball.

I suppose if the Wall Street gang had accurately predicted their own melt-down, I might be more willing to believe them when it came to movies.

Print-on-demand migrates from books to movies

2009-03-27T18:11:00.001-04:00

Earlier this week, Warner Bros launched the Warner Archive, where consumers can order DVDs of movies from the Warner vaults. These will be made-to-order, in much the same way that publishers have been trying out print-on-demand options for their back catalogs of titles.

The Warner Archive DVDs will be sold directly from the Warner site, giving Warners the full retail revenue stream (cutting out both wholesalers and retailers). The $20 price-point is a bit higher than many films of similar vintage at retail; but these are films otherwise unavailable to the fans at any price. Some online discussion has even hypothesized that Warner under-priced them; but we'll need to wait until the first flush of excitement passes amongst the fans. Once they've paid their first credit-card bills with payments to Warner Archive, we'll see whether they're still clamoring for more.

Warner will not get rich from this scheme. The titles available via Archive were deemed to have too small a demand for the expense of manufacturing and shipping a significant volume to retail (where DVD shelf space is in short supply already). This is a way for Warner to accomplish 3 things: (a) keep some die-hard fans happy, (b) squeeze some money out of deep-catalog that might otherwise circulate in pirated copies, and (c) test the waters on unique direct-to-consumer product (without seriously ticking off their very valuable retail partners).

360-degree deals for book publishers?

2009-03-16T17:24:00.001-04:00

As the record labels watched CD sales plunge, they started to move their focus away from suing fans (though several suits against file-trading sites remain in progress), instead trying to encourage fans to buy music online through legitimate sources. Apple's iTunes is the most visible example.

But the record labels also began looking at the underlying economics of their business: pay advances to sign artists for multiple albums, fund the production of said albums, and hope that enough artists sell enough albums to cover the losses on the many others that never bear fruit. As CD sales dropped, and online sales have made up only a portion of that, the labels considered something else -- although they front much of the money to launch and establish new artists, the labels don't participate in revenue streams such as concert tickets, nor in things like t-shirts and tchotchkes sold at concerts.

What if the labels could instead sign artists to all-encompassing deals? In addition to CD sales, the label and artist would be "partners" in the cashflows from live shows and tours. Thus, the so-called "360 [degree] deal" was born. The labels now boldly tout these deals as reason for optimism about their business.

Could such a scheme work in the book business? Publishers traditionally acquire only the rights to print and distribute an author's work in book form. The publishers never have rights to movie or TV adaptations; they often don't even participate in revenues from sales of the book in other languages or countries.

I noted in an earlier post that publishers have been loathe to negotiate "net" deals, as opposed to the "gross" deals authors ordinarily receive. But perhaps some sort of packaging of rights could make this more palatable. Obviously, established authors like Stephen King would refuse; but it might be a reasonable business-proposition for an unpublished author.

What about 360 deals for publishers and authors?

(As an aside, I'll note that Stephen King is not averse to experimenting with the publishing business model, in that he recently released a Kindle-only exclusive of a new work.)

Unlike studios, book publishers prefer gross deals to net

2009-03-05T15:08:00.008-05:00

The "Kindle Revolution" story today on Slate's Big Money says that "publishers have been ferocious in defending the fixed royalty", which is the percentage of retail price typically paid to authors. Many agents have tried to get back-end deals for their authors, whereby a larger percentage of the "net profits" would go to authors. The publishers don't want to risk a potentially huge "net" payout on a blockbuster title, and they'd rather pay authors huge advances against the royalty.

This is the flip-side of the movie business, where the studios desperately want to eliminate "gross" deals for stars and move the talent to a "partner" level where they would share in the "net". Movie talent much prefers the "gross" deals, typically not trusting the studios to fairly define the breakeven point for "net" deals". (as I've discussed earlier)

The article in Big Money also says with regard to the large advances, "Since no one really knows which books will succeed or why, this is actually a strangely rational system, even if it has created a terrible overhang of unearned advances." [my emphasis]

In fact, there is nothing "terrible" about an unearned advance. A book can be profitable to a publisher, even if the advance is not yet earned out; or a book could have earned out its advance, yet still show a loss for the publisher. There is no direct correlation between "profits" and earned/unearned advances.

The same situation exists in movies, wherein a star may not have earned out her huge advance, but the movie may show a "profit" for the studio. Or, a star may have earned back her advance and be receiving overages, yet the movie is a real "loss" for the studio.

Amazon : e-books :: iTunes : music ?

2009-03-04T12:02:00.005-05:00

Amazon announced a new app for the iPhone, allowing its formerly Kindle-only e-books to be read on multiple devices. And Apple is not competing on the e-book front, perhaps because Steve Jobs last year said "people don't read anymore."

Will this further cement Amazon's power over the book business? Will Jeff Bezos be able to dictate terms and prices to publishers, in the way that Steve Jobs has dictated to record labels and movie studios?

Will the book publishers band together and try to create a competitor to Amazon? Just as the movie studios are attempting to learn from the mistakes of the record labels, will book publishers do likewise?

Time will tell.

Sony Pictures wants talent on "net" deals; no more "gross" deals?

2009-02-19T17:55:00.002-05:00

Sony Pictures chairman Michael Lynton said in a Bloomberg TV interview today that he wants to ensure that his "partners" (actors, directors, producers) "share in the risk". His context is that DVD sales are no longer growing robustly, and he wants talent to reduce their upfront fees, and instead have a bigger share of results after the studio "breaks even".

What he's suggesting here is a move away from "gross" deals (in which the talent gets a percentage of the gross, often from the first dollar collected) toward "net" deals (in which the talent receives nothing until a carefully defined "breakeven" is reached).

Of course, the reason for the prevalence of the gross deals among star talent today is that the history of Hollywood accounting meant that there never was a "net". A movie that took in half a billion dollars in theaters could still show a negative "net" after all fees, interest, and costs were deducted. Rather than continue to wrestle with the studios' definition of "net", powerful talent was able to demand a piece of the "gross".

Now the studios want the talent to become "partners" and "share the risk" and (obviously) trust that the accounting of "breakeven" will be fair and square.

This is also an issue for the movie unions. At present, their payments for "residual" use of movies (in theaters and DVDs) are based on revenues, not profits. If the studios were to push to change this, we could see some significant labor disruptions.

Perhaps coming soon to a blog near you: a primer on "gross" and "net" and "residuals".

Variety is wrong. Online distribution does NOT pull ahead of film

2009-02-11T22:11:00.009-05:00

Variety had it flat-out wrong in their article headlined "Online distribution pulls ahead of film". The writer (and editor?) conflated apples with oranges, confusing basic math and common-sense principals.

The headline and lede are at best misleading, suggesting that digital revenues for filmed entertainment now exceed revenues from theaters and DVD. That is clearly not the case.

The article is based on a report entitled "Global Media & Entertainment Market Forecast, 2004-2012", produced by Strategy Analytics. While the report is not available online, a brief summary is. And that's all we'll need to address the Variety story.

The summary states that in 2007, online & mobile revenues were 9.2% of the global media & entertainment revenues. And there is nothing in the summary to suggest that for any particular sector (like filmed entertainment) online & mobile exceeded traditional revenue.

Some key points:

Variety states that for 2008, there was $90 billion in revenue from online & mobile sources for media & entertainment, and $83.1 billion in revenue for global filmed entertainment.

However, it is clear from the summary that "media & entertainment" includes revenue for music, games, and other media in addition to movies. Of perhaps greater interest, note also that the summary makes clear that advertising is included within the definition of "media".

So that $90 billion in online/mobile includes revenue for music, games, and advertising. So it cannot be compared to the $83.1 billion for filmed entertainment -- apples vs oranges.

The abstract predicts that by 2012, online/mobile revenue will represent 17.3% of total media & entertainment revenue; that means that "traditional" distribution will still be 82.7% of revenues.

Clearly, the Variety article should have had a very different headline and lede. At that point, one might question the need for Variety's story in the first place.

If I am able to obtain a copy of Strategy Analytics' report (at reasonable cost), I will report further.