ebooks and deadwood - how comes big publishers are making more money?

The top Amazon executive in charge of kindle content spoke last week at the Frankfurt bookfair - the largest publishers gathering in the world. One of the graphs he showed tells the story of ebooks vs paper very starkly. In the US and the UK, Kindle sales outstrip paper book sales on Amazon. And in the UK's case that happened within two years of Kindle's launch. Of course while you can only buy kindle books at Amazon you can buy paper books at your local bookstore (if you have one - in Africa they are often few and far between). But any publisher - or bookseller - will tell you that Amazon is the dominant retailer in digital and print, at least in the US and the UK. According to the trade paper, Publishers Weekly, Amazon had 29% share of all book sales in the US in the first half of 2013.

An interesting difference though between the books business and other media businesses is that in the transition from physical to digital, publishers don't seem to be suffering in the same way that their equivalents in the music industry for example are. Grandinetti quotes Random House, Harper Collins and Simon and Schuster to prove his point. He cites Simon and Schuster's profits rising 28% year on year due in part to (quoting the company) "the decline in expenses resulting from an increase in more profitable digital sales as a percentage of total revenues."

Prices

One obvious reason for the difference could be prices. If you buy ebooks you may wonder why the average price of a best-selling ebook is almost $10 according to digitalbookworld.com - about the same as the top selling trade paperbacks at Barnes and Noble. But prices really don't differentiate books and music - buying eight or ten tracks on iTunes is at least as as expensive as buying a CD.

Piracy

The recording industry points to piracy - books are not available for free to the same extent as music. But a recent Business Insider article cites studies by the UK telecommunications regulator - OFCOM, and Columbia University that suggest consumers of pirate content spend more on legal content than those than consumers that only access legal content. An alternative explanation is market concentration. The digital book market is controlled by a very small number of firms with Amazon dominant. But digital music sales are also very concentrated with Apple iTunes dominant.

Sharing

Another explanation could be sharing. I was in a village in Kenya recently researching Internet use and came across a group of young men all intently listening to music on  their mobile phones. When we discussed how they got hold of their music, they explained that almost always they shared it - not via drives or the Internet but via bluetooth. That is what they were busy doing. My impression is that Digital Rights Management (DRM - the systems that try to control a users ability to share content) has been much more effective in books than in music. Media owners tend not to differentiate between pirate downloading and sharing. It is all lost sales to them. But we should. Paper books can be shared - given, resold, lent. And more than a century ago battles to ensure free access to books were fought and won in many countries - establishing public libraries built by governments, foundations and public subscriptions. Amazon allows for the limited ability to share ebooks if the publisher enables this feature on a title. Many don't. New York is the only city I have been to where I have seen ebook public lending widely available and used.

eBooks in Africa

From an African perspective, the most important issue is that books (and CDs) have been expensive to produce and distribute and so they have been too expensive for most to afford. Digital content has much lower distribution costs so should enable many more people to access them. But the lower costs of distribution are not being passed on to consumers. eBooks represent and extraordinary opportunity on the continent. Something for competition commissions to get their teeth into.

You can watch Russ Grandinetti's presentation below via slideshare.

Amazon on The Global Transition to Online Bookselling (Russ Grandinetti at Launch Frankfurt 2013) from Publishers Launch Conferences

300 hundred Africans die but don't make my local news station's news bulletin

Question: how comes BBC British domestic radio news and the BBC News website  led this morning with the story of more than 300 Africans having died off the Italian coast when a ship carrying them sank while the South African radio stations I listened to this morning didn't run the story at all ?

These days I switch between five radio stations: two Johannesburg talk stations - Power FM and 702, the national public broadcaster's english language station - SAFM (all on FM - no digital audio broadcasting in South Africa) and BBC World Service and BBC's domestic talk station (via Internet). My local award-winning news station - Radio 702 -  and my national talk station - SAFM - didn't run the story at all in the news bulletins I listened to this morning.

On their website today, the BBC leads with the story on their main news page. It also has testimony from survivors and quotes from the Italian interior minister in a detailed story last updated this morning.  It has a video report by their European Correspondent Gavin Hewitt. It also has a background piece on African migrants from the horn of Africa by their Africa correspondent, Andrew Harding. SABC's news website does not have the story on their home page. Under 'Africa', you can find a Reuters story from yesterday. On 702's news website home page there is a reference to the story buried low down on the page. Their coverage relies on the same Reuters story  from yesterday that SABC carries.

The Italian Interior Minister said yesterday that "This is not an Italian tragedy, this is a European tragedy," according to the BBC. It appears he and South Arican news editors are in agreement that it is not an African story.

In this case the cynical guidance that 'if it bleeds it leads' does not seem to have been applied. 'What is newsworthy?' is a question that occupies the minds of editors and journalism educators frequently and no two editors may agree. So there is always room for differences and choices between publications. But the day after the bomb in Nairobi, there was plenty of coverage in South African media. This time virtual silence. Maybe refugees and migrancy is somehow less interesting to editors here than global terrorism? There is also a question of resources. A recent report on South African newsrooms from Wits journalism highlights shrinking newsrooms. But even where editors are forced to rely on agencies, their weighting of this story demonstrates to me a shocking lack of connection to the continent and continental issues.

(note that the links in this piece were found on the morning of 4th October. If you are reading this story at another time they are likely to be out of date). 

talking about big media companies...

others have pointed to the apparent paradox that over the same period tha  the Internet opens up the one to many world of mass media, that world itself has been consolidating. I just found this interesting info graphic from frugal dad on US media (thanks to my friend Faiza Ambah). While he tells the story front he point of view of an American media consumer, the same companies have grab sway across the rest of the world, including South Africa. (I speak as a father to a girl who's television viewing is monopolized by the Disney Channel).  His sources are listed at the end of the graphic.


Source: Frugal dad

Is Google the World's Biggest Media Company?

Google receives almost $5 of every $10 spent on online advertising worldwide. Its total income from advertising last year was over $29bn. To put this number in perspective, the total advertising revenues of all US newspapers combined last year was less than $22bn. And the major US television networks (excluding cable and local stations) earned  $21.7 billion in advertising.

Using Neilsen estimates,  the global advertising market may  be somewhere north of $400bn so internet advertising is still a relatively small part of the total market which is still dominated by television. But television is a local business, not a global one. The global networks like CNN, Discovery and MTV are small players in the global advertising market. CNN International's advertising  for example accounted for no more than 10% of CNN's income of some $500m in 2009. And Viacom, owner of MTV which they claim as the worlds biggest television network broadcasting in over 160 countries, earned less than $1,5bn in ad revenues in 2008.

Of course advertising is not the only source of revenue for media companies - though it is the only significant source of revenue for Google. News Corp owns 20th Century Fox which makes movies which people buy at the cinema and on DVD. Sony owns a studio too - Columbia - and a music company Sony BMG which sell CDs. But music sales are in decline and for many years the film industry has been largely dependent for its profits on television sales. And looked at globally, the television business is dependent on advertising.

What appears clear is that Google is, by a long way, the biggest advertising platform in the world. And the world, at the end of 2011, is one where getting people to pay directly for the cost of generating media is getting tougher and tougher. Google, of course does not make any content. But the major businesses never made their money by making content. They made their money by aggregating audiences. And Google is now the greatest audience aggregator in human history and the first truly global one.

Reading the Writing on the Wall

In Business Day today are two stories about the health or otherwise of South African newspapers.

One reports on the decline in newspaper and magazine sales shown in the latest data from the Audit Bureau of Circulation (ABC).  It reports that: "Overall, 72000 (5,1%) fewer newspapers were sold than in the same quarter last year". It also quotes Gordon Patterson, Vice-Chair of the ABC: "The loss year on year is equivalent to the closure of an average- sized title. And this is in spite of an increase in questionable distribution at less than 50% of cover price."

The other story (on the same page by the same writer) is rather more upbeat. It claims that "Research shows that advertising spend across all media channels in the nine months from January to September is up almost R3bn compared with the same period last year" - an increase of 14%. Pretty good given the state of the economy. And the article makes clear that while print may not have benefitted as much as television, it is a winner: "since January," it goes on, "advertising expenditure had increased ... 55% for print" As the UK Satirical Magazine 'Private Eye' used to put it  - clearly a call for "trebles all round" for those in the print (newspapers and magazine) industry.

So can both stories be true? And what do they tell us about the state of South African newspapers?

The ABC data  - available on its website - shows that daily newspaper sales declined in the last quarter. This is part of an established longer term trend. Daily paid newspapers sales have fallen from 1,6m in the 3rd quarter of 2008 copies per day to a little over 1,3m in the third quarter of 2011. Of the top six titles, the Daily Sun (number 1) is down almost 9% year on year, Son (number 3) is down over 9% and The Star (number 5) is down 15%. Only Isolezwe (number 2) is up (over 9%). All the top weekend newspaper titles are down also, year on year with the exception of Ilanga (up over 6%). In addition, the ABC report notes an increase in discounted sales.

So if newspapers sales are declining can they really be earning (lots) more money from advertising? Well the first thing to point out is how nonsensical Business Day's reading of the data was. This is a graph from the Media Shop report they credited in their story.



From http://www.mediashop.co.za/Press-Room-News.aspx?id=29

It shows data of total ad spend across all media over the last three years from January to September. In all of them, January is the lowest month and September the highest or close to the highest (last year was the world cup so unsurprisingly, May and June were higher then). So stating that "advertising income has increased... by 55%" by comparing September to January is not the best way to look at whether newspapers are doing well.

It's more useful to compare the period January - September this year against last, which shows that, across all media, ad spend was up 14%. And 14%, in our current environment still looks a healthy figure. So, in spite of the circulation declines, is this good news for the earnings of newspaper publishers? Well I'm not convinced.

To take a view, you need to understand a little bit about how these figures are generated. Neilsen produce these figures by measuring the number of adverts in newspapers, on radio and television and then multiplying these by the Rand rates published in media channel's rate cards (their price lists). But media channels do what many retailers do from time to time, they offer discounts and special deals. Especially when times are tough. These deals are not published, so not available to Neilsen. In other words, we have no idea in fact whether the media owners actually got 14% more income this year.

And even if they did, the ABC data shows some interesting things about print inflation that put into question newspapers ability to sustain their earnings.


ABC Report 3rd quarter 2011


This chart shows that Daily newspapers advertising rates have increased by 7,86% year on year while their readership has declined by 7,67%. As a result the cost of newspaper advertising when measured by how many people are reached per R, has gone up by 17,46%. The comparable increase for weekly newspapers is 12,77%.  The story in free to air television is the reverse, with their increase in prices being less than the increase in their audiences. Bottom line: print is becoming m(a lot) ore expensive compared to other media at the same time as it is loosing audience.

This puts a big questionmark on their ability to sustain their earnings.

And a last point on these stories. If professional journalism is going to survive, let alone thrive in the brave new world we need journalists to get a lot better at reading and writing about data. Business Day's ad spend story doesn't cite the original source of the data it uses (Neilsen). It takes the apparent increase in income on face value without demonstrating any understanding of what the data actually means . The comparisons of September and January figures is entirely misleading. And this is a publication writing about their own industry. Everything I've written here would be common sense to the advertising sales staff sitting a floor away from the desk of the journalist who wrote the story. And this is Business Day, a paper that deals daily in numbers - stock prices, economic data and more.

Guarding the Guardians - transparency, censorship and online spying

Which governments are most active in restricting information online?

Last week Google published an interesting report on government requests for removal of content on their sites. So which countries come top of this list? Well you may find it suprising that China comes in at number 16 with only 3 requests, well below the US, which comes in at number 3 with 92 requests. Brazil made the most requests (224).

Also revealed by Google are the numbers of requests for information on users. Russia made 42 requests. The US, at the top of this list, made 5,950 requests.

Google should be applauded for publishing this information, which also includes data on how many of these requests Google acceded to (93% of US requests for user data). As Google point out on their site though, to get a real picture, we will need many other organisations (Facebook, Visa, Mastercard and Amazon come to mind) to publish similar information.

And which institutions are leading in letting information free?

I've been attending some sessions at  'Power Reporting',  an African journalism conference at University of Witwatersrand, where I research and teach. A number of sessions have focused on online datamining and how useful it can be for journalists. Journalists from the New York Times, the BBC and News 24 have all shown very interesting work. One things I've noticed though is  that media organisations, even where they mine and present important data to their audiences, too often they do not make the data itself available to their audiences.

Andrew Trench, who heads the investigations unit at News 24 is a leader in using data-mining techniques in South Africa - essentially freeing information that is either secret or so inaccessible as to be hidden from the public. He presented a very interesting study on using government information on the awarding of mining licenses to create stories and maps that tracked the process which has been a source of significant political and economic controversy. You can read his blog on how he did it. But the database that he created by scraping official websites is, as yet,  unpublished. By contrast, Google's transparency report also offers users the ability to download the data so they can undertake their own analyses.

If journalists are going to maximise their contribution to 'guarding the guardians' in our societies we need to see them liberating more information. Stewart Brand, founder of the Whole Earth Catalog,  is credited as the source of the meme that 'information wants to be free', an idea that media owners, unsurprisingly, respond negatively to on most occassions. But whether information is made free in the financial sense or not, what all journalists and academics for that matter should be committed to is 'free' as in 'freedom'  and as in 'freedom of information' - the rights to which  investigative journalists rely on in getting access to the information in the first place.

The end of (mass) media

After last month's broadband forum in Johannesburg, I did an interview with Karen Van Schalkwyk of  Screenafrica, the leading publication for film and television producers in South Africa. 

1 You mentioned that broadband would be the end of content as we know it, could you elaborate on this and how do you think it will affect conventional media?

As content producers we have developed an industry based on a market -  and that market is the content distributors - film distributors and cinemas, television broadcasters, etc. The problem content producers face is that the business of content distribution is slowly collapsing under the pressure of the broadband  internet. Why? Well some of the (related) reasons are:

• costs of content distribution on the internet is virtually free, which means anyone who is connected can afford to do it, and also means that its difficult to make a profitable business out of it. 
  
• content distribution via the broadband internet  is transnational, so a lot of the business models around division of rights by territory are coming under great pressure
  
• digital content is like a renewable resource - you can copy it as many times as you like and its just as good as the first time! 
  
• most users of digital content also have the means to produce or reproduce that content - this a unique situation in the modern history of content distribution
  
• a scary thought for content distributors - peer to peer file sharing - 'audiences' sharing content amongst each other -  (almost all of which is 'media' - music and video) is estimated to account for something between 30% and 70% of all internet traffic depending on which studies you read. 
  

If we look at how this is affecting conventional content distribution channels, the music industry is in a structural decline with 7 consecutive years of falling income; free to air television, in markets where cheap broadband is widespread, is steadily loosing share of audience and share of advertising to the internet - the example I gave in my presentation was that Google UK now has a greater share of advertising than ITV1 historically the leading advertising earner in the UK. The CEO of Channel Four in the UK stated over a year ago that he couldn't see how Channel Four could survive the next decade on its existing business model. And remember that over 50% of the financing for feature films in fact comes from television. Pay TV, less reliant on advertising than free to air television is surviving a little better so far, but as broadband penetration and speeds increase they are going to be affected also. Even today, if you have the bandwidth, you can download most of the newest US television series online for free. Of course this is pirating but its exactly the same problem that the music industry has faced for years and is likely to have exactly the same economic effect on even pay tv as it has had in music.

2 What do you think will be the challenges for content producers and how would this affect their income and the way they do business – what should some of their new business strategies embrace?

The challenge for content producers is that the people who have paid them money to make television and film - the content distributors - are unlikely to have money to pay them soon! So content producers are going to need to start looking for new customers. Who will those customers be? Well probably the audience itself. One way of looking at the problem is that we no longer need intermediaries between content producers and those who want to watch, or listen to that content. That sounds attractive but there are three major challenges I can foresee. 

First, cash flow. In the old order business models, distributors often advance some or all of the costs of production  to the producer. The audience is unlikely to be willing to do this - they'll pay cash on delivery! So producers with access to cash flow finance are likely to be a much stronger position than those that do not. Second, many people are sceptical that online audiences will be willing to pay at all when there is so much content available for free. Hence the preponderance of advertising funded models online. I am sceptical that advertising funded models are likely to succeed in financing the kinds of content we have been making to date unless we can make that content for very much less money though, since each audience is likely to be smaller than the 'old' audiences (up until the 1980s in the Europe it was still possible for ONE channel to get audience shares of over 50%. Those days, it seems to me, are probably over for ever). I think there is some hope in micro-payments. On cell phones people pay quite a lot of money for so-called content (R5 for a ringtone). So wouldn't you pay R5 for a movie? itunes has proved this can work. The third challenge is more fundamental - whether 'audiences' as we understand them, will continue to exist. Content producers rely on audiences - that is (lots of ) people who are willing to sit still and watch something that was made by someone else. Some commentators describe these people as the 'former audience' because in fact the evidence is that they are less and less willing to behave in this way, maybe just because now they don't have to. If they can watch online they can participate. This isn't just that professional content producers now have to compete with amateur tom, dick and harriet. The broadband internet allows communication to be content rich (think facebook, youtube and flickr) and it appears that as this happens young people especially spend less of their time passively consuming content.

3 You mentioned that ITV has lost a staggering amount of ad revenue due to broadband  (also that Google does not pay for content) – how will this broadband development affect the broadcast industry and what should they change in terms of business strategy. i.e should they provide downloads of content to audience?

I don't have a suggestion of a business strategy for broadcasters except to accept that they are living through an era of massive (hopefully creative) destruction and that broadcasting as we know it is unlikely to come out the other side of it with much of a role as currently organised and in their current function. Many major broadcasters are investing heavily in various ways of making their content available on line. The BBC iPlayer project is one example. The problem isnt getting the content online. The problem is how are they going to earn a substantial enough income stream from it. The music industry has put its content on line (via itunes, nokia etc) but the ioncome they are receiving is not keeping up with the loss of income from CDs and the record industry estimates that 95% of music downloads are not paid for. One thought that might scare independent producers is that one way broadcasters could think of going is to move to focusing on producing content rather than distributing it. 

4 Why do you think SA has lagged behind in terms of broadband development and what are some of the solutions to speeding up this process and making sure we remain competitive?

Data from the International Telecommunications Union shows that South Africa  has fallen down the global league tables of internet connectivity. We were fist in Africa five years ago. We are now fourth. Common reasons given for this are:

• lack of competition - the long delays in creating the second network operator  have left telkom in a position where it can keep prices high to maintain their margins. The recent issuing of new licences following Altech's court challenge and the new cables that start landing in South Africa this year should make an impact on competition and prices.
  
• lack of government support - in spite of many government initiatives, some of which have worked and some of which haven't, we do not have significant focus on this area of infrastructure. Just look at public investment plans over the next few years in electricity generation and distribution, in railways and ports and compare it to the investment in building internet infrastructure. 

5 How do changes in the broadband world affect intellectual property/ rights and territories?

For content producers this is a very important question to consider. The key change that the broadband internet brings is that it makes the enforcement of rights either incredibly difficult or impossible. Histrocially content producers have been strong defenders of property rights (their main gripe has been they don't have or retain enough of them). But I think it is time to start reconsidering this position. Its not clear that the rights based system has really been beneficial to content producers and its not clear that it is a sustainable model for the future. So we need to start considering if there are alternatives and how these alternative could provide income and payment for content. The open source movement  in the software industry, creative commons and copyleft, these are all new ways of thinking about these issues. So far the film and television industry have not been leaders in this thinking.

6 You mentioned that this development moves us toward something more interesting – what are some of these issues that create a more interesting landscape?

Film and television producers at the beginning of the 21st century may be in a position not so different to scribes - the monks and others who wrote books by hand-  at the time of the spread of the printing press. We have some very impressive skills but some of those skills may become redundant over the next few years or decades.  

If I am right then the prospects for our professions are not looking too bright. But if you look at the change from the point of view of the audience the benefits are obvious. Printed books may not have been as beautiful as the hand written books they replaced. But they were just so much more useful, so much more accessible and, of course, so much cheaper. Printed books extended literacy, empowered the middle classes and made knowledge accessible to a much wider community. Broadband offers the 'former audience' something similar but also something even more powerful - the ability to connect, to converse, to organise, to find and to share information, ideas, and knowledge across the entire planet at very low cost. I do not think we have begun to see what this will bring. 

What none of us know is when and how this is going to happen. Maybe film and television producers have a few years or decades left. Changes on this scale in the past have often involved the old and the new existing in parallel for many years. But if I was just entering the professional world of content production I would want to be on the side of the future, not of the past.