It’s Berlin, Circa 1989, and the Media Industries Are East Germany

by James McQuivey, Ph.D.
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Allow me to add my voice to the chorus of those applauding the fall of the Berlin wall twenty years ago this month. It was this event that taught me firsthand why revolution is simultaneously impossible as well as inevitable. In 1986 I sat with other students from around the globe just blocks from the wall and debated whether it would ever come down. The naïve among us insisted freedom was imperative: It was inevitable. The others asked if we had stopped to think about the massive relocation of people, economic resources, and government structures that such a revolution would require: It was impossible.

Until it happened, just three years later.

 

The author, pictured left, photographed in front of the Brandenburg
Gate from what was then the East German side

Such is the content industry’s less political but equally momentous dilemma. Walls are crumbling on every side: First the CD and now the DVD. Traditional structures that held entire industries together like little Warsaw Pacts are under threat. Media companies that deal in any flavor of print, audio, or video are under siege from the economic effects of content digitization, forever altering how content is created, packaged, and distributed.

At Forrester we call this the Media Meltdown and though we’ve been documenting its slow dissolve for some time, it’s high time we declare that 1989 is upon us – it’s time to actively tear the wall down rather than watch value continue to trickle out around the edges. We must rebuild the media industries anew: goodbye analog inefficiency, hello digital economics.We recently published a report called How To Rebuild The Media Industries, in which we issue this call. We’re no Reagan, but we issue the call with the same clarity: Stop building value on your supposed content and distribution monopolies because digital economics have forever reduced barriers to competitive entry. Publishers and producers, someone else can make that content for less money. Networks and distributors, someone else can package and bundle the content more efficiently. And movie theaters, retailers, cable networks – anyone who delivers content – there are new alternatives to you popping up every day. How? Because the analog assets and processes you built your empires on will soon hang around your necks like dead weights wile new digital competitors enter unencumbered. Some will dispense with analog assets in one fell swoop as Conde Nast did with Gourmet, others will whittle assets down to the bone like Disney did to Miramax, while some will cut as much internal fat as possible while keeping up external appearances as Newsweek has done.

And that’s just the internal wrangling over budgets. When you serve external customers, you’ll change what, how, and when you distribute content. Sony Pictures will stream Cloudy With a Chance of Meatballs to owners of Sony Bravia connected TVs before it’s available on DVD. This is just one example of how to seize the economic advantage that comes from serving consumers at a new, digital, level of convenience. You’ll have to embrace the devic consumers embrace – connected TVs, smartphones, and eReaders – offering content as a service that spans multiple platforms, and charging for the convenience of easy access to what you provide.

In the last two months I have been on the road presenting our view to dozens of clients and to others in larger, less private settings. Some chirp that this is all obvious and inevitable, why do we even bother to write about it? Others squawk that we can’t possibly be serious – have we never stopped to consider how impossible such a massive relocation of labor, assets, and economic value is? To the former, I applaud your naiveté and welcome your bold moves in the market. To the latter, I encourage you to learn your history lesson. Those who rebuild now will still be here to discuss the finer points of the digital transition ten years from now. Those who do not, will not.

_____

Note: a version of this post was also published on Paidcontent.org, though without the attractive retro photo

Marvell + E Ink: Chip Integration Means Faster eReaders, Animation

[Posted by Sarah Rotman Epps]

You may have seen the news about Marvell Technology Group, a chip-maker, integrating its chips into E Ink's display modules. This sounds very tech-y, but it has real consequences for the consumer experience of eReaders. Namely:

• It speeds up the refresh rate of the E Ink screen...One of the first things consumers notice when trying out an E Ink-based eReader is the noticeably long delay when flipping a page or taking another action like changing the text size. This is especially annoying on touch devices like the Sony Touch Edition. Consumers are used to the iPhone touch experience, and the experience they have on the Web clicking on links--if they don't get immediate feedback, they assume it's not working. Currently, the microprocessing chip operates outside the display module, which is one reason why it's so slow. Integrating the chip into the E Ink display module will speed up the refresh rate of the screen by as much as half, according to Marvell, in addition to driving down manufacturing costs.
• ...Which creates a better user experience, and enables animation and other cool stuff. In addition to being generally less annoying for consumers, integrating the chip into the display will enable animated content--not full-on video, but black-and-white animation that will be useful especially for ads. Marvell has announced that they're working with FirstPaper (the secretive company backed by Hearst) as one of their partners, and having seen their device I can attest that they put the technology to good use. Marvell has said they'll announce more partners at CES in January, including companies working on dual-screen devices that need the faster processing capability for video and Web browsing.

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EA Flips For Nintendo DS: Reader Apps Tested For Portable Gaming Devices

[Posted by Sarah Rotman Epps]

Something interesting's afoot in the digital reading space. Quietly, companies are testing digital reading applications for portable gaming devices in select markets. Two developments of note:

• EA "Flips" for Nintendo DS: A reader app for Nintendo's portable gaming system, offered for now only in the UK. Aimed at 8- to 11-year-olds (a good fit for the install base of the DS). Content partnerships announced with UK book publishers Penguin and Egmont. Revenue model will be bundled downloads of multiple (6-8) titles for an a la carte price of £24.99. Interactive elements include quizzes, operated with the DS's touch screen and stylus.
• Marvel Comics and others on the Sony PSP: In August, Sony announced a digital reader app for the PSP that will launch in December in select countries (UK, US, Ireland, Australia, New Zealand and South Africa). It announced a content partnership with Marvel Comics and said there would be more content partners with comics, graphic novels, and manga publishers to come. Marvel digital comics are already available online via subscription ($10/month or $60/year). Details on the app don't say how much comics will be on the PSP.

Why is this interesting?

• The market for digital reading is much bigger than the market for dedicated eReader devices. Nintendo has sold more than 100 million DS units worldwide, and Sony has sold more than 50 million PSPs. That's a huge install base! For context, Apple has sold more than 30 million iPhones and 20 million iPod touches. The market for dedicated reading devices is much smaller--Forrester estimates that so far Amazon has sold about 1.6 million Kindles and Sony has sold less than 1 million Reader devices--but it's catalyzing a shift in consumer behavior toward digital reading across devices.
• Portable gaming systems reach a demographic that isn't served by eReaders today. As we published in a report earlier this year, the first wave of eReader adopters were older, male, high-income tech optimists, and the second wave is a slightly younger, female consumer who buys and reads a lot of books. Though there might be some gifting potential for older kids with Sony's $199 Pocket Reader, for now, these are not devices for kids. For publishers, it makes sense to reach kids on devices that kids already own, including portable gaming devices. In its Flips press release, EA notes that 2 million 8- to 11-year-olds in the UK own Nintendo DSes.

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B&N Nook: Taking On Amazon Head To Head

[Posted by Sarah Rotman Epps]

The eBook wars continue.

Tomorrow, Barnes & Noble (B&N) is expected to announce its own B&N-branded eReader device--the Nook, as the Wall Street Journal reported this evening. The device is expected to be wireless and touch-operated, with dual screens--a 6" E Ink display for reading, and a smaller color LCD screen for navigation, video, and...ads? 

In other words, the B&N eReader could be a Kindle and an iPhone put together. 

I knew from conversations with my own sources that this would be a cool device, but I didn't expect that it would be priced, as the WSJ reports, at $259. This puts the Nook competing squarely with Amazon's Kindle 2--most likely with a razor thin margin, if any, for B&N. To steal market share from Amazon and make up for lost time, B&N is pricing the Nook as aggressively as possible.

Getting the price right is crucial to success in this emerging device market. As we published earlier this year, most consumers expect eReaders to be $99 or less. But we expected something in the range of $399, which would make the device competitive with the other touch + wireless eReaders on the market, the Sony Daily Edition and the iRex DR800SG, both of which will be sold at Best Buy among other retailers. Pricing the Nook a full $140 below these other devices sends a strong signal that B&N is focused on Amazon, not Sony, as competition.

What we'll be looking for in the press conference tomorrow is an indication of how the Nook will be distributed and marketed. B&N has assets Amazon doesn't have, including more than 700 retail stores in 50 states and massive marketing reach. B&N will need to use all the tools in its arsenal--merchandising it prominently in its stores, promoting it through advertising, email marketing, etc.--to make up for lost time since the Kindle's launch in 2007.

A reporter asked me recently, "Is Barnes & Noble too late?" Too late...for what? Too late to steal market share from Amazon? No. Too late to save its own cost-heavy business, which will see smaller revenues as eBooks grow as a proportion of sales? Sadly, yes. Ask any veteran of the digital media wars: It's hard to compete for digital dimes when you pay your brick-and-mortar rent in analog dollars.

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International Kindle: Amazon's Holiday Play

[Posted by Sarah Rotman Epps]

As you've likely heard by now, Amazon has announced a price drop of the Kindle 2 to $259 and the launch of an international Kindle that will run on AT&T and partner networks in 100 countries. Here's our take:

• The price drop is key to keep Amazon top-of-mind for US holiday shoppers. Forrester just released its eReader Holiday Outlook 2009 report, where we adjust our 2009 sales projections up by 50%. As Jeff Bezos acknowledges in the New York Times, “This has grown much faster than any of us ever anticipated.” Dropping the price of the Kindle will help Amazon harness this momentum and keep the Kindle competitive with less expensive eReaders like the $199 Sony Pocket Reader.
• Amazon wasn't ready to release a totally new device. We expect a lot of innovation from Amazon in 2010 on the device front, but until they're ready to release a totally new device, this is a way for Amazon to extend the appeal of the Kindle to US consumers (by making it cheaper) and to international consumers (by making it available to them).
• Amazon's dipping a toe in international waters, but this move doesn't ensure global dominance. The US is by far the leading market for eReader sales, but markets outside the US are growing quickly. And yet, international markets for eReaders are very fragmented--for example, China has its own eReader brands, like the leading Hanwong, which sells its device for $249 and it comes with 6,000 free eBooks. But even though Amazon is selling in 100 countries, that won't include China (but it does include India, Brazil, and Russia, as well as Cambodia, Vietnam, and even Myanmar).

That's the quick and dirty take...

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Amazon Kindle launches globally, sort of

By Ian Fogg (bio, recent research or follow me on twitter)

Today, Amazon have launched a new Kindle that they are marketing internationally. Prior Kindle models were limited to use in the US. Key details:

• Big promotion in the centre of the front page of Amazon sites in the UK, France, Germany and Japan.
• Only for sale on Amazon.com and priced in USD at $279 (i.e. a $20 mark-up over existing Kindle2). Promotions above have links to Amazon's US site to buy.
• Books are also for sale only via Amazon.com and are also priced in USD (at least for now).
• This is the first Kindle that uses a GSM-standard mobile phone radio -- rather than CDMA -- for wireless downloading of books, sync of reading position with other Kindles and the iPhone Kindle app (i.e. to drive Amazon's Whispersync consumer cloud service).
• Uses AT&T's mobile network and AT&T's global mobile roaming partners for Whispersync.
• When outside the US, Kindle owners pay an additional charge for each book downloaded, currently USD1.99 per download. I imagine this also includes downloading PDFs via the email to Kindle conversion process and downloading small items like blogs or newspapers.

I'm frankly astonished that Amazon is marketing the above product internationally so strongly. Instead, it looks like a great fit for US residents who want to own a Kindle that works both in the US and when they travel abroad. Or, Amazon could have chosen a much softer and lower key international promotion on their various global sites.

For European or Japanese residents there are multiple barriers to adoption and use of this Kindle, which will cause serious issues for Amazon's famed customer service reputation: As everything is currently priced in dollars, consumers outside the US will likely hit additional credit card fees when they buy; import of the Kindle will likely incur significant customs charges; and the per download roaming fee will rapidly add up to a significant sum given it hits on every newspaper or book download.

So, why have Amazon chosen to market this product so significantly on their various non-US websites today, ahead of the launch of international Kindle stores priced in local currencies?

I suspect this indicates that Amazon has failed to secure the international mobile operator partners it needs to offer Whispersync without per use fees, and by making such a big deal of this launch internationally Amazon hopes this will put pressure back on those partners to come back to the table. But if so, then why has the Kindle iPhone app not also been launched on those countries' Apple App Store's for use on the iPhone? The iPhone version wouldn't have those same data roaming costs when a consumer is in their home country of the UK, France etc. as iPhones are sold with inclusive mobile data. Other thoughts? Please comment below.

eReader Holiday Outlook: Forrester Ups Its Projections By 50%

[Posted by Sarah Rotman Epps]

Today we launched a new report, "Forrester's eReader Holiday Outlook 2009" (full version available to Forrester clients here), which updates our projections for eReader sales in 2009 and 2010. The data in this report comes from Forrester's consumer surveys as well as interviews with vendors and retailers.

E Ink recently announced that its 2009 revenues to date were up 250%, and were exceeding its earlier expectations. We, too, are observing the eReader market growing faster than we had expected: We published a report in May, "How Big Is The eReader Opportunity?", that pegged 2009 US eReader sales at 2 million. Our new report ups that projection by 50% to 3 million for 2009, with 30% of 2009 sales occuring in the holiday season of November and December.

There are a number of reasons why eReader sales are growing faster than we had expected, which we detail in the report, including falling device prices, more content availability, better retail distribution, and lots and lots of media buzz.

All these dynamics will compound to fuel more growth next year, and we expect more changes in the market that could push eReader sales beyond 6 million in 2010, bringing cumulative US sales to 10 million by year-end 2010. To get our full perspective on what will happen next year, you'll have to read the report, but here are a few highlights. In 2010, we'll see:

• The first "eReader" devices that don't use E Ink (which means they'll take a shortcut to having color and video)
• A new generation of tablet PCs from Apple, Microsoft, and others, as well as dual-screen devices that make use of both E Ink and LCD screens from companies like Asus and Samsung, that will complicate the eReader market and expand consumer choice
• Flexible displays, new screen sizes, more touch, color, and video (video not from E Ink)
• Barnes & Noble step up serious competition to Amazon

What Santa Delivers Has As Much To Do With The Retailer As The Consumer

The success of the holiday season, and next year's growth, depends a lot on retailers and the extent to which they improve in-store merchandising for eReaders. Best Buy is in the process of rolling out "Gadget and eReader" sections in all its stores, and training its staff to be more equipped to sell eReaders. But walk into your typical Borders bookstore, as I did recently, and you're likely to get quizzical looks from sales staff when you ask about eReaders and have a hard time finding the kiosks where the devices are on display.

Retailers we spoke with are making changes to improve the merchandising experience, but we're realistic about the limits of what they can change in a single season. Our holiday projections should be seen for what they are: An acknowledgement that 2009 has been and will be a year of breakout success for eReaders, tempered by realism that retailers, despite their best intentions, are still learning how to sell these products to curious but uninformed consumers.

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Disney Digital Books: Direct-To-Consumer Subscriptions, A Publisher's Wish Come True

[Posted by Sarah Rotman Epps]

Today Disney Publishing is announcing the launch of Disney Digital Books (www.disneydigitalbooks.com), an online subscription service that will offer parents and kids Web access to Disney's library of children's books. A subscription costs $8.95/month or $79.95/year; subscriptions can be bought online or via gift cards that will be sold in retail locations. Initially, the site will launch with 500 books, and more content will be added on a weekly basis. (I asked whether Marvel Comics content, which will be available on the Sony PSP, would be available through the site and Disney said not at first, and it was too early to comment further.)

• So are these really eBooks?  I've been struggling with whether to use the term "eBooks" for what Disney's doing, and I've decided that no, they are aren't quite eBooks. They aren't portable, and they don't come in a transferable format like ePub. In some ways, these digital books are more than eBooks: They're interactive, illustrated, and in color. Maybe some day eBooks will function more like Disney's "digital books," but for now the two products seem distinct enough to warrant different language.
• Will they be accessible on eReaders? No. This is an online-only service, which makes sense given that E Ink-based readers can't support the color and interactivity Disney's books offer, and devices that might be able to like the Apple and Microsoft tablets are only rumor at this point.
• What's cool about it? The books appeal to three targets: Young kids, who can have the books read to them (and play them ad infinitum, much to the joy of parents who are sick of reading Nemo for the millionth time); older kids, who can read the books themselves and use interactive features like the dictionary and trivia quizzes; and parents, who can recommend their own favorite books to their kids and track what their kids have been reading. During testing, I ran into some usability glitches and found some parts of the site hard to navigate (switching between the read-to-me mode and the read-myself mode didn't seem intuitive), but overall found the experience engaging (even though I'm somewhat older than the target demographic :-). One feature I thought was really smart is the character-based visual browse function--kids can choose a book by browsing through images of their favorite characters, rather than having to type in a title or author.
• Why does this product matter? This product matters because every publisher I work with is dying to launch direct-to-consumer services, where they reap the revenue and manage the customer relationship directly rather than going through a retailer middleman. But this is a huge challenge for most publishers. Disney's in a unique position to do this because: a) they own their own content, which most publishers don't; and b) Disney has a recognizable brand for consumers, which most publishers don't. As the New York Times notes, HarperCollins has more than 1,000 children's eBooks available, and Scholastic has BookFlix, an online service that pairs videos with related nonfiction books. Still, what Disney's doing will have impact, and will serve as a model other publishers can look to as they figure out their own play.
• What do we think Disney will do next? We wouldn't be surprised to see Disney launch its own eReader for kids to compete with LeapFrog products. It probably won't use E Ink, would definitely have color, and would likely have a touchscreen. In fact, the Disney Digital Books site seemed to scream for touch--the way you turn a page, for example, would be very intuitive with a finger-operated touchscreen. Just in time for Windows 7 and the flurry of haptic interfaces it will spawn...

If your kids try out the site (you can do a free trial with 8 books) and have something to say about it, leave a comment, I'd love to hear it.

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iRex + Barnes & Noble: New eReader Device Is Evolution, Not Revolution

[Posted by Sarah Rotman Epps]

Today iRex announced the launch of its first consumer eReader, which will be available for sale for $399 at Best Buy, Costco, and other US retailers this holiday season, with distribution in Europe coming in Q2 2010. The skinny:

• Who is iRex? iRex Technologies is a spinoff of Philips Electronics in the Netherlands (like Polymer Vision, which recently went bankrupt and was then acquired by Wistron, who plans to revive its rollable eReader in the next year). But iRex has seen more success than its sister company, nurturing a successful B2B eReader business in Europe that sells in the ten-thousands of eReaders per month to businesses in the aviation, government, education, and publishing industries. With an infusion of capital and leadership from private equity firm Amerivon Holdings (iRex's US CEO, Kevin Hamilton, is from Amerivon), iRex is bringing its eReader technology stateside and targeting consumers for the first time.
• What are they launching? Today they announced the launch of an eReader with an 8.1" E Ink-based display, operated by touch stylus, with 3G wireless from Verizon. The device will run on Linux and will accept any eBook format and DRM protocol (ePub, PDF, mobi, etc.), so you can buy content anywhere and use it on the device. Barnes & Noble (which has also inked deals with Plastic Logic and, we have it on good authority, will be launching its own device soon) will be the primary bookseller on the device, and the device will also feature content from newspapers and magazines through partnerships with aggregators Newspapers Direct and Libre Digital.
• What's cool about it? The touch/wireless combo puts the device in the same league as the Sony Daily Edition, which will also retail for $399 (a steep price to pay for most consumers). The Gobi Qualcomm chip allows the device to work wirelessly anywhere in the world. But perhaps the best feature is its ability to support native fonts and more flexible formatting, which will make newspapers and magazines look a lot better than they do on the Kindle DX (but the onus is on the publishers to submit their feeds in a way that makes the content look good).
• Will it sell? Under the iRex brand, which is unknown to consumers, iRex will struggle to sell this device next to the better-known Sony products. (The New York Times reports that iRex tried to get B&N to agree to a co-branded device, but B&N would not agree--no surprise as we expect they're saving their name for their own device). BUT--in the long term, iRex is in a better position than any other company currently in the eReader mix to have a consumer-enterprise crossover product, like Research-In-Motion's Blackberry, or Apple's iPhone. Their experience in Europe puts them leagues ahead of other companies who'd like to get a piece of the as-yet-untapped enterprise eReader market.

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New Forrester Report: The eReader Price Squeeze

[Posted by Sarah Rotman Epps]

A new Forrester report on the eReader market just went live (clients can access the full version here).

In brief: We surveyed 4,706 US consumers in an online survey to find out what value they place on eReader devices. We used a Van Westendorp Price Sensitivity Meter methodology to ask consumers four open-ended questions:

• At what price would you consider an electronic book device/eBook reader a bargain?
• At what price would you consider an electronic book device/eBook reader expensive but still purchase it?
• What price would be so inexpensive that you would question the quality of an electronic book device/eBook reader?
• What price would be so expensive that you would not consider buying an electronic book device/eBook reader?

We plot all the data and to find the optimal price range for different segments of consumers--what price you'd have to charge for the device to get the maximum number of consumers buying an eReader.

What we found was that the price points for how most consumers value eReaders is shockingly low--for most segments, between $50 and $99. (Currently, eReaders in the US are priced between $199 for the Sony Pocket Reader and $489 for the Kindle DX.)

Here you can see the breakdown for how different segments of consumers answered the question, "At what price would you consider an electronic book device/eBook reader expensive but still purchase it?":

Of the 181 million US consumers who are online, 14%, or 25 million consumers, say that eReaders priced at $199 or higher — the current price range for eReaders — are expensive but they'd still consider them for purchase at that price point.

What this means: The maximum addressable market for eReaders as they are currently priced is substantial--but to reach the largest market possible, the prices will need to come way down. And even then, eReader are never going to be as big a market as mp3 players, which 110 million US consumers own.

But they will still have phenomenal social and economic impact as they catalyze a new behavior of digital reading across multiple devices. We're just at the beginning of this revolution...

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