Wednesday, November 24, 2010

Tablet Wars (1): media and media formats

Over the weekend, I became the first kid on my block (and in my office) to own a nookColor. Even a few days have helped me understand and appreciate the form factor and its future; this is the first of several postings on the future of tablets.

I’m a true believer, and I think Apple has it almost right. For that matter, two decades ago John Sculley almost had it right. The tablet is not a computer for typing, it’s a media device for consuming three things:

  • websites and the limitless free content of the WWW
  • professional, paid media — replacing the dead tree versions of books, magazines and newspapers
  • video
At a reasonable size, weight and price, the tablets will make paper newspapers and magazines virtually disappear in less than a decade. If the price were right, my entire household would switch tomorrow.

One of the big problems, however, is open data formats. The world has become used to the open Internet and there’s no turning back. We also have MP3 (or AAC) files and MPEG4 streams that are also available on all platforms and devices.

Books and book DRM are only a small part of the problem. Yes, everyone but Amazon has agreed upon ePub with encryption (for now Adobe’s, in the long run probably an open standard.) Amazon hopes to make its proprietary format the world standard — even to the point of running TV ads arguing that any client device can read AZW files.

In the long run Amazon’s efforts are doomed, just as Apple’s proprietary FairPlay encryption was doomed. (For that matter, book encryption is as certain to be broken as DVD encryption was, but since the encryption is all in software, the encryptors may be able to occasionally pull ahead of the decryptors).

Supreme CourtshipToday, the vertically integrated bookstores have ridiculous margins due to their lock-in and lack of a resale/remainder market. For example, a hardback Christopher Buckley novel remaindered at $6 was for sale at the Nook store for $10. For a 67% premium, consumers get no distribution, no printing, no inventory cost — and no option to resell or donate the used book.

Once we have open formats on e-books, then consumers will have choice, competition and (as is natural in a free market) distribution will again become a commodity. The price wars for music downloads (cf. iTunes vs. Amazon) and the alternate business models (cf. Rhapsody) will increase efficiency, reduce cost and fuel adoption for the printed word.

But another key content question is magazines: color magazine were one of the nominal reasons for the the NookColor going with power-hungry LCD over the e-Ink of its little sibling and the Amazon Kindle. They were also a great hope for the iPad launch.

The problem is that there’s neither a technical or business solution for tablet-based magazines and other color-heavy news publications. Each platform requires its own custom formatting. Also, as the former designer of notes, magazine art directors have also gotten carried away with size and features in a slavish attempt to replicate the paper version. There is hope for a common technology format, using Adobe’s tools, to allow creating digital magazines for all the major platforms.

Most of all, there’s the problem of price. Barnes & Noble offers 67 magazines and 24 newspapers. A few are reasonably priced, like National Geographic or a variety of Hearst publications for $2/month.

However, conspicuously missing are the major business magazines: Business Week, Economist, Forbes and Fortune. I was getting ready to buy an electronic subscription to Business Week, but it isn’t available. The three major financial newspapers are available, at a steep price: $15/month for the WSJ and FT, and $11/month for Barron’s. (Not to be outdone, the LA Times, USA Today and NY Times are holding out for $10, $12 and $20/month. Not gonna happen)

Today, we have closed formats, no competition and exorbitant pricing. If it stays that way, paid news on tablets will never catch on. But I think commoditization and competition are inevitable, just as it was inevitable that Disney had to sell DVDs in Southeast Asia for $2 instead of $20.

Then there’s tablet video, fueling the shift away from cable TV and inextricably linked the problem of monetizing Internet video. This is already happening on PCs, and the 7" WiFi-connected tablet is a far more credible replacement for a TV than a 3" smartphone on a 3G network (with a limited-capacity data plan.)

Another loose end is the library. We need a common format before libraries will lend electronic content. We also need cooperation from publishers, which may be delayed either by their greed or (somewhat) legitimate concerns about piracy. I talked to a restaurant manager Tuesday who wanted to buy a Kindle or Nook as a Xmas gift for her daughter: the problem is, her daughter mostly reads library book, and there’s no way either one of them can afford to buy books at Amazon’s (or B&N’s) ridiculous prices to fuel her voracious reading appetite.

Finally, there’s the issue of family pricing. Cable TV, newspapers, magazines and record labels historically provided content for an entire family — just as wired phones once did. Do publishers and media companies expect to sell multiple copies to each household? I know they hope to do so, but it seems as though some form of family pricing is necessary, just as Apple learned to offer MP3 sharing for the entire house across multiple PCs, iPods or cellphones.

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