Differing Scenarios Examined At Inaugural ePub Expo

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Differing Scenarios Examined At Inaugural ePub Expo Paul Hilts, Ed Nawotka and Calvin Reid -- 11/6/00 *Questions spur conflicting answers about nascent industry* EPub Expo, held last week in New York City at the Millennium Hotel, pointed out again how important point of view is. First-day keynoter Henry Yuen, CEO of Gemstar-TV Guide International, spoke about the promises and challenges of e-books. But reaction depended largely on what the listener brought to the room. In what was essentially a recap of his remarks at the launch of the Gemstar reading devices earlier this month, he described a "doomsday" scenario: a combination of ill-advised discounting and careless distribution could lead to mass piracy and "erode the perceived value of books." According to Yuen, publishers wanting to go online for distribution will suffer from the notion that "the Internet is free, and whatever is on the Internet is fair game." Yuen appeared to say what the audience of publishers wanted to hear, though taken in parts, what he said should have them questioning their own place in Gemstar's constellation. Beyond preventing piracy, Yuen said that Gemstar would also provide a "high-value reading experience," and such added values as lower costs of production, speeded-up time to market and the elimination of returns. While no one questioned Yuen's sincerity, some in the audience were concerned that Yuen's plan seemed to require a completely closed system, in which Gemstar held exclusive although limited licenses to distribute some titles. Others were amused by the notion that publishers could do away with peer-to-peer networks, like the Internet, because of security threats. Steve Potash, CEO of Cleveland-based OverDrive Inc., a developer of rival Microsoft Reader software tools, felt that Yuen significantly overstated the case. "He was creating the fear among publishers that they would lose value by publishing on software-based readers," Potash told PW. "That's just not accurate." Yuen implied that great benefits are possible for e-publishers--provided they followed Gemstar's business model: licensing the title to Gemstar initially and releasing the book later in other formats such as Microsoft Reader or Adobe PDF. If the market rejects his business model (as it may well) or if consumers decline to purchase Gemstar's $300 e-book readers, then, Yuen admitted, "It's back to square one." The second day's keynoter, Neil Budde, publisher of the Wall Street Journal Interactive, surely wasn't spooked by Yuen's message. The electronic Journal has half a million subscribers, with 350,000 of them taking the electronic version only, at $59 per year. More than 150,000 add the online edition to their paper subscription for $29. The conference audience of 300 was roughly evenly divided, with about 35% book publishers and authors, about a third Web-only publishers, and the rest suppliers and service personnel for both. It's All About Marketing What should an e-book cost? Who's the potential reader? What channel works best for distribution? Should there be list prices and discounts, or must content all be free? These questions underscored the need for more market research. "It's all about serving customers," Versaware v-p Sol Rosenberg noted. "You have to try everything, all kinds of tests to see what your customers want. Not the $10-million campaign that's going to knock people out, but lots of small tests: different prices, different channels, selling whole books and selling chapters, seeing what your customers think is a good idea." There were contentious moments and surprises as well. After a day of panels describing the new power of authors to market their own properties, IdeaLogic chief and online author Mike Shatzkin declared, "Publishers should control all rights, because only publishers will have the size and the capital to exploit all the possibilities. But they should only get all those rights if they do exploit them, and if they have a fair division of the revenues from all the streams. That means the publisher will still have to accept the greatest risk, and get the greatest reward." New expectations from new channels means renegotiating all the contracts, Shatzkin said. "Authors would probably be smart to start asking for a fixed fee," he suggested. "Or number of dollars per unit sold, rather than the current percentage-of-sales royalty. If electronic books are sold at 50 cents, who wants 8% of that?" He continued: "So a Tom Clancy might declare, 'I get $8 a book; you booksellers can charge whatever you want.' Then it's up to the bookseller to decide: Do they want to have the book as a loss-leader at $7.50 per copy, or charge $8.50, on a cost-plus model." Partner Means No Money At a Wednesday morning panel discussion covering "New Partnering Strategies for the ePublishing Value Chain" the panelists proffered strategies on how to best utilize and fulfill the promise of partnerships. All the panelists involved, including Kirk L vner, CEO of PublishOne, a digital rights management software company, and Susan Peterson, v-p of publisher development for Lightning Source, represented companies that provide a service related to fulfillment and are dependent on partners to provide content. The panelists agreed that the need for speed in developing a new Web-based business necessitates making fast friends. Peterson acknowledged that Lightning Source was conceived so the industry could participate "without having to invest the time and duplicating work." David Scott, v-p of Newsedge, an online content syndication company, noted that the term "partnership" can often mean nothing more than a press release. " 'Partner' has always been a code for saying no revenue is changing hands... you have to find a way to commingle the business and settle on a minimum amount of money that will be exchanged." Branding and Selling The final panel of the final day, "Leveraging Brand as Value Added Focus," looked at the ability of e-publishers to spread a functional awareness of their content and brought out many of the paradoxes inherent in electronic publishing. Panel member Tom Turvey, e-book director at BN.com, pointed to serials publishing, like The Plant, which he said, work better for famous authors; some publishers can brand themselves (such as travel publisher Lonely Planet). But most important, he noted, is that while there is some resistance at the higher price points, BN.com is selling "thousands of units of e-books a day, across all the formats." In fact, as this final session touched on fears about price and sales cannibalization, it seemed almost a response to Yuen's opening remarks about the ultimate value of e-books in an environment where consumers expect to get stuff for free. Gary Hustwit, CEO of Salon Audio and founder of indie publisher Incommunicado Press, pointed to Napster, the free file-swapping application, as a model for e-books. He said that trying to construct a business model before consumers are even comfortable reading e-books is an "old media" mistake. Hustwit even suggested putting ads in free e-books. "We shouldn't be selling e-books," said Hustwit. "They're better as a viral marketing tool. We need to get consumer adoption. We should give e-books away and then figure out how to sell them later." Surprisingly, Turvey, the retailer, cautiously agreed that there should be some free promotional giveaways. But Marianne Howatson of Screaming Media, a Web content syndicator, was far more enthusiastic, noting that publishers' biggest fear--free content--could very well be their ally: "Cannibalization could also lead to a bigger market share. And why not try ads? Anything is possible with e-books. Besides, consumers expect stuff on the Internet to be free."

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Differing Scenarios Examined At Inaugural ePub Expo
Paul Hilts, Ed Nawotka and Calvin Reid -- 11/6/00
Questions spur conflicting answers about nascent industry

EPub Expo, held last week in New York City at the Millennium Hotel, pointed out again how important point of view is. First-day keynoter Henry Yuen, CEO of Gemstar-TV Guide International, spoke about the promises and challenges of e-books. But reaction depended largely on what the listener brought to the room.

In what was essentially a recap of his remarks at the launch of the Gemstar reading devices earlier this month, he described a "doomsday" scenario: a combination of ill-advised discounting and careless distribution could lead to mass piracy and "erode the perceived value of books." According to Yuen, publishers wanting to go online for distribution will suffer from the notion that "the Internet is free, and whatever is on the Internet is fair game." Yuen appeared to say what the audience of publishers wanted to hear, though taken in parts, what he said should have them questioning their own place in Gemstar's constellation.

Beyond preventing piracy, Yuen said that Gemstar would also provide a "high-value reading experience," and such added values as lower costs of production, speeded-up time to market and the elimination of returns.

While no one questioned Yuen's sincerity, some in the audience were concerned that Yuen's plan seemed to require a completely closed system, in which Gemstar held exclusive although limited licenses to distribute some titles. Others were amused by the notion that publishers could do away with peer-to-peer networks, like the Internet, because of security threats. Steve Potash, CEO of Cleveland-based OverDrive Inc., a developer of rival Microsoft Reader software tools, felt that Yuen significantly overstated the case. "He was creating the fear among publishers that they would lose value by publishing on software-based readers," Potash told PW. "That's just not accurate."

Yuen implied that great benefits are possible for e-publishers--provided they followed Gemstar's business model: licensing the title to Gemstar initially and releasing the book later in other formats such as Microsoft Reader or Adobe PDF.

If the market rejects his business model (as it may well) or if consumers decline to purchase Gemstar's $300 e-book readers, then, Yuen admitted, "It's back to square one."

The second day's keynoter, Neil Budde, publisher of the Wall Street Journal Interactive, surely wasn't spooked by Yuen's message. The electronic Journal has half a million subscribers, with 350,000 of them taking the electronic version only, at $59 per year. More than 150,000 add the online edition to their paper subscription for $29.

The conference audience of 300 was roughly evenly divided, with about 35% book publishers and authors, about a third Web-only publishers, and the rest suppliers and service personnel for both.

It's All About Marketing
What should an e-book cost? Who's the potential reader? What channel works best for distribution? Should there be list prices and discounts, or must content all be free? These questions underscored the need for more market research.

"It's all about serving customers," Versaware v-p Sol Rosenberg noted. "You have to try everything, all kinds of tests to see what your customers want. Not the $10-million campaign that's going to knock people out, but lots of small tests: different prices, different channels, selling whole books and selling chapters, seeing what your customers think is a good idea."

There were contentious moments and surprises as well. After a day of panels describing the new power of authors to market their own properties, IdeaLogic chief and online author Mike Shatzkin declared, "Publishers should control all rights, because only publishers will have the size and the capital to exploit all the possibilities. But they should only get all those rights if they do exploit them, and if they have a fair division of the revenues from all the streams. That means the publisher will still have to accept the greatest risk, and get the greatest reward."

New expectations from new channels means renegotiating all the contracts, Shatzkin said. "Authors would probably be smart to start asking for a fixed fee," he suggested. "Or number of dollars per unit sold, rather than the current percentage-of-sales royalty. If electronic books are sold at 50 cents, who wants 8% of that?"

He continued: "So a Tom Clancy might declare, 'I get $8 a book; you booksellers can charge whatever you want.' Then it's up to the bookseller to decide: Do they want to have the book as a loss-leader at $7.50 per copy, or charge $8.50, on a cost-plus model."

Partner Means No Money
At a Wednesday morning panel discussion covering "New Partnering Strategies for the ePublishing Value Chain" the panelists proffered strategies on how to best utilize and fulfill the promise of partnerships. All the panelists involved, including Kirk L vner, CEO of PublishOne, a digital rights management software company, and Susan Peterson, v-p of publisher development for Lightning Source, represented companies that provide a service related to fulfillment and are dependent on partners to provide content.

The panelists agreed that the need for speed in developing a new Web-based business necessitates making fast friends. Peterson acknowledged that Lightning Source was conceived so the industry could participate "without having to invest the time and duplicating work."

David Scott, v-p of Newsedge, an online content syndication company, noted that the term "partnership" can often mean nothing more than a press release. " 'Partner' has always been a code for saying no revenue is changing hands... you have to find a way to commingle the business and settle on a minimum amount of money that will be exchanged."

Branding and Selling
The final panel of the final day, "Leveraging Brand as Value Added Focus," looked at the ability of e-publishers to spread a functional awareness of their content and brought out many of the paradoxes inherent in electronic publishing. Panel member Tom Turvey, e-book director at BN.com, pointed to serials publishing, like The Plant, which he said, work better for famous authors; some publishers can brand themselves (such as travel publisher Lonely Planet). But most important, he noted, is that while there is some resistance at the higher price points, BN.com is selling "thousands of units of e-books a day, across all the formats."

In fact, as this final session touched on fears about price and sales cannibalization, it seemed almost a response to Yuen's opening remarks about the ultimate value of e-books in an environment where consumers expect to get stuff for free. Gary Hustwit, CEO of Salon Audio and founder of indie publisher Incommunicado Press, pointed to Napster, the free file-swapping application, as a model for e-books. He said that trying to construct a business model before consumers are even comfortable reading e-books is an "old media" mistake.

Hustwit even suggested putting ads in free e-books. "We shouldn't be selling e-books," said Hustwit. "They're better as a viral marketing tool. We need to get consumer adoption. We should give e-books away and then figure out how to sell them later." Surprisingly, Turvey, the retailer, cautiously agreed that there should be some free promotional giveaways. But Marianne Howatson of Screaming Media, a Web content syndicator, was far more enthusiastic, noting that publishers' biggest fear--free content--could very well be their ally: "Cannibalization could also lead to a bigger market share. And why not try ads? Anything is possible with e-books. Besides, consumers expect stuff on the Internet to be free."