We live in an age of technological disruption. The publishing industry is in a state of flux, keeping an eye on new means of creating, packaging, and delivering information, waiting either, depending on your viewpoint, for a clear path forward or for the other shoe to drop. But if we accept disruption as an inevitable consequence of technological progress, must we share our business with third parties? Or are we better served doing it ourselves?
There’s a driving force behind technological disruption that’s perhaps less acknowledged and deserving of more attention from forward-looking businesses. It’s easy to look at an iPad and see a new way of reading but less obvious to see the role that aggregation is playing in the changing face of our industry.
Mark Cuban makes the argument that aggregation is a key component of disruption:
. . . there are those that believe that any business that is doing business like they always have will inevitably be disrupted by the Internet. Change or die. Right ? Wrong. If my memory serves me right, the common thread among those industries that were disrupted is that they all sold their products ala carte.
My Rule Of Thumb for disruption in the digital world:
Aggregators disrupt ala carte . Aggregators don’t disrupt Aggregators, they compete with them.
The majority of successful business models on the Internet involve some form of aggregation. Google puts the entire web in one searchable index. Amazon gives you one-stop shopping for everything from e-books to Linear Motion Bushing Shafts.
Aggregation is at the heart of the “me at the center” argument Kent Anderson recently highlighted. To create the custom experience your readers demand, you need to be able to deliver all of the products they’re after, not just the ones produced by your own company. Individual silos can’t compete in this environment. Wouldn’t you rather go to iTunes to buy all the music you want in one convenient place, rather than track down the individual sites for each music label for every artist that interests you?
This is why the big portal style website builds like Science Direct have been of little interest to readers. There are lots of researchers who want to view the literature on a given subject. There are very few who want to limit themselves to papers on the subject from one publisher, evena voluminous publisher like Elsevier.
Breaking out of our individual silos in this way is often a major problem for content producing companies. We’re ingrained to see other producers as “the enemy” or at least “the competition.” And that’s why it usually takes an outsider to cross borders and negotiate licenses with all the players in an industry. Steve Jobs was able to put all of the major music labels under one roof, something they had apparently failed to accomplish on their own. The music labels were eager to jump into a potential new revenue stream. But as a result, they now tithe a significant amount of revenue to Apple which takes a cut of every sale and, more importantly, they lost control of their industry. Apple, by owning 70% of the legal online music market, has the labels over a barrel and can dictate pricing and business strategies.
The restaurant industry has met a similar fate as it’s come under the thumb of OpenTable:
The recurring themes were the opinion that OpenTable took home a disproportionate (relative to other vendors) chunk of the restaurants’ revenues each month and the feeling of being trapped in the service, it was too expensive to keep, but letting it go could be harmful.
Is this the likely fate of the publishing industry, and scholarly publishing in particular? Amazon is already making strong inroads as the key aggregator in the e-book market. This is, at the moment, more geared toward trade publishing than scholarly publishing, as the terms of doing business don’t work for our high editorial effort/low market size type of publications. The Kindle store is aimed at selling $9.99 e-books, and doesn’t really work for a $175 laboratory manual.
In some ways though, aggregation already rules our industry. People don’t read journals anymore, they read articles (and they certainly don’t read publishers). Take a look at your usage statistics, and I’m willing to bet that a large portion of your traffic comes from aggregators like Google and PubMed. While these search engine aggregators don’t (currently) demand a cut of our business, there’s a new wave of aggregators moving into our space which may be more problematic. These companies are asking for free access to our high-value content and promising in return a small portion of rental fees, a small slice of advertising revenue, or an uptick in traffic.
Is it inevitable that the these aggregators will command a significant portion of our revenues and eventually control our entire industry? Is that an acceptable trade-off for what they offer in return? Is it instead possible for an industry to offer aggregation from within, to offer customers the same value and improved experience without surrendering to outside disruption?
The television industry is undergoing the same sorts of threats and may provide an important example for how to do this.
If you haven’t been following the tech news, there’s a whole group of companies looking to bring the internet and streaming content to your television via their set-top boxes. Like the third parties mentioned above, internet television companies are asking for free access to networks’ high-value content. The networks are refusing to acquiesce, and have effectively blocked these third parties from accessing their content. Boxee found their access to Hulu blocked at the request of their content providers. Google TV is in the same boat, with no current access to Hulu nor to major network programming.
These set-top boxes are clear examples of aggregators looking to disrupt an established market. The usual online pundits take the position that the television content providers are foolish and backward-thinking for blocking access. But it’s hard to see how merely being “a part of the conversation” will support the infrastructure necessary to produce something like “Lost” or, for that matter, to run a newspaper. If the point of television content is merely to provide fodder for social interactions, then creating much of that content is no longer economically viable.
Blocking aggregators is certainly not about preserving advertising revenue. Inserting ads into streaming content is fairly easy. The real issue is the revenue generated directly by the content itself via affiliate fees.
Each year, the networks make some $32 billion from affiliate fees:
For those who do not know, affiliate fees are the primary revenue stream that funds today’s mainstream television content development. These are basically a “share” of the subscription fee you pay to your cable or satellite operator that is then shared back to the content owner/distributor. . . . These are big, big numbers. To put things in perspective, this is about 33% higher than Google’s annual global revenues including revenues for its advertising network.
So, given that cable companies currently reap $32 billion from licensing their content alone, why does it make any sense for them to give that same product away to Google for free? Back to Mark Cuban:
I personally can’t think of anything stupider for the big broadcast networks to do than give their shows to Google for free. Why? Because they are finally getting BILLIONS of dollars in retransmission fees from their distributors. . . . The idea that they would take and fight for money from their distributors, who generally are the same ISPs that Google TV delivers content over, and then offer the exact same shows for free through Google TV, or any aggregator that expects that content for free, is probably one of the dumbest concepts ever.
Even in the Internet age, content still has value. Take away the programming, and Google TV is worthless. How much of an inroad into the living room will Google make if you can’t watch any programs on their nifty new device? Would you pay $300 to watch YouTube videos on your television screen?
Rather than allowing Google and others outside of the industry to disrupt business, the cable companies are taking a hard stand. If the networks and content creators want to keep earning their affiliate fees, then content can not be given away for free. Why should Comcast have to pay for the same thing Google gets for free after all?
The days of free television over the Internet are coming to an end:
. . . the current trend in the market is for less rather than more prime-time content to be openly available for free on the Internet. Do you remember when “South Park” boldly made all episodes available for free on the Internet? Check out where things are today.
Try to watch a recent episode of “South Park,” and you’ll get a notice that “due to contractual obligations,” streaming is not available until some later date. Viacom has pulled their programs like “The Daily Show” and “The Colbert Report” from free access on Hulu. The buffet appears to be closing, and the irrational exuberance of rushing to give one’s product away seems to be fading in favor of real business models.
But television content producers are not just being Luddites trying to prevent the future from happening. Instead, they’re carefully choosing partners who offer better terms. Cuban suggests that Netflix is the likely victor in the Internet television market because Netflix is willing to pay for access to content upfront and already has a subscriber base in hand.
More importantly, they’re embracing technological disruption and creating their own services to meet customer demands. Time Warner and Comcast, the two biggest cable providers, have taken matters into their own hands, with their new TV Everywhere service. These fierce competitors have formed a partnership to set the terms for this emerging market, allowing access to programming on a wide variety of devices like computers and phones. Affiliate fees are paid to content producers and content is licensed just as it is for cable. Google and others may negotiate with the networks for access, but they’ll likely be paying at least the same rate.
It’s still early days, but should the cable industry’s strategy play out, it may point a way forward for other media industries. Must we blindly allow every third party free access to our content in hopes of generating new revenue streams? Is getting paid for the work you do preferable to “being part of the conversation”? Is a marginal extra revenue stream worth the risk of losing control of your business?
If you really see potential in the things that scholarly aggregators are offering, if you really think the market they’re chasing exists, why not take the risk and go after that market yourself? If there really are that many people who want to rent articles, why not rent them yourself? If your customers demand one-click access to PDFs, then why not offer that? At the very least, why not hold out for better licensing terms? Wouldn’t these third parties be a more attractive prospect if they offered to pay for access to content with guaranteed minimums like NetFlix or TV Everywhere?
The advantage of working with these third parties is that they take the financial risks of creating an expensive-to-build product for a market that may not actually exist. If they fail, you’re not out very much. But if they succeed, they may gain control over your business.
The one thing third parties can offer that we currently can’t is aggregation. Forming large coalitions risks running up against antitrust and collusion laws, but may be vital to the future of our industry. Something like Brewster Kahle’s BookServer project might be a good starting point in this direction, allowing the publishing industry to control its own destiny, rather than being ruled by Amazon, Apple, or some unknown startup. It might also solve one of the major issues facing e-book adoption, the failure of the market to settle on one file format, and the DRM scheme (or lack thereof).
Elsevier’s Science Direct replacement, Sciverse, is also a move in the right direction. It’s more open and aggregates information on publications from other companies through sources including Scopus and PubMed. Sciverse still has a long way to go in making a case to users that it should replace their current resources, but it’s worth watching. Imagine how much more powerful that case might be if the site harnessed the cooperative efforts of a variety of prominent publishers.
Thinking this way requires sacrifice, giving up a potential short-term revenue gain for long-term security. It means valuing your content and breaking free from the Web 2.0 “information wants to be free” mindset which has yet to generate much in terms of successful business models. It means carefully investing in the technologies and business models in which you truly believe, rather than leaving that risk to others. The good news in this respect is that, as the cable television industry is showing, being a first-mover is not necessarily an advantage.
It also means thinking about ways that we can work together as an industry to provide aggregation. Aggregation is vital in adapting to a changing landscape. There’s no reason we can’t meet these challenges ourselves, but we’re likely going to have to learn to work together, or else be ready to start working for someone else.