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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.

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David Crotty

David Crotty

David Crotty is a Senior Consultant at Clarke & Esposito, a boutique management consulting firm focused on strategic issues related to professional and academic publishing and information services. Previously, David was the Editorial Director, Journals Policy for Oxford University Press. He oversaw journal policy across OUP’s journals program, drove technological innovation, and served as an information officer. David acquired and managed a suite of research society-owned journals with OUP, and before that was the Executive Editor for Cold Spring Harbor Laboratory Press, where he created and edited new science books and journals, along with serving as a journal Editor-in-Chief. He has served on the Board of Directors for the STM Association, the Society for Scholarly Publishing and CHOR, Inc., as well as The AAP-PSP Executive Council. David received his PhD in Genetics from Columbia University and did developmental neuroscience research at Caltech before moving from the bench to publishing.


19 Thoughts on "Disruption, Aggregation, and Third Parties"

Perhaps on a macro level, John Doe might be less concerned about the increasing role of aggregators and supply-chain partners and more by the fact that one nation is responsible for the accumulation of all these historical content sources. As Bild found out to it’s cost, Apple’s self-imposed moral code forced Germany’s biggest magazine to withdraw content because of US sensitivities about mammary glands. The concentration of control under one ‘roof’ should be a source of concern to anyone with an aversion to sociocultural superpowers and moral oligopolies

A quick update: Viacom has now blocked Google TV from accessing their content as well, meaning no programming from Comedy Central, MTV, Nickelodeon and others

It joins blocks from Fox, NBC, SyFy, ABC and CBS and now virtually leaves just Turner as one of the major networks allowing Google TV.

As John Gruber asks, “How many devices become less useful after they hit the market?”

This is not about one entity “winning”, it’s about core competency. Publishers are about content and aggregators are about distribution. Alterations to these roles are not trivial strategically, operationally, or culturally.

True (for some publishers, others do quite a bit of aggregation through acquisition and sales strategies), but in a time of major disruption, perhaps such major alterations in competency are going to be necessary. You’re right in that a startup doesn’t have the baggage of an established company, but then again, they don’t have the valuable content that makes things work. Many of these startups come from other industries–do they really understand our customers better than we do?

Even if you choose to avoid these altered roles, at the very least one should place a reasonable value on content that is released to third party aggregators. Why give away your business when you could be selling it?

Uh . . . what about CrossRef? What about JSTOR? I’m not asking about what they currently do, I’m asking about what they’re positioned to do. Just asking. . . .

I offer you Project Muse as an example of “aggregation from within” the nonprofit scholarly publishing industry. To be frank, for a smaller journal publisher like Penn State, the transition to the digital age in journal publishing was only possible because of Project Muse. And no other aggregator offered terms that made it a better deal for us than Muse (though Penn State did license its journal content through some other aggregators also). For us, it wasn’t a choice of going with an aggregator or doing it alone; the latter was not an option at all. Now we’ll have to see if Muse can be as successful with ebooks as with ejournals. There are more challenges here, including such nontechnological disruptive innovations as PAD (patron-driven acquisitions). It will be interesting to see whether libraries prefer PAD to subscriptions to ebooks through Muse (or JSTOR when it gets into the act). PAD potentially can be so disruptive that it may force university presses to consider OA options more seriously than they have hitherto. It could prove to be the “tipping point.”

This is a very good post, which I have already Tweeted. It is bound to attract a great deal of commentary, both from advocates of “make ’em pay for it” and information communitarianism. I wish to make the single point that Google as an aggregator is different from others in that it aggregates in real-time and points users to publishers’ sites. (I am referring to Google Web Search, not the Books project.) So one strategy for a publisher is to enable direct-to-consumer marketing on its own site and optimize it for search engine discovery. I wrote about this a while ago with reference to Random House: Many different ways to play the aggregation game.

The tv networks don’t connect directly with their consumers do they? (sounds familiar…) I don’t get why HULU doesn’t require you to sign in to access the content? At least it didn’t make me do so on the occasions I’ve been able to use the service (on business in the US). Hulu, seems to be something that could work like facebook in that it could co-locate people to programmes and then mine the data. Given that network TV is all about getting bottoms on seats in order to fire advertising at them, I don’t understand how they’ve missed the necessary requirement to make the online viewing interaction less transient (via the sign in). If you have to sign in to view, then putting out multiple routes to access is a winning strategy. Which is why Netflix is on Google TV. Facebook are making money off the fan groups that form around programmes, but the content companies are not. This, I think, is because they don’t realise that they should be experience companies, not just content. And so to Netflix and their rather marvelous recommendation algorithm (not perfect, but it’s probably the best one out there). Looking at the Mary Meeker Slides, I noted with interest that they are due to pass HBO sometime in 2012. How long until Netflix can offer content producers a better route to an audience with a better method of picking up viewers designed for an age where we don’t all sit down to watch at the same time. My observation about the current disruption is this – it’s all about data. facebook – data company; Google – data company; Amazon – data company, Netflix – data company (Blockbuster – aggregation and content company – dead). New upstarts in our area might not understand our customers better than we do – initially – but they have the skillsets to figure it out from the data they are accumulating, free from dogma, experience, core business or any of the other things we hold on to when times get interesting. I bet Mendeley knows plenty about how people use our content… they’re a data company aren’t they.

To use your example though, Mendeley, as I recall, is some investors who are former record company executives and a couple of MBA’s who run the show. How are they more qualified to understand how people use our content than someone from within the industry, someone with access to a much wider swath of data (Mendeley knows nothing about book sales, subscription rates, actual user data from within the journal itself). If you truly believe that’s the future of our business, why cede it to them? Is the freedom from dogma and inertia really more beneficial than experience and better data?

Even if one concedes that a publisher can not do a good job of data analysis (and O’Reilly is certainly an example proving that a publishing house can do this just fine), then why give away your valuable content to the data companies? If they’re going to make a fortune on the backs of our content, shouldn’t they be paying us? Netflix is certainly paying for content, that’s why they have access to it, unlike Google TV.

David, you know as well as I that Mendeley isn’t run by a couple of MBAs. We have Ian Mulvany and Jason Hoyt leading the product development and research, and they have as much insight into how people use scholarly content as anyone. Even if they didn’t have them, though, they do have data & data tells stories, no matter who’s collecting it. I think that information would be valuable to a number of publishers.

Really? Are you saying that Victor and Jan are no longer with the company? When were they replaced?

No, just pointing out that they have some serious scholarly talent on board as well.

So like I said, some ex-record company execs gave money to a couple of MBA’s and the result is Mendeley. There’s no secret formula, no secret training ritual for being a “data” company instead of a “content” company.

As the record industry folks showed, investing in a good idea and hiring good people is all that’s needed.

In response to Joe’s comment, that’s exactly what Penn State Press did with Google. At one point anyone who googled the name Ayn Rand would find our book about her as the first entry–until Google changed its algorithm. It still gets onto the first page of results, however. We also used Google AdWords effectively to draw traffic to our site.

Your penultimate paragraph captures perfectly the reason why this won’t happen.

David – How does PubMed/PMC affect this argument?

The existence of an aggregator that not only is the default portal of choice for most users but also can mandate deposition of content constrains STM publishers far more than TV networks. Equally significantly, most have found little room for negotiation with this particular aggregator.

I’m not so sure that the Netflix deal is,as claimed, in the long term, a good one for the movie industry. Sure, the producers get $billions up front, but Netflix is giving the end-consumer unlimited access to all that content for $7.95 per month (which they can do by saving bucketloads of money on shipping), not only killing off admittedly declining DVD sales, but also jeopardizing other future and potentially more remunerative strategies. It seems to me that, as important as protecting one’s content, is ensuring a cash flow that will sustain content generation over the long term. Aggregators need to be educated about the costs of content production, and content providers more aware of the consequences of over-hasty deals.

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