The Anatomy of a Digital Business Negotiation

Joshua Gans has done a very nice job analyzing the US DOJ pursuit of Apple Computer. There is a lots of good material to study – but let’s just focus on the Newscorp/Harper Collins vs. Apple negotiation. Here’s an excerpt:

It is at this point that James Murdoch of News Corp that owns Harper steps in and goes straight to Steve Jobs.

Steve,

Thanks for your call earlier today, and for the time last week.

I spoke to Brian Murray and Jon Miller [then the head of digital media at News Corp.]—and Brian is sending a note to Eddy today. I thin I have a handle on this now. In short—we we would like to be able to get something done with Apple—but there are legitimate concerns.

The economics are simple enough. [Amazon] Kindle pays us a wholesale price of $13 and sells it for 9.99. An author gets $4.20 on the sale of a hardcover and $3.30 on the sale of the e-book on the Kindle.

[A portion of this email was redacted by the court.]

Basically—the entire hypothetical benefit of a book without raw materials and distribution cost accrues to Apple, not to the publisher or to the creator of the work.

The other big issue is one of holdbacks. If we can’t agree on the fair price for a book, your team’s proposal restricts us from making that book available elsewhere, even at a higher price. This is just a bridge too far for us.

Also, we are worried about setting prices to high—lots of ebooks are $9.99. A new release window with a lower commission (say 10[%]) for the first six months would enable us to proce much more kenly for Apple customers. We’d like to da that.

More on this below in Brian’s note to Eddy. We outline a deal we can do.

Feel free to call or write anytime over the weekend to discuss if you like.

I am in the UK (so eight hours ahead of CA). My home number is [redacted]. I check the email regularly.

Steve, make no mistake that across the board (TV, Studios, Books, and Newspapers) we would much rather be working with apple than not. But we, and our partners who produce, write, edit, and otherwise make all this with us, have views on fair pricing, and care a lot about our future flexibility. I hope we can figure out a way, if not now and in time for this launch of yours, then maybe in the future.

Best,
JRM

The email timings appear weird as the early email is at 6PM on the 22nd January and the later email is at 4PM the same day. I suspect there is a bunch of time zone issues going on. [Oh yeah, and anyone who complains about the typos on this blog, check out the professional letters being exchanged in business negotiations! So much for lessons we teach kids at school, right?]

In this email, Murdoch appears to put themselves in a position of agent for the author but as author deals are surely flexible this seems strange to me. That said, it is the redacted part that outlines Murdoch’s position here and they are pushing for a better deal again at least during the initial period when their books sales might be highest. And the last paragraph is a thinly veiled threat reminder of the breadth of News’ media interests. In other words, Murdoch is worried that if he gives into Apple now, they will lose ground in other areas too.

Now it is Steve Jobs turn to respond:

James,

A few thoughts to consider (I’d appreciate it if we can keep this between you and me):

1. The current business model of companies like Amazon distributing ebooks below cost or without making a reasonable profit isn’t sustainable for long. As ebooks become a larger business, distributors will need to make at least a small profit, and you will want this too so that they invest in the future of the business with infrastructure, marketing, etc.

2. All the major publishers tell us that Amazon’s $9.99 price for new releases is eroding the value perception of their products in customer’s minds, and they do not want this practice to continue for new releases.

3. Apple is proposing to give the cost benefits of a book without raw materials, distribution, remaindering, cost of capital, bad debt, etc., to the customer, not Apple. This is why a new release would be priced at $12.99, say, instead of $16.99 or even higher. Apple doesn’t want to make more than the slim profit margin it makes distributing music, movies, etc.

4. $9 per new release should represent a gross margin neutral business model for the publishers. We are not asking them to make any less money. As for the artists, giving them the same amount of royalty as they make today, leaving the publisher with the same profits, is as easy as sending them all a letter telling them that you are paying them a higher percentage for ebooks. They won’t be sad.

5. Analysts estimate that Amazon has sold more than one million Kindles in 18+ months (Amazon has never said). We will sell more of our new devices than all of the Kindles ever sold during the first few weeks they are on sale. If you stick with just Amazon, Sony, etc., you will likely be sitting on the sidelines of the mainstream ebook revolution.

6. Customers will demand an end-to-end solution, meaning an online bookstore that carries the books, handles the transactions with their credit cards, and delivers the books seamlessly to their device. So far, there are only two companies who have demonstrated online stores with significant transaction volume—Apple and Amazon. Apple’s iTunes Store and App Store have over 120 million customers with credit cards on file and have downloaded over 12 billion products. This is the type of online assets that will be required to scale the ebook business into something that matters to the publishers.

So, yes, getting around $9 per new release is less than the $12.50 or so that Amazon is currently paying. But the current situation is not sustainable and not a strong foundation upon which to build an ebook business.

[A portion of this email was redacted by the court.]

Apple is the only other company currently capable of making a serious impact, and we have 4 of the 6 big publishers signed up already. Once we open things up for the second tier of publishers, we will have plenty of books to offer. We’d love to have HC among them.

Thanks for listening.

Steve

There’s depths & depths to unravel – read Joshua Gans for the complete story. And yes, those News Corp guys need to pony up for a spell checker.

Open-access scientific publishing is gaining ground

The Economist has an update on the gathering momentum of Open Access:

AT THE beginning of April, Research Councils UK, a conduit through which the government transmits taxpayers’ money to academic researchers, changed the rules on how the results of studies it pays for are made public. From now on they will have to be published in journals that make them available free—preferably immediately, but certainly within a year.

In February the White House Office of Science and Technology Policy told federal agencies to make similar plans. A week before that, a bill which would require free access to government-financed research after six months had begun to wend its way through Congress. The European Union is moving in the same direction. So are charities. And SCOAP3, a consortium of particle-physics laboratories, libraries and funding agencies, is pressing all 12 of the field’s leading journals to make the 7,000 articles they publish each year free to read. For scientific publishers, it seems, the party may soon be over.

It has, they would have to admit, been a good bash. The current enterprise—selling the results of other people’s work, submitted free of charge and vetted for nothing by third parties in a process called peer review, has been immensely profitable. Elsevier, a Dutch firm that is the world’s biggest journal publisher, had a margin last year of 38% (…)

 

Avoid News:‘You’d be better off cleaning your gutters’

Obviously I agree with Ben:

Farhad Manjoo writing for Slate about the useless practice of following breaking news, has this point about what happens if you just catch up with one in-depth article the following day:

And that’s it: You’ve now caught up with all your friends who spent the past day and a half going out of their minds following cable and Twitter. In fact, you’re now better informed than they are, because during your self-imposed exile from the news, you didn’t stumble into the many cul-de-sacs and dark alleys of misinformation that consumed their lives. You’re less frazzled, better rested, and your rain gutters are clear.

There’s a growing sentiment that I am starting to see among news junkies that perhaps it is time to pull back. To not following the news so closely. Instead, follow well-sourced, well-reported news — investigative journalism.

(…)

More reasons to Avoid News.

 

Filter Bubbles Versus Viral Memes: Why We Have More Common Ground than Ever Before

Adam Gurri writing for The Ümlaut :  Adam argues that the meme of The Filter Bubble doesn’t square with his experience (i.e., theories of Internet echo chambers). We don’t square with the “filter bubble” either. Adam closes with this:

(…) I don’t care about most of the stories that go viral, and I would prefer to ignore them entirely. It used to be that random extreme events—unrepresentative of the larger reality—would dominate the news cycle. Now, they also dominate online conversations.

Although I take great pains to avoid the story of the moment, in the end there’s only so much I can do while choosing to remain online. And the benefits of using the Internet are worth the costs, even if I do have to tolerate a lot of pointless common ground.

I have no interest in the daily news cycle, unless it involves alien invasion, or an impending asteroid strike on our part of the ocean. But our selection of Twitter and RSS feeds doesn’t follow the pattern Adam experiences – being mostly academics and scientists, they are too diverse to “harmonize” or jabber on some topical TV news theme. OTOH, the diversity means that we are likely to see signals if there is something developing that we would want to know about – e.g., a repricing of Spanish debt.

Bill Gurley: Favorite Longreads of 2012

Benchmark Capital general partner Bill Gurley wrote “Longreads+Instapaper is basically ‘time-shifting’ for the written word. I am an addict.” For us, Longreads and Instapaper are essential tools in our quest for high signal – low noise. Together they are especially powerful. The “best Longreads of 2012” adds savvy selections by guest authors, where you will be served many hours of delight – whatever your tastes.

Bill Gurley has contributed his own favorite long reads, beginning with this introduction:

Over the past several years, I have become a huge fan of Mark Armstrong’s web service, Longreads. For those of you that don’t know, Longreads is a Twitter handle (@longreads), and a web service (www.longreads.com) that points to the best long form content on the Internet. At its core, it’s an amazingly effective editorial and discovery engine. Combined with a product like Instapaper, it creates an online/offline reading experience that feels purpose built for a tablet world. Many short form articles can be read quickly while you browse through your Twitter feed. But the really great articles that make you think and help you learn (the ones that use Daniel Kahneman’s System 2), require more dedicated reading time. Longreads+Instapaper is basically ‘time-shifting’ for the written word. I am an addict.

Several others have posted their favorite longreads of the year (you can find them here).  Unfortunately, I did not keep track as much as I should have. Next year I aim to do better. With that caveat, here are a few of my favorite long-form articles from last year.

I almost always appreciate Bill Gurley’s recommendations, so not surprisingly I found three of Bill’s choices on the podium for our best-of-the-best:

Why the Clean Tech Boom Went Bust, by Juliet Eilperin (Wired Magazine)

Ambition, passion, intelligence, and a boat-load of money can only take you so far. You still need physics and economics on your side. Wired Magazine often surprises with a contrarian viewpoint, and in this case published an article everyone else was afraid to write. If you want your venture to succeed, it must succeed as a business – eventually.

Is Sugar Toxic, by Gary Taubes (New York Times Magazine)

Technically, this article was published in 2011, but that should not stop it from being further distributed. Gary Taubes, as well as others, have uncovered the real cause of America’s obesity. Michael Bloomberg may look silly trying to outlaw mega-sodas, but at the very least he is calling attention to the proper villain. This is an amazing lesson in how everyone can get it wrong and wrong for decades – the scientists, the government, and the doctors

Snow Fall: The Avalanche at Tunnel Creek by John Branch (New York Times Magazine)

This is perhaps the most interesting longread of the year. The subject matter is backcountry skiing, but that has little to do with Branch’s phenomenal achievement. The concept of computer generated ‘multi-media’ dates back to the early 1990’s, which is the first time we could imagine text, pictures, audio, and video all combined in a single content offering. However, most efforts over the past 20 years appear to be a technology looking for a solution – there is no flow. Snow Fall may be seminal accomplishment in multimedia where the insertion of each media type builds upon the story in a remarkably compelling way. I wouldn’t be surprised if this article takes on historical journalistic importance. Bonus: Q&A with the author.

Your comments on your own favorites will help us prioritize what to read next. Enjoy!

Kevin J. Delaney: Look beyond news for mobile innovation

Kevin J. Delaney is editor-in-chief of Quartz, the global business news site launched in September by Atlantic Media. He was previously managing editor of The Wall Street Journal Online. This essay is part of Predictions for Journalism 2013: A Nieman Lab Series.

 

(…) Mobile news will start growing up
The list of breakthrough interfaces for reading news on smartphones is a short one. Instapaper is arguably the pioneer in this area, with its focus on a simple reading experience. Vox Media’s SB Nation iPhone app cleverly grouped news updates about the same topic (Vox tweaked that design in its current web app approach.) But many mobile news apps and sites are little more than re-skinned RSS readers, and surprisingly few publishers even bother to format their email newsletters for easy reading on iPhones and BlackBerries. When we were creating Quartz earlier this year, we needed to look for inspiration to non-news applications, such as the Clear to-do list app — it’s hard to find boldness and creativity in the news industry’s smartphone products.

(…) Clearly, more publishers will reconsider their native app focus in 2013 in favor of HTML5.

(…) Gawker Media’s Nick Denton is among those who have made admirable efforts to improve commenting, and Nick has rightly proclaimed that comments on their own can represent as high-quality content as any article. But most of the best discussion takes place off publishers’ sites, on Twitter, Facebook and in private emails. This is a reality that won’t be fully addressed in 2013, if ever.

He Said, She Said, and the Truth

Margaret Sullivan, the NYT public editor, struggles with the US journalism tradition of “balanced reportage”. See what you think: 

(…) false balance is the journalistic practice of giving equal weight to both sides of a story, regardless of an established truth on one side. And many people are fed up with it. They don’t want to hear lies or half-truths given credence on one side, and shot down on the other. They want some real answers.

“Recently, there’s been pressure to be more aggressive on fact-checking and truth-squading,” said Richard Stevenson, The Times’s political editor. “It’s one of the most positive trends in journalism that I can remember.”

It’s all a part of a movement — brought about, in part, by a more demanding public, fueled by media critics, bloggers and denizens of the social media world — to present the truth, not just conflicting arguments leading to confusion.

There must be a pony in there somewhere!

(…) Next the psychiatrist treated the optimist. Trying to dampen his out look, the psychiatrist took him to a room piled to the ceiling with horse manure. But instead of wrinkling his nose in disgust, the optimist emitted just the yelp of delight the psychiatrist had been hoping to hear from his brother, the pessimist. Then he clambered to the top of the pile, dropped to his knees, and began gleefully digging out scoop after scoop with his bare hands. “What do you think you’re doing?” the psychiatrist asked, just as baffled by the optimist as he had been by the pessimist. “With all this manure,” the little boy replied, beaming, “there must be a pony in here somewhere”

Thanks to Herding Cats!