The Eagles Top Billboard Charts

In an update to my post yesterday Walmart has allowed Billboard to record the sales of the new Eagles Album and this has resulted in a number one ranking for the band. Billboard

This represents a policy change in the heady world of charting best sellers since previously Billboard did not record sales when titles were sold predominately through one vendor.

The Eagles' first new studio album in 28 years, "Long Road Out of Eden," takes a short route to No. 1 on The Billboard 200 after Billboard revised a significant chart policy today (Nov. 7).In consultation with Nielsen SoundScan, Billboard will now allow exclusive album titles that are only available through one retailer to appear on The Billboard 200 and other charts, effective with this week's charts. Prior to this, proprietary titles were not eligible to appear on most Billboard charts.

According to the numbers, Long Road Out of Eden sold 711,000 units ranking it second for the year in first week sales.

Radiohead: 2 out of 5 Ain't Bad

Comscore has released a study that suggests that two out of every five downloaders of Radiohead's In Rainbows release were willing to pay something. From the press release:

During the first 29 days of October, 1.2 million people worldwide visited the “In Rainbows” site, with a significant percentage of visitors ultimately downloading the album. The study showed that 38 percent of global downloaders of the album willingly paid to do so, with the remaining 62 percent choosing to pay nothing. The percent downloading for free in the U.S. (60 percent) is only marginally lower than in the rest of the world (64 percent)

Comscore has a 'panel' of 2mm users that allow Comscore to track their internet use. The full press release makes for interesting reading but we don't know how many actually downloaded the album other than a 'significant' percentage. In my back of the envelop calculation, if only 10% of downloaders paid the average $6 then Radiohead nets about $275K. If 25% of downloaders paid the amount would be approximately $650K. If Radiohead receive approximately $1.50 per CD (avg retail $12.95) this would mean they would need to sell 450,000 CDs (in the month) to generate $650K in royalty. My numbers may be fuzzy but if they did sell to 25% of downloaders I don't think those numbers may not be bad at all.

On note that is confusing to me is that the comscore numbers are all in dollars and with the weak US dollar it is surprising that the average paid by non-US residents is lower than the US price. In the UK the typical CD sells for £10-12 (which is $20 - 24). Since their average price paid is lower than the US price that means the typical European has a much lower view of the value of music than the absolute numbers might suggest.

(Tip of the hat to Lorraine Shanley at Market Partners).

Building the Imperfect Beast

“We’re looking for a new paradigm” is how Don Henley put it when discussing The Eagles’ choice of WalMart as an exclusive distributor of the band’s first studio album in 27 years. The comment is laughably patronizing - as though we just aren’t smart enough to see his new commercial nirvana. They own the biggest-selling album of all time; just what “new paradigm” could they be looking for? Speaking of that album (and the more recent Greatest Hits 2), you could bet a large fortune that Eagles fans everywhere would harken for the old stuff anyway.

In July, Prince placed his new album with The Mail on Sunday (UK) for free. He then sold out at least five huge shows later that summer in London. That’s a new paradigm. Radiohead’s new album is available for download at whatever price you think it is worth and Neil Young’s Chrome Dreams II was sent to me free as part of the ticket package for his upcoming shows in New York. New paradigm indeed.

Contrast the minimal attention that this release seems to have garnered with those of other current releases. In the UK, it is being reported that The Eagles will top the Billboard charts and edge out Britney. Now, you might be thinking, is that any competition? But, in fact, her album has been well received over there and broadly here as well. In the US, The Eagles album may not debut in the top three; moreover, because distribution is not widely seen, it may end up dropping like a stone soon after. Since Walmart doesn’t report sales at an item level, you won’t see any of the usual excitement that ensues when a new album moves up the charts. Ergo, ignominious mediocrity. If you contrast the lack of hype around this album – remember, the first in 27 years! - from one of the biggest bands ever and the reaction to Radiohead’s new paradigm; it is comical by comparison.

As a result, fans showing up on the concert tour which is bound to follow aren’t likely to have heard the new stuff. Perhaps, if The Eagles had been more innovative, they could have created broad anticipation for the new stuff. As it is, concert-goers will hit the head when the group launches into those unrecognizable ‘hits’.

Aside from the silliness (or ignorance) of Henley’s comment, there is also a perception issue. Millions of people travel to NYC to shop on 57th Street. Why? Because the experience is evocative of exclusivity. It is unique and the stores are attractions in and of themselves. If something is sold on 57th Street, the consumer characterizes that product in a very particular way. This is no less the case with a big-box retailer like WalMart. Your association with the products sold at Walmart has everything to do with how you perceive WalMart. So, if you have a negative view of Walmart (and not everyone does) will that transfer to The Eagles? It does for me. Mrs PND has an emotive reaction to WalMart, believing the shopping environment to be soulless and barren. I, on the other hand, think of their intolerance and their overarching belief that they can influence culture by limiting or manipulating choice.

When you think about it The Long Road Out of Eden is a rather unfortunate choice of title for this album when you remember that Walmart has a history of locking up employees, dissuading employees from their legitimate right to union representation and engaging in an active effort to deflate employee wages. Clearly, for some Walmart employees there is no “road out of Eden”

Henley said they got some grief for the Walmart deal but I am simply baffled by the fact that they needed to consider this option at all. Indeed, if they were truly looking for a new paradigm, they only needed to poll some of their ‘friends’ from MySpace who could have given them any number of ideas. And I will bet none would have included Walmart.

Center of Her Own Attention

Americans remain blissfully unaware of the talent of Manchester United and England football player Wayne Rooney. On the football pitch, Wayne has few rivals and he is a sports personality whose talent transcends sport to media superstardom. Even as a better player than David Beckham, he will never rival him as a star: He doesn’t have the looks, but he will be big. On the other hand, his girlfriend/fiancee may become bigger than Victoria Beckham and the glow of Wayne’s stardom has reflected on her since they were engaged when she was 17. You see, 21-year-old Colleen McLoughlin has reportedly just signed a five-book deal with Harpercollins. Admittedly this is on the back of her successful autobiography Welcome to My World (Oopps, I almost typed “Wayne” there…) but, without Wayne would there have been an autobiography at 20 years old?

Read the rest of this post on Foreword: Here.

Simon & Schuster Reports

Jack Romanos' final year in charge at S&S continues to go well as the company posted third quarter revenues of $214.2 million up 9% from $197.4 million for the same period last year. Top-selling titles included Become A Better You by Joel Osteen and the continued success of The Secret by Rhonda Byrne. Operating income of $21.6 million was up 6% from $20.3 million versus last year, and which reflected the revenue increase and lower bad debt expense partially offset by higher royalty expenses, employee-related costs, volume-driven advertising and selling expenses and digital archive costs. Year to date company revenues are up 16% to $643.8mm and operating income is up a dramatic 73% to $67.7mm. A better than 10% margin is tremendous work in trade publishing.

Full CBS press release: Here

Seeking Alpha Transcript: Here

Comments from the earnings call:

The company has also made steady progress in the digital warehouse project. This is new storage distribution and transactional system that will digitize and house all Simon & Schuster content and manage license of our intellectual property. By year-end we expect to have 13,000 titles incorporated into the system.

During the quarter we also announced the promotion of Carolyn Reidy to the role of President and CEO of Simon & Schuster effective January 1, 2008, after Jack Romanos retires at year end. Carolyn previously ran Simon & Schuster's Dell publishing division which accounts for the lion share of the division's revenue and as you recall Simon & Schuster had its best year ever last year. Particularly gratifying when you have a deep management bench that allows you to replace one top tier executive with an internal candidate of Carolyn caliber. She is extremely well regarded not only in the industry but, also inside Simon & Schuster as well. We think she will do great things here.

Open Access: Free or Not to Be

The Washington Post reports on the status of a bill in Congress that will require any research papers that are produced/published as a result of government funded research to be made freely available one year after initial publication.

At issue is whether scientists funded by the National Institutes of Health should be required to publish the results of their research solely in journals that promise to make the articles available free within a year after publication.

The idea is that consumers should not have to buy expensive scientific journal subscriptions -- or be subject to pricey per-page charges for non subscribers -- to see the results of research they have already paid for with their taxes. Until now, repeated efforts to legislate such a mandate have failed under pressure from the well-heeled journal publishing industry and some nonprofit scientific societies whose educational activities are supported by the profits from journals that they publish.

The language supporting this legislative requirement is part of an appropriations bill and thus has not been subject to the type of open debate that publishers would like - regardless as to how difficult it is to support the argument. Typically for the government they are jumping on a hobby horse which on the surface looks like an easy win (a 'mom and apple pie' issue) without fully understanding the commercial, academic and cultural issues involved. There are in my view many more egregious and expensive abuses of public trust such as commercial mining or oil drilling on public land where the accrual to private enterprise far outstrips the perceived tax injustice that publishing research is supposed to generate. But that is not necessarily the point: Two 'bads' don't equal a good.

In publishing research and academic papers the publishing industry has created an efficient and effective distribution mechanism that enables the broadest possible access to this material. Under the aegis of legislative dictate it would be entirely probable that the access to this material would deteriorate not improve as our would-be business people (Congress) envision. Having said that, the publishing business is too entrenched in their position and could do with a kick up the bum: Better this comes from a commercial reality than the legislature IMHO.

Harlequin (Torstar) Reports

The revival at Harlequin continues as the company posted slightly improved underlying revenue growth and improved operating margins versus the same period last year. For the parent company Torstar, revenue was stable with prior year (up $3mm on revenues of $369mm). The company will be pleased that revenues improved in their Metroland Media Group and Digital properties. Operating profit for Torstar improved by $14.1mm for the quarter.

A significant proportion of Harlequin revenues are booked in US $ and as a result their underlying revenue improvement of $0.7mm was offset by more than $3.8mm in unfavorable foreign exchange impact. Operating profit for publishing improved 13% to $16.3mm for the quarter. Underlying profit without the impact of foreign exchange was slightly better.

Harlequin management expect the division to continue the improvements they have seen this year; however, underlying results will continue to be adversely impacted by the weak US $. The company also noted that the fourth quarter North America Retail publishing schedule is not expected to be as strong as compared with 2006. Possibly of deeper worry to the company is how to improve results in their Overseas markets particularly the UK where the company owns Mills and Boone.

Harlequin’s publishing operations are composed of three divisions: North America Retail, North America Direct-To-Consumer and Overseas.

Highlights:

Book Publishing operating profits were up $2.5 million in the third quarter of 2007 excluding the impact of foreign exchange.

• North America Retail was up $2.6 million
• North America Direct-To-Consumer was up $0.5 million
• Overseas was down $0.6 million

Year to date, Book Publishing revenues were up $2.1 million excluding the impact of foreign exchange.

• North America Retail was up $4.9 million
• North America Direct-To-Consumer was down $4.9 million
• Overseas was up $2.1 million

Year to date, Book Publishing operating profits were up $8.0 million excluding the impact of foreign exchange.

• North America Retail was up $6.8 million
• North America Direct-To-Consumer was up $1.2 million
• Overseas was flat.

Year to date, EBITDA was up $6.3 million excluding the impact of foreign exchange.

North America Retail had a strong third quarter with price increases on selected series product lines, a strong publishing program and cost savings. The number of books sold was down slightly in the quarter. Cost savings included lower advertising and promotional costs and $0.5 million of lower depreciation and amortization.North America Direct-To-Consumer revenue was down in the third quarter of2007 primarily from declines in a children’s direct-to-home continuity program.

In the core Direct-To-Consumer business, revenue was flat in the quarter as the series price increase offset lower volumes. Lower advertising and promotion costs associated with the fall 2007 mailing provided the third quarter profit improvement.

The Overseas markets continued with mixed results during the third quarter.Year to date the Nordic group is up 30%, the U.K. is flat and Japan is down with challenges in the core series book market more than offsetting growth in single titles and digital products.

Five Questions with Harlequin

Borders Down Under - Update

The Dominion Post (via Stuff.co.nz) is reporting that bidding for the Borders Australian and NZ stores has now closed.

A&R Whitcoulls seems certain to be one of the final contenders for the 20 Australian and four New Zealand Borders stores. Dymocks is another business believed to be still keen. Other parties cited have included Berkelouw Books and possibly large general retailers such as Woolworths.

I predict a quick decision and announcement.

Here is my update from earlier this month.

Riverdeep Syndication

Riverdeep's banks are in the process of delivering their road show (Reuters) to sell the debt proposed as part of the Riverdeep acquisition. If there are any legitimate concerns regarding the financial structure of this deal they are likely to become apparent as this syndication gets underway. As reported earlier this month, an analyst from Dresdner suggested their were concerned about the ability of Riverdeep to service the debt load that their acquisition binge has imposed on the company; however, no one else has voiced a similar concern since that statement was made public. If you want to get in on it you need to be in London on the first of November or New York on the fifth. We wait to see.

Five Questions with Shatzkin on DADs

At the Frankfurt supply chain meeting, Mike Shatzkin presented his white paper on Digital Asset Distributors. I summarized the content of the presentation here but I also followed up and asked Mike to expand on several points in the presentation. Here are his responses.

1. You mentioned that the research that resulted in the white paper on Digital Asset Distributors was developed for Klopotek. What is there interest in this research and why were they interested in this subject?
   
   Believe it or not, Klopotek really had a community interest in the subject (although that also translates into a marketing device.) They are not a DAD -- which we define as an operation that does digital storage, conversion, and distribution in response to a publisher's needs -- and have no interest in becoming a DAD. But they do sell systems to publishers that will have to account for digital activity, tying sales and revenues back into legacy systems to pay royalties, among other things. But, mainly, I think Klopotek -- which has been growing out of their German origins for the past several years -- saw a "thought leadership" opportunity to establish themselves in the English-speaking markets. And I think the White Paper and conferences -- the outputs from the research -- were successful for them in that regard.
   
   
2. You have given this presentation and speech a number of times over the past six months or so. What has been the reaction of the publishing community – not necessarily from the larger publishers – but the medium to smaller publishers? Are you starting to see an appreciation for the issues that this next tier of publisher needs to understand and appreciate as they consider their digital distribution needs?
   
   I don't see much of the smaller publishers; I think it is the nature of my consulting practice. But the mid-size ones are definitely feeling the issues raised by the DAD study. Right now, this is being driven by a combination of driving online sales (getting the content displayed with Amazon, BN.com, Google, Microsoft) and driving online marketing (widgets for MySpace and Facebook) for the consumer publishers. Publishers are also increasingly aware that there is a real ROI in developing a digital workflow, which becomes part of the thought process when they think about DADs. The more complex are the books a publisher creates -- the more highly illustrated and design-intensive -- the more benefits come from the digital workflow improvement.
   
   
3. What role are standards bodies playing in this area? Are the business needs and requirements moving ahead of the standards discussions and recommendations?
   
   Interesting that you raise this. Digital guru David Worlock said to me at Frankfurt that he wondered whether we should be worried so much about "standards" when we don't have a MARKET. Shouldn't we build the market first, he wondered? But Mark Bide, my partner in many ventures including the DADs research, would say that, without standards, you'll never build a market! I am not sure the business needs are yet moving ahead of the standards, but they probably will. I agree with something you have previously pointed out on your blog, which is that the identification of salable "chunks" can't really be done before the fact by publisher assignment of DOIs; it is the consumer who will identify what they want and how they want it put together and we don't really have a process to enable that.
   
   
4. You mentioned at Frankfurt that long term there may only be a few DAD’s but in the short term most publishers should/will contract with one of the existing players. Why do you think this is the case: Both the short term observation and the long term evolution.
   
   Technology drives scale is the answer in both cases. As it stands, all the DADs are struggling to build out their offerings to cover everything they have to do. They will all be challenged to provide real digital workflows -- real DAM capabilities -- or they will suffer competitively. They all need widgets. They all need nimble content conversion capabilities. And in the future they will need the capability to add value in sales of aggregated content. In the short term, obviously the players will choose from the choices on the table. In the US, that really means three major players (four if you are an academic publisher.) The biggest companies aren't quite all spoken for, but it will be increasingly difficult for new entrants to gain the scale that is necessary to play.
   
   
5. What will the evolution in services be for these DADs? Where/how do you think they will begin to differentiate themselves or will their services evolve into a commodity?
   
   One aspect of differentiation will be price and service. Pricing is a bit vague now and service is very hard to measure. But as new use cases arise -- Amazon Kindle, a Google device, new Web services like netGalley develop and need their database populated -- some DADs will handle these things more quickly and smoothly than others. That's why we urge strong service level requirements in publishers' agreements with DADs. In the longer run, I can see DADs "making sales." They can't really do that until they aggregate content and know they have it. But let's say a DAD has 500,000 recipes from 14 publishers and can convince Kroger to make use of them in marketing? If you're a publisher with that DAD, you make a sale. If you're not, you don't. In the physical distribution world, publishers look at "what else is in the bag?" when they pick a distributor or a sales rep group? It is too early for that kind of thinking in digital distribution, but it will come.
   
   
   Mike Shatzkin, mike@idealog.com

"Hey Nielsen" What About Books?

Nielsen is capturing the true voice of the consumer with the launch of their new “Hey Nielsen” social networking website. Designed to capture consumers immediate reactions to television, movie and music programming, the site launched in beta a few weeks ago. Nielsen is the market researcher most responsible for what we end up watching, listening to and going to see. They are not necessarily responsible for what we read however, but more on that later. Nielsen hopes that the Hey Nielsen site becomes the social monitor for all pop culture although my initial experimentation with the site seems to indicate that most people are focused on television.

Hey Nielsen works by ranking positive or negative comments based on the volume of submissions related to specific content. A “Hey Nielsen” score is attributed accordingly. Essentially, this social website becomes a panel: Perhaps not as organized or managed as a traditional Nielsen panel but by definition more broad based. Nielsen will be able to capture the immediate feedback generated by new shows, music, movies and other media – even celebrities. This could be a fundamental step forward over the old model of set top boxes and exit surveys.

Crucially for the book industry we don’t have such a facility and it is ironic that Nielsen having such a research presence in the book industry has not placed books into to the Hey Nielsen network. We are generally familiar with the BookScan POS service but it has been left largely to subscribers of this service (both in the UK and US) to derive their own insight into what the raw data suggests about sales trends, tastes and mores. I read about Hey Nielsen before I went to Frankfurt and it was at the supply chain meeting that Nielsen presented more of what we would like to see of their analysis capability.

In a presentation entitled Towards a Better Understanding of a Consumer Jonathan Nowell and Julie Meynick discussed the existing publishing market and environment. The suggested for example that contrary to conventional belief the publishing market in the UK is reasonably healthy with unit sales up 5.4% over last year and up 43% since 2001. In comparison with other media – particularly TV and newspapers – book readership has more than held its own. They followed this over view with some statistics on where books were selling and what genres were moving. There would be little surprise that published material such as hotel and travel guides, dictionaries and astrology are not competing well with online alternatives and are seeing decreased sales.

The last segment of the presentation concerned a review of the panel HarperCollins constructed to better understand their readers. (It is not clear how much direct involvement Nielsen had in this research). Researchers asked over 1000 people to rank how they used different media for different tasks and also describing their visceral reactions to what reading and books meant to them. Nielsen sales data was used to build demographic profiles of readers which in turn has been used by Harpercollins to develop genre profiles of the types of book purchasers that were attracted to specific genres. In the presentation, Nielsen showed the seven defined profiles within Cooking as an example. Each of these profiles has deeper demographic information associated with it to describe the buyers in this segment.

Nielsen showed in this presentation how psychographic data from panel information and sales information from point of sale data could be merged to create a more detailed set of information about existing and potential consumers. This information in turn creates the framework for effective marketing and promotion campaigns that should drive sales.

I saw Nowell later the next day and told him the presentation was interesting and why they couldn’t do something like this in the US. After a pause, he told me to wait and see. In the short term, why can’t they use Hey Nielsen?

Update on Harpercollins' Authonomy.com

A few weeks ago I had a post on the new authors site being launched by Harpercollins UK. Victoria Barnsley the HC UK CEO was on BBC Radio 4 talking about it. Here is the link. Her piece is about half way through the program. Meet the Author is also profiled.

Blog post

Go for the Dew(ey)

The BBC goes looking to see if Dewey is still relevant in today's (UK) libraries and along the way they discuss some of the history of Mr. Dewey and his evident psychological 'issues'. These issues may have materially impacted the development of the system. So I guess, we should be happy that Prozac wasn't available. One other note: No mention of OCLC.

This audio article appeared on BBC Radio 4. Link. It is about 20mins and if you are a Dewey know-it-all you are not going to get much out of this.

John Burdett: The Bangkok Underworld

I have read all the books John Burdett has written about Bangkok and also heard him speak about his most recent book when he was on his recent author tour. The books are evocative of the real Bangkok which you will immediately recognise if you have ever visited the city. I have been back several times since 1997 but as a child I also lived there for about a year. Burdett is profiled in The Times this morning with an article and a slide show:

Mr. Burdett delivers this grab bag through his narrator, Sonchai Jitpleecheep, a cop whose mother was a prostitute and whose father was an American soldier during the Vietnam War. Sonchai is a cultural interpreter par excellence, a cross between Descartes and a Thai palm reader who has flashbacks of travels to Europe with his mother and her various client-lovers. “I still feel very Thai, despite my straw-colored hair and sharp nose,” Sonchai says in “Bangkok 8.”

The narrator’s frequent reflections on Buddhism complete the cultural mélange. Mr. Burdett himself meditates one or two hours a day. It’s hard to imagine how the broad and nuanced canvas Mr. Burdett paints in his books could be conveyed on the big screen. But Millennium Films, which recently produced “John Rambo,” the fourth movie in the “Rambo” series, in Thailand, has optioned “Bangkok 8” and is serious about making the film, Mr. Burdett said.

Video Link

German Bookselling

The Times has an article on the German bookselling market which maybe under threat because of legislation proposed in Switzerland to abolish fixed price policies on German language titles. Germany has an extraordinarily efficient system of distributing books and in many cases orders to wholesalers are delivered first thing the next day to all types of retailers. In some cases, the dispatchers have keys to the bookstore and boxes are sitting inside the front door when staff arrive. According to both publishers and retailers interviewed in this article, the net price agreement supports the diversity of publishing and of the size and location of all types of bookstores.

The fixed-price system is not unique to Germany. France had it, gave it up and reinstituted it after finding that discounting hurt small booksellers. But in the German-speaking book world, the system has long been a source of special pride until Switzerland jumped ship this spring. Despite vigorous lobbying from German and Swiss publishers and independent booksellers, the Swiss government sustained a ruling by the Swiss Competition Commission to overturn the fixed-price law and allow discounting there.

Here is the rest of the article.

Amazon Reports

The highlights from the Amazon.com earnings call were pretty impressive and here are highlights from the press release:

• Worldwide revenue grew 41% to $3.26 billion, or 38% excluding the $75 million favorable impact from foreign exchange.
• Q3 2007 revenue benefited by approximately 290 basis points of year-over-year growth from Harry Potter VII sales, plus attachments.
• Media revenue increased to $2.09 billion, up 36%, or 32% excluding FX
  In the North America segment, revenue grew 42% to $1.79 billion. This is the highest growth rate in seven years.
• US segment Media revenue grew 38% to $1.08 billion.
• GAAP net income was $80 million or $0.19 per diluted share, compared with $19 million and $0.05 per diluted share
• The Company sold 2.5 million copies of Harry Potter and the Deathly Hallows worldwide, making it Amazon's largest new product release.
• The Company launched a public beta of Amazon MP3, a digital music store with Earth's biggest selection of a la carte DRM-free MP3 music downloads. Amazon MP3 has over two million songs from more than 180,000 artists represented by over 20,000 major and independent labels.

I found the reports on the growth of their services business to be most profound. The company annouced a development fund for companies or individuals that could build commercial applications using the Amazon web services. Amazon will fund expansion and further development of the best of these applications. Without staring a gift horse, etc. the only limitation is that they application has to work with Amazon services. On the back of this they appear to have really spured the growth of people and companies tinkering with webservices. (I might even have a go). A lot of this growth may be people checking in to look around but regardless the growth in registrations in shocking.

• Over 290,000 developers have registered to use Amazon Web Services (AWS), up 25,000 from the prior quarter.
• AWS also launched a limited beta version of the Amazon Flexible Payments Service (FPS). Amazon FPS is the first payments service designed from the ground up specifically for developers, and provides unprecedented flexibility in the movement of money through a set of web services APIs.
• AWS recently introduced several new compute instance types for the Amazon Elastic Compute Cloud, which provide up to eight times more memory, CPU, and storage, enabling developers to support an even broader set of applications. Amazon Simple Storage Service (S3) continues to be rapidly adopted by developers, and objects in storage have doubled to more than ten billion during the last six months. In addition, we have instituted a Service Level Agreement for Amazon S3 that guarantees operational performance levels.
• On the earnings call, Bezos had this to say about webservices:

Obviously if you're building web scale applications, in many cases you have to be able to charge people for things. The Flexible Payment Service is the first payment service specifically designed from the ground up for developers, and it has a lot of features that make it very flexible and easy to use for developers to incorporate payments into their own applications.So that set of services that we're offering to developers is growing very, very rapidly and has gotten an unusual amount of traction. We are very, very gratified to see this early uptake in the development community. It's happening at the very small scale with small software developers; one-person and two-person shops. It's also happening at the middle scale with venture capital-funded startups; and then at the large scale, with enterprise customers all the way from the small up to the big. So it's a very exciting and new product offering. These infrastructure services are things that we needed to build for ourselves in order to run the web scale application called Amazon. While we were in the process of building these things, we decided to build them in an external way so we could charge for them and turn them into a new profit center.

Looking forward to the full year the company stated:

• For Q4 we expect net sales of between $5.1 billion and $5.45 billion, or growth of between 28% and 37%. This guidance anticipates greater than 300 basis points of positive impact from foreign exchange.

Lastly in response to questions on the earnings call were the following:

• A question on Gross Margin: :In terms of gross margins, yes, Harry Potter is having an effect. It was slightly less than a contribution profit breakeven event for us. You should assume that's a lower gross margin than our average, so it is bringing it down."
• A question regarding the legal challenge to 1-Click. Bezos: "In terms of 1-Click, we have a longstanding practice of not talking about such matters outside of our public filings. You should refer to our public filings."
• A question on the Borders web store collaboration that is ending: Bezos "Re Borders: I don't really have any comments on any specific contracts."

Five Questions with Rosetta Solutions

netGalley is attempting to solve an intractable issue for publishers: How to ensure that your review copies get into the hands of the right reviewers, at the right time and at the lowest possible cost. In addition, tracking these reviews becomes an increasing problem as reviews publishing rapidly expands beyond traditional newspaper and trade magazines. netGalley is an innovative technology services company located in Seattle and staffed with people committed to improving the way publishing operates. For publishers, netGalley helps publicity and editorial and marketing staff reach a wider range of review publications and media and provides up-to-date status of reviews. For reviewers, netGalley helps to manage the inflow of titles and internally manage the review process. There is no cost for individual reviewers to register for the service.

I asked Michael Forney, President of Rosetta Solutions which is the corporate owner of netGalley my five questions.

1. Who is Rosetta Solutions and where does netGalley fit in the organization?
   
   Rosetta Solutions, Inc. (Rosetta) is a publishing technology company full of people who love books. All of Rosetta's products and services have been designed and built with extensive collaboration from publishers and media organizations. Our goal is to streamline and automate publishing workflows to help grow the industry. We do that by providing tools and services for both print and digital editions, including production, conversion and distribution.
   
   Rosetta’s netGalley™ is an online service that helps publishers better connect with their book reviewer and media communities through electronic distribution and tracking of ARCs, galleys and press materials. Through netGalley, publishers can simplify existing processes with premier review and media contacts and broaden their reach to online reviewers, bloggers and specialty publications, all while significantly diminishing the cost of printed review copies and press materials.
   
   
2. How did the netGalley product evolve?
   
   At netGalley, we are fascinated by how the internet continues to help connect smaller and more specialized groups of people who benefit from shared information. Books have long been sold through word-of-mouth, with traditional reviews being the most influential recommendation tool. What we wanted to accomplish with netGalley was to bring to bear the networking power and digitization of the internet on the book review process. We keep asking, “How can we make the existing process more efficient and less expensive? How can we mine the process for more information that will enable better decision-making? And last, how can we help connect the exponential number of new media outlets with new galleys at THE lowest possible cost?” We are grateful to have had the input and counsel of the some of the biggest and most successful publishers and media groups to help us shape the functionality of netGalley. Good listeners make good leaders.
   
   
3. You describe yourselves as a services company in this context what are the solutions that netGalley can provide? Is netGalley a discrete product or tool or do you see it as part of a platform or suite of products?
   
   When we first began with netGalley we saw the immediate benefits of better connecting review organizations with publishers to streamline the back-and-forth communication that characterizes this process. What we then began to see by talking to publishers is how netGalley can equally be applied to the larger publicity process by providing media with a central location to access a broad range of ancillary material about a title. We began to see how netGalley can benefit a range of constituents, directly (in the publishing house or media organizations) or indirectly (for example providing better information and services to authors). So, absolutely, we see netGalley as a platform providing a continuum of services.
   
   
4. You are currently working with a number of publishers on the netGalley launch. What have been some of the issues you have faced as you have designed and built this product?
   
   Probably the biggest challenge for us has been straddling the current reliance on printed materials with the gradual evolution toward digital media. We recognize that publishers and media will continue to rely primarily on printed galleys for some time. At the same time we can be evangelists for digital content, particularly by making it easy and secure to distribute within a given professional community. To be clear, netGalley does not require the distribution of digital galleys and facilitates the distribution of physical galleys. Yet many publishers have indicated that they can use digital galleys to supplement their physical galleys, especially to the online media and blogger communities.
   
   Have you faced particular issues in convincing publishers of the ROI involved in implementing at productivity tool like netGalley?
   
   The publishers and media organizations we have talked with all agree that there is a great deal of opaqueness in the current communication media and review processes. There is equally a sense that it is difficult to understand the true costs of reviews or media coverage. When you pair that difficulty with the explosiveness of new sites covering and reviewing books…it seems reasonable to want to automate and capture more information in this area.
   
   The distribution of marketing materials and the breadth of potential reviewers are growing rapidly. None too recently, a publisher had a fairly static list of people they needed to send ARC’s to have you heard from publishers that this is becoming an unmanageable task unless fundamental changes are made?
   
   We haven’t met a publisher yet who has noted the diminishing importance of The New York Times in selling books. We haven’t met one who says that their list of daily tasks is shrinking. The traditional media outlets will continue to have enormous impact on the books purchased by the reading public. The publicists’ day will get fuller and fuller.
   I think the challenge for publishers is partially in verifying the influence of potential new media sources. We see a lot of heads nod when we talk about automating and consolidating communications online, about bringing together potential reviewers/media who might find you as much as you find them, about cutting down the number of manual tasks particularly around formats and files.
   
   What kinds of improvements would you anticipate in a typical installation of the netGalley product?
   
   First I would ask, improvements for whom? Review organizations for example are going to see enormous benefits in terms of improving their internal workflow and minimizing redistribution costs to off site reviewers. Media organizations will see improvements in time efficiencies and task management. Publishers can anticipate lower direct costs of producing and distributing physical galleys, replacement of manual processes, and a broadening of the publicity universe at lower cost.
   
   
5. What is next for netGalley. Do you have a sense what your next development phase will be?
   
   On the netGalley side, we have a development plan that extends through the next two years and includes new functionality in the existing application as well as services to new segments such as the library and educator markets. Our research indicates that many of the benefits of netGalley to review and media communities can be transferred to other book communities.
   
   From the Rosetta perspective, we have a number of new products and services in development all surrounding the automation of publishing workflows and the consolidation of information derived from these processes. Watch this space for more!

Scanned! Libraries See the Folly in Proprietary Programs

The Open Content Alliance was established as a non-profit, non-proprietary program to aid libraries in developing their own book scanning efforts. It was partially a reaction to the far more renowned Google book program but some could argue it was a logical extension of the work of the Internet Archive program that the OCA founder Brewster Kahle also established. There are fundamental differences between the OCA approach and other digitization programs: Firstly, the library pays OCA for the scan, secondly, the content is limited to out of copyright material and thirdly, the library has no restriction on what is done with the scan.

This morning the NYTimes examines the developing resistance to commercial digitization programs such as Google and Microsoft and uses as an example the decision by a consortium of Massachusetts libraries not to go commercial.

But the resistance from some libraries, like the Boston Public Library and the Smithsonian Institution, suggests that many in the academic and nonprofit world are intent on pursuing a vision of the Web as a global repository of knowledge that is free of business interests or restrictions. Even though Google’s program could make millions of books available to hundreds of millions of Internet users for the first time, some libraries and researchers worry that if any one company comes to dominate the digital conversion of these works, it could exploit that dominance for commercial gain.

But Google continues to add libraries to their digitization program with regularity and why this continues is not really discussed here. Within the library community the disquiet regarding the Google program has been growing all year and the discussion as been as much about the restrictions as it has about the quality of the scans themselves. Less has been said about public trust and this aspect is not directly addressed in the Times article either.

As repositories of our collective knowledge and most often as beneficiaries of our tax revenues or public donations, libraries have an obligation to ensure that the general public has ready access to the content collected on our behalf. Perhaps this is a controversial point and perhaps this thought it not directly applicable in an academic context (unless it is a public institution) but the President of the Boston Public Library obliquely references this point when he says in the article:

"We understand the commercial value of what Google is doing, but we want to be able to distribute materials in a way where everyone benefits from it,” said Bernard A. Margolis, president of the Boston Public Library, which has in its collection roughly 3,700 volumes from the personal library of John Adams.

So what of the libraries in the Google program? Some are having second thoughts, some are entirely happy and some have made it work to their advantage. Generally, speaking it appears that everyone believes that all library content will eventually be freely accessible. If that means that works will have to be scanned again for those works that have restrictions placed on them by the original scanner then so be it. Since this second effort is likely to take some time, this content may be available in digitized form at a network level in advance as more and more libraries take advantage of 'open' programs like OCA.

I was intrigued by the last sentence of the article:

On Wednesday the Internet Archive announced, together with the Boston Public Library and the library of the Marine Biological Laboratory and Woods Hole Oceanographic Institution, that it would start scanning out-of-print but in-copyright works to be distributed through a digital inter library loan system.

"digital interlibrary loan system" sounds very interesting.

Pearson Ups Full Year Guidance

Last weeks positive results for McGraw Hill were said to bode well for Pearson's upcoming report and the news was confirmed this morning with Pearson reporting underlying revenues up 6% and operating profit up 20% for the first nine months versus the same period last year. Results including the impact of acqusitions and currency were 4% and and 17% respectively. From the press release:

Marjorie Scardino, chief executive, said: "We still have a lot of trading ahead of us, but every part of the company is doing well. We're benefiting from rapid take-up of our learning technologies; sustained increases in our audience and advertising at the FT; and bestselling publishing combined with operating efficiency at Penguin. This increases our confidence that 2007 will be another year of record profits for Pearson."

For the full year, the company is firing on all cylinders and is expected to achieve record performance in revenue, operating profit, cash flow and return on equity. The company is generally conservative in forecasting full year results but the confirm that all operating units are performing at or above their previous full year guidance.

Highlights for the first nine months of 2007:

Pearson Education underlying sales up 7% with good growth in all parts:

• Our School business: Sales up 7% from sustained investment in content and technology and breadth in publishing, testing and services. Full-year sales growth around the top end of the 4-6% range and further margin improvement is expected even after reorganisation costs.
• Our Higher Education business performed strongly through the start of the academic year. Sales are up 5%, with rapid growth in subjects where we offer our online teaching and assessment programmes (established services such as MyMathLab, MyEconLab and Mastering Physics as well as new programmes in Spanish, nursing and information technology).
• More than 1.3 million US College students registered for our online learning programmes in the August and September back-to-school period, a 44% increase on the same period last year.
• We now expect our worldwide Higher Education business to achieve full year sales growth around the top end of the 3-5% range with stable margins.
• Our Professional education business continues to show strong growth. Sales are up 12% in the first nine months, and we now expect full-year sales growth of 8-10% (against our previous guidance of 5-7%) with further margin improvement.

In FT Publishing,

• Sales are up 8% overall, with increasing content revenues. Our advertising revenues are up 9% in the first nine months (up from 7% growth in the first six months of the year).
• We continue to expect FT Publishing to achieve double digit margins in 2007.

Penguin sales

• Up 2% with a strong publishing performance from both new and established authors including Alan Greenspan (The Age of Turbulence), Khaled Hosseini (A Thousand Splendid Suns), Jamie Oliver (Jamie at Home) and Elizabeth Gilbert (Eat, Pray, Love). For the full year we continue to expect Penguin to improve margins further, as our publishing investment and efficiency programmes bear fruit.

Pearson Press Release

McGraw Hill Third Quarter Strong

MGH continued to delivery strong financial results on the back of their strong start to the year. In the third quarter revenues up over 9.8% to $2.2billion. Net income for the third quarter grew by 18.2% to $452.0 million. Foreign exchange rates positively affected the growth of revenue by $21.3 million and contributed $1.8 million to operating profit. From the press release,

"Double-digit growth and increased share in the elementary-high school market in
the most important quarter of the year for education and solid performances in Financial Services even as the structured finance market deteriorated were key to our results," said Harold McGraw III, chairman, president and chief executive officer of The McGraw-Hill Companies. "The operating margin expanded in all
three segments."

Net income for the first nine months was $872.9 million. and Revenue for the first nine months grew by 11.6% to $5.2 billion. Commenting on the outlook for the balance of the year the company stated:

"We are still on course to produce double-digit earnings per share growth in 2007, as well as improved operating margins in the Financial Services and McGraw-Hill Education segments. For the fourth quarter, revenues and earnings will not match last year's results because of challenging conditions in the structured finance market and some softness in education."

Highlights:

Education:

• Revenue for the McGraw-Hill School Education Group increased 11.2% in the third quarter to $670.8 million.
• Revenue for the McGraw-Hill Higher Education, Professional and International Group grew by 8.1% in the third quarter to $505.1 million
• Capturing 32% of the fast-growing state new adoption market was the key to this year's industry-leading performance by the McGraw-Hill School Education Group
• In professional markets, digital products, which include Access Medicine, Access Surgery, Access Emergency Medicine and Access Pharmacy, continue to attract a growing number of domestic and international subscribers. Our new digital iSpeak products, launched in April and now available in seven languages, are gaining traction

Financial Services:

• "Revenue for this segment increased 12.5% in the third quarter to $759.6 million compared to the same period last year.
• Operating profit grew by 17.3% to $346.7 million. Foreign exchange rates positively affected revenue growth by $12.6 million and had an immaterial impact on operating profit growth.
• Double-digit growth in Standard & Poor's international fixed income markets, a strong performance by corporate and government ratings, and outstanding results from financial information products and services offset growing weakness in structured finance
• "Standard & Poor's data and information products and index services recorded solid gains. Increasing assets under management in exchange-traded funds, stepped up trading volume of derivative contracts, and growth in licensing fees, all linked to Standard & Poor's indices, contributed to the improvement.
• "Strong demand for data and information products is spurring growth. Capital IQ continues to add new customers and expand services to existing clients. A primary revenue driver has been the addition of new modules to the Capital IQ platform, including portfolio management tools and detailed fixed income information.

Information & Media:

• Revenue for this segment increased 2.1% in the third quarter to $252.4 million compared to the same period last year.
• Operating profit grew by 35.8% to $18.6 million. In the third quarter of 2006, the segment incurred a pre-tax restructuring charge of $5.8 million.
• Foreign exchange rates did not have a material effect on revenue or operating profit growth.

Full press release
Powerpoint