Good morning.

 

We're going to discuss a subject this morning that was on hardly any radar screens a year ago;

it would not have been a compelling subject for presentation at last year's Making Information

Pay. But today, Digital Asset Distribution is on a lot of minds. What happened?

 

After all, book content has been going out on the web for quite a while. My company did a

digital marketing program for a book called "Longitude" in late 1995 which centered around

offering a free chapter through relevant web sites. For several years, Amazon has had a program

showing interior book pages, starting out as "Look Inside" and now "Search Inside the Book".

Lots of publishers participated, but didn't instantly express a need to manage their own digital

distribution.

 

Then Google offered their Google Print program in 2005. Again, many publishers happily

sent their books to Google for digitization, knowing that the resultant scans would be available

through Google and only through Google. Very few publishers saw Google Print as a sign that

they needed to accelerate their own digitization efforts.

 

Those were opportunities that seemed unthreatening. But then Google and Amazon made

announcements that were perceived as less benign: Google's Library program made some

publishers wonder, rightly or wrongly, whether their IP was safe in Google's hands. And Amazon's

Upgrade program, by which they offer unlimited viewing of an online copy of a book for an extra

charge with the book's purchase, also galvanized some publishers who didn't like Amazon's pricing

structure for the digital book add-on. When the pricing model was announced by Amazon, Random

House publicly said, in effect, "we think we'd rather serve our stuff ourselves and determine the

pricing models ourselves."

 

Now opportunities to use digital content are and will be proliferating. Since the iPod's success

became widespread, it has been observed that it can handle PDFs already and that the screen

could be made twice as big if Apple wanted to do so. MySpace, particularly, has ratcheted up

publishers' appreciation for the opportunities in web marketing. And, although no revenue model

 for e-content has caught on in the consumer space, nobody wants to be caught trying to change

from their print outfit to their digital outfit after the party has already begun!

 

What the "Longitude" experience showed us in late 1995, and which is becoming more and

more prevalent thinking now in 2007, is that distributing content on the web promotes sales.

One of the big publishers digitizing their backlist said to us, "of course we want our books to

be seen on Google. But we also want them seen on thousands of other web sites. Google is

not going to do that for us; we have to do it for ourselves."

 

And with more and more public libraries buying and lending electronic books, and rental and

subscription, if not page-view, models working in other contexts, it does seem that a party with

revenue might start at any time. E-ink creates excitement, even if none of the devices offered

so far, including the Sony Reader, seem to be catching on. We know more reader devices are

coming; and the long-heard rumors that Google and Amazon will each unveil one are getting

louder and more persistent.

 

Every new reading device can potentially generate a new format or a new digital rights

management challenge. All of this impacts digital distribution. It is as though every new

bookstore account you signed up required its own trucking company, or pallet configuration.

These demands make consolidation of the distribution function very compelling.

 

It costs a lot of money to maintain a digital infrastructure. The bandwidth and server demands

to serve 1000 files to printers in a year, as many publishers do, are quite different than what's

required to serve many thousands, or tens of thousands, or even more, files to individuals in a

day. Or an hour.

 

On the other hand, once committed to a robust digital distribution solution, it is actually

easier to "scale" it than it is a physical plant. It is much easier to add servers than it is to add

buildings. If the physical requirements alone were the concern, perhaps it would be worth it

for many publishers to make the investment to keep the control.

 

But so much of what is required is actually intellectual: each point of distribution might require

some serious thinking and some code-writing to address. When Apple unleashes an iPhone that

can display books, do we really need thousands of individual publishers figuring out how best to

configure their content to deliver to it?

 

And just as adding volume in a physical warehouse enables investments in technology that cut

costs, and negotiated agreements with truckers that cut costs, so will the increased technical

capabilities that come with digital volume. Obscure platform-driven use cases can become

supportable if you'll do business with them across a large enough number of titles.

 

One advantage to aggregation that is not yet apparent, but will ultimately be, is increased

knowledge of developing digital sales channels and what content they can monetize.

 

Because we already believed these things to be true many months ago, we were alert to the

fact that the some companies were already positioning themselves to build this infrastructure

with the whole industry in mind during the course of 2006. At Frankfurt, I met with my longtime

London-based colleague, Mark Bide, and we put the idea of a research project on this subject in

front of John Wicker of Klopotek, who agreed to fund what has become several months of

interviewing and analysis.

 

From the first moment, we needed a nomenclature to help define this new world. We dubbed

these Digital Asset Distributors the DADs, which seemed appropriate. Publishers who were

not going to become DADs themselves became the DAPs, or Digital Asset Producers. And the

targets of all this activity are the DARs, or Digital Asset Recipients.

 

In order to qualify as a DAD in our nomenclature, a company has to be attempting to provide a

wide-scale, tending toward a complete, digital distribution solution. After all, Google and

netLibrary, in their way, distribute content. But they aren't DADs, because they do not offer a

multi-faceted distribution "solution" for publishers. So we see Google and netLibrary -- as well

as Donnelley and Amazon, to pick quite different other examples -- as DARs. They depend on

DADs to get them the files they need.

 

Depending on the truth of some rumors we can't confirm, there are between 10 and 12

companies trying to be DADs. Eight of them are participants in our research and will speak

at Klopotek's conferences. We also interviewed 3 DAPs -- publishers who do not plan to

build their own solution -- and 4 DARs. We're pleased that Google will also speak at both of

 the conferences. And when Adobe agreed to sponsor the London conference, it made us

realize that they fall outside this whole circle, in front and in back. They provide tools for

DAPs to create e-content and for ultimate consumers to consume it. They depend on all three --

 DAPs, DADs, and DARs -- in between to make their tools productive.

 

A recent example of the value of this nomenclature arose when Gardner's, the UK wholesaler,

announced their digital asset service. Was their offering a real "DAD", or were they just being

a DAR, offering ebook distribution to their own customer list? Turns out, they are a DAD, but

really as a sales arm for one of the DADs we're working with, Value Chain International. A

VCI executive explained to me, "why should we mount a sales effort to publishers when

Gardner's is already talking to all of them anyway?" Gardner's is really VCI in a White Label

version.

 

Here is a list of all the DADs we can reasonably confirm are serious players. Of this group,

Accenture and Donnelley are the only ones who did not participate in the research effort with

us. Accenture didn't seem to have the bandwidth for the conversation and, frankly, we gave up

trying after several attempts to find the right person at Donnelley to speak to all this. One

person in that company said "they've decentralized digital asset work so much here that I'm

not sure whom to send you to." We've still not found out.

 

Most of the others will be familiar to you. BiblioVault is the storage archive part of

University of Chicago's distribution program that provides print-on-demand in their warehouse.

They serve only the US university press market.

 

codeMantra is a conversion house that sees the opportunity to help publishers with distribution

of the files they create.

 

CPI is a European printer, a conglomerate recently formed by acquisition.

 

HarperCollins has bought into NewsStand, which created LibreDigital as their DAD. Their

offer is actually bifurcated; if you want help with your digital process going from manuscript

to printer's file, you go in through Harper. If you want just DAD help, you go straight to

LibreDigital.

 

Holtzbrinck's BookStore is a UK-based operation.

 

Ingram Digital has been developing from the world's largest book wholesaler for over a year.

 

Random House is a company you will hear more from today that I think we can safely say

needs no further introduction.

 

And Value Chain International is a business process company that is moving from its existing

digital conversion relationships to become a DAD, like codeMantra.

 

We have heard rumors, which I won't repeat because we can't confirm them, about other

potential aspirants for the role of DAD.

 

We believe that, ultimately, all the DADs will have to offer a pretty complete service: storing

publishers' assets, converting them to different formats, providing DRM as required, and

successfully delivering them to platforms and web sites of every description. Although some

large publishers with pretty substantial capabilities of their own might pick one DAD for one

digital service and another for a different one, most publishers who need a DAD will want one

to handle everything for them. We have already seen cooperation between the DADs to enable

this; CPI and BookStore have a relationship somewhat analogous to Harper and LibreDigital,

for example. But each starts with its own view of what is most important. For example: Harper

starts out with a primary interest in marketing books on the Web; Ingram has been aggressive

in pursuing what they see as real revenue opportunities for publishers' content.

 

It is our contention that consolidation of digital distribution will be inexorable.

 

Here is a real-life story that supports that contention. A few years ago, a large retailer had its

own print-on-demand operation. Because the volumes were not deemed robust enough to reach

the scale needed for cost-effectiveness, they folded the POD operation into Lightning. The

agreement was not longterm; the retailer saw the possibility that volume would grow and, at

some future point, they could take the function back in-house.

 

But were are we a few years later? Lightning, building its volume in many ways, has added new

trim sizes to their line; they've added color capability; they've added a hardcover casing line. All

of these additional options can be employed by the retailer. So the retailer's  volume has grown,

but so have the capabilities Lightning has added that the retailer has exploited. And the retailer's

volume alone wouldn't allow them to have all the trim sizes and the color and the hardbacks.

Of course, without the retailer's volume, Lightning might not have them either.

 

Consolidation of technical functions helps everybody. That's why we've been seeing it

accelerate in physical distribution for the past 25 years, if not longer.

 

It is worth mentioning here the concept of "parity functions", of which distribution is one,

whether physical or digital. Parity functions are those from which you can't gain much

competitive advantage by doing it better than the next guy, but you can really hurt your business

if you screw it up. Printing is a really good example. How much better or cheaper could a

publisher print his own books by doing them in-house? Not much. But how badly could they

hurt their business if they attempted to do it in-house and made a mess of it? Completely! It

makes total sense for parity functions to be consolidated and outsourced.

 

But the biggest drivers for consolidation will ultimately be the DARs themselves. The big

publishers who are becoming DADs are highly motivated to eliminate archiving of multiple

copies of their books on the web. In the ideal world of Harper or Random House, Google or

Amazon or any other site that wants their content would "come get it" from them, as needed,

rather than keep their own copy.

 

If their content is to be served, publishers instinctively want to be the ones doing the serving

so they can exercise whatever controls -- through recognition of the recipient or DRM mechanisms

-- they see fit. But serving content for Google and Amazon and Microsoft so they need no

archived copy, if it becomes possible at all (and I don't believe it is possible yet), will require

the highest service standards. It is safe to assume that if any of the big web sites allow any

publisher to serve content to its site visitors, rigorous controls will be enforced. It will not be

something open to hundreds, or even tens, of players.

 

These web business have set high expectations for the speed with which they return a response

to any query or click. Can publishers meet those service levels? Well, perhaps some can. But

certainly not EVERYBODY can. So this path leads to some sort of "certification" of the capable

and that will drive consolidation to those certified as capable.

 

Each new device --  phones, PDAs, ebook readers -- requires IT bandwidth and collaboration.

That also drives consolidation. And if we're right that certain b2b content shoppers will want

customized IP across a range of publishers' offerings, that will also drive consolidation.

 

Clearly, each new use case -- a new web technology or ebook format, say -- will require focus

from IT to accommodate. The fewer DADs there are, the easier it will be to spread new

opportunities across the publishing marketplace.

 

It could even be that uses will arise that make a brand new DAR with a brand new idea want to

work with a single DAD on a pilot basis. Wouldn't they choose the one that had the largest

aggregation of relevant content?

 

Once you have DADs holding files and serving them, particularly when many of the DADs see

the value of getting further upstream into helping publishers with their own content management,

it raises the question about whether DADs get involved in functions that most publishers have

already taken on, often quite successfully.

 

Of course, content management itself is largely new territory. Many publishers have gone to

digital tools that make technological agility, like being able to convert between different digital

formats, possible if not exactly automatic. In fact, one of the big questions today is how nimble

these publisher files will actually be and how well all the reputedly automated conversion

being built by the DADs is going to work without manual assistance. But, even if it does,

contextual tagging of content is still in its very early days. Most publishers haven't even

contemplated the "use cases" for this yet. DADs may become very important to help them

think about it.

 

Most publishers now deliver digital files to their printers, although this is the simplest of all

digital delivery: a "picture" of each page. Publishers have been forced to manage their metadata

and distribute it throughout the supply chain. Might either of these functions ultimately fall to

the DADs? It seems logical, but delivery to the printers is pretty simple and it is not yet clear

that the DADs will have the ability to handle robust metadata demands.

 

In fact, it may be that next year we'll be here talking about the need for MUMs -- Managers of

Unlimited Metadata -- to work with the DADs to round out the solution.

 

All of this adds up to "process reengineering" and it makes us believe that doing the DAD

homework is a step publishers should take before they make substantial content management

investments.

 

Quite aside from the potential to sell digital content, publishers have some important shifts to

make to sell books through the channels they reach customers through now.

 

Marketing needs to shift from large-scale to niche-scale. That's where the audiences are going.

That means 50 web sites might be needed to reach the audience that one TV show or newspaper

reached in the past.

 

Marketing needs to shift from "expensed" to "investment". That is, marketing needs to be about

building connections to the community, and those connections can be used repeatedly. If the

money spent on a newspaper ad is spent instead online trying to gather email names and

permissions, the expense becomes an investment that will pay off over many books.

 

And, as has been eloquently explained over and over by Seth Godin, marketing has to be less

about pontificating and more about conversing. Cost-effective conversation can only happen

online. And the content of the books has to be available and flexible to enable that change.

 

We believe 2007 is the year when every publisher will find they need a DAD. Publishers will

tire of sending books to multiple DARs for them to create their own files. As they contemplate

the cost and challenges of digitizing their backlist, they will realize the urgency of having a

digital workflow for their new titles, so they don't dig a deeper hole of content that will have

to be addressed again at great expense. And as opportunities to expose content online proliferate,

the ability to address those opportunities with some measure of control and protection of

copyrighted material will feel increasingly urgent.

 

Working without robust digital distribution capabilities will be an obvious handicap -- the

absence of a critical parity function -- and creating one's own will be a non-starter for most

publishers. And that's why 2007 is the year that publishers will really be looking for DAD.

 

The research we have done will help any publisher with the task of finding one. The

Research Paper version of our work is being made available as a PDF FREE to everybody

who paid to attend THIS conference. To get it, just send an email to Anna Roe at Klopotek;

she’s at a.roe@klopotek.com..The final White Paper, with conclusions and updated information,

can be ordered, with or without admission to the conferences, at Klopotek.com.