I’d like to concentrate my thoughts on two of the case studies; the first one, thank you Charlie for that incredibly knowledgeable potted history of the transition from analogue to digital in the book business. I’m particularly interested in that because in 2002 I was working for Sony in the United States, and the president of Sony Electronics decided that he had to clip my wings somehow, so he gave me the task of marketing Sony’s new E-ink reader, that was saddled as usual I’m afraid by rather clunky software. And we didn’t quite make it. He did get some wing-clipping done there.
What I observe is that in the end, the successful transition in that business was because the device became light, long battery life, very readable, I’m talking about the Kindle in particular as the trigger. It was a closed system, and somebody made it very, very easy, subsidised it, and took a view – and it was Jeff Bezos. There is an extraordinary parallel, way before that, with the way that Texas Instruments made the pocket calculator available, because that was far too expensive to be a consumer proposition when it was first invented. And they just took a view, priced it to sell and they eventually got costs down through economies of scale.
I’m also struck, because for my sins, I was put in charge of the Walkman business just before the ipod launched, which was destined to failure. All of the shouting from the rooftops I could do in Tokyo that said, actually the customer doesn’t care about the sound quality, what they want is to be able to transfer the files from the computer easily, they don’t care that you can’t drop an ipod from a metre onto a concrete floor, which you can with a minidisc, they want to have an easy transfer of all of their files into one place. But that was another battle lost.
But it was very interesting that what happened there was ease of use, in a very attractive package, that just fit with consumer behaviour. It became a moment when that just worked. Its predecessor was French, the Arkos Jukebox, that never actually succeeded. I wonder why? It was heavier, it was a bit clumsy in design, it wasn’t as well-integrated with the source of content which was the computer. It was really the genius that Steve Jobs had of linking his elegant ipod with very simple user software, and then subsequently launching the itunes music store, which came a little bit later. But he also bet the farm on it.
I was competing against him. When we launched the NET minidisc, the first minidisc to be integrated with a computer, he spent 40 million dollars in advertising in the United States market at the time, for 8 million dollars worth of retail sales. I rather weakly launched a single page spread in USA Today that had pictures of three coloured minidiscs and it said “Stop dreaming of a white Christmas.” It was a very weak psychological response to the launch of the ipod. But having lived these transitions, Steve Jobs himself faced a bit of a transition, because back in 1999, he’d taken the view that he had to equip the Mac with a DVD drive, that this was the future, but in fact that coincided with the launch of Napster. Napster was making illicit files available, and everybody wanted to burn them to CD, because to take your music with you, you had to take it on a Sony Discman. You needed to burn it onto CD first.
He ended up having to warn analysts, in November 1999, that he was going to miss his sales target by 40% and make a loss of $250 million. And what he said was, we completely missed the boat, we just blew it. What he meant was, he hadn’t realised the importance of music to his company. Well, his response was legendary, he became the most valuable corporation of all time, shortly after he passed away, $619 billion in August 2012. A note for the history books; the financial results of Apple, year ended September 2012, profits of 41.7 billion, and the height of the recorded music industry worldwide, was worth 38 billion dollars in 2000. Somehow or other, we haven’t done it right, and I really look forward to the contribution CREATe can make, to help us work it out. We are all ears, guys.
If I could turn my attention just for a second to Chemikal – the underlying numbers suggest your problem is not digital per se, I see Will Page is in the audience here from Spotify. The rates that Spotify pays to creators, are actually much more attractive than the rates that radio pays, the problem is that Spotify and its competitors have not yet become mass market, and one of the reasons they’ve not become mass market is that their competing against pre-sale. So one way or another, however we deal with it, and I’m pleased to see that one of the strands is monitoring the success and failures of the three strikes policy, one way or the other, and there are many ways of dealing with it, we have to tamp down the piracy. Piracy is a business, we identified that in some research we sponsored along with Google, run by Dettica, and what it said, was that there are business models that power piracy, and they are making money without paying for the bare materials. So, we’ve got to find a way to deal with that somehow. And then, you’ll find that the services that do have the courage to launch and offer a good service, and pay the rights holders, will be able to pay you properly.