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Disclaimer
This case, and its solution guideline, is intended to be used only as part of Deloitte Consultings Undergraduate Case Competition and should not be used for client and/or industry research. In some cases, the information herein has been modified for the purposes of the competition. Note: This case is COMPLETELY FICTIONAL, and the situation discussed is COMPLETELY HYPOTHETICAL and meant for the educational purpose of the case competition only. The names and logos of companies are trademarked by their respective legal entities and their use in this document does not imply any sponsorship herein.
Contents
Case Introduction
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You see that the message is from Ken Landis, a Senior Partner in the Firm, and it sounds like an interesting and important opportunity....
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Ken Landis US New York Consulting Team Important: eReader Market Perspective for a key VC client
Today at 12:00 pm
Team, I just spoke with Harold Chambers, the managing director of McChane Capital (MCC). MCC is a late-stage venture capital firm focusing on media, entertainment, and emerging technology companies. Harold mentioned that lately MCC has been approached by a number of companies in or adjacent to the eReader market. But MCC's executive committee doesn't feel it has a clear picture of the broader market context to fully assess those investment opportunities, and has asked for our perspective on the eReader market. As you know, eReaders have been in the news lately. In July 2010, Amazon announced that it had sold more eBooks than hardcopies over the course of a month for the first time. Some members of the executive committee believe eReaders are simply the gadget-of-the-moment while long term decreases in readership and content pricing make the market unattractive. Other members believe the market is on the brink of a big shift in how printed content is distributed, and consumed. But neither side has a strong fact base to support its position. There are three segments in the eReader ecosystem - device manufacturers, content providers, and the intermediaries that retail, deliver, and distribute the content. Harold asked our help in providing a thoughtful and fact-based view of the market. Specifically, he wants to know which of the three segments is most attractive (e.g., most value for least risk) for MCC to explore and why? I'd like your team to put together a presentation to answer MCC's question. A good answer should include, at a minimum: An understanding of how and where value is derived in the value chain and how this might shift over time An assessment of the risks and challenges associated with backing a new entrant in each of the three segments An assessment of the technological strategy, systems, and capabilities required for a new entrant in each of the three segments
Keep in mind this is not about target screening or selection for MCC were not telling them which companies to invest in. MCC's executive committee is anxious to define its market perspective and, if attractive, begin investing against it before the opportunity passes. They are particularly concerned about the solvency, competitive positioning, and technological maturity of these organizations. MCC wants to know how key players differentiate themselves amongst these dimensions. (continued on subsequent page)
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Ken Landis US New York Consulting Team Important: eReader Market Perspective for a key VC client
Today at 6:30 pm
(continued from preceding page) According to Harold, the technical capabilities of these organizations will begin to drastically differentiate the major market players over the next several years. Their ability to increase their technical maturity across the following components will inevitably be key to their success: systems integration, information management, delivery logistics, performance management, business analytics, and decision tools. Please include these crucial trends and determine, which, if any, are most applicable and why.
Harold asked that we present our perspective in two weeks (Friday 3/23). This should give you a good amount of time, and I've pulled the group of you together because I know you are capable of delivering under these time constraints. Best Regards, Ken
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market space or considering new entrance into adjacent markets Late-Stage Venture Capital Firms
Target companies entering maturity or expansion phases, with a reputed market position
and led by proven management teams validated in prior capital financing rounds
Have a typical investment horizon of 3-5 years, depending on the sector, with a strong
Industry Selection
Target Screening
Identify core industry with strong growth potential and minimal investment risk Industry type should align with strategic priorities of firm leadership
Identify and evaluate players within the industry, including combinations and tangential players: Consider upside potential as well as hazards Conduct competitive market analysis Assess opportunities for growth, including new product and new market development
Seek and evaluate target investments within the selected value chain. Evaluate metrics: Capital / Cost Structure Capacity / Utilization Differentiation / Substitution Regulatory Compliance Distribution / Channels Client Affinity
Craft letters of intent and conduct further due diligence including financial, legal Establish rapport and trust with management teams Begin price negotiations Begin day one planning Initiate execution processes
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Instructions
You may use any/all publicly available information including any databases you have access to through UC Berkeley You may also consult industry and analyst reports, trade magazines, and other publications beyond those provided You must cite all your sources with the proper level of specificity so that it is easily accessible if necessary. Please include any and all supporting materials in the appendix as needed. If there are calculations based on outside sources, you must provide all sources and calculation methodologies used. You may NOT call any employee of the companies that are the subject of the case You may NOT call any industry or company analysts or other experts If selected as a finalist, you should be prepared to present for 30 minutes, including 20 minutes to present your materials and 10 minutes for Q&A from a panel of judges You must clearly write your team name on the cover page of your presentation If you are selected as a finalist, please bring five (5) printed hard copies of your presentation to the live competition.
You must email in your presentation to casesubmission@lists.haas.berkeley.edu by 5 P.M. on Friday, March 23, 2012. The presentation submitted via email will be the only presentation that you may utilize during the live presentation.
Note: Failure to abide by instructions detailed above can cause submissions to be removed from consideration for finalist placement. This case is COMPLETELY FICTIONAL, the situation discussed is COMPLETELY HYPOTHETICAL and meant for the educational purpose of the case competition only.*
*Although actual figures are used where available, there are certain figures that may not be readily available to the public (e.g. Amazon Kindle unit sales). In certain cases assumptions not outlined in this document are made in order to provide estimated numbers
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The eReader ecosystem is made up of three different value chain players: content providers, device manufacturers, and intermediaries
The market for eReaders, a low-powered electronic reading device with paper-quality displays, has experienced significant growth over the past few years and is expected to reach 34 million units shipped in 2012 with the Kindle alone making up 25 million of those units Although designed primarily for reading electronic books and periodicals, eReaders are increasing in functionality to compete with tablet computers that can double as eReaders (e.g. iPad, Kindle Fire, etc) Some of the primary advantages of eReaders are portability, instant access to consolidated library of content, long battery life, and ease of use eBooks have an average retail price of between $10 - $14, with costs of just $0.50 per copy, compared to the $25 average retail price of a hardcover book with an average cost of $4 Industry Value Chain and Examples eReader Device Manufacturers Intermediaries Content Providers
Display Manufacturers Qualcomm Fujitsu Authors John Grisham Malcolm Gladwell Device Manufacturers Amazon Barnes & Noble Publishers Random House News Corp. Platform Providers Wireless Carriers Retailers Advertisers
Adobe
Apple Next Issue
Sprint
Verizon
Best Buy
Amazon Apple Barnes & Noble
Source: Gartner Competitive Landscape: Connected E-Readers, North America, November 2010; Research and Markets: E-Reader Market & Future Forecast Worldwide 2010 2014, April 2011; Epps, Sarah Rotman, The Products That Lose When Tablets Win, Forrester Research, June 2011; Streitfield, David, New York Times, Will the Kindle Fire Kill eReaders? January 2012
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The evolution of the eReader market may change the roles of existing major players and will allow new players to enter the market
Current State Future State Enhanced content with introduction of more capable devices Foregoing traditional physical media book distribution model digital-only publishing, selfpublishing, or direct deals with retailers Opportunity for enhanced content with advanced devices Social networking and sharing opportunities through online access Technology advancements allowing for more appealing / engaging content including HTML5 delivery format Mature vendor technology allowing for rollout of content through multiple channels Continued entry of additional players into the marketplace Device-agnostic content sales and distribution More sophisticated retail options with varied pricing and subscription models
CONTENT PROVIDERS
Publishers of eBooks, magazines and newspapers Strong a la carte based purchase model for content Manage the relationship with authors
DEVICE MANUFACTURERS
eReader device manufacturers are the primary retailers of content devices and content
INTERMEDIARIES
Telecom companies provide connectivity Content delivery formats such as Flash and Adobe Air are allowing for increased features and enabling the delivery of enhanced content Flat pricing structure for digital editions of books
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The future of the eReader ecosystem may depend on which of two competing eBook pricing models ultimately prevails
Wholesale Model
Imitates the physical world DEFINITION Publisher sells the eBook to a retailer based on an established retail price and a discount schedule Retailer re-sells the eBook at whatever price they chose Random House sells book to Amazon at 50% of hardcover price, typically $15 for a new release EXAMPLE Amazon sets the price at $9.99 to drive sales of other products on their site and edge out other retailers
Agency Model
Publisher sells the eBook to the consumer, setting both the price and timing of a release The agent, or retailer, that creates the sale receives a commission from the publisher Hachette sets retail price at $14.99, then distributes through Apples iBook store Hachette receives 70% of the total price ($10.50) each time an eBook is sold, Apple receives the remaining 30% ($4.50) as a commission Apple, Sony, Simon & Schuster, Macmillan, HarperCollins, Hachette, Penguin
KEY PROPONENTS
Amazon, Walmart, Barnes & Noble Retailers use pricing as a marketing lever, selling some titles at a loss to drive sales of other products
Opens the market to smaller retailers of eBooks New release books will be made available in hardcover and eBook format on the same day Traditional retailers have retaliated against some publishers engaging in the agency model by refusing to carry their titles
Retailers can offer deep discounts on hot new titles, the main source of profit for publishers Publishers have little control over pricing or title launch dates
Source: Charles Jade, The eBook Wars rage on, gigaom February 2010, theappleblog.com/2010/02/01/the-e-book-wars-rage-on/ Mike Shatzkin, Apples disruption of the eBook market has nothing to do with the tablet, The Ideal Logical January 2010, www.idealog.com/blog/apples-disruption-of-the-ebook-market-has-nothing-to-do-with-the-tablet; Continuing Saga: The eBook Agency Model, ebookreadersresource.com/ebook-readers-blog/ebooks-news/ebook-agency-model; all accessed August 24, 2010
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Tablet competition is changing the nature of the eReader ecosystem but dedicated eReaders still appear to hold value for consumers
Source: Epps, Sarah Rotman, The Products That Lose When Tablets Win, Forrester Research, June 2011
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Although the first eReader was introduced approximately two decades ago, there has been a significant increase in volume of devices in the past five years
eReader Timeline
Sony Bookman CD-ROM device with a small, low-resolution screen Modeled after the Sony Walkman CD-ROM music player NewsPad prototype Envisioned as a multimedia tablet computer to be used to play video and animated news stories locally broadcast by newspapers Sony Libri The first eReader to use the electronic paper display technology Sold mostly in Japan Readius by Polymer Vision First pocket-sized eReader with a roll-up electronic paper display Barnes & Noble Nook Includes Wi-Fi and 3G wireless connectivity, a six inch E Ink display, and a separate, smaller color touchscreen Motorola Xoom Launched 2/2011 Blends tablet and eReader capabilities Kindle Fire Retails for $199 Runs on Android software Highly competitive price point for tablet
2008 2011
1993
MessagePad by Apple
1998
2004
2006
iLiad Reader by iRex Technologies
2007
Kindle by Amazon The most successful eReader in the U.S. market today as of the end of 2009 FLEPia by Fujitsu Frontech First eReader with a color electronic paper display iPad by Apple
2010
Softbook by Softbook REB 1100 and REB 1200 Press and Rocket eBook by Gemstar First series of personal The REB 1200, also sold digital assistant devices by NuvoMedia as the GEM 2150, was developed by Apple for First true eReaders in the general consumer the first eReader to have the Newton platform market a full-color display Based on ARM 610 Customers purchased RISC processor and all and downloaded eBooks featured handwriting via telephone dial-up recognition software services from each enterprises online bookstore
Launched April 3, 2010 Blends tablet and eReader capabilities Kobo Jointly developed by Fairmont Hotels and Random House Kindle 3
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Tech-savvy males will lead the way in eReader purchases, but mainstream consumers are gaining interest
Progression of eReader Buyers
Today
Mainstream Consumers Contrary to early adopters and second wave buyers, mainstream consumers are much different demographically Higher proportion of female buyers More likely to purchase books from multiple sources online, supermarkets, book stores, etc
Incomes fall between those of early Families with two or more children living adopters and the typical consumer at home are at least twice as likely to Buy fewer books online own an eReader College educated with a household income nearly 50% higher than that of the average American online consumer Make approximately 1/3 of annual book purchases online Frequent readers valuing the device more as a novelty than for heavy usage Avid readers, purchase more books per month than early adopters
Source: Sarah R. Epps, Who Will Buy an eReader?; North American Technographics Media and Marketing Online Survey Q2 2008, Q2 2009. ODell, Jolie. The State of the Tablet and eReader Market Mashable, July 2011.
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While Amazon leads device manufacturers in market share today, Apples iPad has gained considerable momentum in the marketplace
eReader Manufacturer Device Market Share as of March 2010 (%)
Amazon Leads the Way in 2011 Amazon leads the market with 43% market share Products include the Kindle, Kindle DX and the Kindle Fire, which span a broad range of price points $79 - $379 Whispersync content platform allows users to access their Kindle library from other devices, such as PCs, iPhone, Blackberry and iPad International demand currently comprises approximately 1/3 of sales and is projected to accelerate in future years Increasing competition from tablet manufacturers, such as Apple, will continue to take market share from traditional eReaders and put downward pressure on prices
Apples Entry to the eReader Market The iPhone can be used as a reader, as Lexcycles iPhone/iTouch eReader app was downloaded 1 million times in 2008 Apples iPad is a contender in the eReader market:
40% of consumers planning to buy an eReader device will purchase an iPad iPads are compelling because of their increased functionality to browse the internet, play games and consume content (e.g., presentations, movies, pictures, etc)
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Amazon.com offers services to consumers, sellers, and developers through its retail websites Annual Revenue: $48B
Prior to the 2011 holiday season, Amazon introduced the touch screen Kindle Fire at a price point of $199, which is a direct competitor to Apples iPad at a much lower price point Amazon has expanded its reach with apps for iPhone and the iPad Sony allows consumers to buy eBooks from multiple sources and read them on their Sony Reader Integrated its eBookstore with free library books through a partnership with OverDrive Sony stated in August that they would not slash eReader prices to match Amazon and Barnes & Noble, emphasizing quality over price B&N launched its eBookstore with more than 700,000 eBooks B&N has launched a Nook app for Android and is developing one for the iPhone
Sony is an international consumer electronics and media company, including the production of movies, television and music Annual Revenue: $83B
Barnes & Noble (B&N) is a seller of books, music, and movies. B&N jumped into the eReader market with the launch of the Nook Annual Revenue: $7B Apple designs and manufactures consumer electronic devices including personal computers and mobile devices. Operates the iTunes store, which offers digital media content Annual Revenue: $128B
Sold an estimated 13 million iPad2s in most recent quarter The iPad is likely to prompt other device makers to offer tools that will improve the layout and functionality of content on their devices Launched the iBooks store to merchandise eReader content to iPad owners In August of 2010, Dell released the Streak, a 5-inch tablet that runs on Googles Android platform While the original 5-inch screen places the device squarely between the smartphone and eReader market, 7- and 10-inch designs have been introduced since
Dell offers a full line of desktops, notebooks, mobile devices and peripherals Annual Revenue: $62B
Source: Hoovers; Yahoo Finance; Forrester; Wired Magazine; PC World. Trademark note: :The above logos are registered trademarks of their following parent companies: Amazon.com is a registered trademark of Amazon Inc.; Sony is a registered trademark of Sony Inc. Barnes & Noble is a registered trademark of Barnes & Noble Inc.; Apple is a registered trademark of Apple Inc.; Dell is a registered trademark of Dell Inc.
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Description
Kindle owners can buy books from Amazons store directly from the device through its wireless Whispernet service, which runs on Sprints network
Sony Reader owners can access 3,000,000 free books from Google and can buy books from the Sony eBook store Other vendors will seize the opportunity to launch eReaders with form factors and features that are optimized for other content, such as blogs, newspapers, magazines, comics, textbooks, and business and personal documents Competitors will differentiate themselves by launching new features, such as larger screens, touchscreens, notetaking, animation, flexibility, color, and, full-frame video Color displays on traditional eReaders will be available by the end of 2010, while video will follow in 2011 or 2012 Buying and reading books is an inherently social process, and the lack of robust sharing capabilities on the Kindle is an obvious weakness that the Nook store and iBooks addressed directly Price competition has increased significantly in 2010, with price drops on the Kindle, Nook and Sony devices Price will become an increasingly important differentiator for eReaders as more full-featured devices such as the iPad create a new device category While Amazon is the largest eReader vendor in the US, it doesnt have a strong presence in the rest of the world. Sony is better poised for success in Europe and Asia As of Q3 2010, 53% of Apples sales came from international markets. The iPad launched internationally in May of 2010 Publishers have a complicated relationship with the Kindle. While it gives them another distribution channel for their content, as Dallas Morning News CEO James Moroney pointed out in testimony to the US Senate subcommittee on the future of newspapers, Amazon keeps 70% of the revenues and leaves only 30% for publishers Most eReaders are not advertising-friendly, which threatens the major source of revenues for newspapers and magazines
EXPANDING CONTENT
BEYOND BOOKS
ENHANCING SHARING
REDUCING PRICE
IMPROVING
RELATIONSHIPS WITH PUBLISHERS
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While publishing revenues have been flat and are expected to decline, digital revenues are on the rise
U.S. Market Size Digital Revenue as % of Total U.S. Segment Revenue
143.2
144.5
143.1
132.2
(23.8%)
(24.2%) (24.5%)
112.5
110.8
111.4
(23.7%)
(23.3%)
(22.8%)
(22.4%)
(46.4%)
(46.0%)
Year
(23.5%)
118.6
113.7
Year
Key Trends Publishing revenue has been flat and is expected to decline led by significant drop off in the sales of physical media, notably for newspaper and magazines, which have declined in advertising and subscription revenues Revenues from book sales eclipsed those of newspapers in 2010 to become the largest segment
Source: Veronis, Stuhler and Stevenson Communications Industry Forecast 2009-2013, Includes Audio Books and Digital Platforms; Veronis, Stuhler and Stevenson Communications Industry Forecast 20092013. Includes K12 and College segments in print and digital format; PWC Global entertainment and media outlook 2009-13. Notes: Newspaper Digital includes advertising and subscription revenue; Books includes Commercial, Trade, and Educational; Books Digital includes Commercial and Trade; Magazine includes Trade and Commercial advertising, and subscription revenue; Magazine Digital includes Commercial advertising and subscription revenue
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Operations span film, television, and publishing, including newspaper publishers Dow Jones, News International and book publisher HarperCollins Annual Revenues: $ 34B
News Corp. bought Skiff, a Hearst-incubated startup, for its digital publishing technology, and made an investment in Journalism Online, a venture set up to help publishers monetize web-content
A leading magazine publisher, with a portfolio of approximately 150 magazines Annual Revenues: $4B
Released its own eReader using its Sports Illustrated SI publication as a testbed, planning to deliver external content by partnering with other magazine publishers SI is experimenting with video and full color photos, as well as touch screen integration into the content In July 2010, Dorchester Publishing announced it would leave the massmarket paperback business, moving to an eBook-first model followed by a print-on-demand run of trade paperbacks As the company makes the shift, new trade paperback releases will be released 6 to 8 weeks after the eBook edition Released its first iPhone/iPad Reader Apps for the home, office, technical and professional communities, which are available as single or multi-book libraries The apps complement products that are already available, such as traditional print books and online reference libraries Made an agreement with Simon & Schuster to sell 5,000 of its titles Has a self publishing platform for aspiring authors to publish and sell their own books online The only non-Amazon retailer delivering paid content directly to the Kindle
Publishers of mass market books since 1971, the oldest independent mass market publisher in America Annual Revenue: Privately Held
Worlds largest education publisher, providing materials for K-12, higher education, and professional markets Annual Revenue: $9B
Social publishing website, focusing on professional and up-and-coming writers 60 million readers per month Annual Revenue: Privately Held
Source: Yahoo Finance; Mediapost.com; PublishersWeekly.com; Hoovers; Forrester; AdWeek. Trademark note: The above logos are registered trademarks of their following parent companies: News Corporation is a registered trademark of News Corporation Inc.; Time is a registered trademark of Time Inc.; DP is a registered trademark of Dorchester Publishing Co. Inc.; Pearson is a registered trademark of Pearson Inc.; Scribd is a registered trademark of Scribd Inc.
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Description
Most major publications currently have online versions of their content, but consumers are increasingly seeking more mobile access to their favorite media As hardcopy publishing revenues decrease, newspaper and magazine publishers are increasingly turning to highermargin digital content to supplement flagging revenues
DISTRIBUTING
CONTENT THROUGH MULTIPLE CHANNELS
Most newspapers offer direct RSS Rich Site Summary feeds, available through email and other mobile devices
Content is being developed specifically for eReader devices such as the Amazon Kindle, the Barnes & Noble Nook, the iPad and Android platform. Content providers such as The New York Times are offering independent, dedicated applications that are available to the consumer for a monthly or annual subscription Most dedicated eReaders on the market today feature black-and-white screens with relatively low resolutions sufficient for reading books or newspaper articles, but does not allow magazines to provide rich content that PCs and tablets do A new generation of eReader-capable devices, led by the iPad, feature rich color touch screens that will encourage magazine and book publishers to develop enhanced digital content. These new devices will allow consumers to have a more interactive experience with the content Variable publishing costs, such as printing and distribution, can account for up to 60% of a books cost New digital publishing opportunities can greatly reduce or eliminate the need for distributors, providing the potential for enormous cost savings and margin improvement for retailers and publishers
CHANGING
TECHNOLOGY ENABLES ENHANCED CONTENT
EXPERIENCING
ADVANTAGES IN THE SUPPLY CHAIN
Digital publishing is creating new revenue opportunities, such as digitized books, digital advertising, and eBooks
eBook content has experienced the highest revenue growth (44% CAGR 2003-2008) within digital publishing due to the proliferation of eReaders such as the Amazon Kindle. As the sector evolves, higher access speeds, multi-platform access and targeted advertising will allow publishers to continue to grow revenues Piracy poses a similar issue to eBook publishers as it did to music distributors; content is more easily shared without permission through digital formats. Rights management will become a central issue in the industry Consumers may pressure margins by demanding lower retail prices. As new opportunities emerge, publishers will have to renegotiate how revenues are distributed throughout the value chain
INCREASED REVENUE
OPPORTUNITIES
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With eBook sales expected to rise over the next few years, analysts expect Amazons market dominance to wane
US eBook Sales (2009 2013) Amazon Share of Global eBook Sales
Retailers are Playing a Key Role in Content Distribution Amazon launched a suite of Kindle apps for mobile devices, allowing Kindle users to read its eBooks across PCs, Blackberries, Android devices and the Apple iPad, iPhone and iPod Touch In July 2010, Amazon announced that eBook sales outnumbered sales of hardcover books for the first time ever. During that period Amazon claims it sold 143 eBooks for every 100 hardcover books sold Barnes and Noble is increasing its participation in the content distribution market: Developed its own eBook store and eReader app for smartphones and PCs 2009 Acquisition of eBook seller Fictionwise Apple entered the content market with the launch of the iPad by introducing the iBook application and iBookstore
Source: Forrester, Amazon, Apple, Sprint, "E-Books Top Hardcovers at Amazon, New York Times. 2010-07-19.
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Selected Intermediaries
Company Overview
Wireless Carriers
Wireless communications company, including data transmission, both on a contract basis and as a prepaid service Annual Revenue: $34B
Sprint was chosen as the wireless provider and retail location for the Skiff eReader product; Skiff was acquired by News Corp in June 2010.
Leading internet search engine, also provides targeted advertising based on consumer searches Annual Revenue: $38B Social cataloging application for storing and sharing personal library catalogs Currently it has 1,400,000 users and 45 million books catalogued Annual Revenue: Privately Held
The 2009 acquisition of AdMob gave Google the technology to expand its advertising footprint to mobile display ads
Googles Android operating system has encouraged the development of multiple eReader apps and retail services, including Kobo, Aldiko and Laputa
Users are able to connect to sites like Amazon.com, aggregate their libraries and fill their digital bookshelves LibraryThing has become a valuable resource for librarians to identify up and coming trends
Independent media consortium, formed to explore and shape opportunities for publishers on digital devices Annual Revenue: Privately Held International software company offering development solutions used to build rich digital content Annual Revenue: $4.2B
Formed in December 2009, with backing from Hearst, Time Inc., Conde Nast, Meredith and News Corp., to establish publishing standards for ereaders and digital tablets Rumors suggest that Next Issue will open a digital storefront through which consortium members will market content Adobe Content Server 4 ACS4 digital rights management architecture, and Adobe Digital Editions ADE ADE is compatible with many devices and provides a stable, secure, standardized format for publishers and device manufacturers
Source: Yahoo Finance, Gartner; Business Week; Deloitte Media Fact Pack; Newark Star Ledger; NYTimes.com; AdWeek. Trademark note: The above logos are registered trademarks of their following parent companies: Sprint is a registered trademark of Sprint Nextell Inc; Google is a registered trademark of Google Inc.; Library Thing is a registered trademark of Library Thing; Next Issue is a registered trademark of Next Issue Media; Adobe is a registered trademark of Adobe Systems Inc.
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Description Mobile operators can lease their networks to support eReader devices in a wholesale model, as Sprint currently does with Amazon There is a potential revenue stream for selling eReader content direct to consumers if they themselves become the device distributors, as Orange in France has tested with its 3G Read&Go device for newspapers and books Mobile operators are changing data plan pricing to take advantage of the increase in data usage among smartphone, netbook and tablet users Other mobile providers see an opportunity to profit more directly from content and app sales: Orange has launched its Orange Application Store in France and the UK, and we expect others to follow Mobile providers could be poised to win if they can position themselves to profit off of content, rather than just use of their network via a wholesale subscriber model, as the relationship between Sprint and Amazon is currently structured Single-function eReaders with E-Ink displays at low price points have catalyzed consumer interest in reading books digitally, a behavior now spreading to other devices Devices that consumers already own will become more optimized for reading as OEMs tap into the growing eReader trend Some mobile devices will get secondary, non-backlit screens that are optimized for reading eReaders themselves will become multifunctional, able to play videos, games, surf the internet and send/receive email
EXPANDING
INFLUENCE OF MOBILE PROVIDERS
INCREASING
OPPORTUNITIES FOR
MOBILE PROVIDERS
VIA DATA USAGE
BLENDING
OF THE
Sources: Yahoo Finance, Gartner, Business Week, Deloitte Media Fact Pack, Newark Star Ledger, NYTimes.com
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