It was the year that saw Raspberry Pi become a true phenomenon, Twitter users on the end of libel actions and publishers’ dreams of iPad riches take a reality check. Here are the nine key lessons of the year
LESSON 1 Tweet in haste, repent at leisure
Who would have thought that an elderly Tory peer would become a leading innovator in internet law? Yet that is what Lord McAlpine has become. It’s not clear whether it was him or his lawyers who came up with the idea of going after the UK Twitter users who tweeted – or retweeted – false allegations that he had been involved in child abuse, but, whoever was responsible, the fact is that it has changed the legal landscape in the UK.
The smart move was to discriminate between different classes of users. Those with 500 or fewer followers could get in touch with McAlpine’s lawyers and, upon payment of a small fee to charity, escape with a pardon. More substantial tweeters were required to pay heftier damages or face the full force of m’learned friends in court.
Chief among the latter was Sally Bercow, Mr Speaker’s lively spouse, who, at least at the time of writing, seems determined to see things through to the bitter end. If it comes to that, we can look forward to an entertaining and instructive legal contest.
All of which is comforting for the establishment. At last, the unruly internet beast is being tamed. Twitter gives broadcast-type communication power to ordinary citizens and if a broadcasting network such as the BBC can be held responsible for what it transmits, surely Twitterers should be too?
Only up to a point, Lord Copper. Obviously, people should be responsible for their actions, but it’s absurd to judge the behaviour of a thoughtless individual by the same standards as we apply to that of a professional news organisation such as the BBC. If the only tweets that were judged acceptable were anodyne ones, then the value of Twitter as a public service would be greatly diminished. Besides, lots of professional journalists made similar errors in jumping to conclusions about the identity of the Sandy Hook killer.
LESSON 2 Valuing technology companies remains an inexact science
Before Facebook’s initial public offering (IPO), the big question was: how much is the company worth? Post-IPO, the answer was: less than we thought – or were led to believe by Wall Street. Facebook shares fell 24% in the first three days of open trading, a fact that has led some disgruntled investors to contemplate legal action. Clearly they hadn’t heard that valuations of internet companies arrived at by consulting the entrails of chickens are possibly as reliable as those arrived at by legions of spreadsheet-wielding consultants.
But the story of Facebook’s oscillating valuations paled into insignificance compared with the row about the price that Hewlett-Packard, the troubled US computer giant, paid for software firm Autonomy. In October 2011, HP bought the Cambridge-based company for $11.7bn. Last month, HP announced that it was taking an $8.8bn write-off because it had realised that Autonomy was not worth anything like its purchase price. HP claimed that $5.5bn of the write-off was explained by the discovery of “accounting irregularities”.
HP’s criticisms are vigorously denied by Mike Lynch, the founder of Autonomy, who has set up a website to contest them. Meanwhile, in another part of the forest, Larry Ellison, the CEO of Oracle, has also set up a website, which claims that “Autonomy had been ‘shopped’ [ie offered for sale] to Oracle as well, but Oracle wasn’t interested because the price was way too high”. While all of this is going on, the average reader might be forgiven for asking how a big company such as HP could have made an $8.8bn mistake in its valuation of a prospective acquisition. Shouldn’t it have taken the advice of accountants?
It turns out that it did. The New York Times reported that all of the Big Four firms – KPMG, Ernst and Young, Deloitte and PwC – had been consulted at one time or another. Next time, HP should try those chicken entrails.
LESSON 3 Raspberries come in unexpected flavours
A few years ago, Eben Upton and some of his academic colleagues in Cambridge University’s Computer Laboratory became concerned about the fact that most of the kids who wanted to study computer science no longer knew how to program. So they had the idea of designing a small, cheap computer that they could give to prospective students at open days. Anyone who turned up for interview would be asked what they’d done with it and only those who had done something interesting would be considered for admission.
Thus began the most intriguing home computing experiment since the BBC Model B transformed Britain’s IT landscape in the 1980s. “We thought we’d make maybe a few hundred of these devices,” Upton wrote later, “or, best case, a lifetime production run of a few thousand.”
How wrong can you be? When Raspberry Pi, for that is what the device was eventually christened, was announced, 100,000 people joined the mailing list. When it went on sale, the demand crashed the servers of the two major online retailers that had signed up to sell it. To date, it has sold more than 800,000 units and stands as an astonishing rebuke to the sceptics who said that in these days of iDevices and tablets there was no market for a device that ran Linux and simply sat blinking at you when you switched it on. But then that’s what they also said about the BBC Micro.
LESSON 4 The iPad isn’t a magic bullet for publishers after all
Print publishers hate the web, partly because they can’t control what people do with the content that they publish on it, but mainly because they can’t make the buggers pay for it. So when the Apple iPad arrived they fell upon it like ravening wolves. Sure, they had to pay the Apple 30% tax for publishing through the iTunes store, but at least the customer paid something. And the gorgeous screen and processing power of the Apple tablet meant that publishers could create “immersive reading experiences” that, coincidentally, kept the reader from venturing out into the nasty world wild web.
Ever willing to try something new, Rupert Murdoch launched The Daily, the world’s first iPad-native newspaper, in February 2011. He closed it on 15 December 2012, saying that the product “could not find a large enough audience quickly enough to convince us the business model was sustainable in the long term”.
An expensive mistake? Yes, but also a valuable experiment for the rest of us. The truth is that iPad publications may look cool, but they can be pretty clunky. For one thing, you have to download the whole publication before you can start reading page one. (Imagine if you had to do that with websites.) For another, they are mostly “little more than heavy PDF files, weighed down with multimedia bells and whistles“. That’s not to say that iPad-native magazines don’t have a place in the digital ecosystem, but they’re not the magic bullet the publishing industry once hoped they would be.
LESSON 5 Why Facebook should not have a seat at the United Nations
With a billion users, Facebook may have as many people as India, but basically it’s a dictatorship. Come to think of it, adhering to democratic principles is not – and never has been – a requirement for admission to the UN club. Robert Mugabe’s Zimbabwe, is a member, for example, as are Iran, Belarus and Angola. So maybe Facebook’s CEO would feel quite at home at the UN’s New York HQ. After all, like all the best dictators, he always knows what is best for his people.
He knows, for example, that they want everything to be “social” – ie open to the world. He also knows that their petty obsessions with their privacy are just that – petty. Only the other day, the company announced the termination of users’ ability to hide from Facebook searches. Sam Lessin, one of Zuck’s henchmen who has the interesting title of “director of product”, told journalists that the ability to hide from the site’s search would be “retired” as only “a single-digit percentage of users” actually hide themselves from Facebook search. How George Orwell would have loved that use of the word “retired”!
Given that Facebook has a billion users, a single-digit percentage could mean tens of millions of privacy “retirees”. Oh and by the way, the “product” in Mr Lessin’s job title is you and me.
LESSON 6 Book publishers have finally realised that they are the main course in Amazon’s lunch menu
Here’s a riddle: “Disintermediation is a very long word. How do you spell it?” The answer, of course, is “it”. But disintermediation is now the mot de jour. It means wiping out the intermediary and that is what the internet does. Remember travel agents? Record shops? Bookshops? Book publishers?
For a long time, publishers maintained that, while the internet was certainly destroying the business models of other industries, book publishing was such a special business that it wouldn’t happen to them. After all, in the end, every author needs a publisher – doesn’t s/he? Only sad people go in for self-publication.
Er, not necessarily. The arrival and widespread acceptance of ebooks, together with on-demand printing and Amazon’s ebook publishing engine have transformed self-publishing from a dream to a reality. If you’ve written something and it’s in Microsoft Word format, then upload it to Amazon’s publishing engine, upload an image for the cover, choose a price and in about four hours it’ll be for sale on the web.
And in case you think that self-publishing is just for wimps, remember that that’s the way Fifty Shades of Grey started.
LESSON 7 Just because governance of the internet is too important to be left to the United Nations doesn’t mean that it doesn’t need governance
The farce that was the World Conference on International Telecommunications (WCIT-12) has ended, but the problem of internet governance endures. The conference was ostensibly about updating and harmonising international telecommunications protocols (for example, mobile roaming rates) but some countries, including quite a few authoritarian regimes, and phone companies sought to use it as a vehicle for controlling internet content and levying charges on those who create and provide it.
In the end, the conference broke up in thinly veiled disarray, with most western countries refusing to sign up to the proposition that the International Telecommunication Union (ITU) should have any major role in internet governance. Two cheers for that. But we are still left with a problem, which, crudely stated, is this: it ain’t broke, but it needs fixing. Because of its history, governance of the net is unduly weighted in favour of US-based or US-dominated institutions. This was fine when the internet was predominantly a US-European phenomenon. But now it’s a truly global network and we need a multinational governance structure that a) reflects that reality but b) doesn’t break the openness and vitality of the system. The first person to crack that problem gets a Nobel prize.
LESSON 8 If you want privacy keep off the net. Or at least encrypt your stuff
In 1999, Scott McNealy, then the CEO of Sun Microsystems, famously observed that consumer privacy issues were a “red herring”. “You have zero privacy anyway,” he said. “Get over it.”
At the time, people wondered what Scott had been smoking. Now we know better. We have been sleepwalking into a networked world where privacy is ostensibly worshipped like motherhood and apple pie but is everywhere abused.
You may wonder why particular ads seems to follow you everywhere you go on the web? Or why brands you “like” mysteriously turn up in your timeline and in those of your “friends”. Google knows every YouTube video you’ve ever watched (and also what’s in your Gmail). Facebook knows all of this stuff plus your real name.
And, on the other side of the fence, the US National Security Agency (and possibly also its overseas franchises) is hoovering up all your electronic communications. The UK Data Communications Bill suggests that our domestic agencies have similar ambitions. And western countries are still selling electronic surveillance kit to repressive regimes all over the world.
The only real solution is to switch off your mobile phone and never again use the net. Failing that, you could try encrypting your email using something such as PGP. But that’s not for the faint-hearted, so perhaps the rule to live by is this: don’t put anything in an email that you wouldn’t put on a postcard.
LESSON 9 The future’s mobile and that’s not necessarily good news
2012 showed that the explosion in the adoption of smartphones (ie internet-connected mobile handsets) and tablet computers shows no signs of abating. This means that we’re heading for a world in which most people will access the internet via handheld devices. And this has major implications. The upsides are clear: it will be easier for billions of people to integrate the net into their daily lives, with all the benefits that that can bring.
The downsides are less obvious to most people, but they are worrying and real. In particular, it will be a world in which most people access the net via closed, “tethered” devices that will greatly enhance the powers of corporations that few of us have any reason to trust. Technology giveth and technology taketh away.
Former Mirror Group chief plans to rejuvenate local papers through consolidation – but some doubt his credentials
In 2006 the publisher of the Daily Mail passed up the opportunity to sell its regional newspaper business for about £1bn, after bidders declined to meet its lofty expectations of a £1.5bn price tag.
Daily Mail & General Trust is now poised to hive off regional operation Northcliffe Media, home to titles including the Leicester Mercury and Nottingham Post, into a joint venture led by former Mirror Group Newspapers and Mecom chief executive David Montgomery that values it at about £100m.
This plummeting valuation highlights the battering the regional press has taken in the intervening period, with the industry one of the media sectors hardest hit by the growth of the internet and the post-credit crunch recession.
Sales have slumped — the Leicester Mercury sold almost 100,000 copies a day a decade ago, today it sells 45,000 — along with advertising revenues. When DMGT rejected a £1bn offer for Northcliffe in 2006, total annual UK regional newspaper advertising was £2.5bn; today it is £1bn and continuing to decline rapidly, according to media buying agency Group M.
Further consolidation has been widely expected, and last week the starting gun was effectively fired with Montgomery’s move, the first stage of a plan that he believes will reinvigorate the ailing sector. “The industry is on a one-way street – everyone has been waiting for something to happen and unless there is market consolidation there will be no regional newspaper business,” said one senior newspaper industry executive.
The first stage of Montgomery’s plan is to merge Northcliffe, the UK’s fourth biggest regional newspaper group by circulation, with Iliffe News & Media (the 11th largest), owner of titles such as the Cambridge Evening News, into a venture called Local World. DMGT and Iliffe will control almost half of the venture, with Trinity Mirror also in talks about taking a stake.
Montgomery has backers lined up including hedge fund manager Crispin Odey and is also talking to former Tory deputy chairman Lord Ashcroft about a stake.
Montgomery will have the benefit of not having to deal with Northcliffe’s pension deficit — DMGT is taking responsibility. The company deficit stood at £370m at 1 April, although how much of that relates to Northcliffe is unknown. Pension issues have hampered previous negotiations between major players about regional newspaper consolidation.
Local World will also not own any printing plants, saving it from the considerable associated costs.
However, there is scepticism about whether Montgomery, who was ousted in January last year from Mecom, the pan-European newspaper publisher he founded, is the shining knight with the masterplan that the industry has been waiting for.
Journalists who remember Montgomery’s time at the Mirror titles in the 1990s, when he had a reputation as a brutal cost cutter, may shudder at the thought of his return to UK newspapers.
“It is not a particularly compelling business; the combination will still leave them fourth in the pecking order of regional newspaper groups,” said a former senior newspaper executive.
“Montgomery knows the regional business and it unequivocally needs to be done, but after Mirror Group and Mecom I’m surprised it is him and not an existing big player starting this.”
The big player most fancied to have done so is Trinity Mirror, the biggest UK publisher with regional titles including the Liverpool Echo and Newcastle Journal, which has spotted the potential of Local World. Trinity is negotiating to take a stake, thought to be less than 20%, but will not at this point be merging its titles into Local World.
“It is not possible to reverse the structural change in the industry but it is possible to start to develop a business much more appropriate with dealing with it,” said one source. “Local publishers tend not to recognise the value of what they have, who else has the infrastructure to collect local content and exploit it? They just don’t seem to have got off first base in the digital world. Consolidation can give a new lease of life if savings are invested in modernisation.”Putting Trinity Mirror’s 100-plus titles into Local World would create a super-player much better able to cope with the digital challenge. One analyst compared such a super-merger to the regional newspaper equivalent of the joint venture between book publishers Penguin and Random House, a move designed to try to keep pace with digital upstarts such as Amazon.
The critical question is whether the tough stance taken by competition regulators will finally soften in light of the parlous state of the regional market.
One observer points out that Montgomery will be keenly watching the outcome of the Competition Commission’s investigation into Global Radio’s takeover of GMG Radio. That deal brings together the biggest and third biggest players in the UK radio market, and has been struck in the face of many of the same issues facing regional newspapers.
“How the regulator views local market competition will be make or break for whether Montgomery can really lead consolidation – the radio ruling will be the test for Local World’s plans,” said one source. “The idea that local publishers restrict and control media content in the internet age is ridiculous. Montgomery has no plan if regulators don’t acknowledge this.”
If you need Amazon, Apple or Google to reach readers, size matters
From Fifty Shades to Jamie Oliver, the mooted Random House-Penguin combination would create by far the world’s biggest book publisher, responsible for about one in four books published in Britain. If that sounds too much, consider that Universal has just swallowed up EMI in music, an operation with a market share of over 30%. Music has gone from four to three majors; why not books, leaving the other two – News Corp’s HarperCollins and Lagardère’s Hachette – wondering, “what next?”.
What the two industries have in common is that over them looms Amazon, Apple or Google – vast US concerns that largely monopolise the digital routes to the consumer. The publishers’ thinking is that being twice the size gives them a chance in negotiations with Amazon, although the worry is that as the inevitable savings follow, authors have fewer places to hawk their wares.
The proposed “combination” would leave the larger Random House, earnings £149m, in the driving seat. Penguin’s income is €130m. It also implies that Pearson, Penguin’s owner, is not cashing out, at least for now. Privately held Bertlesmann, the German owner of Random House, is overly endowed with money. But a minority position in media’s most mature business is not a long-term position. On the other hand, it sharpens the investor focus on Pearson’s world-leading education business.
And it makes the status of the Financial Times look more anomalous.
Publisher Pearson says it is holding talks with German media group Bertelsmann about combining their Penguin and Random House businesses.
Visit link: Pearson in Penguin merger talks
HaperCollins’s chief executive is about to launch an e-atlas – and, she says, that’s not the only way the world is changing
As the trays of cheese and wine begin to circulate for this autumn’s book launch season, one of the UK’s biggest publishing houses will be pinning its hopes not on a hardback, but on an app designed for tablet computers.
Alongside celebrity autobiographies from Victoria Pendleton and Cheryl Cole, and John Major’s history of music