Category Archives: E-commerce

Cooking the books?

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Over the many years I have been writing this blog, I have often commented on the publishing industry, from my personal experiences, to industry trends and future outlook. The recent collapse of Australia’s online bookseller, Booktopia, prompted me to revisit the topic.

First, a declaration – I am an unsecured retail creditor of Booktopia. Orders for books I  paid for in advance of their publication dates still have not been fulfilled. Obviously, I am not alone; there are about 170k retail creditors, owed a total of $15m. That is an average of about $90 per creditor, although some retail customers are owed more than $10k.

Second, Booktopia’s total debts of around $60m are nearly one third of annual turnover ($198m in FY2023). In FY2022, annual turnover was $240m. Clearly, this was a business in decline, and in financial trouble.

Third, I should have been alert to the problems when I enquired about my outstanding orders, shortly before the administrators were called in. I knew the books had already been published, so I wanted to know when to expect them. This was part of the reply I received, in mid-June:

“We have been experiencing difficulties procuring new stocks from our supplier lately, we are so sorry for the delay.”

Fourth, it transpires that publishers, wholesalers and distributors were experiencing payment delays from Booktopia. Suppliers were reducing or cutting off their credit lines, and declining to supply more stock unless the existing debts were cleared. The administrators are doing their best to realise any remaining value of the business, including a trade sale of Booktopia (as a whole, or as parts). The assets include warehouse stock (some of which may still be owned by the publishers/wholesalers), customer lists, technology, goodwill and other IP. But it was made pretty clear at the first creditors’ meeting that unsecured trade and retail creditors should not expect to get their money back any time soon, and certainly not in full. (A total of $15m in secured debt will get preference, including employees.) So even if the unfulfilled but paid-for stock can be located, there is no apparent obligation for outstanding orders to be completed. In fact, the administrators were suggesting that retail creditors should contact their banks or credit card providers, to see if they could recover their money via those channels. (Which is why insurance premiums, card fees and bank charges go up, of course.)

I don’t understand why Booktopia’s retail and trade debts were allowed to get to such a high percentage of their turn over. Book publishing and distribution shouldn’t be that hard – either the book is in stock at Booktopia, and can be sent immediately, or it is available to order from suppliers and can be fulfilled within a reasonable time. For books that have not yet been printed, surely the customer’s money should be held in some sort of escrow account, and the cash not accessible by the seller or recognised as revenue until the order has been completed?

Of course, books go out of print, and customers may have to wait for a re-print or a new edition. Or the industry needs to consider print-on-demand solutions. Funnily enough, that is one of the key recommendations of the Ad Rem report on the Australian publishing industry (“The Australian Book Industry: Challenges and Opportunities”) in 2001….

Next week: Notes from the UK

 

 

Music streaming is so passé…

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Streaming services have changed the way we listen to music, and not just in the way the content is delivered (primarily via mobile devices), or the sheer number of songs available for our listening pleasure (whole catalogues at our fingertips).

These streaming platforms (which have been with us for more then 15 years) have also led to some more negative consequences: the deconstruction of albums into individual tracks (thereby undermining artists’ intention to present their work as a whole, rather than its component parts); shifting the relationship we have with our music collections from “ownership” to “renting”; paying paltry levels of streaming fees compared to royalties on physical sales and downloads; pushing suggested content via opaque algorithms and “recommender engines” rather than allowing listener self-discovery; squashing music into highly compressed audio formats, thus impairing the listening quality; and reducing album cover art work and design into tiny thumbnail images that don’t do justice to the original. (If you can’t appreciate the significance and importance of album art work, this forthcoming documentary may change your mind.)

Of course, streaming is not the only way to consume music – we still have vinyl, CDs and even cassettes in current production. (And let’s not forget radio!) Although optimistic numbers about the vinyl revival of recent years have to be put in the context of the streaming behemoths, there is no doubt that this antique format still has an important role to play, for new releases, the box-set and reissue industry, and the second-hand market.

For myself, I’ve largely given up on Spotify and Apple Music: with the former, I don’t think there is enough transparency on streaming fees (especially those paid to independent artists and for self-released recordings) or how more popular artists and their labels can pay to manipulate the algorithms, plus the “recommendations” are often out of kilter with my listening preferences; with the latter, geo-blocking often means music I am looking for is not available in Australia. (As I am writing, Spotify is playing a track which has been given the wrong title, proving that their curation and editorial quality is not perfect.)

Streaming can also be said to be responsible for a type of content narrowcasting – the more often a song is streamed (especially one that has been sponsored or heavily promoted by a record label) the more often it will appear in suggested playlists. Some recent analysis by Rob Abelow suggests that fewer than 10% of songs on the Spotify billion stream club were released before 2000. This may have something to do with listener demographics (e.g., digital natives), but it also suggests that songs only available as streams (i.e., no download or physical release), or songs heavily marketed by labels wanting to promote particular content to a specific audience, will come to dominate these platforms.

Further evidence of how streaming is skewed towards major artists is a recent post by Damon Krukowski, showing how independent musicians like him are being “encouraged” to be more like megstars such as Ed Sheeran. Never mind the quality of the music, just think about the “pre-saves” and “countdown pages” (tools which are not yet available to every artist on Spotify?).

I’ve been using both Bandcamp and Soundcloud for more than 10 years, to release my own music and to discover new content. I began with Soundcloud, but soon lost my enthusiasm because they kept changing their business model, and they enabled more popular artists to dominate the platform with “premium” services and pay-to-play fees that favour artists and labels with bigger marketing budgets. Whereas Bandcamp appears to be doing a better job of maintaining a more level playing field in regard to artist access, and a more natural way for fans to connect with artists they already know, and to discover new music they may be interested in.

But all of this simply means that streaming has possibly peaked, at least as an emerging format. The industry is facing a number of challenges. Quite apart from ongoing disputes about royalty payments and album integrity, streaming is going to be disrupted by new technologies and business models, thanks to blockchain, cryptocurrencies and non-fungible tokens. These startups are going to improve how artists are remunerated for their work, create better engagement between creators and their audiences, and provide for more transparent content discovery and recommendations. Elsewhere, the European Union is considering ways to preserve cultural diversity, promote economic sustainability within the music industry, remove the harmful effects of payola, make better use of content metadata for things like copyright, creativity and attribution, and provide clear labeling on content that has been created using tools like AI.

Just for the record, I’m not a huge fan of content quotas (a possible outcome from the EU proposals), but I would prefer to see better ways to discover new music, via broadcast and online media, which are not dependent on regimented Top 40 playlists, the restrictive formats of ubiquitous TV talent shows, or record label marketing budgets. Australia’s Radio National used to have a great platform for new and alternative music, called Sound Quality, but that came off air nearly 10 years ago, with nothing to replace it. Elsewhere, I tune into BBC Radio 6 Music’s Freak Zone – not all of it is new music, but there is more variety in each 2 hour programme than a week’s listening on most other radio stations.

Next week: More Cold War Nostalgia

 

Smart Contracts… or Dumb Software

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The role of smart contracts in blockchain technology is creating an emerging area of jurisprudence which largely overlaps with computer programming. However, one of the first comments I heard about smart contracts when I started working in the blockchain and crypto industry was that they are “neither smart, nor legal”. What does this paradox mean in practice?

First, smart contracts are not “smart”, because they still largely rely on human coders. While self-replicating and self-executing software programs exist, a smart contact contains human-defined parameters or conditions that will trigger the performance of the contract terms once those conditions have been met. The simplest example might be coded as a type of  “if this, then that” function. For example, I could create a smart contract so that every time the temperature drops below 15 degrees, the heating comes on in my house, provided that there is sufficient credit in the digital wallet connected to my utilities billing account.

Second, smart contracts are not “legal”, unless they comprise the necessary elements that form a legally binding agreement: intent, offer, acceptance, consideration, capacity, certainty and legality. They must be capable of being enforceable in the event that one party defaults, but they must not be contrary to public policy, and parties must not have been placed under any form of duress to enter into a contract. Furthermore, there must be an agreed governing law, especially if the parties are in different jurisdictions, and the parties must agree to be subject to a legal venue capable of enforcing or adjudicating the contract in the event of a breach or dispute.

Some legal contacts still need to be in a prescribed form, or in hard copy with a wet signature. A few may need to be under seal or attract stamp duty. Most consumer contracts (and many commercial contracts) are governed by rules relating to unfair contract terms and unconscionable conduct. But assuming a smart contract is capable of being created, notarised and executed entirely on the blockchain, what other legal principles may need to be considered when it comes to capacity and enforcement?

We are all familiar with the process of clicking “Agree” buttons every time we sign up for a social media account, download software or subscribe to digital content. Let’s assume that even with a “free” social media account, there is consideration (i.e., there’s something in it for the consumer in return for providing some personal details), and both parties have the capacity (e.g., they are old enough) and the intent to enter into a contract, the agreement is usually no more than a non-transferable and non-exclusive license granted to the consumer. The license may be revoked at any time, and may even attract penalties in the event of a breach by the end user. There is rarely a transfer of title or ownership to the consumer (if anything, social media platforms effectively acquire the rights to the users’ content), and there is nothing to say that the license will continue into perpetuity. But think how many of these on-line agreements we enter into each day, every time we log into a service or run a piece of software. Soon, those “Agree” buttons could represent individual smart contracts.

When we interact with on-line content, we are generally dealing with a recognised brand or service provider, which represents a known legal entity (a company or corporation). In turn, that entity is capable of entering into a contract, and is also capable of suing/being sued. Legal entities still need to be directed by natural persons (humans) in the form of owners, directors, officers, employees, authorised agents and appointed representatives, who act and perform tasks on behalf of the entity. Where a service provider comprises a highly centralised entity, identifying the responsible party is relatively easy, even if it may require a detailed company search in the case of complex ownership structures and subsidiaries. So what would be the outcome if you entered into a contract with what you thought was an actual person or real company, but it turned out to be an autonmous bot or an instance of disembodied AI – who or what is the counter-party to be held liable in the event something goes awry?

Until DAOs (Decentralised Autonomous Organisations) are given formal legal recognition (including the ability to be sued), it is a grey area as to who may or may not be responsible for the actions of a DAO-based project, and which may be the counter-party to a smart contract. More importantly, who will be responsible for the consequences of the DAO’s actions, once the project is in the community and functioning according to its decentralised rules of self-governance? Some jurisdictions are already drafting laws that will recognise certain DAOs as formal legal entities, which could take the form of a limited liability partnership model or perhaps a particular type of special purpose vehicle. Establishing authority, responsibility and liability will focus on the DAO governance structure: who controls the consensus mechanism, and how do they exercise that control? Is voting to amend the DAO constitution based on proof of stake?

Despite these emerging uncertainties, and the limitations inherent in smart contracts, it’s clear that these programs, where code is increasingly the law, will govern more and more areas of our lives. I see huge potential for smart contracts to be deployed in long-dated agreements such as life insurance policies, home mortgages, pension plans, trusts, wills and estates. These types of legal documents should be capable of evolving dynamically (and programmatically) as our personal circumstances, financial needs and living arrangements also change over time. Hopefully, these smart contracts will also bring greater certainty, clarity and efficiency in the drafting, performance, execution and modification of their terms and conditions.

Next week: Free speech up for sale

 

How digital brands are advertising

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During a recent visit to the cinema, I was surprised to see adverts for major digital brands on the big screen, ahead of the main feature.

I’ve always thought of cinema advertising as falling into one or more of the following categories:

  • ads you don’t see on TV (often longer than their small screen counterparts)
  • luxury names and aspirational brands (travel, spirits, fashion, financial services)
  • local businesses (the pizzeria “just a short walk from this theatre…”)
  • movie tie-ins (highlighting the product placement in the film you are about to see)
  • seasonal themes (especially Christmas)

What struck me on this occasion were the ads by three DNBs (digitally native brands), featuring LinkedIn, Tik Tok and Audible. Despite the disparate nature of their businesses, I realised that there was a common element.

As the above-linked McKinsey report states, successful DNBs are really good at connecting with (and understanding) their audience, identifying and fulfilling very specific needs with unique solutions, and leveraging the very technology they are built on to promote their services and engage with their customers. Witness the well-timed “alerts” from food-delivery platforms in the early evening, the viral campaigns designed to enforce brand awareness, and the social media feeds designed to build customer engagement and loyalty. (Note that the report features Peleton as a poster child for its thesis, before the personal exercise brand ran into recent difficulties.)

If you look at most DNB campaigns, they are primarily generating demand via very specific human drivers:

1. Aspirational – the pure FOMO element (not unique to DNBs, of course, but they do it more subtly than many consumer brands)
2. Experiential – highlighting the tangible benefits (of mostly intangible products)
3. Socialisation – the paradox of building a trusted relationship through hyper-personalisation and constant sharing…

These three cinema ads each contained implicit “story-telling“. LinkedIn positioned itself as a platform for establishing our own narrative (telling our own truth?); Audible promoted its audio content (books and podcasts) as a means to find authentic stories that resonate with us (and this was long before the recent shenanigans over at Spotify); and Tik Tok used a well-known viral video as the basis for building community around shared stories.

Of course, story-telling is hardly a new concept in brand marketing, and has been eagerly adopted by digital brands (think of campaigns during the pandemic which have featured on-line connectivity and remote working). However, it has become an over-used technique, and is often cynically exploited in the service of corporate green-washing, jumping on social bandwagons, and blatant virtue signalling.

Call me jaded, but I’m old enough to remember the fad of consulting firms pitching their clients on building a “corporate narrative“, drawing on employee stories and customer experiences, as the foundation for those anodyne mission/vision “statements” – but they typically ended up as exercises in damage control in case the truth got out.

These particular cinema ads managed to use story-telling to create a human dimension (authenticity, connectivity, community, sharing, etc.) that is more than simply “buy our product” or “use our tech” (although obviously that’s the ultimate goal). It would be very interesting to read the briefs given to their creative agencies, given that the ads were all in the service of corporate branding.

Next week: Doctrine vs Doctrinaire