Sunday, November 1, 2009

Visionary got it wrong on books

This is a great article written by my friend Damon Hurst. It appears today in The Australian in the media section. Well worth a read.


"THE book is dead," said Peter Kindersley, founder and chairman of Dorling Kindersley (DK). He was launching the world's first interactive CD ROM in London in 1992 at a lunch for city types as the company prepared for an initial public offering.

At the time, DK was a "new media" company with an "old media" core business -- illustrated reference books. To be sure, Kindersley's bold and self-interested prediction has plenty of relevance to today's debate about the newspaper industry and the role of the internet -- history might not predict the future but, hell, there sure are echoes.

Kindersley, a graphic designer, personally responsible for the illustrations in the ground-breaking Joy of Sex, had taken his essentially pop-art sensibility and applied it to the boring world of educational publishing with huge success. In what must have seemed like a blink of an eye he had built a global company producing 200 books a year, which in turn were licensed and published in 80 countries into 40 different languages.

So what was the secret to his borderless triumph? He took a product that was a monologue of black and white text and turned it into a hotchpotch of high-resolution photography, bespoke illustration and modern motifs, stitched together with thin lines leading to small blocks of text with factual and lateral interpretations of what you could already see on the page. Sound familiar? Fast-forward 20 years and look at a webpage today, even the modern newspaper, and you see how Kindersley's vision was the shape of things to come.

"These books, they just come to life off the page and reflect real life -- or TV," he once said to me with a twinkle in his eye, while explaining what drove him to experiment with CD ROMs. It led me to joining the company for eight years, initially as commercial director based in London and ultimately as managing director for the Australia/NZ territory, with stints in between developing the business in Britain, the US, Germany and Russia.

These new "multi-media" products, as they were then known, were developed from scratch in a highly publicised joint venture with Microsoft. A joint venture that consisted of DK's two million copyright-free images, Microsoft's ideas and team of 150 graphic designers, editors and "interface" people who grappled for two years to invent the new media software industry. Remember at this time there was no commercial World Wide Web. CD ROMs, which we now know to be just storage mechanisms, were then a sexy new marketing channel.

The brokers pricing the DK float based on bottom-up calculations of the old media business were very annoyed with Kindersley's comment, as were DK's distributors awaiting the next batch of products. Not to mention DK's unintentional encroachment into the sacred monopolies of the film production and TV industries.

The tension to get these now very expensive CD ROMs finished, with production costs of up to pound stg. 2 million each, into smart packaging was matched only by the pricing wars that followed in retail environments around the world. Not to mention fundamental questions, like where to place them. With books? With software? A new category? The refrain from retailers around the globe being: how do you price new products without an historical reference point?

The DK educational products went head to head with Sony's new PlayStation games. The PlayStations were launched as hardware/software packages and their brilliant animation actually exceeded the "TV" qualities that Peter Kindersley had imagined for DK's products. Sony won the the retail war and DK got on with finding a way to demonstrate these "beautiful educational" products, without them being compared to the nasty competitive game products. Demonstrating the CD ROMs and other DK products in the family home led to huge sales, often at heavily discounted prices but the model worked and DK had 10 very good years.

Long enough, at least, for Kindersley to attract an on-market bid from Penguin at an enterprise value of about $2 billion, at a price-earnings ratio of 26, which was twice the publishing industry average, even if those brilliant ideas of his were yet to cascade to the company's bottom line.

Ashes to ashes, dust to dust. A book is a book, as a film is a film, as a CD ROM is an old-fashioned storage device. So what's the moral to this story? In my opinion, the long-term future of the newspaper industry is assured if it authentically acts out the part of selling newspapers.

The fundamental business question the newspaper industry should ask itself: what's our value proposition from a customer perspective? It's a sanguine conclusion as I reflect on the day the book publishing industry was swamped by the digital revolution. Kindersley made a lot of money but he got one thing wrong. Books survived.

Damon Hurst is the principal of Thirdman Interim -

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