New division has strategy but little experience with publishers or content

After several years of sitting on the fence about its interest in entering the new media publishing market, Apple Computer finally announced the launch of its interactive publishing group. The official rollout — sans Apple CEO John Sculley — took place during a press technology update on the Newton personal digital assistant at the Consumer Electronics Show, and lacked the typical fanfare that accompanies even the most modest of Apple’s announcements.

Ken Wirt, marketing director of the Personal Interactive Electronics (PIE) division and the head of PIE’s new publishing group (which has yet to be named), quietly took the stage at the Four Seasons Hotel in Chicago and briefly outlined Apple’s plans to develop, publish and distribute interactive content for both the Newton and CD-ROM-based computer platforms.

The crowd, which seemed disinterested after deciding the event was just another “It’s Apple’s Newton and someday it’s gonna be a real product” announcement, did not even bat an eyelash when Wirt demonstrated two Newton titles currently in development: an electronic travel guide and a Fortune 500 services and information title. (Even Wirt’s promise to give a Newton away free to anyone in the room who could come up with a new, more consumer-oriented name for the PCMCIA cards, which are the credit-card-size disks on which applications will be delivered for the Newton as well as other PDAs, drew little response from the audience.)

Lame launch, sound strategy. While the interactive publishing group’s coming out might have been entirely forgettable, the group and its plans are not. In a more detailed interview with Digital Media, Wirt outlined PIE’s interactive publishing strategy, including the development of an affiliated label program, its plans to develop and sell authoring tools for multiple platforms, including the Newton, and its intention to deliver content — in the near term — over Apple’s online services network as well as on CDs and PDAs.

GROWING THE MARKET FOR CD-ROM, NEWTON

According to Wirt, who formerly worked at NEC as vice president and general manager of its video games division, Apple’s entry into the interactive publishing arena is primarily motivated by a need to “expand the new media market.” Certainly the benefits of this move for Apple are clear: A publishing group within the Silicon Valley-based computer company ensures that there will be content or software for its hardware, including the PIE division’s PowerCD and Newton PDA family of products, as well as for the multimedia group’s CD-ROM-based machines such as the Performa line.

“In the case of the Newton, we really want it to become a recognized standard,” says Wirt, “so we are licensing the hardware out. That means, though, that we are competing with world-class [consumer electronics] manufacturers, and one way to keep our edge is to keep close to the customer by creating an Apple hardware/software synergy.”

Shelf space, marketing muscle. The benefits for the publishing community are not so clear since Apple is unproved in the publishing field. But, according to Wirt, the company is committed to providing smaller title developers a chance to get on the shelf at retail stores such as a Babbages or Circuit City through its affiliated label and co-publishing programs. (To date, the company has signed two publishers who will make their official debut as affiliates at Digital World.)

In addition, PIE plans to use the substantial marketing power of Apple itself to increase awareness in the consumer channel for multimedia and PDA titles and applications. And so it is possible that the formation of the publishing group could be a win-win situation for all parties involved.

For that to occur, however, Apple will need to work out some of the kinks that are materializing as PIE’s publishing plan makes its way from a printed document to reality. Before we take a look at some of the problems upon implementation, let’s look at the actual strategy.

A PUBLISHING FORMULA FOR ‘A LEAD POSITION’

Apple wants “a lead position” in electronic publishing, and, according to Wirt, that translates into the company owning about 25 percent of the interactive market. In order to achieve that goal, PIE plans to deliver a variety of titles — focusing heavily on content that contains memorable characters that can reappear in a sequel or series of titles — on multiple platforms and on multiple media.

The types of titles PIE plans to produce, publish and distribute are different, depending on which platform is being discussed.

Business for the Newton. For the Newton, the group plans to concentrate — at least initially — on the middle management and executive business community. Applications for the PDA will include spreadsheet apps, personal financial management programs and a billing program. The device will also have self-improvement titles, including discs in which actors role-play different business situations (a sales-coach-type program), and entertainment titles that include “airplane games,” such as crossword puzzles, sports titles that offer personalized fitness training or that teach individuals how to play a better game of golf, and movie guides.

PIE’s multimedia CD-ROM titles will primarily target the home and will include family-oriented, education and entertainment titles. Of course, the PIE publishing group plans to deliver reference works for both platforms.

NEWTON TITLES PLANNED FOR A FALL DELIVERY

For those Newton watchers who are still trying to pin Apple down on a delivery date of its PDA, one indicator that it is getting closer is PIE publishing’s announced commitment to place eight Newton titles in the channel by the end of this September.

According to Wirt, that number will increase to about 15 by the end of this year and jump to a whopping 300 Apple-affiliated titles by the end of 1994. (These numbers do not take into account titles developed and distributed by publishers outside of the PIE publishing group.)

Fodor’s goes interactive. One of the first Apple-published Newton titles expected to make its commercial debut this September is Fodor’s Guide to the Top 10 Cities. The title, expected to retail for about $59, is being built in conjunction with Random House, which owns Fodor’s, and RR Donnelley, which provided the mapping system for the title based on its Geosystems technology.

Lining up the digital rights. According to Wirt, Apple is paying each of these companies a royalty. He declined to elaborate on the costs involved for licensing the digital rights or the terms of exclusivity for specific platforms — except to say PIE will be the only publisher doing the title for the Newton.

“Basically, you have to pay for the digital rights,” he says, “and you try to get as many rights as you can. The big publishers give us as little as possible and keep it specific to the platform.”

Fortune’s Guide to American Business, which provides information on Fortune 500 companies as well as Fortune’s Service 500, is also expected to be released in September. The content has been licensed by Apple from Fortune, and is actually being produced by a small multimedia company based in Arizona. (Hopefully someone will correct the spelling of John Sculley’s last name, which appeared without the “e” in a demonstration of this title.)

As for multimedia publishing, Apple says it will ship five CD-ROM titles for the Macintosh platform this year. Two of the titles will actually be created at Discovery, a business unit of PIE, which is based in San Francisco. The Discovery Group is, among other things, working on a title called Wacky Jack (which we have heard some pretty wacky things about) and an interactive game show. Arborescence, the French publisher, is actually creating the other three titles geared primarily toward the educational market. They include one on the alphabet, one on numbers and another that involves learning about geography and ecology by traveling with a character named Peter.

CONSUMERS JUST SAY NO TO ‘ANOTHER BETA’

Perhaps one of the greatest challenges for the PIE publishing group is how to convince consumers to buy into the interactive market when there is not a standard hardware platform — in particular in the CD-ROM-based personal computer market.

“We have done many focus groups and learned clearly that people are not going to make a buying decision unless they are convinced they won’t get left behind in their decision,” says Wirt. “We do these focus groups with ‘early adopters’ and we have found out that they are still angry for buying beta video decks. They are very clear that they are not going to make the same mistake twice.”

ScriptX is long-term answer. According to Wirt, PIE is pinning its hopes for cross-platform delivery of content on ScriptX, Kaleida Labs’ scripting language and multiple delivery platform technology (see Vol. 2, No. 10/11, p. 12).

“We believe in ScriptX,” says Wirt. “Although we are going to initially do some CD titles that run exclusively on the Mac platform, it will be easy to spool out to ScriptX” so that if ScriptX is adopted as a cross-platform standard, publishers can easily port their content onto discs that can be read by any ScriptX-capable devices.

APPLE GAINS EDGE WITH AUTHORING TOOLS

In addition to publishing and distributing content, a large part of PIE’s publishing strategy relies on the division’s ability to provide the authoring tools necessary to create content. Led by PIE’s Duncan Kennedy, the tools group will deliver the Apple Media Kit, a multimedia authoring tool (expected to be released this summer) to content developers who create titles and software applications for multiple platforms, including Newton, Macintosh and the MPC.

In the case of the Newton, Apple will gain an immediate market advantage over its Newton hardware licensees since it will provide Newton developers the only authoring software for the device. To date, there are no tools manufacturers for the Apple PDA — only content publishers.

A royalty for run-time? Apple PIE remains undecided as to whether or not it will charge interactive publishers a royalty on every title sold that was developed with its authoring technology. Apple is not alone in its decision-making process on this particular topic. It is under consideration among many interactive media tool manufacturers today, who have begun to realize that their margin for profit is limited in comparison to the content publishers who are using their technology and selling products to what could be millions of consumers.

“It is a difficult situation,” says Wirt. “You either charge more for the tool upfront, or you charge a royalty. We just haven’t come to any final decisions on this one.” One possible scenario under consideration, which could help the small commercial publishers who are struggling to enter this nascent market, is to waive royalties until a specified number of discs are sold.

DISTRIBUTION IN STORES, BUNDLES AND ONLINE

While Apple is talking to Babbages and Circuit City as well as the more traditional computer stores, it is also planning to distribute content via its AppleLink online service, which today has a 54,000-subscriber base. The company sees it as a major asset and certainly it will appeal to individuals who frequently travel with portable computing devices.

If you were a Newton owner, for instance, and were traveling to San Francisco on business, you could download, for a fee, the San Francisco chapter of the Fodor’s interactive guide. Newton has built-in technology to receive this information from the network, according to Wirt. In fact, Apple Online Services (AOS) today provides some travel information, including hotel guides, maps and suggested scenic routes.

Try before you buy software. In addition to being able to download excerpts of titles such as the travel guide or a group of ten crossword puzzles, PIE is considering enabling AOS subscribers actually to download sample versions of various applications so that they can do a little tire kicking.

In keeping with that concept, the company is also using its hardware bundling strategy to hook consumers on a series of titles by giving them the first one “free” with the hardware. “The difference between [new media] and the music and movie industries is you get to hear the music on the radio or see a trailer of a movie — something you can sample before you buy,” says Wirt. “Today, when you buy software, you buy it. That’s it. But if I have a series, and I bundle one of the titles with the hardware and the consumer likes that title, then he or she knows what to expect from the rest of the series and will possibly buy the other titles.”

THE REALITIES OF IMPLEMENTATION

The implementation of PIE’s publishing strategy in reality has not been quite as elegant as the business model outlined here. What the group is finding is that a sound business strategy on interactive publishing does not automatically make a computer company a content publisher. It takes people who understand the publishing community and how they do business. It takes at least a few people, including some lawyers, who are experts in content.

One of the biggest complaints of some of the publishers in negotiations with PIE so far in fact is the contract, which began as a 15-page, hard-nosed Apple software developer’s contract. It is not so strange considering that the legal counsel for PIE publishing are experts in intellectual property for computer software, not interactive content. According to Wirt, the contract is down to five pages and “our act is coming together on the legal stuff.”

“The reality is, Apple hasn’t been in publishing before,” says one developer who is considering the merits of hitching his wagon to PIE. “And right now the group is not separate enough from Apple Computer for my tastes.”

That is a serious consideration and perhaps as PIE’s publishing group grows it is likely to decide to focus more on aspects of its publishing strategy — such as the distribution and affiliate label program or tools — and keep creative content development outside of Cupertino. Only experience will give the PIE publishing team, all of which are relatively new to actually developing content, a clear understanding of how to proceed.

Mining all your assets. Ironically, Apple has one of the most established interactive media liaisons and recognized electronic content experts in the industry working in house — but not for PIE publishing.

Linda Stone Neumann is the Apple employee most responsible for the wildly successful Apple Publishers Forum that drew 500 editors, writers, publishers and executives from both traditional and interactive publishing houses to a one-day seminar to discuss the business of electronic media (see Vol. 2, No. 5, p. 3). Even though she no longer works for PIE, she is still recognized today as the primary contact at Apple for many publishers interested in the interactive media market, and she is not part of the PIE group responsible for the company’s interactive publishing strategy. Instead, Neumann, who now works in the Office of the Chairman, writes white papers, consults to various groups within Apple and maintains her role as an Apple liaison to the publishing industry.

It is not clear how this division of assets occurred within Apple — answers are vague and varied among the parties involved — but it seems that PIE publishing could benefit from Neumann’s established credibility among individuals in the content community, especially now when the group is attempting to establish itself firmly as a major player in that world.

Janice Maloney