BSkyB will issue its quarterly results tomorrow and we are projecting 100,000 net new subscribers for the latest quarter. This will bring the company’s subscriber base to around 9.4 million. Sky is on course to hit the 10 million subscription mark by Q3’10, a target it set some years ago. Despite a troubled economy and diminished consumer confidence, Sky has kept growing its subscriber base over the past year. This falls in line with survey research just completed by Strategy Analytics, which showed that 89% of UK digital television consumers plan to spend “the same or more” on their television service in the upcoming year as they did in the previous 12 months. Our survey also found that, faced with the economic necessity to reduce household expenditures, only 8% of Britons would drop their pay tv service altogether; 40% would scale back to a lower tier of service, however. There has been much speculation that spending on home-based activities would benefit from the recession, and that certainly seems to be the case as far as digital TV is concerned. Twitter: twitter.com/DavidMercer_SA Client Reading: Western Europe Digital Television Forecast: 1H'09

A year ago AT&T introduced tiered broadband pricing in the US. Its main DSL competitor, Verizon, markets "High Speed Internet", not "up to 8Mbps", and also offers the following small print: "Speeds and service availability vary. High Speed Internet will be provisioned based on Verizon line qualification requirements at 768 Kbps or up to 1 Mbps (1 Mbps service); at 1.5 Mbps or up to 3 Mbps (3 Mbps service); or at 5 Mbps or up to 7.1 Mbps (up to 7.1 Mbps service)." So American DSL providers are being much more transparent than their UK counterparts by clearly stating the performance bands, ie minimum and maximum speeds. Interestingly, they also do not claim a maximum of 8Mbps for standard DSL, as in the UK, but 7.1Mbps. This supports the Ofcom research results, that no one paying for “up to 8Mbps” can receive more than 7Mbps. It’s time for Ofcom to enforce similar marketing requirements in the UK. I won’t hold my breath. Twitter: twitter.com/DavidMercer_SA Client Reading: Broadband Service Provider Performance Benchmarking: Europe Q1 2009

Only 9% of the UK’s broadband subscribers to the most popular “up to 8Mbps” service receive more than 75% of the stated maximum broadband speed (ie 6Mbps or more), according to the latest study from the communications regulator, Ofcom. On an average 24-hour basis, these customers should in fact expect to get speeds of less than half the stated maximum – 3.9Mbps. The study also found (see Figures 6.3 and 6.4) that not one respondent receiving “up to 8Mbps” service received an average speed of more than 7Mbps, and only one (a very isolated looking blue dot) received a maximum speed of 8Mbps. Chances are this was some kind of freak data point. None of these findings are surprising, of course; they merely confirm what we have suspected all along. Since the early days of this blog I’ve been railing against the misleading practice of marketing broadband data services with the phrase “up to”, since that can mean anything from 0 to the stated number. What Ofcom’s detailed technical research confirms is that customers should not even expect 8Mbps, and only a small percentage should expect more than 6Mbps. That surely is a case for the advertising watchdogs to investigate. Twitter: twitter.com/DavidMercer_SA Client Reading: Broadband Service Provider Performance Benchmarking: Europe Q1 2009

The advertising industry has been suffering particularly badly during the recession, as indicated by the parlous state of many print and broadcast media businesses. Strategy Analytics' latest advertising forecast indicates that total advertising revenues in North America will decline by 10.2% this year, after a 1.9% decline in 2008. Television managed to resist the downturn until this year, but is expected to decline 10.7% during 2009. 2009 will also be the first year of decline for the relatively new online advertising sector. After growth of 11% in 2008 we are now forecasting a decline of 3.0% in 2009. Even search advertising, the mainstay of the business, is expected to fall, driven by a steep decline in revenue per search. The only online segment which will see growth this year is web TV and video advertising, where revenues will grow 33% and which is now becoming a $1bn+ industry. This clearly reflects the explosion in web TV and video services previously documented in Strategy Analytics research. The good news is, there is plenty of room for growth in this segment as web video transfers to the big screen. While times are clearly tough for the online industry, its share of the total advertising market continues to increase, and is forecast to reach more than 17% by 2013. In the long run it may be no bad thing that online players now accept they are not immune from wider economic conditions. Twitter: twitter.com/DavidMercer_SA Client Reading: Americas Advertising Forecast, 2006 - 2013

It’s what Interactive TV always should have been. Endemol’s smash hit quiz show, 1 vs 100, is now available as a scheduled, interactive show to Gold members of Xbox Live in the UK. Although in beta phase, the service appears to be working well. I suffered one connection dropout during Friday evening’s show, but otherwise was able to participate fully, first as a member of “The Crowd”, and later as one of the hundred members of “The Mob”. Unfortunately, or perhaps not, I was not selected as “The One”. My personal background: I’m not a quiz show fan. I used to keep up with “Who Wants to be a Millionaire” in its early years, and I enjoy satirical “quiz shows” like “Have I Got News For You”, but they hardly count as the same genre. I do not go out of my way to find shows in which I can answer the questions, and had not even heard of “1 vs 100” until Microsoft told the press about its launch on Xbox Live. Some years ago, when red button services were first being rolled out across the UK’s digital TV services, early attempts were made to add interactive audience participation to quiz shows, including “Millionaire”. It was an obvious genre to target, with audiences already sitting at home shouting out answers to questions in frustration at the presumed ignorance of the on-stage participants. But the limitations of the technology, not least through the absence of broadband connectivity, meant that these early attempts were soon abandoned. It’s ironic, but perhaps not surprising, that it has taken a games console, rather than a digital television platform, to demonstrate what interactive television could eventually become. Tens of thousands of people are now participating, live and in real time, in the same scheduled “programme”, responding to questions through their games controller, seeing themselves (well, their avator at least) on the screen, and accumulating points in competition with their remotely connected opponents. The operation of the Xbox Live show is clearly heavily automated, and a few kinks need to be ironed out: the various warning notices and texts were barely legible on my museum piece of a 32” CRT TV, for example. I hope Microsoft is not assuming that every single 360-owner has their console HDMI-wired to a 1080p-capable 50” LCD. The pauses between “rounds” and their accompanying messages can also prove a little tiresome. But generally this is an extremely impressive implementation, as with so many things on the Xbox Live platform. Considering this is a beta test, we can only imagine what further refinements will be made as the show evolves. Our excitement over the technology should not cloud the inevitable doubts over business models and commercial viability. That Endemol, one of the world’s most successful independent developers, has signed up as a partner should be taken as a positive sign, although it has no doubt been suitably rewarded for its risk at this early stage. The trick, as always, will now be to get independent advertisers to recognise the value of targeting 70,000 people (a typical number of simultaneous participants in the US version) whose profiles are well known and whose attention is as guaranteed as it ever can be by scheduled programming. No fast forwarding through these ads… It’s time to reconsider the term “games console”: if Live’s current progress is anything to go by, few other gadgets will deserve the term “home entertainment centre”. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008

I won’t read too much coincidence into two recent events: 1. the news today that Microsoft is planning a rival music streaming service to Spotify on the Xbox 360 and 2. my recent breakfast discussion with Don Mattrick, Microsoft’s SVP and global head of the Interactive Entertainment Business (ie Xbox). Two weeks ago, Don had clearly not heard of Spotify when I mentioned it to him. I hope he managed to get to try out the service while he was over in Europe. According to Peter Bale, executive producer of MSN, as reported in today’s Daily Telegraph Microsoft is planning a music streaming service under its MSN umbrella, which “will be a similar principle to Spotify”, and could also make it available through the Xbox360. According to the article Microsoft’s service is due to launch by the end of this month, ie within the next couple of weeks. There are a few oddities in this report. If, as reported, Microsoft is planning to launch the service so soon, it seems unlikely that it is still working out business models, as suggested. Secondly, the company has already announced a partnership with Last FM on the Xbox360 in the US, with the service to be launched later this year. So it’s no secret that Microsoft wants to get into the music streaming business. I have no doubt Microsoft will add music streaming to the Xbox360 in Europe before long. But I suspect the decision has not yet been taken whether to use the new MSN service or to partner with other providers, or, indeed, both. But even when that decision is taken, it will take time before it's ready for rollout to the console. But Microsoft’s strategy is for the Xbox360 to become an all-round home entertainment hub, and music clearly has to be part of the mix. Spotify runs a great service, but if those two can’t do a deal, I’m sure someone else will. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008

Niklas Rönnblom, analyst at Ericsson’s ConsumerLab, recently blogged about the company’s white paper called “What Consumers Want from TV/Video Solutions”. This document discusses how television and video consumption is changing and the challenges this brings for service providers. The background assumption in the paper is, not surprisingly for Ericsson, the concern that the “managed” TV/video industry will suffer because of changes in consumption habits. A key conclusion is that this industry will not be able to respond effectively until regulations are changed to create a “level playing field” so that traditional providers can compete fairly with emerging content and service providers. Finally, the report’s recommendation is that “The goal should be to offer user-centered high-quality services that motivate consumers to stay legal; not a system or service that “forces” them to stay legal”. The paper offers a series of logical arguments to support the notion that managed video/TV services should play an important role in keeping illegal content distribution to a minimum. It even attempts to quantify the relative value of countermeasures such as “fear of getting caught” as factors in consumer decisions over which content to consume. Thus far the paper does a good job of analysing the impact of illegal content distribution on the traditional, ie legal, industry. One or two observations should be challenged, however – first, the assumption that “traditional TV distributors, as well as telecom service and content providers, are failing to satisfy consumer demand for TV/video services”. This statement will come as a surprise to successful “traditional TV distributors” such as BSkyB, which continues to report customer and revenue growth quarter on quarter during the toughest economic environment in living memory. There certainly are some traditional TV distributors which are not performing as well as others, but there are different reasons in every case, and it is certainly not always because they are not offering their customers clips from Youtube or movie sharing services. Secondly, the paper’s motivation analysis is surely flawed: the main reason people watch TV/video is to be entertained, above and beyond every other reason. Instead, Ericsson positions this as a secondary factor behind the social role of content; people discuss TV shows, and feel socially excluded if they haven’t watched them; or they make copies of these shows and give them to their friends. While these social functions clearly have some relevance for many people, they are surely secondary, even for so-called “digital natives”. Would anyone really watch a boring TV show just because they thought everyone else was watching it? Ratings data would suggest otherwise. There is no doubt that managed service providers need to continue to roll out new services such as on-demand, personal content storage (DVR), integrated communications, HDTV and 3D. But it is a mistake to think that successful providers are not already doing this. The paper’s real contention is that these firms will not be able to compete when the same content is available illegally (and free of charge) from non-managed services. The paper does not have the space to go into wider issues such as the disaggregation of access and content, and the impact of emerging advertising business models (see my recent entries from the Future of Broadcasting content for further discussion). These questions will ultimately have a greater impact on the success or failure of managed TV service providers than unauthorised distribution of content. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008

I just wanted to flag up an open (ie free) webinar we are holding next Wednesday, on the future of digital media. Topics addressed will include: • Digital media industry health check - where are we and where do we go from here? • How is the economic downturn impacting the digital media market? • Why is the Internet and online advertising structurally changing the entire media industry? • Is the web all about advertising and piracy or can pay models succeed? • What is the role of multi-play operators in an on-demand media world? The Webinar will be held at 9am (EDT), 2pm (BST), 15:00 (CET) on Wednesday, 8th July. Click here to register. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008

Another excellent session this morningat the IEA/Marketforce's Future of Broadcasting conference, representing all the key players except the BBC. The main topic of debate was the Digital Britain report (DBR), and again Sky, in the form of David Wheeldon, Director of Public Affairs, stood alone in objecting to some of the key premises of the report. Describing the study as having “some deep flaws”, he suggested that the report failed to offer an accurate understanding of consumers’ future behaviour, and that key assumptions about the public interest were based on past behaviour. It also assumed by default that the instruments of change would be “incumbents” such as the telco (BT) and the BBC, rather than alternative providers (such as Sky). Fundamentally, Sky again questionned the premise that only free content has public value, whether state or advertising funded. Instead, the DBR failed to recognise the contribution of pay television, and Wheeldon again listed the various programming investments Sky is making in the arts and drama. We also heard from Dan Marks, until last night the head of BT Vision at BT, but since this morning officially unemployed. Dan told me he was really looking forward to kick-starting the retail economy (“going shopping” were his words), and intended, once the session was over, to do no more talking about the broadcasting or broadband industries. And who can blame him? So with his BT hat partly off, Dan broadly speaking gave the perspective of the public service player, which covers both the BBC and BT, since the latter is presented as the natural partner for ensuring delivering of universal broadband service. “Broadcasters will have to cooperate increasingly with telcos to manage the broadband spectrum” as it evolves into a fully fledged new medium for delivering interactive and television services. Sky “does not challenge the concept of the licence fee, but its scale and distribution”, according to Wheeldon, but it clearly has a fight on its hands as government policy responds to the recommendations of the DBR, and in its battle with Ofcom over control of wholesale pricing. I suppose it’s inevitable that these high level discussions are characterised primarily by two divergent sets of opinions. The history of UK, and indeed European, broadcasting, has been built upon the premise of free access for the whole population to a minimum level of television content, and based on government controlled access to wireless infrastructure. As we move into the era of broadband television, supported by new communications technologies and a plethora of potential new business models, these assumptions are inevitably going to be challenged. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Devices Global Market Report

The final session this morning explored the emergence of online television services such as the BBC’s iPlayer and Hulu. Many of the audience saw Hulu demonstrated for the first time and were clearly impressed. Hulu is now reaching around 40M users a month in the US and looking towards international expansion for its next growth opportunity. Johannes Larcher, Hulu’s Senior Vice-President, International, indicated that the UK was clearly the first priority and that the company “is talking to everyone”, without naming names. He suggested news of Hulu’s arrival in the UK would come “not too far in the future”. The Q&A session brought up the question of the differences in the UK and US broadcast regulatory environments which apparently allowed Hulu (owned by Fox, Universal and, now, Disney) to launch without problems, and yet Kangaroo in the UK, a similar venture, was blocked by the regulator. One audience member pointed out that, although only two of the US majors were the original partners in Hulu, and therefore had a relatively low market share, historically the US has blocked many previous attempts by the Hollywood studios to join forces in various ventures which involve distribution of their product. It was therefore “surprising” that Hulu has been able to go ahead, particularly with Disney now becoming a partner. It was suggested that it might only be a question of time before Hulu did come under the US regulatory spotlight because of its exclusive access to first run online content. In the UK, meanwhile, the BBC’s Anthony Rose suggested that whatever new services arrived in Europe, the rights issues would always be complex and will determine success or failure. He also indicated that Project Marquee, which will make iPlayer technologies available to other public service broadcasters, is currently being reviewed by the BBC Trust with a decision scheduled for mid-July. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008